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Navigating the Mortgage Ecosystem

FeaturesArt_Marcgh20184Editor's Note: This story was originally featured in the March issue of MReport, out now.

Thirty years ago, mortgage origination was a simple process. An application was taken at the local savings and loan branch, documents were prepared within 48 hours, sent to a title company with a note to close, and then the entire deal was sealed within days with a congratulatory handshake to the happy new homeowner.

What once took less than a week to complete now takes approximately 50 days—with plenty of hoops for lenders to jump through. In today’s environment, lenders are responsible for complex data management and hundreds of active compliance regulations, with steep fines if they get it wrong.

To succeed in an environment of increasingly narrow margins, broad competition, and ever-more complex regulation, lenders must take a methodical approach to loan origination, adding dynamic, optimized workflow technology. This need for compliance, data, technology, and management to exist within the same ecosystem is greater than ever. The good news is that, in an increasingly digital world, achieving such operational control is becoming more manageable. Best-in-class solutions are crossbred compliance management systems (CMSs) built by software engineers and maintained by a team of experts well versed in financial law and regulatory compliance knowledge.

For an industry that has been slow to adapt, this emergence of sustainable, smart, and reliable digital compliance ecosystems fosters an environment that can effectively improve the way the industry manages regulatory changes. These expertise-fueled solutions empower financial institutions to respond with agility to the ever-growing regulatory landscape. Alleviating the burden of managing the overwhelming compliance infrastructure frees lenders to focus on profitability and look to the future, instead of over their shoulders.

The key lies in finding the right tool that combines most, if not all, compliance management and delivery needs into a single CMS. As regulation continues to impact the financial services industry with a near-constant cycle of updates, new regulations, and processes, the pressure compresses down to the finance and compliance professionals. In addition to existing job responsibilities, the mortgage banking industry at large balances a myriad of siloed tools that slow them down and lead to decreased productivity across the board.

Today’s comprehensive CMS solutions, however, are designed to keep institutions safe, cost-effective, and on pace with regulators in one seamless platform.

Adapting to Win

As the financial services industry continues to advance through innovation, banks and lending institutions cannot hire data scientists and technologists fast enough to match the pace of evolving technology. For larger institutions, tackling innovation has also meant adjusting their business strategy, with billions of dollars invested annually toward new technology development.

Capital One, Commonwealth Bank, Citi, Visa, JPMorgan Chase, BBVA, and Wells Fargo have created their own national and international networks of innovation hubs across the country specifically designed to innovate fintech. Other institutions recognize the limits of their technical expertise and choose to invest in startups and businesses whose sole business objective is to develop enhanced technical solutions to manage compliance.

The ideal solutions, of course, are the result of partnerships between proven compliance experts and technologists. In the words of Nigel Morris, Managing Partner at QED Investors, at a recent conference: it is not the biggest or strongest that wins, but the most adaptable.

Security First

Every business is at risk of a data hack. It is not a matter of “if” but “when” hackers will attempt to steal and expose data.

Adapting to security risks is at the forefront of fintech and regtech conversations. With the majority of data now housed online, enhanced safety and security, including proper backup and recovery for disasters or outages and protection against intrusions, is becoming more complicated than ever. It’s no longer about building stronger firewalls; it’s about figuring out how to encrypt data and secure entry points all while meeting vendor governance guidelines.

Users of products and services from Microsoft, Amazon, Apple, and Google recently learned of security vulnerabilities in a wide range of computer chips installed on millions of personal tech devices. While the hardware was the source of the vulnerability, cloud-based software solutions closed the vulnerability.

All it took was an automatic update. Tech giants can reinforce security through application patches with minimal user impact, forced maintenance windows, or required restarts—all through automatic updates. This approach is ideal for financial services.

The wellbeing of financial data depends critically on timely software updates. Securing legacy hardware-based platforms and operating systems from present-day threats has become costly and cumbersome. The more software installed in an organization, the more systems an IT team must keep up to date and secured. This is especially difficult to coordinate across a complex environment, such as a national bank. With a single, comprehensive CMS operating through the cloud, software can be seamlessly updated as soon as newer, safer versions are available. IT teams can address other technical needs while lenders can continue business as usual with little interruption.

Keeping Pace with Regulators

Enhanced security is not the only benefit from automatic updates. Matching the pace of the ever-changing regulatory landscape is possible through cloud-based CMSs.

A single mortgage loan may include multiple different documents totaling upward of 100 pages. When an updated regulation comes into effect, its corresponding document may become obsolete. With updates made daily to legislation and published regulations, keeping documents accurate is a constant challenge.

A comprehensive CMS ecosystem monitors all information related to its products. As new and updated regulations are published and became effective, those changes are integrated into the technology, from documents to edit checks. The same goes for regulatory updates and submission requirements. By setting up documents and processes to be accurate at the front-end, the result is likely to reflect a higher standard of quality.

While the updates themselves are automatic, CMS providers typically monitor the CFPB and other federal regulators through a dedicated team of compliance and regulatory experts made up of industry veterans from financial services, regulation enforcement, and law and policy.

These teams are built to offload the cost for lenders of managing the same function in-house. The burden of checkers checking checkers, which often result in human errors, is removed by delegating that process to the consistent and thoroughly tested algorithms of a CMS platform. As a result, lenders can shift their focus from monitoring regulations to strategic business goals instead.

The value of a CMS platform is not simply in its quality guarantee, but also in its ROI potential. By increasing employee productivity, decreasing staff overhead, and preventing eventual compliance fines, it quickly pays for itself over and over again.

Regulator Approved

CMS platforms are improving the financial services industry from top to bottom, and inside out. Not only can institutions keep up with directives from the government, but also internal policies and procedures are easier to manage, and external reporting is more accurate when funneled through digital and cloud-based platforms.

The federal government wants in, too. At a recent regtech conference in Washington, D.C., panelists from the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, and the U.S. Treasury Department encouraged innovators and technologists to exchange knowledge with regulators for the benefit of both parties.

One of these dual proposition benefits is the impact technology has on the culture of a company. For institutions, being accountable to the system requires integrity from the outset. On the flipside, when regulators see a company adopt new systems to solve compliance challenges, it shows a good-faith effort to improve internal processes and data quality

Regulatory agencies recognize the advantages of fintech innovation as a tool for making oversight and compliance more efficient and effective. By opening pathways for conversation and idea cross-pollination, regulators and institutions can become partners in the quest to achieve compliance.

Looking Ahead to Achieve Compliance

Moving to cloud-based solutions is inevitable for financial institutions. It is safer, more efficient, cost-effective, and embraced by regulators. As consumer financial lending continues to become a pivotal force in economic growth across the country, technology provides the tools and pathways to improved fair lending practices, better customer service, and even new markets. The key to success? Tackling potential security risks head on and investing in the right technology solutions. It is time to adapt to the next age of compliance and digital mortgage.


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