Mortgage Compliance in the Digital Era

Transcription

1 Mortgage Compliance in the Digital Era The webinar will begin at the top of the hour. You may download the presentation at:

2 M ortgage Compliance in th e D ig ital E ra Thank you for attending. The webinar has started.

3 Housekeeping Asking Questions Downloading Materials QuestSoft.com/DigitalCompliance Technical Difficulties GoToMeeting Support Line Survey and Free Gift Disclaimer!

4 Today s Panelists Garth Graham Senior Partner STRATMOR Group Leonard Ryan President QuestSoft Corporation Moderator Scott Mortenson Marketing Director QuestSoft Corporation

5 About Leonard Ryan Leonard Ryan is the founder and president of QuestSoft Corporation. He has been associated with the mortgage industry for over 30 years and, for the past 23 years, being a major compliance software leader. He is a frequent speaker at mortgage software and regulatory compliance conferences. Mr. Ryan has been named twice to Mortgage Professional America s Hot 100 list of Mortgage superstars (2018 & 2016). In January 2017, he received a Vanguard Award from Housing Wire Magazine. He also is recognized as a MBA Tech All-Star for his visionary work in the area of mortgage and lending compliance. His company, QuestSoft, serves over 2,600 banks, credit unions and mortgage lenders and has received over 20 awards during the past four years including the top award for any vendor, the Lenders Choice award. Recently QuestSoft was named Top Innovator by Progress in Lending in recognition of its Compliance RELIEF software for its advanced availability to customers ahead of the recent HMDA changes. QuestSoft is currently rated the 10 th best small business workplace to work in Orange County, CA and has been recognized as a top workplace in the region for four of the past five years.

6 Who Am I? Garth Graham heads STRATMOR Group s marketing strategy and execution practice, which focuses on lead generation and lead management methods and practices primarily for the consumer direct and retail mortgage origination channels. Garth has over 25 years of experience in sales and marketing, ranging from Fortune 500 companies to successful startups, including management of two of the most successful e-commerce platforms. As an executive with ABN-AMRO, Graham authored the five-year strategic plan that led to the successful $9 billion sale of the mortgage company to Citigroup in March Graham was a founder of the executive management team at mortgage.com, and led the company through its dramatic expansion in the late 90s and successful IPO in 2000, before its ultimate sale to ABN AMRO. Mortgage.com originated the first mortgage through the Internet in 1997 and was the original platform for the Quicken and Microsoft mortgage initiatives. Graham s regular columns in National Mortgage News and American Banker are widely read. He has been quoted extensively in industry periodicals, resulting in over 40 million press impressions over his career. Graham studied Economics and Computer Science at the University of Virginia and has completed Six Sigma Champion and Green Belt Training. 6

7 Mortgage Compliance In The Digital Era Thursday, September 6, 2018 Leonard Ryan President

8 Digital Mortgage Evolution 8

9 9 Digital Mortgage: A Serious Topic

10 Originations 1990 to % % % % Source: Mortgage Bankers Association - March , % 7.9% 7.8% 7.6% % 1, % 1, % 25% REFI 1, % 2,243 1, % 2,854 1,757 > 50% REFI 3, % 6.0% 6.0% 6.5% 6.5% 6.2% 3,027 2,773 2,726 2,424 1,515 1,508 1,327 2,532 1,464 1, % 5.4% 4.5% 1,995 1,698 1,436 1,331 1, % 4.0% 4.2% 3.9% 3.9% 3.6% 2,044 2,051 1,845 1,710 1,630 Refinance Volume ($B) Purchase Volume ($B) Average 30-yr Rate 5.4% 5.4% 4.9% 25% REFI 1,712 1,610 1,645 1, , , ,097 1,280 1,309 1,512 1,399 1, ,052 1,110 1,172 1,250 1, E 2018E 2019E 2020E 10

11 Rising Mortgage Origination Expenses Production Expense ($/loan) Costs continually rising since 2010 with retail over $7,000 per loan Costs have increased an average of $427 or 8 percent per year since 2010 Production Expense (Direct Expense) is all costs from pointof-sale through closing Production technology is system expense to support the origination process (LOS, CRM, Docs, Closing, etc.) ,158 1, ,403 3,107 3,178 3,402 Retail Sales and Marketing Exp - $/Loan Retail Fulfillment Expense - $/Loan Production Technology 151 1,733 3, ,759 1,836 4,254 4, , ,086 4,841 5, Fcst Fcst Retail Sales and Marketing Exp - $/Loan Retail Fulfillment Expense - $/Loan Production Technology Source: PGR: MBA and STRATMOR Peer Group Roundtables 11

12 Tight Profit Margins Only 10 Percent of Revenue 2017 RETAIL CHANNEL Sales Expenses Marketing Expense Fulfillment Expenses Production Support Corporate Overhead 16% 25% 16% 13% 15% 12% 11% 6% 17% 3% 10% 5% 17% 11% 22% 2% 2% 12% 11% 6% 6% 5% 20% 19% 3% 2% 11% 5% 10% 10% 5% 19% 21% 2% 2% 47% 42% 43% 46% 48% 51% 51% Source: PGR: MBA and STRATMOR Peer Group Roundtables 12

13 The top 40 Percent Of Loan Originators = 80 Percent of Industry Volume Retail productivity Per LO averages nearly 10 loans per month for the top 20 percent, and then substantially for each decile The bottom percent are very unproductive An increase of 25 percent in productivity for the two tiers (~ 2 loans per month) would fully offset the entire bottom 60 productivity Source: STRATMOR Originator Census Avg Age Total Population Monthly Production per FTE Equivalent Annual Avg Production per Originator Origination Units % of Total Monthly Production per FTE Equivalent Top 20% ,653, % % to 40% ,093, % % 40% to 60% , % % to 80% , % 1.8 Bottom 20% , % 0.8 Overall ,000, %

14 Age of top vs bottom producers very similar Monthly Production (Units) per FTE Equivalent % of Total Company Originations ($) Turnover % Top 20 Percent Originate Nearly 60 Percent of the Volume Turnover is over 90 percent in the bottom 20 percent of originators, and well over 50 percent in the bottom 40 percent Women are lower attrition and higher tenure. Source: STRATMOR Originator Census Total Population Avg Tenure in Years Avg Age Top 20% % 4.5% % to 40% % 10.8% % to 60% % 21.8% % to 80% % 51.3% Bottom 20% % 91.1% Overall % 28.7%

15 Expected Timeframe Did the Loan Close in Expected Timeframe? STRATMOR surveyed 150,000 closed loan borrowers in the past year Satisfaction ranked 100 point scale Net Promoter Would You Recommend? Promoters (9/10) less Detractors (1-6) Source: STRATMOR MortgageSAT 15

16 Customer Satisfaction Dramatically Impacted by Turn Times Purchase Service Levels Only 20 percent of the time closes in less than 30 days Customer satisfaction is MUCH lower when turn times are > 45 days Net Promoter Score (NPS) drops dramatically losing the promoters Source: STRATMOR MortgageSAT 16

17 Closing Costs Did the Loan Close at Expected Rates and Fees? Only 11% of the time did it NOT but major hit on satisfaction Note, this is from CONSUMERS perspective, and may be escrow or other cash to close items Best Practice: Be sure borrowers KNOWS costs before closing Source: STRATMOR MortgageSAT 17

18 Borrower Requirements Get the Checklist Right Borrowers were substantially less satisfied when asked for Docs not on the original checklist Mitigate this risk with bettertrained LO s. Best Practice: look into dynamic checklists and a more digital experience Source: STRATMOR MortgageSAT 18

19 Technology Expense Per Loan Has Gone Up! Large banks, who mostly have custom built technology solutions, spend over $1,000 per loan for large banks (Avg Volume of $35B, and over 150k loans!) Independent Mortgage Bankers, and Smaller Bank lenders spend an average of ~ $300 - $500 per loan Mid-size Banks and Large Independents have seen their per loan costs nearly double over the past year. 1,500 1,250 1, Production Technology + Corporate Technology $ per loan originated Large Banks Mid Size Banks Large Independents Mid Size Independents 1, Source: PGR: MBA and STRATMOR Peer Group Roundtables 19

20 The Obvious Conclusion. It s almost IMPOSSIBLE for a lender to spend TOO MUCH money on Technology IF the ROI is delivered Source: FOX The Simpsons 20

21 Digital Mortgage Defined: The World According To Garth 1. The ability to interact with the consumer across all potential interaction methods (Web, Text, , Mobile, Chat and Voice) in the way they want to interact. EN GA GE AND TR US T 2. The ability to generate DATA to support the loan file RATHER than documents (less stare and compare). Source: Garth! 21

22 DIGITAL MORTGAGE 22

23 Adoption of Digital Mortgage Survey Structure and Analysis Approach The results represent sample of 200 top companies. The survey asked lenders the level of adoption for 28 unique capabilities across four functional areas: 1. Communication with Borrower Interactions 2. Application and Approval Capabilities 3. Loan Processing Capabilities 4. Closing Capabilities Source: STRATMOR Technology Insight Survey 23

24 Lenders are pursing Digital for Borrower Experience The Top three benefits involve aspects of customer service: 1. Increased Borrower Satisfaction 2. Faster Cycle Times 3. Automated Workflow Three bottom perceived benefits more direct to the company s bottom line: 1. Reduced Repurchase Risk 2. Lower Fallout 3. Reduced Commission Source: STRATMOR Technology Insight Survey 24

25 Lender and Vendor Opportunity Easing the Difficulties of Integration The top perceived barriers for Digital mortgage are lender not consumer issues: 1. Costs 2. Getting LO to change 3. System Integration 4. Internal IT Capabilities Source: STRATMOR Technology Insight Survey 25

26 Adoption Borrower Communications Majority of lenders do not yet have strong capabilities for Consumer Preference Only 52 percent of lenders have an ENTERPRISE level CRM system GENERAL COMMUNICATIONS WITH BORROWER CAPABILITIES In Production (Live) BORROWER HAS THE ABILITY TO SELECT CONTACT METHOD, AND FREQUENCY ENTERPRISE TEXT SOLUTION FOR BORROWER INTERACTIONS TRACKING OF ALL BORROWER CONTACT ACROSS ALL CONTACT METHODS (TEXT, , ONLINE, VOICE, WEB, ETC.) STATUS UPDATES PROVIDED AUTOMATICALLY TO BORROWER (TEXT, OR MOBILE) In Development 14% 21% 36% 39% 19% 14% 15% 18% Source: STRATMOR Technology Insight Survey ENTERPRISE CRM OR LEAD MANAGEMENT 52% 14% 26

27 Application and Approval Capabilities Online Disclosures is by far the greatest level of adoption Only 29 percent of lenders have dynamic application although another 27 percent in production Only 13 percent of lenders have integrated their own data 21 percent online approval Source: STRATMOR Technology Insight Survey APPLICATION AND APPROVAL CAPABILITIES In Production (Live) DYNAMIC ONLINE APPLICATION (WIZARD STYLE LIKE TURBO TAX) PRE- FILL B ORROWER APPLICATION WITH D ATA F R OM LENDER DATA REPOSITORIES (SERVICING, BANK, CREDIT CARD) ABILITY FOR BORROWER TO AUTHORIZE LENDER TO ACCESS SOURCE DATA FOR BANK INFORMATION. ABI LITY FOR THE BORROWER TO EXECUTE DISCLOSURES ONLINE ONLINE APPROVAL PROVIDED TO BORROWERS In Development 13% 29% 25% 21% 13% 21% 26% 78% 27% 11% 27

28 Application / Approval (continued) APPLICATION AND APPROVAL CAPABILITIES Product Optimization exists for less than 30 percent of lenders LO Collaboration is less than 20 percent of lenders In Production (Live) ABILITY TO PROVIDE REAL TIME ONLINE PRICING, INCLUDING MULTIPLE SCENARIOS ABILITY TO OPTIMIZE RECOMMENDED PRODUCTS BASED ON BORROWER INPUT INCOME DATA SHARED DIRECTLY THROUGH ONLINE APPLICATION (E.G., EQUIFAX WORK NUMBER) In Development 24% 24% 27% 13% 13% 23% Real Time LE = 22 percent AN LO COLLABORATION PLATFORM THAT ENABLES THE BORROWER AND LO TO SHARE INFORMATION THROUGHOUT THE SALES PROCESS (SCREEN SHARE, CHATTING, PRODUCT PRESENTMENT, ETC.) 18% 13% ONLINE LOAN ESTIMATE (LE) FOR PRODUCT SELECTED 22% 13% Source: STRATMOR Technology Insight Survey 28

29 Loan Processing Capabilities Less than 25% have dynamic checklist LOAN PROCESSING CAPABILITIES In Production (Live) In Development Less than 20% have appraisal order capabilities Upload documents now at 57% adoption (14% in development) AN ONLINE DYNAMIC REQUIRED- DOCUMENT CHECKLIST THAT IS BASED UPON BORROWER DATA REFERRAL SOURCE COLLABORATION PLATFORM(S) THAT ENABLES THE LO TO TIE- IN THE REFERRAL SOURCE (E.G., A REALTOR, BUILDER, BANK ABILITY TO SCHEDULE THE APPRAISAL APPOINTMENT ONLINE ABILITY FOR THE BORROWER TO PAY THE APPRAISAL FEE ONLINE 15% 23% 21% 27% 9% 12% 14% 13% Nearly 50% have appraisal data submitted for agency review Source: STRATMOR Technology Insight Survey ABILITY FOR THE BORROWER TO UPLOAD DOCUMENTS AND RESPOND TO CONDITIONS ONLINE THE ABILITY FOR BANK/ASSET AND INCOME DATA TO BE ELECTRONICALLY SUBMITTED TO THE AGENCY DU OR LPA FOR INTEGRATED RISK DECISION AND APPRAISAL DATA SUBMITTED FOR AGENCY REVIEW FOR REP/WARRANT RELIEF. (EX: COLLATERAL UNDERWRITER 30% 49% 57% 28% 13% 14% 29

30 Closing Capabilities 8 percent using closing collaboration platforms 48 percent supporting ULDD validation 25 percent leveraging ULCLD Less than 10 percent e-close 13 percent have some e- record capabilities 51 percent have online survey Source: STRATMOR Technology Insight Survey A CLOSING COLLABORATION PLATFORM THAT ENABLES ON- LINE INTERACTIONS WITH 3RD PARTY CLOSING AGENTS USE OF AGENCY SOLUTIONS FOR LOAN DELIVERY DATA (ULDD) VALIDATION, COMPLIANCE AND LOAN SALABILITY (E.G. EARLYCHECK, LOAN QUALITY USE OF AGENCY SOLUTIONS FOR LOAN CLOSING DATA (ULCLD) VALIDATION, COMPLIANCE AND SALABILITY ( E.G. LOAN CLOSING ADVISOR) AN ELECTRONIC CLOSING (E- CLOSE) PROCESS AN ELECTRONIC RECORDATION PROCESS AN ONLINE BORROWER SATISFACTION SURVEY PROCESS CLOSING CAPABILITIES In Production (Live) 8% 8% 13% In Development 8% 25% 13% 9% 48% 51% 20% 15% 8% 30

31 Digital Unbound: The Next Opportunity Lender Roadmap 5 Keys to Success 1. What is the company s business case for investing in Digital Mortgage? 2. Is the tool being considered going to work for high producers? 3. Is it an easy tool for users to adopt or is it going to take months to train them to use it? 4. Will this tool fit with the market we are in now Purchase with longer term lead nurturing? 5. Change Management Ensuring People, Process and Product are going to work well together to make a difference to the bottom line? 31

32 Executive Summary 1. Retail production costs continue to rise, now nearly $7,000 per loan ultimately needs to be reduced through better digital process. Detailed financial data available here percent of volume is done by 40 percent of the originators. So, making these high performers 25 percent more productive would offset the entire productivity of the bottom 60 percent. Details available here. 3. Tech spend continues to increase, with mid size lenders now paying roughly $300 per loan, while large banks are now as high as $1,000 per loan. 4. According to the STRATMOR Technology Survey, the Top 3 benefits involve aspects of customer service including: 1. Borrower Satisfaction 2. Faster Cycle Times 3. Better Workflow 32

33 Executive Summary (continued) 5. The top perceived barriers for Digital mortgage are lender not consumer issues: Costs Getting LOs to change System Integration Internal IT Capabilities 6. Adoption across various functions varies Disclosures are the big driver (over 75 percent of lenders have adopted this) Also high (over 50 percent) is upload documents Over 50 percent of lenders are also using CRMs to stay in contact with borrowers throughout the sales cycle Lenders beginning to figure out that online surveys are a good thing 33

34 Mortgage Compliance In The Digital Era Reorienting to a Front Loaded Process Thursday, September 6, 2018 Leonard Ryan President

35 Borrower Expectations What Has Changed - Today is VERY DIFFERENT from the Digital Dream of 15 Years Ago. - Easy to be skeptical It s been said before. - A Digital Mortgage in 2003 was often defined as a signed doc set digitally recorded that couldn t be sold and was a portfolio loan. - Today - Consumers have purchased the technology to communicate. - Regulations delayed the evolution by bogging down development but that is now being lifted. - Billions in investments have been made on front end processes. - Regulators are embracing technology because it saves them money. - Vendors Don t Get Noticed Unless they Are Advancing Digital Mortgages. - Borrowers are expecting it as the norm not an anomaly. (800) QuestSoft Corporation. All Rights Reserved.

36 The Regulation & Compliance Roadmap - What Regulations Are Left? - HMDA... - S2155 Regulatory Relief Bill ( ) - Quarterly HMDA Filings (2020) - NMLS 2.0 Mortgage Call Report (2020) - Community Reinvestment Act ( ) - Possible Expansion of State Regulations in states where they feel CFPB Drops Ball - Other Implementations: - URLA Feb 2020 to Feb ULDD Phase 3 Jan 2019 (800) QuestSoft Corporation. All Rights Reserved.

37 Regulators are Embracing Digital Mortgages - Panel at AARMR was 100% digital mortgage focused. - Data driven processes tend to have more accuracy. - Exception is intentional fraud and misrepresentations. - Regulators want to share information and data rather than stare and compare. - Regulators are looking to reduce travel and budgets just like your company. - Concepts such as blockchain and loan/data vaults are providing additional comfort. - BCFP/CFPB has always said it is data-driven. (800) QuestSoft Corporation. All Rights Reserved.

38 Regulator Panel Discussion on Digital Mortgages 8/2/ In 2 to 3 years, most loans will be underwritten electronically. Only exceptions will be reviewed and that will be by experienced underwriters. -- Rick Hill, Mortgage Bankers Association - The new world needs no post-closing audit but does need extensive fraud prevention and detection. - Most applicants on Rocket Mortgage are using mobile apps on phone or tablets. Most also access after business hours. - Borrowers are looking for NATURAL LANGUAGE questions rather than mortgage forms in their online experience. (800) QuestSoft Corporation. All Rights Reserved.

39 Issues Related to Digital Compliance - Digital process implementation - Compliance / operations collaboration - Internal control modification / enhancement - Customer perception - On-screen information - Follow-up / communication - Targeted marketing - fair lending risk - Availability of expanded demographic data - Utilization of social media profiles and/or habits (800) QuestSoft Corporation. All Rights Reserved.

40 Questions to Raise As You Ponder Digital Processes - What changes are required to three lines of defense? - Policies, procedures, training, etc. - Level of compliance review - Scope, focus, and methodology of audits - What changes are required to monitor for compliance? - Verification of programming logic - Validation of calculations - Testing for employee fraud - How will new data sources impact compliance? - Appraisals - Electronic delivery of documentation assets, employment, etc. - Income verification W-2 vs. electronic deposit history (800) QuestSoft Corporation. All Rights Reserved.

41 Risks of Digital Mortgages - Data integrity - Input controls - Validation source - Fair and responsible lending - Adaptive controls ECOA, FHA, UDAAP, etc. - Automated denials - Pricing consistency - Override / exception tracking (800) QuestSoft Corporation. All Rights Reserved.

42 The New, Faster Industry Normal - Will 20 days be today s 41 days when you finally get there? - According to J.D. Power Survey, in 2012 Quicken Loans was #1. If they had stopped there, in 2018 they would be #13. - Need to find issues and correct what you can BEFORE the borrower checklist goes out. Source: STRATMOR MortgageSAT If you are not devoting time to thinking about industry changes in digital mortgage processes as it relates to compliance, you are holding your institution back from future prosperity. (800) QuestSoft Corporation. All Rights Reserved.

43 Compliance 10 Years From Now - In only 10 years, we have gone from iphone introduction to massive use. - Will regulators just tap into your systems whenever they get a complaint from a borrower? -... they suspect the company might be in financial trouble? - Will we cross-verify a person s employment by facial recognition software to detect they showed up for work to reduce fraud? - Will you appraise a house electronically with a combination of satellite images, drone, and the cameras built into all of the house gadgets? (800) QuestSoft Corporation. All Rights Reserved.

44 Changing Borrower Perception of Good Service - Good personal service is being offered with new technology solutions. - The problem of hiding behind your reputation... - Borrowers expect it and can get it elsewhere. - Personal service is being enhanced, not sacrificed. You need to be the large bank -... regional bank -... independent lender -... credit union -... community bank... that provides great personal service the way the BORROWER wants it delivered! (800) QuestSoft Corporation. All Rights Reserved.

45 Compliance EAGLE Amazing Services All in 30 Seconds (800) QuestSoft Corporation. All Rights Reserved.

46 Compliance EAGLE Amazing Services All in 30 Seconds (800) QuestSoft Corporation. All Rights Reserved.

47 One Account, One Login, Extreme Accuracy and Efficiency 30 Seconds to All of This! - Complete TRID Analysis - All Laws, Rules & Regs All States - Federal, State & Local High Costs - Certified LEF Submission to Regulators & Examiners - Property Tax - Transfer Tax - Recording Fees - Third Party Provider Fees - Portfolio Loan Rules Review - IRS Transcript Income Analysis to Borrower Provided Info - Flood Certs Directly Tied to Projected Investor - Vendor/Participant Exclusionary Lists - Instant HMDA - CRA Eligibility Review - Instant NMLS MCR - NMLS License & Eligibility - ALTA Registry - Electronic Verification of Bank Transactions (800) QuestSoft Corporation. All Rights Reserved.

48 Current State of LOS Systems - You Still Have Buttons to Push in Many Systems - Integrations of some of the best technology out there are only to the point they are operational. - LOS systems are under a lot of pressure. - Everyone always need to move on to the next project. - Some want to do enough to collect money and they will make it cool later. - Sometimes a Lender changes their mind due to acquisition or other business decision. - Regulations Delayed the Advance to Workflow Processes - Traditional LOS Systems have for the past seven years been forced to address complex compliance issues for established customers, while new technology vendors have started from scratch concentrating on the front end process. - These two approaches have to collide when the LOS vendors have some breathing room. - Rules Embedded in Systems Often Stop but not Redirect - How many of those revolve around hard stops vs. an automated solution? (800) QuestSoft Corporation. All Rights Reserved.

49 QuestSoft s Digital Compliance Initiative (DCI) Goal is to automate as many functions of the process to help trim origination to closing to two weeks by Of our 2,600 customers we are looking for... - Working with no more than 10 LOS/POS systems - No more than 3 lenders per system (30 total) - Qualifications 1. Compliance Team/Senior Management committed to replace manual processes with workflow initiated actions. 2. Willing to commit to strong interaction between QuestSoft, the lender and LOS/POS vendors. 3. Areas of Development include Fair Lending, digital audit, instant resolution of compliance issues, verifications and anything that the compliance department feels needs to be corrected before a loan reaches final approvals and closing. 4. Improve processes so that these events are transparent to the borrower. (with exception of borrower, realtor or vendor fraud) - Rewards Better Customizations, Lower Prices, Free Development and Higher Employee/Borrower Satisfaction (800) QuestSoft Corporation. All Rights Reserved.

50 Questions? Garth Graham Senior Partner STRATMOR Group 5445 DTC Parkway, Penthouse 4 Greenwood Village, CO (954) Garth.Graham@STRATMORGroup.com Leonard Ryan President QuestSoft Corporation Ridge Route Drive, Suite 220 Laguna Hills, CA (949) leonard.ryan@questsoft.com You can enter your question in the GoToWebinar application box in the Questions section. If we can t get to your question during this session, we will create a Q & A document with all the questions and answers for your review. For information on products referenced during this presentation, contact QuestSoft at option 1 or visit

51 Survey and Free Gift Please take our survey! It s only 5 questions. Takes less than 2 minutes. Survey will be ed to you in about 30 minutes. ALL survey respondents receive a free HMDA Analysis Summary of the latest public report (2017) on your institution. Five Tips For Making The Most of Digital Technologies The first 5 completed surveys will win a $25 Starbucks gift card. Then another 5 winners will be selected at random!

52 Thanks for joining us today! Now it s time to make compliance relaxing For more information on solutions, call (800) option 1 or visit us at You can download this presentation at: