Digital mortgage solutions are proving to be valuable tools in facilitating collaboration with fewer compliance pitfalls than tradition mortgage transactions.
PromonTech and Pavaso are two companies with similar philosophies regarding the benefits of facilitating collaboration in the mortgage process, but with different areas of focus.
PromonTech promotes lender-borrower collaboration at and leading up to the point-of-sale (POS) of a loan as part of its broader mission to generate more accurate, reliable data that becomes critical to carrying out the rest of the mortgage process and to ensuring compliance. The company has designed its BorrowerWallet POS system to account for how the rise of digital mortgages is changing power dynamics between borrowers and loan officers.
“In the traditional retail lending experience, the loan officer really controls the speed and cadence of the process,” PromonTech Chief Technology Officer Michael Kolbrener told Dodd Frank Update. “When we make that process digital, the borrower starts to control the speed and cadence.”
Pavaso brings all permissible parties of a mortgage transaction together on one digital portal. Once there, lenders, settlement agents, attorneys, notaries and borrowers can work securely through the minutia involved in completing a real estate transaction more efficiently than using the traditional method.
“By bringing them together the way we do, it allows for a smoother experience, a more educated buyer and a more efficient process,” Pavaso, Inc. Senior Vice President of Sales Dan McGrew said.
The more THEY know
Kolbrener stressed the importance of borrower education. He explained that it is essential that borrowers are informed about the general principles around credit profile qualifications to be prepared for the residential loan journey.
With that in mind, he expressed concern over mortgage marketing campaigns creating the misconception that getting a mortgage can be much easier than it is. These campaigns, he said, are misinforming prospects, while doing little more than engaging in lead generation.
Kolbrener noted the numerous scenarios that can arise, causing a mortgage transaction to become much more complicated than the average person may realize. An open line of communication between the loan officer and the borrower is critical to the borrower’s understanding and ultimately, the mortgage outcome.
“A transaction might involve someone buying a second home; buying a home with a spouse or another couple; a buyer who is self-employed; a buyer with trust income; with real estate-owned income and liabilities,” he said. “And when you start to add those characteristics to the lending process it gets much more complicated. It’s harder to qualify the borrower’s income, assets and debt.”
To achieve the goal of educating borrowers, Pavaso offers the ability for lenders and title companies to include educational material to the borrower and provide information about terminology and various documents involved in the mortgage process. Borrowers can direct questions to their lender and title company through a secure communication function built into the platform. It also provides video demonstrations of the process.
“It can take the apprehension away when people get to the actual closing because they know more,” McGrew said.
Speed is king
The ability to review documents and ask questions prior to closing, increased customer confidence combined with certain automated signing innovations can provide a closing in as little as 15 minutes with Pavaso.
“That’s substantially different than not reviewing the documents and spending an hour-plus in front of a settlement agent with an inch-and-a-half of paper,” McGrew said.
The fact that Pavaso’s portal allows for settlement agents to participate alongside the other parties to a transaction, is a major contributing factor to reduce time and gain better efficiency during the process, McGrew said.
Compliance comes first
Overall, Kolbrener said his company and its sister company, Promontory Fulfillment Services (PFS) move compliance as close to the point-of-sale as possible – being careful to integrate and rely upon best-of-breed components to perform the functions when and where they are supposed to.
“People will ask us, ‘Where is the best point in the process to create a Loan Estimate?’ We prefer for the LOS (loan operating system) to do the Loan Estimate because we’re not always ready to do a Loan Estimate at the POS stage,” Kolbrener said. PromonTech focuses on improving compliance by creating higher quality data from originations through the secondary market.
“Understanding the compliance requirements of the lending process is key to our approach,” Kolbrener said. “Our approach has three driving forces – design, data and compliance. Good design allows us to attract and absorb better data from our customers. Better data allows us to deliver a more-compliant loan.”
Along with principal and interest rate calculations, PromonTech also is able to factor in correct title fees, utilizing a partnership with OneFeeSet, owned by MortgageCTO LLC. With the title fee information Kolbrener and his team access through OneFeeSet, they are able to calculate an accurate annual percentage rate (APR), free of guesswork.
“So when you think about the challenge of maintaining compliance at various stages of the process, we have to be able to communicate compliant pricing and fees to borrowers as early as possible,” he said. “Technology solutions should all aim to ensure information being presented to a loan officer or a borrower is complete. We’re not just saying we made a pricing call and we’re doing our best. We’re really saying, ‘This is a fully thought out price.’ And the borrower can feel like they are getting trusted feedback.”
As technology continues to shift the relationship dynamics involved in a mortgage transaction, it’s also shifting compliance, Kolbrener explained. As borrowers gain more control in the process, lenders often find themselves having to make real-time adjustments to keep up.
“There are some frictions in the process about how to manage for certain variables to stay in compliance,” he said. “For instance, if you don’t have a purchase agreement yet and don’t know your subject property, that creates a different compliance responsibility than if you do know your subject property.”
Having a former top Consumer Financial Protection Bureau (CFPB) attorney, Colgate Selden, as Head of Regulation and Compliance for PromonTech and PFS is a point of pride, Kolbrener noted. Selden helped stand up the CFPB and was involved with several of the Dodd-Frank Act rulemakings undertaken by the agency, including TRID, Loan Originator Compensation, ATR and HOEPA. Moreover, he was the team lead at the CFPB for responding to TILA mortgage, privacy and FDCPA inquiries received from Congress, industry and consumer groups.
If you build it, they will come (and stay)
Among the main strategies of technology providers is to essentially be a Swiss army knife of mortgage solutions, giving customers little reason to look elsewhere for specific services.
It is this approach that led Pavaso to build its own remote online notarization (RON) solution, in addition to offering hybrid closing.
“We designed it because we want the lender to live in Pavaso,” McGrew said. “We don’t want the lender to only be able to use us for one thing. If they want to do RONs, we want to be able to offer them that.”
He explained the value of including all parties in the RON process, including settlement agents and loan officers, and how the company has taken into account all of the professional relationship dynamics in play.
“Just as we engage settlement agents at the beginning of the transaction, we do the same with RON,” McGrew said. “What we’re doing there is, if you looked on a screen, you’d see the borrower’s face and the settlement agent or the closing manager from the title company’s office. And they’re actually going to be the ones doing the transaction and notarize it and close it. So, why’s that important? Well, the title company feels like that borrower is also their customer, which it is, and that they are responsible for that relationship. So we say if that settlement agent or closing manager feels that way, we want to include them in the RON transaction.”
If a lender stipulates that a specific notary must be involved in the transaction, Pavaso’s RON system still allows the settlement agent to be involved in the process as an observer/participant, McGrew said.
“That way, the settlement agent would still have a voice if the borrower had a question about a document or there was any confusion,” he said, noting this helps to prevent a delay in the closing.
Most of the closings in the industry today are hybrid closings, those in which all documents are signed electronically except the note, security instrument and the deed, McGrew noted.
Pavaso is equipped to facilitate eNotes, which is when the note is signed electronically and then eVaulted. “To do an eNote, you’ve got to have an electronic platform, a SmartNote and an eVault,” McGrew said. “We have the ability to support those so that the lender would just need one digital close platform.”
When a lender comes to Pavaso expressing interest in starting to do hybrid closings with the intention of eventually progressing on to doing a full digital close, Pavaso’s team will work with them to get them set up with everything they need to do to get started.