The mortgage business is increasingly reliant on technology. For many companies, the most cost-efficient way to increase their tech capabilities is by partnering with a third-party provider, but they don’t always know how to identify the best one to serve their needs.
Armando Falcon, CEO of Falcon Capital Advisors LLC and former director of the Office of Federal Housing Enterprise Oversight (now FHFA), spoke with Dodd Frank Update about vendor management and how his firm helps companies find the best third party providers for them, as did Falcon Managing Director of Digital Mortgage Services Camelia Martin.
As part of its business advisory services, Falcon Capital Advisors helps both private companies and government agencies identify the right technological tools and providers to complement their digital mortgage initiatives.
“One of the things we’ve been helping Ginnie Mae with, for example, is their modernization initiatives,” Falcon said. “One of the big initiatives is a pilot to support the acceptance of digital collateral as part of its MBS program.”
Martin, who has been heavily involved with the Ginnie Mae initiative, advises the firm’s clients to view the integration of digital mortgage capabilities as a “process re-engineering exercise” rather than a technology project.
“For digital mortgage adoption initiatives, my advice is to start with the process,” Martin said. “Everyone naturally focuses on the technology when it comes to digital mortgages. But you really need to understand your existing business processes first and how they will change. That’s how we determine what technology needs you might have.”
With the ever-increasing emphasis being placed on eMortgage capabilities, Martin said it is important for companies to resist the urge to go overboard.
“It’s important to understand how ‘e’ you can be and how that fits into your broader strategic objectives,” Martin said. “With so many technology providers in the market, it can be an overwhelming process to identify the right provider for your organization. You don’t want to end up implementing something and then trying to build a process around the technology. You want to identify the process changes and then select the provider that supports that process.”
Some technological advancements have become more universal than others. A common trend among companies is a willingness to be more open with their data, given developments that allow companies to share information more securely and efficiently.
One such mechanism for secure data sharing between companies is application programming interface (API) technology. APIs are fast becoming integral to many companies’ processes, allowing them to quickly share data between servers without the need for complex and time-consuming system integrations.
Falcon emphasized the importance of APIs in allowing for more openness in the marketplace that had been curtailed in the wake of the financial crisis.
“One of the compliance angles that I think is interesting regarding digital mortgages is when you look back at what happened after the financial crisis,” Falcon said. “There was a lot of due diligence around loan files as the government investigated what went wrong with subprime mortgages. That led to all kinds of False Claims Act investigations, and lenders were having trouble finding loan files. And when they did find those loan files, many were missing key documents.”
The prevalence of incomplete and missing loan files negatively impacted mortgage investors who found themselves unable to enforce their legal rights in certain situations, such as the event that a loan became delinquent and the creditor decided to foreclose.
“With the use of eNotes and other electronic mortgage documents, many of these risks are eliminated,” Falcon said. “That’s because eMortgages inherently lead to more accurate and complete loan files. It is virtually impossible to lose an eNote. eClosing platforms prevent issues like missing signatures and a lot of due diligence and quality control processes can be automated. As the adoption of eMortgages continues to progress we should see less compliance and enforcement issues the next time there’s an economic downturn.”
Although eMortgages help prevent compliance issues, some elements pertaining to digital mortgage processes are not receiving the right amount of attention, Martin said. She pointed to eNotes as one crucial example.
“eNotes enable significant operational efficiencies, but there are also a number of processes that are different and need to be accounted for. It’s important to take the time to understand and integrate these differences into policies and procedures,” Martin explained. “Nearly every process where a paper promissory note is replaced with an eNote is impacted in some way. Understanding these fundamental differences is key to a successful implementation effort and all teams – including sales, operations, risk, and legal – should have a seat at the table.”