Magazine article Mortgage Banking

New Roles for Rules

Magazine article Mortgage Banking

New Roles for Rules

Article excerpt

In the April 2006 issue of Mortgage Banking, CC Pace contributed an article on rules engines ("Why Should I Care About Rules Engines?") that provided an introduction to rules and rules engines, a brief history of their use in the mortgage industry and a framework to understand the rules engine products available in the marketplace. The article focused on mortgage origination--primarily around mortgage product eligibility and pricing, automated underwriting and workflow--as that was where rules technology was most commonly being applied in the industry at that time.

Times have changed, and so has the use of rules engines. So in this column, we wanted to focus on different areas where rules engines currently are being used by servicers, counselors and mortgage insurance (MI) companies.

To recap briefly, business rules are the tenets, terms and conditions that govern how we do our work. Examples would be "fees cannot be greater than 5 percent of the loan amount" or "when a loan is 'in trouble,' it is routed to the workout department." Rules underlie most of our daily decisions if you were to look for them.

A rules engine is a specialized piece of software that is designed specifically to manage and process business rules and logic efficiently. Rules engines make systematizing decision making easier by allowing business rules and associated logic to be cataloged and configured rather than embedded into code. The rules and logic defined within the rules engine are generally easier to understand and maintain then, when that same logic is expressed within procedural system code.

With a rules engine, business analysts can often maintain the rules and associated business logic without the need for programmer assistance, contributing to a more streamlined maintenance process with a lower resource cost. Implementation of a rules engine is therefore often a cost-efficient solution for many organizations.

Rules are also a way of disseminating best practices across the enterprise in a consistent manner and empowering line-level employees, as the system provides the support system to make decisions. Rules engines also provide a mechanism to use historical information to manage the process and the resultant decisions, in the way that the best automated underwriting systems leverage statistics on loan performance and triage loans accordingly.

Today, rules are being written to consider factors well beyond the basic program guidelines. Home values, declining markets and other property data are being used by the rules engines to appropriately route and process loans. This allows organizations to better leverage in-house appraisers or property reviewers and produce a higher-quality loan, ensuring a full file review is completed based on the specific loan characteristics, current status and respective geographical area.

Loans are directed to the appropriate level of underwriter for review and analysis, ensuring that higher-paid, more-qualified underwriters are focused on the more-difficult loan cases, while the lower-level underwriters review the loan files that are more straightforward and simpler to underwrite. The end result is a more efficient use of resources, with lower staffing levels needed to process more loans.

New uses in servicing

As the marketplace has changed, rules engines have allowed lenders to quickly implement controls to reflect their changing business strategies. The rules that were initially put in place by lenders are routinely reconfigured and supplemented to support new loan products or change the way loans are processed.

Dependence on rules-based technology is growing, and the use of rules engines has also expanded within the industry. Rules are now being written and implemented at more points in the loan's life cycle and within different industry players, reflecting the changing focus of the industry in addressing the credit crisis and related loss-management activities. …

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