Will Your Mortgage Engine Make It in 2015?
When many Americans hear the word taxicab, they still think of the classic, urban transport device: An older, heaver, gas-guzzling V-8 wrapped in American steel.
Yet, in a growing number of metropolises, this symbol is quickly being replaced by smaller, lighter, hybrid and electric vehicles that already know where to go and don't need a wrench to fix so much as a certificate in computer programming.
A similar phenomenon is happening within today's financial services industry. Much like the automation that now manages nearly every aspect of today's modern automobile, from seat warmers to navigation to rear-view video cameras, the loan origination system, the engine behind nearly every mortgage operation, has evolved, too.
And, its day in the sun may be starting to set.
For decades, thousands of financial institutions, including credit unions, relied on the LOS to create millions of mortgage loans. It was a faster, more efficient and less expensive tool than anything anyone had used before. Today, it's not good enough.
Considering what has happened over the past seven years from the implosion of the housing market, to Dodd-Frank and on to the creation of the Consumer Financial Protection Bureau and new rules governing every aspect of selling home loans, credit unions need much more for 2015 than an engine that originates loans quickly.
They will need an engine that creates quality loans and maintains that quality as new data is integrated into a loan file. They will need an engine that lets them order products and services through any type of vendor, such as identity and asset verification services, credit reporting services, appraisals, and mortgage and flood insurance. They will also need an engine that audits those very same vendors for compliance, now that the CFPB is holding lenders responsible for the work performed by third parties.
Credit unions also need an engine that allows them to check loans against constantly changing investor and government-sponsored enterprise guidelines. They need an engine that lets them sell and transfer mortgages electronically, while removing any trace of paper from the process, not just so they can save money, but so they can lower risk associated with paper, too.
They need an engine that allows them to leverage the cloud for application delivery and document storage, and they need that engine to be protected through the highest security standards and protocols, and against any threats to business continuity, such as a natural disaster or data breach.
Finally, credit unions need an engine that doesn't need to be rebuilt or replaced every time an extra step or process is added to the loan production cycle, such as the new Real Estate Settlement Procedures Act-Truth in Lending Act disclosure forms that are coming out next year.
Without such an engine, credit unions will be forced to address new compliance requirements in piecemeal fashion, either by adding staff, human spackle, I call it, or buying separate software and praying that two or more different applications will play nicely together. Yet, as each new challenge and requirement is thrown at mortgage lenders, it becomes more obvious that add-on solutions are costly, risky and wasteful.
Credit unions also need to be aware of the fact that while many former giants have gotten out of the mortgage business, they still face competition from large institutions with the time and resources to invest in their own mortgage engines. They are also going up against an increasing number of well-capitalized independent mortgage bankers who are gravitating toward mortgage engines that do much more than create loan files.
With 2015's arrival, it's a perfect opportunity for credit unions to do a little mortgage engine work, if they haven't already, or to replace their current LOS with the sort of engine I’ve described above. Think about it. Do you want to cruise into the mortgage future with the equivalent of an antiquated 1950 Ford, or a modern, cost-effective Toyota Prius? The sun is setting on one of these choices. On the other, it's about to shine very brightly.
Jonathan Corr is CEO of Ellie Mae. He can be reached at 925-227-7000 or firstname.lastname@example.org.