What Lies Ahead?

It’s easy to say what’s on your mind. I do that here every month. So, let’s switch it up. This time I wanted you to read about what real industry thinkers say about the state of mortgage lending. So, let’s get started.

Abhinav Asthana, solutions manager at LOS vendor Wipro Gallagher Solutions, started things off by saying, “TRID or “Know Before You Owe,” “is designed to help consumers understand their loan options, shop for the mortgage that’s best for them, and avoid costly surprises at the closing table.” Unfortunately, borrower trust remains at lower levels today. It is the hope that these new rules prompt borrowers to re-engage with lending institutions.

“However, re-engaging the borrower and rebuilding trust requires more than just compliance. In order for the mortgage industry to evolve and unleash their full potential, it must look beyond the burden of regulation, consider the essence of the CFPB’s initiatives, and see the full potential of placing the borrower at the center of the lending process. Financial institutions need to do more than adhere to regulations, they need to incorporate design thinking into the process.

“In the post TRID environment, the mortgage industry has a huge opportunity to refocus their business strategy and ground their approach to lending with empathy for borrower which will ultimately lead to competitive advantage. There is a big opportunity for lenders to bring three important things together:  provide all the information that the borrower needs to have before they decide to close their loans, enable the right amount of borrower engagement, and, use design thinking to rebuild what was lost during the crisis: TRUST.”

Asthana pointed out that, “Borrower TRUST is achieved with an exceptional borrower experience which requires a disruption in the way banks “design” their lending businesses – it centers on people, process and technology. Many perceive that design is about making products more attractive. However, the root of design pertains to making products more functional and friendly.  Today, many use the term “design thinking” which is a creative process that span entire organizations, driven by the desire to better understand and meet customer needs. When a business embarks on design thinking, it requires their firm commitment to challenging the status quo. For mortgage lenders and banking institutions that have suffered through archaic processes and technology, the application of design thinking is long overdue.

“It is time to think about mortgage lending from the perspective of the borrower, design a vision with the borrower in mind and use the tools available to bring that vision to life.  The good news is that lenders have an opportunity to follow the path that TRID has set and proactively capitalize on digital trends. Greater adoption of digital in the mortgage space offers a symbiotic benefit; a connected borrower will not only want to receive timely information from the financial institution but also be willing to use digital channels to provide timely information and documents which will improve lender timelines and productivity.  This could be the rise of the new world of lending. TRID should not be looked upon as a burden but should help banks and lenders rebuild trust and digital tools will reinforce the lender’s commitment to ensuring a convenient, simplified, and differentiated experience.

“That said, rebuilding trust through digital technology needs to happen fast to keep the customer’s business. With dwindling margins and growing costs, traditional financial institutions are now facing a problem: their digitally-driven customers are drawn to the new world of FinTech bank. Design thinking will help lenders compete in the new age of technology and address the ever growing expectations of the “millennial borrower.”

Pramod Karachur, of mortgage servicing vendor IndiSoft, added, “The mortgage industry has taken a huge jump in 2015. The much talked about and debated TILA-RESPA Integrated Disclosure (TRID) went into effect and every stakeholder now has to be compliant. However, according to what Richard Cordray, director of the CFPB, told Congress, there will be a delay in enforcement of this rule. This gives companies a much needed grace period before the CPFB starts enforcement. That said, 2016 should be the year the CFPB will start auditing companies for TRID compliance.

“In 2015, the CFPB worked with industry experts on HMDA reporting as the agency expects that HMDA reporting needs to be streamlined and the appropriate data is collected should be more relevant in any decision making by regulatory agencies such as the Federal Reserve Board. There will be even more of a push in 2016 by companies to be compliant with TRID and other regulatory requirements, including the newly updated HMDA rule.”

John Walsh, CEO of LERETA LLC, noted, “In my view 2015, was a mixed bag for the lending industry. Despite a somewhat slow start, the year turned out to be relatively strong for originations with mortgage originations of $1.45 trillion per the latest MBA forecast. The refinance market remained solid throughout the year, and the purchase market continued to slowly gain momentum.  Weighing down these positive trends is obviously the on-going regulatory pressure and the increased cost on lenders, vendors and borrowers of tighter compliance. Notable among this last trend was TRID and the pressure and cost it imposed on all of the aforementioned. We’re also seeing a growing trend of lenders outsourcing more business functions to mitigate risk, regulatory cost and fixed costs.

“Two trends will be noteworthy to watch in 2016.  First, many if not most lenders are looking to the purchase market as an opportunity for growth.  It seems clear that the new focus on the purchase market – either from firms that have not had a purchase focus during the last few years or from firms that are materially increasing investment in the purchase market – will significantly exceed the current growth in the market now forecasted to be about 10%. It will be interesting to see how this dynamic changes the origination mix between community lenders, independent lenders and large lenders. Probably most fascinating will be to see which lenders are successfully attacking the purchase market based on an internet strategy versus the traditional loan officer model.

“The second interesting trend will be to look at how the cost of compliance affects the servicing market.  Estimates of compliance cost on total servicing costs vary widely, but we’ve spoken with lenders who say that compliance has added more than one third to their total servicing cost.  The effect of this increase won’t be entirely evident within 2016, but that kind of added cost, with limited or no ability to offset the cost on the revenue side, should have a real impact on how lenders look at servicing as stand-alone businesses or as in conjunction with a lending operation.”

Tim Anderson, director of e-Services at DocMagic, Inc., a member of ESRA, concluded, “2015 will definitely be known as the Year of TRID. In my 30 plus years in this industry, I have never seen a reg (real or perceived) impact an industry as much as Know Before You Owe did. Lenders, vendors, title agents, systems, relationships and workflows were completely changed and disrupted and the ripple effect to verify compliance by investors is just beginning to be felt. This reg delayed for at least a year any new system enhancements, innovations, changes or upgrades while lenders prepared for the August 1st and then October 3rd effective date. But one of the good things that resulted out of this was the development of closing collaboration platforms that now for the very first time provide online collaboration between the lenders system of record and title systems of record to exchange data and documents to ensure compliance prior to closing. This along with Director Cordray’s commitment to see eClosing as his #1 initiative; we will begin to see serious movement and implementation projects in 2016 to support this. Fannie and Freddie’s continued loan quality initiatives to verify compliance of the data prior to closing and the implementation of the new Uniform Closing Dataset (UCD) will push the advantages to support a complete electronic process even further.  I predict 2016 will be the Year of implementing “e” with 2017 seeing mainstream volume and adoption by some major players…..finally!”

About The Author
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

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