Optimizing the Loan Production Equation: Practical Strategies for Producing Higher Quality Loans Faster Mortgage lenders are more concerned than ever about loan quality. A heightened focus on loan quality and compliance has led to greater loan production costs and has significantly lengthened loan turn times. The industry needs a new equation one in which lower-cost, automated processes throughout the loan lifecycle speed turn times while leading to better loan quality on the back end. This white paper explains how the combination of best practices with the right document and data management platform enables mortgage lenders to overcome the industry s biggest challenges. www.capsilon.com
The industry needs a new equation one in which lowercost, automated processes throughout life the loan lifecycle speed turn times while leading to better loan quality on the back end. Mortgage lenders like you are more concerned than ever about loan quality. According to a survey conducted at MBA s Annual Convention and Expo 2014 in October, 80 percent of the mortgage executives polled are very concerned about loan quality and 84 percent had already begun preparations to meet the requirements of the Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosure Rule (TILA-RESPA), which take effect on August 1, 2015. 1 How times have changed. It used to be about increasing loan volume and gaining market share. Today, it s more about making sure your loans are of the quality that can withstand the scrutiny of investors and government auditors alike. Unfortunately, a heightened focus on loan quality and compliance has led to greater loan production costs for mortgage lenders, and has significantly lengthened loan turn times. In the same October 2014 survey, 80 percent of mortgage lenders said they plan to spend somewhat more or significantly more on compliance-related activities in 2015 versus what they spent in 2014. This survey data is consistent with recent Mortgage Bankers Association (MBA) data that reports total loan production expenses increased to $6,932 per loan in the second quarter of 2014 versus $5,818 per loan in the same period a year earlier an increase of 19 percent. In short, mortgage lenders like you face many challenges in our new mortgage landscape. In this white paper, we ll outline the best practices and specific technology capabilities that will help you overcome these challenges. The New Equation for Higher Loan Quality, Faster Turn Times, and Lower Costs per Loan. For lenders that use traditional labor-intensive processes, producing a profitable loan is a balanced equation: you must move each loan quickly through its lifecycle while ensuring quality but you can t spend so much on ensuring quality that you squander your profits. The industry needs a new equation one in which lower-cost, automated processes throughout the loan lifecycle speed turn times while leading to better loan quality on the back end. You can produce higher quality loans at a lower cost by moving to a data-centric model in which technology automates much of the process. Here are some specific ways to optimize your equation for loan production by simultaneously reducing your turn times and increasing your loan quality. 1 Capsilon. Capsilon Survey Reveals That Four out of Five Mortgage Lenders Are Very Concerned About Loan Quality. October 28, 2014. www.capsilon.com 2
With the right solution, you can reduce the time it takes to onboard a loan by as much as 80 percent. Start off right: Use Automated Document Recognition to streamline onboarding. Successful onboarding is all about speed and accuracy. Your team must be able to receive loan documents quickly and easily, regardless of how they are submitted. You must identify the documents you receive quickly and name them consistently. You can t afford to waste time re-naming documents, collating them, and figuring out what s missing. You also need to monitor the elapsed time that loans spend in this first stage of the onboarding process. Gaining the level of speed and accuracy you need to stay competitive is a matter of using the right document imaging and management system. Look for a solution that lets you upload loan documents through email, fax, or FTP. The documents should be converted immediately to digital images. The right technology goes beyond optical character recognition (OCR) and will be able to recognize most standard mortgage documents and then automatically, name, sort, and file them to the correct loan folder. With the right solution, you can reduce the time it takes to onboard a loan by as much as 80 percent. Rather than having an operator inspect, identify, and name each loan document that comes into your company, you can automate this timeintensive activity while improving your company s overall accuracy. Change your viewpoint: Use an intuitive interface that allows side-by-side document viewing. As you re working your loans, your operators are racing against the clock to make sure each loan package has all the components it needs, while checking for accuracy. Your team needs technology that is responsive, and with a user interface that works the way they do. This is where your document viewing capabilities can make or break your ability to process loans efficiently. Rather than wasting precious minutes toggling between various PDFs and opening multiple windows waiting for the image you need to load your team can use the right solution to access documents quickly and review and compare documents side-by-side. When you view documents side-by-side, you can easily compare different versions to determine what changes were made and when. With continuous scrolling of images, your team can jump from one document to the next without stopping to open additional documents. They can also easily identify which documents are inside a file and which are missing with automated checklists. In addition, automatic alerts can help keep your team informed about what information they ll need to gather or verify before closing a loan. www.capsilon.com 3
When everyone has real-time access to the same versions of documents, confusion and miscommunication are eliminated, communication is streamlined, and issues are identified and resolved more quickly. Share documents securely: Collaborate in a centralized workspace. The more parties the loan processing cycle involves, the more complex it becomes and the greater the risk of significant delays or errors due to miscommunication. You can minimize these risks by using a document management solution that allows you to share documents easily yet securely with the stakeholders you choose. Your solution should provide your extended team including authorized third parties with a centralized, secure workspace that s designed for real-time collaboration. Within this workspace, all participants can maintain access to the loan documents they need to expedite the loan process. Issues can then be resolved quickly because everyone involved will have immediate, real-time access to the documents in question. You ll be able to ensure security of data without hindering productivity by providing each participant with access to only the documents they need to see. When everyone has real-time access to the same versions of documents, confusion and miscommunication are eliminated, communication is streamlined, and issues are identified and resolved more quickly. The days of I emailed that to you yesterday and sorting through emails to find what you re looking for can be a thing of the past. Rather than sorting through emails looking for the piece of information you need, all relevant communications are part of the secure workspace, which makes it easy to find what you need, and to determine if it was indeed sent. This results in faster loan processing, shorter time to money and happier employees and partners. Minimize stare and compare : Extract data automatically. As we ve mentioned, increasingly stringent regulations have made loan quality more important than ever. But one of the biggest time- and budget-wasters in mortgage processing is the practice of having staff members or outsourced staff visually inspect loan documents for errors and discrepancies, and stare and compare across multiple documents. A good document and data management solution will provide automated data extraction (ADE) technology to extract your most critical loan data for validation and use in evaluating loan quality. Once you determine which fields from which documents you need for your loan evaluation, the solution will automatically recognize the data you need for your analysis, extract the data, and transform it into Mortgage Industry Standards Maintenance Organization (MISMO) data types. The data will then be ready for consumption by rules engines. You can easily view all extracted data in context, and maintain links between the extracted data and its www.capsilon.com 4
original location in the source document. You can see all of this information on a single screen, with the actual document on the left and extracted data on the right. The right technology can help you move loan quality to the forefront of your loan processes. You can run your extracted data through rules engines or checklists to provide immediate notification of any discrepancies that stray from your preestablished parameters. This way, you can take corrective action before it s too late. And since quality control is automated, you can check 100 percent of your loans, not just a small sample. Use your best people well: Assign work strategically and improve quality with validation queues. One of the main drags on productivity for large mortgage lenders is the fact that loans often stall for hours or even days as everyone waits for a staff member to complete a specific task. And if a person is out of the office unexpectedly, the file languishes until they return. Part of the problem, of course, is that highly valuable employees are often saddled with unnecessary lower-level work and can t devote an appropriate amount of time to the loan packages where their expertise is needed most. This situation has implications for loan quality, too an overworked senior decision-maker should be looking more closely at complex loan packages, or packages that have exceptions that need their expertise, not straightforward loans. Validation workflow queues can help you eliminate bottlenecks like these. The right document and data management system will allow you to assign employees to a validation workflow queue that reflects their area of expertise and level of authority in your organization, so they can validate loan quality at select stages in the loan workflow. Using validation queues, a higher-level employee can be assigned to deal only with exceptions and escalations, while the other queue members handle the more routine cases. As loan packages travel through each queue, they ll be routed to the employees who are best suited to address and verify their quality. For example, once a loan file undergoes indexing, you might use an Indexing Validation Queue to ensure quality. You assign staff members who are skilled at indexing to this queue, and only members assigned to this queue can perform the validation. If an exception is identified, the work item can be escalated to a queue member with a higher skill level, or higher level of authority. Queues help you improve loan quality, and better leverage your staff, by better matching experience and skill level to the task at hand. www.capsilon.com 5
And if someone is out of the office, another member of the queue can pick up their work and move it along. By deploying validation queues, you can eliminate stalled loan packages, accelerate your pipeline, and bring out the best in your entire staff. The best document and data management solutions go beyond simple audit trail functionality by preserving the original source of truth and providing the ability to link back to the original document submitted. Finish strong: Deliver complete loan packages with one click. When you re packaging loans to deliver to investors or government-sponsored enterprises (GSEs), finding and assembling the right documents and putting them in the right order can be time-consuming and error-prone. Although today s processes move much more quickly than in the paper-based era, they often don t move quickly enough to support increasingly tight deadlines. Difficulty finding the right documents delays the process, and packages are often rejected because of missing or incorrect documents. And because lenders don t receive confirmation that the investor or GSE received an acceptable package, uncertainty is the norm. The right solution will automatically select the right documents for packaging according to preset packaging checklists that conform to the investor s or GSE s guidelines. It will automatically alert you to any missing documents, and notify you upon acceptance by the investor or GSE. You should also be able to package multiple loans in one delivery and send this bulk delivery with a single mouse click, which will save time and minimize the chances for human error. The ideal solution will also notify you once each loan delivery is opened and accepted by the investor or GSE. Thus, loan packaging and delivery will be faster and more accurate, which will improve your standing with the investor institution. Cover your bases: Preserve a single source of the truth. Most loan origination systems (LOS) provide an audit trail but not a very useful one. It s one thing to be able to see who made which changes, and when. But as values stored in the LOS are changed and overwritten, it s impossible to identify the original source of truth. And with multiple versions of documents, it becomes difficult to answer simple questions, such as, Which W2 was used to make the funding decision? The result: loan quality suffers. The best document and data management solutions go beyond simple audit trail functionality by preserving the original source of truth and providing the ability to link back to the original document submitted. With a complete contextual history for each document including status, notices, and actions you have a complete audit trail, all while maintaining links to the original documents. Even if a data value has been changed, you can always link from the data field back to the original www.capsilon.com 6
source data on the source document. So you can be confident in your lending decisions, and loan quality is improved. And when an auditor or regulator is at your door, you ll be thankful that you chose the right solution. Your company is under increasingly stringent legal requirements to keep customer data secure while hackers are becoming increasingly more sophisticated in their efforts to steal this data. But What About Security and Scalability? No discussion of document and data management solutions would be complete without addressing two simple facts: 1. You must keep customer data secure. 2. Your business will most likely grow and change over the next few years. Meeting the Security Challenge Your company is under increasingly stringent requirements to keep customer data secure while hackers are becoming increasingly more sophisticated in their efforts to steal this data. A security breach or data leak can not only damage your brand, but also leave you subject to heavy fines or even put you out of business. A good document and data management solution should build security into all aspects of its system application design and operations. Here are some characteristics to look for: > Data centers located in Tier-3 co-location facilities. > Environmental protection and access restrictions, such as matching 5-finger biometric patterns. > A production environment that is physically and logically isolated from all other environments. > HTTPS/SSL encryption for all network access and traffic. > Network protection using real-time intrusion protection and detection technologies (IPS/IDS). > Multiple secure production monitoring facilities monitor the production environment on a 24/7 basis. > Full compliance with regulator y requirements such as Federal Financial Institutions Examination Council (FFEIC) guidelines for multi-factor authentication, Gramm-Leach-Bliley Act requirements, and Dodd-Frank regulations. > Securing of items at the document level. > The flexibility to configure the system to allow access to personally identifiable information (PII) for only the specific roles you select. www.capsilon.com 7
Addressing the Scalability Challenge What will your business look like a year from now? The future could hold mergers, acquisitions, or expansion into different markets. Your volume could grow as the housing market continues to recover. No matter what direction you go, your document and data management solution needs to be able to scale easily to support growth. Imaging processes such as conversion and document recognition are serverintensive processes, and some solutions slow to a crawl as volumes increase. You can t afford to wait for images to load or to render. And you don t want your IT team to purchase and maintain expensive new infrastructure components every time you need more capacity. You ll want to choose a multi-tenant cloud-computing platform that is proven to scale to meet the needs of some of the largest lenders in the country, not only in terms of number of users, but also in terms of the number of documents processed. The right solution will extend scalability across all dimensions, including servers, storage, networks, power, security, and manageability. If the solution is delivered in the cloud with a modular architecture, it will be able to scale to your needs. That way, you ll be able to concentrate on growing your business, not juggling hardware. www.capsilon.com 8
Get More Done with the Same Staff. A tighter mortgage market doesn t have to mean declining business. The mortgage lenders that can improve loan throughput while increasing loan quality and reducing loan production costs will be the ones that thrive in the new mortgage environment. Capsilon DocVelocity is designed to help lenders like you produce higher quality loans in less time. With DocVelocity, you can close more loans at a lower cost of production and just as importantly, without running afoul of increasingly stringent regulations. Unlike general-purpose document imaging systems that have been adapted to the mortgage industry, DocVelocity is built from the ground up to address the needs of leading mortgage lenders. With DocVelocity, you get: > Greater productivity and faster processing times. > Greater transparency into the loan process, with no more black holes. > Better quality loans. > A smoother ride as loan volumes increase. Learn more about overcoming the challenges lenders face in today s evolving mortgage landscape by downloading our recent ebook, 8 Ways Mortgage Lenders Can Survive & Thrive in 2015. You can also call our experts at 800-660-7183 or email us at info@capsilon.com. Capsilon Corporation 55 Second Street San Francisco, CA 94105 Tel: 800.660.7183 Fax: 800.574.5833 Email: info@capsilon.com About Capsilon Corporation Capsilon provides comprehensive cloud-based document management solutions that enable mortgage lenders and investors to increase productivity and lower costs, while ensuring compliance. The company s flagship product, DocVelocity, is an imaging solution that provides document capture, collaboration, delivery and retention, eliminating the inefficiencies inherent in paper-based processes. Capsilon serves many of the mortgage industry s most innovative lenders, including two of the 10 largest residential mortgage lenders in the United States. For more information, visit www.capsilon.com. 2014 Capsilon Corporation. All rights reserved. Capsilon and the Capsilon logo are trademarks, and DocVelocity is a registered trademark, of Capsilon Corporation. All other marks are the property of their respective owners. www.capsilon.com