By Trevor Gauthier
Accepting growth in technology and automating now, can help in the future.
There's a common statement that talks about the futility of doing the same thing twice and expecting a different outcome. My hope in penning this article is that the reverse mortgage lending professional docs not get caught up in this trap. What do I mean? Well, let's start by looking at what has happened in the world of forward lending.
When the market crashed, what did forward lenders do? Did they innovate? No. Did they think proactively about the future? No. They went into what can best be characterized as batten-down-the-hatches mode. They chose to do nothing and ride it out. That strategy was far from successful.
What happened next? The government stepped in. New regulations entered the space that literally changed how business was done. And let's face it, new regulation is still flooding the space. These developments escalated the headaches for forward lenders to what I would call migraine status.
Take the Mortgage Disclosure Information Act (MDlA), which was instituted to protect the borrower. The law stipulated what has to be disclosed and when. After the proper disclosure happens there are time frames as to when the process can progress after disclosure. In reaction to this new piece of regulation, forward lenders adopted electronic disclosures.
With electronic disclosures, the lender knew exactly what was disclosed, when the borrower opened the disclosure, when the borrower signed that disclosure and so on. The lender had a full audit trail proving that they adhered to the new rules. Despite all of the advantages of e-disclosures, it took the MDIA for forward lenders to look at and adopt this technology. Today, e-disclosures are finally becoming mainstream, but at what cost? The technology is not new. Further, when you think back, can't lenders benefit from a legally enforceable, quick and efficient process no matter what market conditions are? We all know the answer to that question.
The problem in all of this is the inactivity of forward lenders to look for and plan to meet the challenges of tomorrow. Ignoring problems doesn't make those problems go away. For example, for anyone that has had a migraine, you know how painful they can be. Why bring on more pain? The goal should be to move to a pain-free place. How is this achieved? You make sure that you're not only prepared to meet the challenges that exist right now, but also that you are prepared to meet future challenges. Fast-forward to what's transpiring in the forward lending world today, and you'll see almost the same scenario. It's fine to preach about the need to be proactive, but forward lenders should have been ready for today's record-low rates, a mini refinance boom and an increase in activity.
This should be welcome news for forward lenders, but it's not turning out that way. Why? Because when forward lenders had an opportunity to rethink how they do business, and take a second look at their process, they chose to do little to nothing. So, what resulted from this? Forward lenders now have more regulations to deal with, more volume to handle and no new or more efficient ways to accomplish this.
How does this relate to the reverse mortgage world? Reverse lenders today find themselves in a similar situation that forward lenders found themselves in after the crash. How so? Volume is stagnant and new regulation is expected. The difference is that reverse lenders have an opportunity to do things a bit differently as compared to their colleagues in the forward world.
We know that new regulation is coming as well as that volume will once again increase. So, do reverse lenders copy forward lenders and do nothing, or do they take this time to innovate? If reverse lenders follow the lead of forward lenders, it's hard to see a different result for the world of reverse mortgage lending after new regulation hits and volume increases. Proactive lenders. heck, proactive companies in all business sectors, are always looking ahead and preparing for the future. Now is the chance for the proactive reverse mortgage lenders out there to look ahead and be ready for better days to come.
To take a step back, it's great to say that reverse lenders should take this time to be proactive, but many reverse lenders reading this right now might wonder how to execute on that principle. They may be asking themselves, "Where do I start?" As these concepts are digested, it is important to understand the importance lending solutions can play in significantly reducing risk by providing reverse lenders with advanced technology, commitment tracking, business workflow, as well as industry knowledge and expertise that provides a comprehensive and streamlined approach to mandatory live pricing and delivery. It is important to have a solution that puts reverse lenders in a position to minimize risk and optimize market opportunities, while competitively pricing reverse loans to the broker base.
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Another common mistake is that when lenders look to solve problems or adjust their process, they sometimes narrow in on one problem or one fix. Now is the time to evaluate your entire business and look at it holistically.
In terms of meeting the challenge of new regulation, we have already seen HUD issue Mortgagee Letter 2010-34 on September 21, 2010, announcing a second option for the Home Equity Conversion Mortgage (HECM) Program. FHA designed HECM Saver as a second initial mortgage insurance premium (MIP) option for the purpose of lowering up front loan closing costs for mortgagors who want to borrow a smaller amount than what would be available with a HECM Standard. For all HECM case numbers assigned on or after October 4, 2010, mortgagors may select either HECM Saver or HECM Standard with a resulting UFMIP.
This Mortgagee Letter provides policy guidance for HECM Saver and HECM Standard by describing the amount of initial and monthly MIP, the availability of all existing program features for both options, how to calculate initial MIP due on HECM refinance transactions, how to access new principal limit factor (PLF) tables, changes to FHA Connection, and how to manage pipeline loans. This Mortgagee Letter also reiterates HUD’s long-standing policy of requiring mortgagees to adapt the legal documents as necessary to ensure compliance with the program requirements.
To overcome the new requirements and lack of expertise for reverse lenders to engage in mandatory live pricing strategies, lenders are turning to true Enterprise Lending Solutions. Why? At their core, these solutions reduce risk while achieving an improved return for correctly tracking and delivering loan commitments.
How do these types of systems reduce risk? Leveraging this technology, reverse lenders can successfully meet the requirements to engage in live pricing and significantly improve their commitment tracking and delivery success rate by incorporating comprehensive technology and data analytics to address these challenges. Technologies employed include comprehensive pipeline and commitment tracking as well as effective rules-based analysis, automated workflow, extensive real-time management tools, and comprehensive vendor experience with commitment tracking, delivery and secondary marketing activities.
Automated workflow is central to your next big decision regarding your core technology solution. The solution should ensure both data and document driven workflow. Automated messaging, document generation and distribution, task queuing with auto-resolution, real-time management monitoring, and visibility should all be standard with any enterprise solution. Fully integrated document imaging and tracking combined with industry knowledge and expertise can lead to a more streamlined approach.
The technology provider should have extensive forward and reverse expertise. As the reverse mortgage industry is transitioning itself to the secondary market model that exists in the forward business, reverse can no longer rely on technology vendors whose experience is limited solely to the reverse-side of the business. Reverse lenders need to engage and interact now more than ever with a vendor that has the knowledge and experience to help guide them through this significant change in reverse lending.
As reverse lenders take this time to think big, be proactive and innovate, they will be rewarded for their efforts. How so? By finding a solution that provides superior technology on one comprehensive platform. This is important because lenders should seek a solution that provides full end-to-end loan management functionality for both forward and reverse lending, which includes commitment tracking, pipeline management, automated decisioning, business rules management, product and pricing, data driven workflow automation, as well as electronic document management.
A system of this kind will also allow the reverse lender to be more data-driven. Too often, lenders are driven by paper. The issue is that paper brings with it its own set of problems. Was that paper altered? How do you tell? In a data-driven environment, you know everything that happened to that loan. What exactly does that mean to the lender? Having one centralized location for maintaining rules, security, products, and workflow is key to workflow automation. This eliminates problems of synchronizing multiple systems, thus reducing the time required to add products, change processes, and adapt to the competitive landscape. It also provides the ability to quickly and easily access data required by your customers. The solution should offer sophisticated data-driven workflow automation (powered by a robust Rules Engine) including auto-resolution capabilities that greatly improve efficiencies, mitigate the need for additional training, and deliver a significant increase in employee productivity and customer service.
Technology can provide a helping hand in order to transition a reverse lending operation away from paper in favor of data and have those principles continue throughout the entire workflow of a loan. Easier said than done, you might think, but with the right system, it is just that easy. Your future solution should include advanced electronic document management and imaging. You should look for a solution that can capture any document from anywhere, utilize Optical Character Recognition (OCR), efficiently index and store documents, automate events, actions and data analysis, retrieve specific documents for specific tasks, and view and annotate documents. This creates an electronic audit trail, eliminates re-keying of data and ensures greater data quality and consistency.
Why did I bring up the example of how forward lenders dealt with similar circumstances now working their way toward reverse mortgage lending? As I said earlier, reverse lenders can't do the same thing that forward lenders did, which is basically nothing and expect a different result. I also bring forward lending into this conversation because it is important for reverse lenders to understand that their business does not exist in a vacuum.
Reverse lenders looking to stay ahead of the curve should find a company that will partner with you for the long-term. Look for one that understands the full spectrum of industry issues in both forward and reverse, as well as offering the best mix of solutions to meet the needs of your business. The company should provide consulting, technology implementation, training, support, and in-depth industry expertise. Experience and expertise in dealing with mandatory live pricing on the forward side provides great insight, best practices and proven solutions that are ready for market now. Don't risk working with a reverse vendor that is learning the ropes along with you; your business is too important to take that type of risk.
As reverse lenders look ahead, the best time not only to automate but also to genuinely rethink how the business of reverse lending is done is today. Now is the time. Look for and invest in a solution that can achieve all of your needs today and far into the future.