TheMReport — News and strategies for the evolving mortgage marketplace.
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COVER STORY Surge Protectors A What strategies can lenders utilize now to maximize the opportunities and minimize the challenges as the refinancing rush continues? s the market for mortgage refinances heats up, lend- ers face multiple challenges: dealing with a largely unexpected ramp-up in volume, reducing or at least maintaining costs, and complying with increased government oversight and regulation while at the same time not sacrificing efficiency or—more important—credit risk. Decades ago, both Fannie Mae and Freddie Mac—as well as other lenders and mortgage insurers—de- veloped various forms of automated underwriting systems, all designed to give borrowers a quick answer for the most basic applications. The concept of using automated tools has become more significant and necessary as pools of experi- enced underwriters have diminished— or perhaps those pools have declined because of technology and not as a response to it. In either case, as rules have become more complex and more difficult to navigate—and need has increased— there aren't as many underwriters as there used to be: down from nearly 360,000 in October 2005 to 208,000 in April 2012. When the Great Recession hit in December 2007, there were 292,000 underwriters. And, as both mortgage lenders and borrowers continue to strive for speed, economy, and accuracy, the financial industry has emerged as a leader in embracing technology with mortgage lending at the forefront. The basic mortgage process consists of numerous steps and generally takes about 30 days to complete. While each step has the potential to take substantial time and require significant documentation, each step also presents an opportunity for technology. The lender that can improve cus- tomer service, speed up the lending process while decreasing costs as- sociated with it, simplify compliance with federal and state regulations, establish a disaster recovery process, and improve accuracy and efficiency would gain a distinct competitive advantage. With technology, all of this is possible. Both the reduction in implementation cost and the return on investment make it an option to seriously consider. With a good electronic document management (EDM) system, all of these goals can be attained and more. Getting Organized According to Al Verkuylen, SVP, title and closing executive at Lender Processing Services of Jacksonville, Florida, lenders face a major chal- lenge in managing the volume of refis generated by both low—and still fall- ing—interest rates and modifications to the government's Home Affordable Refinance Program (HARP), sometimes referred to as HARP 2.0. Organization, Verkuylen says, is critical. "Unless a lender has built the technology infrastructure and scaled to manage the workflow and vendor component required for HARP 2.0 execution, the lender may have difficulty getting HARP loans completed," Verkuylen said. His company, he stressed, offers tools to allow lenders to "electronical- ly connect, collaborate, and automate business processes with partners, vendors, and settlement service providers" and to address "the title and closing service . . . the primary product required under HARP 2.0." Instead of a manual, paper-based system, organizations can automate their processes and replicate them electronically to expedite the steps they are performing manually," ac- cording to DocFinity, a developer of business-improving products and services, headquartered in State College, Pennslyvania. "This can even extend to automatically launching workflows when a new document, image, or object enters the system and requires action by one or more employees. Workflow processes can be used for signatures, approvals, ini- tiating further processing, and more." In the mortgage process, accord- ing to DocFinity, "the loan proces- sor can bundle all of a borrower's information together electronically and flow it in its entirety to the un- derwriter. Then, if the underwriter determines that more information is needed, it can be sent back to the loan processor with the request." Parting Ways with Paper One of the other advantages of an EDM system is that it replaces hard cop- ies with electronic information so that employees involved in the lending pro- cess are able to search for and retrieve information faster. Many EDM systems also provide the ability for employees to work remotely over the web, accessibil- ity that results in less time spent shuf- fling paper copies between the loan officer, loan processor, and underwriter. "The title and closing industry," Verkuylen added, "offers technology solutions which provide good faith estimates fees to lenders, which pro- vide the ability to cure title defects and generate HUD1s in a timely manner." And, he added, "there are technolo- gies available that allow consumers to access and sign disclosure and loan documents online." Hello, HARP 4.0? As lenders and borrowers get ac- customed to HARP 2.0, HARP 3.0 is already in the works. HUD Secretary Shawn Donovan recently testified before the Senate Committee on Banking, Housing and Urban Affairs to address concerns about the effectiveness of HARP 2.0, as well as proposed legislation in line with President Obama's plan to "Help Responsible Homeowners and Heal the Housing Market." Since the launch of the original Home Affordable Refinance Program (HARP), Donovan said, more than 14 million homeowners in America have gotten refinancing on their mortgages The next phase, known as HARP 2.0, was implemented to pinpoint the barriers that were preventing certain people from refinancing. In March of this year, financings were more than double what they were a year ago across the country—and more than triple in the hardest-hit states. With FHA refinancing fees set to be reduced, the number of HARP applica- tions should increase even more. And it doesn't end there: Another phase of HARP may be in the works, pending several pieces of legislation designed to make refinance and equity building available to all responsible borrowers. THE M REPORT | 25