Government agencies move the dial on income, asset and employment verification
The mortgage industry learned some valuable and painful lessons from the financial crisis of 2008. First, we learned humility. Then, we began to concentrate on areas of improvement to begin repairing a severely deteriorated mortgage origination process. Along the way, we’ve learned to embrace change, improve our consumer communications, repair and re-earn the respect of key stakeholders and focus on a better path forward with modern technologies and advanced data assets.
Regulators and legislators spent the past decade focusing on building a more robust set of rules to protect consumers and mortgage investors. For starters, Congress passed the Dodd-Frank Act and created the Consumer Financial Protection Bureau (CFPB) — policy decisions that consumed the housing industry for several years. Financial services innovation was NOT yet in full swing, in part because all excess capital was being invested in compliance and risk management. We closed a painful chapter by tightening lending standards around assessing borrower ability to pay. With the crisis-era litigation mostly behind us, our industry can now regroup and strategize to avoid any repeat of the errors leading to the greatest financial crisis since The Great Depression.
There is general consensus in the industry that now is the time to drive toward a much-improved financial services ecosystem. Historically, our legacy systems, entrenched interests and industry “norms” have posed barriers to change and have slowed development and adoption of new innovations. However, the GSEs and notable companies such as Quicken Loans began to lead our industry forward at a time when most players had their heads down. In 2016, there was a significant shift as digital mortgage, artificial intelligent (AI) and point-of-sale (POS) technologies started creeping into the conversation. We finally saw a real e-closing after two decades of merely talking about e-signatures and e-closings.
Initially, it was the GSEs that moved the dial forward, making key progress in advancing technology, workflow and improved digital processes to effectively level the playing field while in conservatorship. They rolled out initiatives like “Day One Certainty” and embraced process improvements like automated asset verification, both big steps forward for improving the mortgage origination process. It has been heartening to see FHA and VA also embrace automated verifications. It may seem small to some observers, but this is a powerful advancement in how we understand each borrower’s financial DNA. Eliminating the need for borrowers to present bank statements became the first in a series of building blocks restructuring how we think about the loan origination process.
Why do we care?
Today the government agencies account for approximately 70% of all mortgage originations, while balance sheets and private placements (PLS) account for the remaining 30%. Across the board, these investors are embracing positive changes in the origination process, which is, in turn, prompting lenders to start re-ordering their workflows to make greater use of digital mortgage processes downstream. For example, quality-control vendors can tap digital asset reports and avoid having to track down several sets of bank statements. This is also the start of a slow unraveling of outdated cost structures, delivering iterative value to the origination chain of processes by eliminating redundancies that are no longer required. We must remain relentless in our pursuit of eliminating legacy costs in the lending system.
Digital data and smart automated verifications result in 1) lower fraud; 2) fewer defects; 3) shrinking origination costs; and 4) increased consumer satisfaction! A winning combination.
That is why we care — and we should consider taking this moment to thank the leadership of the government agencies for advancing the digital mortgage cause. Their adoption of policies embracing use of automated verifications and direct-source data moves our industry forward and scales opportunities for all lenders, consumers and investors who desire a more efficient lending model. And not a moment too soon! As reported in recent MBA studies, costs to originate a mortgage now exceed $8900. Clearly that is an untenable, unsustainable business condition. Our industry’s imperative is to eliminate a substantial amount of that cost and drive more access to credit. Guided by the example of automated verifications and smart data integration, we must be steadfast in continuing our advances toward mortgage transformation benefiting all stakeholders.