By Brad Finkelstein
While current mortgage origination volume pales in comparison to
the numbers done during the boom years, because of the low interest rate
environment it is still stronger than anyone had expected. Much of the industry
went through right sizing in the bust environment, but today’s document
preparation firms are able to handle the increased work.
Several companies are even growing their business at this time. But at the same time, with the stricter regulatory environment, these providers have to be concerned about compliance issues.
According to a survey taken at the end of last year, compliance is the No. 1 issue when it comes to initial disclosures. International Document Services asked 600 lenders to rate the importance of six initial disclosure features: compliance, e-delivery, e-sign, fulfillment, price, and user interface.
Compliance was cited as the single most important feature by 90.5% of respondents. Each of use placed second, at 67.9%; next was fulfillment at 63%; followed by price, 53.6%; e-delivery, 42.9%; e-consent, 35.7% and e-signatures, 32.1%.
Kortney Harward, who is the director of sales and manages the Southeast territory for IDS, said the company saw the increase in business “coming down the pipeline, so earlier this year we definitely hired on more staff and got them trained and prepared.”
Since this time last year, IDS has seen its volume double; in initial disclosures, business has almost tripled, she said. Not only is business coming from current clients, it is adding a few new clients every month for its initial disclosure packages.
Among the technology improvements that have made doing things easier today is growth of e-sign, which Harward called “huge.” It has increased the convenience in sending out the initial disclosure packages.
Another important point is that IDS has integrated its systems “very tightly” with different loan origination systems. It eliminates duplicate data entry, which enables lenders to do more volume. Lenders want that interface as tight as possible so they can be originating more loans and not worry about their doc prep.
That also cuts down on errors, reducing the worry over compliance. The changes in allowable tolerances as well as other regulatory changes have increased stress on IDS.
Still the watchword remains “good data in, good data out,” she said, adding that the system would not pick up such things such as a misspelling in a name.
Harward said the company has added compliance staff and it has in-house attorneys to stay on top of changes.
But the environment for initial disclosure has changed from the boom days in other ways, she pointed out. Back then, there were all sorts of subprime products, negative amortization products, etc., and each investor for these had their own requirements.
Now the product menu is more standard, but the compliance area is a lot tighter and the pressure is on companies like IDS to maintain standards and make certain every loan in the system remains in compliance.
Lenders are more demanding about what they expect from IDS, Harward said, both from the technology side of the equation as well as the compliance side. IDS runs over 4,000 compliance audits in its system, “and the clients’ expect that. They expect their docs to be accurate. They expect the investors to accept them.”
IDS guarantees all of its documents for compliance both on the initial side as well as the closing side. But as Harward noted, “If we didn’t do our job, we would be out of business really fast.”
Dominic Iannitti, president and CEO of Document Systems Inc., said his company has put an added emphasis on its compliance and legal departments, “so they are working overtime to make sure that everything that we do is completely in compliance.
“As a leading compliance source for the mortgage industry we are looked to answer a lot of the challenging questions and requirements that come up.”
That is where the extra work has been, but this has been the case even prior to the recent boom in applications.
But for the actual business volume, Iannitti said his company’s “systems and services have been designed to handle many, many, many, times the volume level we have currently.” Still the company is close to some all-time highs in business.
Document Systems earlier purchased a building in Torrance, Calif., and it took the opportunity to refresh all of its technology, both hardware and software, in its data centers, not only at the company’s headquarters, but also at its backup site in Austin, Texas.
As a result, “we became even much more scalable than we already were and we were already capable of handling many time the volume levels we reached at the height of the mortgage bubble,” Iannitti said.
The technology refresh did achieve on major milestone as processing times have “radically decreased.”
A year ago, at current volume rates back then it took six to seven seconds to process a transaction. Now there is a two-second-turn-around time.
Iannitti’s goal is to achieve a one-second turnaround. Document Systems publishes real-time statistics on how fast it is processing requests for closing documents.
The closing package is probably the largest package it handles, he said. A processing package is only a few documents, so it takes just a few seconds.
The company also makes public its up time over the past 30, 60, and 90 days in an effort to show how reliable it is. Its goal is 100% uptime.
A large part of the reason for the improvement in speed is because of better server technology, Iannitti said. Modularization has allowed for distribution of memory, and hardware can be improved without having to replace it or take it out of work on it.
During the refresh process, Document Systems took the opportunity to isolate every aspect of what it does when it processes a file, so each can be measured. Functions are logged, and it includes start and stop times.
It added some account executives, but that was due more to the nature of its partnerships. But it has not added more than one or two support people.
The company has also implemented Salesforce in order to increase efficiency in its processes. It also took time to look at its client phone conversations to find out what they wanted. It found that 80% of what clients wanted to do have existing utilities that only needed a new front end so clients could access them on their own if they wanted. This includes removing documents from their individual packages.
Iannitti reiterated that the upgrade was not done with the huge increase in volume in mind. It is just a normal evolution of its products so it could better serve clients. “The neat thing was the timing couldn’t have been better,” he added.
Document Systems has also enhanced its compliance auditing engine, so that in addition to telling the user something is wrong or that they need to check an item, it now links to information that supports the regulation.
Rather than just telling a lender something like they are not allowed to have a prepayment penalty in a certain state, with one click it interfaces with the exact regulation.
Iannitti said it is no longer good enough to tell the client they can’t do something. It has to be explained and demonstrated why, especially because things are changing quickly.
Mortgage Cadence’s current technology architecture to provide high availability, with access to multiple tiers and multiple data centers to reason to company clients’ request simultaneously.
So from a capacity standpoint, the increase in application volume hasn’t been much of an issue for it, said Jacob Petersen, executive vice president of sister company Finale Document Services.
Its infrastructure was designed to deal with high capacity and it can additional resources if that capacity does shrink because there is an elastic grid.
Petersen said today’s rate environment is unprecedented, but the increase in business due to the boom was not something his company was unprepared for.
The document side of Mortgage Cadence/Finale works with John Levonick, the company’s chief legal officer, the rest of the compliance team and outside counsel. Furthermore, there is a $10 million errors and omissions insurance policy to rep and warrant that the standard documents are accurate and meet regulatory needs, he continued.
Still, the company has hired additional people on the document sided to help deal with the demand, Petersen said. “We’re a growing company, so we’ve had multiple needs to increase our staffing.”
But he reiterated the technology architecture is well designed and it hasn’t had to add significant resources in that area. Document packages are created in between 13 and 17 seconds.
While the standard documents have not changed, as new investors return to the market, new documents have been added to the library. There are custom documents even with today’s rather standard product set because certain customers might want something different.
Turn times for creating or changing a document, lender customer expectations is a 24-hour turn time, and Mortgage Cadence is able to meet that consistently.
“They expect customer service, and we’re in a customer service business,” Petersen said.
With the return of the private secondary market, there will ben an increase in demand for new innovations. “That is one of the great things about the mortgage industry, we’re always evolving,” Petersen said.
As featured on Origination News, August 2012.