TECHNOLOGY BLUEPRINT TO IMPROVE CORRESPONDENT LOAN ACQUISITION A LOANLOGICS WHITE PAPER

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1 $ TECHNOLOGY BLUEPRINT TO IMPROVE CORRESPONDENT LOAN ACQUISITION

2 STOP DRIVING A SQUARE PEG THROUGH A ROUND HOLE! Today s correspondent lenders and loan aggregators are challenged with the processes, tools and technologies they use for loan acquisition. They find themselves using a combination of multiple, one-off systems and services built around a loan origination system, whose single purpose is for the manufacturing of loans not the due diligence and validation of loans that have already been closed. This piecemeal approach also requires the separate licensing and use of a product and pricing engine, document processing and document management system, due diligence review services, a loan seller portal and the list goes on. Customization and maintenance costs are hard to control, not to mention the expense associated with the use of multiple systems and the management of multiple vendors. IT S A BIT LIKE DRIVING A SQUARE PEG (loan acquisition) THROUGH A ROUND HOLE (loan origination) BECAUSE THE ONLY TOOL YOU HAVE IS A HAMMER. (legacy systems) LOANLOGICS 1

3 A related consequence is the strain that is put on the buyer / seller relationship. Too many manual workarounds, in what is often a fragmented process, cause lenders to perceive correspondent investors as not easy to do business with. It takes too long to assess the quality of loans, the defect and rebuttal process can cause funding delays and there is little transparency into defect findings to help sellers minimize adverse pricing and help investors avoid pull-through issues. Investors and correspondents need to leave behind the hammer and evaluate technology based on its ability to unify all aspects of the correspondent loan acquisition process, from seller application workflow and approval, to pricing and management of the transaction, through loan funding and servicing on-boarding. This white paper will discuss the attributes of technology that can streamline correspondent loan acquisition while enabling consistent execution, repeatable outcomes and business intelligence for continuous process improvement. 2

4 CORRESPONDENT LOAN ACQUISITION MADE FRICTION FREE Seller Application Process Secure Portal Facilitate the seller vetting process There are many moving parts in the seller application process. If information is sent piecemeal, it can become disconnected. It also can be very unproductive to chase down missing data or documentation, or worse send incomplete packages for credit or legal review. Technology can support a much more coordinated and transparent process. A secure portal can help guide sellers through the application process, capture the data needed and verify that required data and documentation has been supplied. It offers a very clear and structured way to accept seller applications and enables a single point of control to manage the application process. The seller s progress can be monitored with descriptions and details regarding requirements made easily accessible. Exception Reporting Single Point of Control Exception reporting can help identify if any required data or documents are missing and stop the creation of the application package until all missing elements are complete. Integrated communication tools facilitate coordination with internal review teams and update new sellers as their application becomes approved. Communication Tools 3

5 Contour pricing to attract sellers Investors who want to attract sellers and expand market share need to maximize flexibility and control over pricing. Technology should expand, not limit, the ability to customize policies at a very granular level based on multiple data attributes and then assign policies to one or more sellers in support of the investor s desired pricing strategy. The ability to overlay pricing incentives can also enable the investor to reward seller behaviors, such as early delivery or high loan quality. For the creation and management of commitments, advanced automation and controls can improve current practices. For many investors and correspondent lenders, the commitment negotiation process entails the delivery of an xml spreadsheet from the seller, back and forth phone calls, evaluation of the negotiated commitment by the investor, more phone calls, and an xml spreadsheet response sent back via . This is not only inefficient, but also offers limited transparency for either side to evaluate the profitability of the trade. Technology should enable sellers to easily upload their bid tape and provide validation of the data so that sellers can make necessary corrections before the investor starts their process. Technology automation that allows the sellers to run eligibility and best effort pricing against all their loans prior to submission also reduces the likelihood that a trade with ineligible loans will be submitted to the investor. Accept Activate Upload Bid Tape Pricing Negotiate Trade Commitment Desk Renegotiate/ Decline 4

6 Finally, workflow tools allow the investor to apply pricing to the submitted trade, reject the trade, counter offer or activate the trade, finalizing the commitment in a structured and organized way. Comprehensive dashboards help investors and sellers, manage communications and monitor the delivery of loans against the trade. Transparency is supported for both the seller and investor, key to relationship building and management of the profitability of the transaction. Pipeline alerts keep all parties informed regarding cancelled loans, loans paired off, price changes, lock expirations and ineligible loan status. Managing risk in correspondent loan acquisition Investors seeking to broaden their market reach often develop seller segmentation strategies and a flexible business model that can support both delegated and nondelegated underwriting. This enables the investor to manage the risk of doing business with certain seller profiles by taking on the underwriting of the loans being originated. YOU NEVER CHANGE THINGS BY FIGHTING THE EXISTING REALITY. TO CHANGE SOMETHING, BUILD A NEW MODEL THAT MAKES THE EXISTING MODEL OBSOLETE. Buckminster Fuller Unfortunately, this has been another driver of the proliferation of systems investors have used to support their preferred business model. An integrated technology platform architecture can alleviate this issue and deliver even greater value by enabling underwriting findings to be accessible in subsequent purchase reviews. 5

7 Once closed loan files are submitted by the seller, the first step in the purchase review process should be ensuring that the files are complete, document data extracted, classification and indexing is accurate, and all data is verified and validated, regardless of source. Some investors rely solely on OCR technology and people power to complete this process, which is not only daunting and expensive but delivers less than accurate results. Technology advancements that perform 100% data comparison on extracted data and provide full transparency to the accuracy of all available loan data and a direct link to the specific underlying data contained in the loan documentation can reduce costs and deliver significantly faster turnaround time. Technology automation of audit rules (appraisal tests, compliance tests, etc.) can significantly reduce audit time and focus staff on more complex audit tasks. SAAS technology and API capability can also enable access to data and services directly within the audit workflow. As well, technology can support the exacting and standardizing of tasks (income calculations, reverifications) to further reduce errors and risk. Integration of the purchase review process also enables audit data, such as defect findings, to be used by the investor to drive the management of pricing updates. For example, an eligible loan that has a change in loan details due to audit findings, such as an updated FICO score, can be automatically given an eligibility and price check. The loan can then be denied or the price adjusted in real-time to address the revised data and communicate back to the seller. This removes the possibility of a surprise when the seller receives the Purchase Advice after funding. And, seller and investor access can streamline and automate STIP communications and facilitate condition clearing so that it is not a roadblock to funding. 6

8 Technology can and should provide strong controls and management throughout the pre-funding audit, streamline the conditions and rebuttals process, track the purchase advice review and approval and even support the on-boarding of the loan to the investor s servicing system. The result: From initial pricing, through locking & hedging, underwriting, closed loan file pre-purchase review and ultimately loan funding and onboarding, an investor can have complete transparency into the progress and status of each loan as it goes through the process and sellers can be offered pricing flexibility and rapid funding to more quickly free-up their warehouse lines. A WIN/WIN SCENARIO Significant business value becomes possible with a new class of technology that addresses all aspects of correspondent loan acquisition. Data and document integrity Loan file transparency Proof of compliance Effective defect management Strong seller relationships Improved communication Profitable loan purchases 7

9 Pricing and Eligibility Non-Delegated Underwriting New Seller Application Pipeline Management Pre-Funding Audit and Integrated Condition Clearing Funding and Loan Boarding $ Commitment Desk For investors, confidence in the loans they purchase is significantly increased when they know the quality of the loans they are purchasing. The degree of transparency required can only come from technology and automation that enables significant efficiency improvements, while supporting the evaluation of even more granular loan-level data. Over time, this rich data set provides the foundation for assessment and reporting on sellers as a way to evaluate the ongoing business relationship. For sellers, satisfaction with the transaction process improves with faster turn-around time to funding and flexible pricing options that can help them achieve their profit goals. Workflow tools can facilitate real-time notification of conditions and the ability to quickly review and clear them. Funding velocity is increased and warehouse lines are freed up more quickly for new loans while overall operational costs are driven down. For both parties in the transaction, identification of the actor or process that is contributing to defects can lead to action plans that improve quality, lowering risk for the investor and helping the seller improve their origination practices. This is a new way of thinking that creates mutual benefit, strengthens the relationship and leads to more profitable transactions. 8

10 About LoanLogics LoanLogics was founded to improve the transparency and accuracy of the mortgage process and improve the quality of loans. LoanLogics serves the needs of residential mortgage lenders, servicers, insurers, and investors that want to improve loan quality, performance and reliability throughout the loan lifecycle. It develops advanced solutions that help clients validate compliance, improve profitability, and manage risk during the manufacture, sale and servicing of loan assets. Achieving these goals was the motivation in the development of the industry s first Enterprise Loan Quality and Performance Analytics Platform. To learn more, visit This material is provided as a general information service by LoanLogics, Inc. and its applicable subsidiaries and affiliates ( LoanLogics ), and is not intended to provide financial, regulatory or legal advice on any specific matter. The information contained herein reflects the views of LoanLogics and sources reasonably believed by LoanLogics to be reliable as of the date of this publication. LoanLogics does not make any representation or warranty regarding the accuracy of the information contained in this material, and there is no guarantee that any projection, forecast or opinion in this material will be realized. Any links provided from outside sources are subject to expiration or change LoanLogics, Inc. All Rights Reserved. 9