Magazine article Mortgage Banking

A Better Way Forward

Magazine article Mortgage Banking

A Better Way Forward

Article excerpt

As numerous industries still work to recover from the credit crisis and related fallout, no one faces a more difficult uphill battle than mortgage bankers. The lending environment they inherited after this tumultuous period is marked by significantly reduced loan volumes and profitability. Loans must now be put through an even more complicated and regulated process, with reduced flexibility on credit approvals.

The crisis brought on new, stricter regulation in response to the numerous loans that have been and will continue to be subject to repurchase demands due to lenders' quality-control errors.

Existing origination processes are still full of hidden land mines continuing to explode when investors scrutinize loans with a fine-tooth comb. These explosions are the net result of poor quality-control capabilities that continue to haunt lenders.

The complexity of the consumer-lending process can often lead to guesswork, rework; missteps, process errors and unnecessary rechecking by the many knowledge workers who can be involved in processing each loan. In addition to the bottom-line impact, lenders are now faced with significant additional operational safeguards to eliminate the errors and sins of the past.

As institutions race to increase their share of lending, they are burdened with these new requirements that, while well intentioned, also increase costs and lengthen timelines in the process. The industry woes have also produced a demand for an unprecedented level of transparency.

All of these factors together create a fundamental need for a transformational shift in how lenders resolve operational quality-control challenges, increase transparency and quickly implement changes to capture a limited market. But amid all the confusion and uncertainty, there are advanced technologies to provide lenders with what they need to hurdle these challenges.

Legacy modernization with BPM

In order to stave off manual errors and get a better grasp on how to best comply with new regulations, lending organizations should automate critical processes to better ensure the accuracy of each loan. Advanced business process management (BPM) technology has been widely adopted across most industries, with one glaring exception--the mortgage business.

In the wake of the credit crisis, lenders are returning to more conservative underwriting standards using older systems to more thoroughly underwrite each loan. This prompts the loan process to slow dramatically, because these systems impose data-centric, paper-based, labor-intensive processes.

Given a series of high-profile failures of enterprise loan origination system (LOS) implementations, chief information officers tend to focus on making sure most of a bank's information technology (IT) spending goes to maintaining and upgrading complex systems that are already in place--essentially the ones that "keep the lights on."

This is compounded by specialized applications that are often needed to solve specialized problems. This means that high-performance technology addons required to give legacy systems more automated functionality have to be delivered on a modular basis. While these solutions may help modules perform well, they serve limited departmental functions.

This raises the question of what quality-control automation currently exists to allow for the automation of processes, tasks and decisioning that will have a direct impact on eliminating operational and credit-policy defects. …

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