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Chasing Loan Automation

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Leah Fox, EVP of Technology and Services Delivery, LoanLogics

Nearly two full decades into the new century, many correspondent lenders are still stuck in the past. The sheer amount of data required to be sifted, sorted, and interpreted can be daunting for a business of any size, but emerging technology will allow lenders to automate more of this process, more easily catching defects before the purchase is already made. It sounds like a no-brainer, but many in the industry are still relying on an LOS. What’s the hold-up in embracing digital?

Leah Fox is EVP of Technology and Services Delivery for LoanLogics, a recognized technology leader in loan quality management and performance analytics that helps lenders improve transparency and reliability throughout the loan lifecycle. Fox previously worked as Head of Solution Delivery Services for eBay Enterprise. MReport spoke with her about ways the industry can further embrace automation, and the challenges ahead.


Why is there a lack of automation in the correspondent business today?

There is no single reason why there is a lack of automation in the correspondent business. The right automation, properly applied, can solve some of the biggest challenges facing today’s correspondent lender. All lenders collect an insane amount of information from borrowers—bank balances, income, credit history, tax data, you name it—and then they go out and get even more data from third-party vendors, not all of which is saved or sent in the same format. Gathering so much data form different sources and formats inevitably creates data contamination problems. For correspondents who buy these loans, there is significant value in technology that can automate the process and identify defects prior to purchase.

Most correspondent lenders today are forced to rely on an LOS—or parts of an LOS—for loan acquisition due diligence. Unfortunately, LOS solutions are not really equipped to verify and validate data, nor are they capable of automating the quality control aspects of a loan file review. On a broader level, the decision to invest in automation usually happens at the higher levels of an organization. Standardizing on an LOS to serve needs across channels is not uncommon. Unfortunately, the organization’s correspondent division is then left to absorb or “eat” the cost of functionality they simply won’t use. Also, they are filling in the gaps through manual workarounds and additional systems, such as web portals and pricing engines. Technology specifically designed to automate the correspondent workflow can eliminate process inefficiencies and the need to invest in and maintain multiple systems.


What is the problem with relying solely on seller LOS data?

A correspondent with limited automation may be tempted to improve turn time by relying solely on LOS data provided by sellers. This is a big mistake and highlights a huge myth in the industry that LOS data is the single source of truth for the loan file, which simply isn’t correct. The LOS is a system of record, to be sure, but anybody can put data into the LOS—that doesn’t make the data accurate. Correspondents who purchase loans from multiple sellers are also dealing with data from a variety of LOS systems. They need an efficient way to compare that data with the final loan documents and identify inconsistencies. Relying solely on LOS data for loan file reviews leaves a correspondent with too much exposure related to defects.

Fully automating the correspondent loan acquisition process needs to go beyond the automation of standard processes and progress to “intelligent automation.” The former type of automation applies to tasks such as populating forms and sending alerts. Intelligent automation, on the other hand, leverages a rules-based architecture to interpret information in a useful way. You could say that there really is no shortage of basic automation, but there is definitely a shortage of intelligent automation. We’re trying to change that.

What steps are correspondent investors taking to apply more automation?

It varies by investor. Some investors want a complete solution that will help them deliver more effectively on their value proposition, whatever that may be. For example, some lenders focus on providing customers with a high-touch experience and want added data and intelligence that addresses seller improvement and competitive pricing. Others desire a more low-touch approach, and choose an elevated level of automation across all steps in the processes while focusing on providing sellers with the best prices.

Then there are correspondent investors who need help solving a particular pain point, such as document processing, which is a huge challenge for many. Very large amounts of loan file data remain “locked up” in documents that require very precise technology to extract. This same technology should also enable indexing, classification, and versioning of all loan file documents.

Correspondent investors may vary on their approach to automation, addressing a specific issue or pursuing systemic improvement, but there is no lack of opportunity for it to deliver value to their businesses.


What would investors consider a digital transformation?

The best possible digital experience for correspondent investors is one that prevents buybacks, reduces seller turn times, and lowers costs across all processes. The question is: how do you get there? An increasing number of investors are diving in, while many others don’t know where to begin.

For example, with today’s technology, investors can verify the accuracy of any loan file, streamline the clearing of conditions, and create documented proof of compliance, which helps all sides avoid potential buybacks. The same type of technology is capable of finding and addressing loan defects across data and docs that would otherwise go undetected by using only LOS data. Automation enables this to happen efficiently, which speeds seller turn times and funding to their warehouse lines.

While we may not yet be at a place where a total digital transformation is embraced by all, most investors would consider a successful digital transformation one that achieves the above three goals: preventing buybacks, reducing seller turn times, and lowering costs across all processes.

Where is the tipping point for true ROI through automation?

For all lenders, the holy grail is lowering costs and achieving consistent, verified, and validated compliance with investor guidelines. The only way to do both is by automating the quality control oversight of the underwriting and decision-making processes as they occur. This will ensure accurate, validated data is used to make underwriting decisions with minimal manual data entry. Real-time, in-line quality checks and automated rules will test and document compliance with investor guidelines, passing on high quality loans to correspondent investors. Pre-purchase reviews can then be streamlined, refocusing staff resource on managing exceptions.

The holy grail drives quality from the start of the origination process. However, we’re not there yet as an industry. For correspondent investors, the burden is still on them to identify and cure defects prior to purchase. The good news is that a growing number of them are investing in the right technologies that are helping them achieve true, documented ROI on automation right now.


About Author: Rachel Williams

Rachel Williams attended Texas Christian University (TCU), where she graduated Magna Cum Laude with a dual Bachelor of Arts in English and History. Williams is a member of Phi Beta Kappa , widely recognized as the nation’s most prestigious honor society. Subsequent to graduating from TCU, Williams joined the Five Star Institute as an editorial intern, advancing to staff writer, associate editor and is currently the editor in chief and head of corporate communications. She has over a decade of editorial experience with a primary focus on the U.S. residential mortgage industry and financial markets. Williams resides in Dallas, Texas with her husband. She can be reached at [email protected].

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