NMP - October 2016 - 90

Five Rising Trends in Home Loan Origination By Jim Mortensen hat do borrowers tend to think about when they consider the loan origination process? Unfortunately, it is often the paperwork and stress. As lending becomes more competitive, lenders are striving to change this perception-but that has to begin by changing the process as borrowers know it today. Modernizing the loan origination process is not only a must to accommodate borrowers' expectations; shifting to automation can also translate into significant resources savings and risk reduction for lenders. As lenders prioritize the consumer's experience while balancing the need to improve efficiencies and mitigate risk, there are five rising trends they should consider. W OCTOBER 2016 ■ /BUJPOBM.PSUHBHF1SPGFTTJPOBM.BHB[JOF ■ NationalMortgageProfessional.com 90 Trend #1: Industry recognition of process inefficiencies Outdated and inefficient steps in the home loan origination process have a tangible effect on a financial institution's profits and success. The Quarterly Mortgage Bankers Performance Report from the Mortgage Bankers Association (MBA) found that inefficiencies in the home loan origination process drove total loan production expenses to $7,747 per loan in the fourth quarter of 2015, compared to $7,080 per loan in the third quarter of that same year. In addition, data from the financial institutions included in the report showed that production profits dropped by more than 60 percent, from a net gain of $1,238 per loan to $493 per loan across the two quarters. If you look closely at the various stages of origination, it is hard to argue with the fact that one step in particular is costing lenders significantly in time and resources: Asset search and verification. This stage is also typically the one borrowers recall as a hassle and creating delays; the responsibility to locate and present paper documents and bank statements is usually anything but enjoyable. And, while borrower frustration has always been an issue, lenders today are spending millions of dollars on this process alone. They can no longer attribute drastic shifts in profit and expenses solely to economic shifts or fluctuation in loan volume- these factors are in large part related to inefficient, manual and paperbased processes. More lenders are realizing this fact and striving to make a change. Trend #2: Millennial homebuyers demand convenience and technology Borrowers depend on the convenience and efficiency of technology, especially Millennials, who now make up the largest share of homebuyers. These digital natives simply will not accept a process that requires them to locate and submit multiple paper documents to secure a loan if there is another option. Accenture's 2015 North America Consumer Banking Survey revealed that when selecting a bank, Millennials consider online banking services a key offering. They'll certainly be just as choosy-if not more so-when seeking a lender for their home loan. In a 2015 J.D. Power Survey, 68 percent of customers responded that they were asked to provide additional documents after completing the application process, and 48 percent were asked to provide the same document more than once. And, in the same survey, more than a third of millennial respondents stated that they would be willing to pay more for faster loan processing. Knowing that Millennials prioritize speed and efficiency over brand loyalty, lenders are wisely turning to technology to make this possible. By identifying advanced solutions capable of leveraging collaborative bank intelligence to collect asset information directly from financial institutions rather than asking borrowers to present the information, lenders have a key opportunity to satisfy millennial borrowers and shift consumer perception of the home loan origination process. Trend #3: Fraud is only increasing In addition to perpetuating a burdensome situation for consumers and lenders alike, outdated, manual methods create risks for lenders as well as the government-sponsored enterprises (GSEs) that may purchase the loan down the line. Fraud and financial misrepresentation can much more commonly occur when borrowers present their own asset information. CoreLogic predicts that 2016 could reach the highest mortgage fraud risk since 2010. In addition, the FBI reports that mortgage fraud remains a top priority in investigating whitecollar crime in the United States, and there is no shortage of fraudsters to be caught. Consider one example of a recently closed case: From 2005-2013, two men in Pennsylvania orchestrated a massive fraud scheme that cost local banks almost $13 million. There is no denying that all financial institutions feel the impact of loan origination fraud, but for community banks, the impact can be devastating. The cost of fraud alone is enough for lenders large and small to change how they go about the asset verification process. With the right solutions that gather data from the source-the financial institution-lenders can cut criminals off from this activity and dramatically reduce their risks. Trend #4: Rising uncertainty for GSEs The inherent risk of fraud also makes it more difficult for investors and GSEs to repurchase a loan down the line. Today, 85 percent of the 8.7 million loans originated in the U.S. are later repurchased by GSEs, and in 2015 alone, GSEs' combined activity reached approximately $85 billion. Outdated, manual steps such as paper-based evidence of assets used in loan origination processes, only increase the uncertainty that investors face when they consider buying a loan. If lenders rely on systematic, automated processes for obtaining asset verification data from the source, GSEs can access the exact same data and thus, have a high level of confidence as they make repurchasing decisions. Trend #5: Automating asset search and verification This trend might be a solution to all the rest, and it is important to reiterate the growing role that automation has in origination, and in particular, the asset search and verification stage. Solutions that simply speed up the process will not suffice. Automation isn't just about speed. Data accuracy and quality are crucial to originating strong loans, as well as preventing fraud. Many automation solutions simply expedite the process on the front end through screen scraping and data aggregation, but data gathered in this way puts online credentials at risk and can lead to the underlying data being used for unintended purposes. Lenders are replacing these systems in favor of technology that merges the need for speed with the need for collaborative, shared data. Lenders have many priorities to balance-that will likely always be fact. However, these trends focused on modernizing the origination process and the methods of gathering asset verification data signify a large step toward their ability to check off multiple boxes at once. As competition continues to rise from non-traditional lenders and customers demand a high-tech, efficient process, lenders that invest in updating their asset search and verification processes can effectively address several objectives, from reducing fraud to transforming the borrower experience. What may appear as a single, small aspect of the entire loan origination process in many ways represents lenders' biggest opportunity to positively impact their businesses and their borrowers. Jim Mortensen is vice president of the Identity Solutions product line for Early Warning, responsible for developing and delivering new identity solutions, as well as managing their overall product lifecycle. Previously, Mortensen oversaw new product development and enhancements for all product lines, which included leading related business analysis and project management functions. Mortensen joined Early Warning in 2009, with 20 years of financial services leadership experience. Jim may be reached by e-mail at Jim.Mortensen@EarlyWarning.com. http://www.NationalMortgageProfessional.com

Table of Contents for the Digital Edition of NMP - October 2016

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