End-to-End Electronic Mortgages Still Years Away

An end-to-end electronic mortgage is probably still several years away, but mortgage lenders and services can still benefit by automating their documentation and communication processes before that time, according to Neal Keene, vice president of industry solutions for London, U.K.-based Thunderhead.
 
Keene discussed end-to-end electronic mortgages and other mortgage documentation issues at the Mortgage Bankers Association (MBA) National Mortgage Servicing Conference & Expo here in San Diego this week.

Government agencies, such as county assessors, will need to add electronic processes before an end-to-end electronic mortgage becomes a reality. Legal issues regarding digital signatures, fraud prevention and other issues will have to be addressed in more detail before the end-to-end electronic mortgage becomes a reality, Keene added.

"The [mortgage] industry will be making a lot of improvements before that happens," said Keene, whose company provides a platform for the creation of personalized documentation and communications gaining rapid adoption in the banking industry, as well as securities, insurance and government. The Thunderhead platform enables business users rather than IT to manage communications templates over various channels.

"Lenders can get immediate payback in cost reduction by automating the communications aspect of their business," Keene said. Examples of these include notices communicating that a loan has closed, an application is pending approval, an applicant’s income verification has arrived, or there is a discrepancy of some type. These notifications will keep customers from needing to get that information from more costly branch or agent-assisted contact center channels.

Automating documentation and customer communication also can improve revenue, Keene said. "Something like 40 percent of applicants leave the process between the time they start the initial application and the expected loan closure. Maintaining customer communications via SMS messaging, e-mail or telephone, depending on the customer’s preference, would sharply reduce the percentage of dropped applications," according to Keene.

As proof of the benefits, Keene points to the example of a Michigan-based lender using Thunderhead to automate its document generation processes. Three months after converting to the Thunderhead platform, the lender was able to sharply reduce the amount of time needed to make document changes (terms, law changes, etc.). A full-time employee had spent his entire time making those changes with the old system. With the new arrangement, only 20 hours a month are required to achieve the same results.

Now that the Thunderhead platform is handling document generation, this lender has not only been able to eliminate bottlenecks, it has also expanded to handle similar needs for other lenders. In the year since implementation, its loan volume has increased 6 percent, even while the number of applications fell 13 percent.

Though some lenders have re-engineered many core operations to support more electronic movement of data throughout the mortgage processes, lenders’ documentation and communications methods will still have to support paper, Keene added. Even if the lender has gone to electronic processes throughout the enterprise, other parties in the mortgage process, such as government agencies and third-party insurers, may still be paper-based. While waiting for those outside parties to catch up, mortgage lenders should seek to improve their business processes. In so doing, they can continue to squeeze inefficiencies out of the process while improving customer relations through better communication. Using a document-generation platform that supports electronic communications and all data formats as well as paper, they can communicate using their customers’ preferred channel, while ensuring that all compliance needs are met.

Compliance, specifically, proper notification of a mortgage’s terms and rules, was brought to the forefront again this week when Kansas City, Mo.-based NovaStar Financial reported a loss of $14.4 million, extending the problems in the sub-prime market. Some regulators have blamed part of the sub-prime market’s problems on documentation with confusing terms. Keene pointed out that a large percentage of sub-prime borrowers have limited financial educations.

Only a few years ago, sub-prime mortgages represented only 5 percent of the market, but that figure has grown to more than 26 percent, Keene said, so any fallout can have more of an impact than it once would have had.

Any large fallout would likely mean that federal or state regulators would require documentation changes so that consumers would have a better understanding of loan terms, Keene said. For example, some adjustable rate mortgages have low teaser rates, but don’t let a borrower prepay. When higher rates kick in, some borrowers have no longer been able to make the payments and have defaulted.

With an automated documentation system, a lender can better address new documentation needs, Keene added. It’s much easier to make changes electronically than to keep paper documents on hand that would have to be destroyed if regulators change disclosure rules.