Moving the paper mountain.
The paper-management problem is easy to identify, and ideas for solutions are plentiful, but why does it exist? More important, what is being done about it and what does the future hold? This column assesses document management in the mortgage industry and the outlook for document automation in loan origination.
Every mortgage is a work of art
Some industry observers maintain that mortgages are a commodity and profit margins are razor-thin. We have standard loan applications, credit reports and appraisal forms. But fixed-rate conforming loans are no longer the majority of new loans, as subprime loans, first-lien home-equity lines of credit (HELOCs), alternative-A and option adjustable-rate mortgage (option ARM) products are now large product segments. There is some truth about mortgages being commodities, but the physical creation of the mortgage asset embodied in the loan document file is anything but a standardized, commodity-like process.
For example, the library of loan documents of a lender or external document-preparation company typically includes 800 to 1,000 standard and custom loan forms (the promissory note, mortgage, addendums and riders), because documentation requirements vary by loan product, mortgage investor and property state. The number of data elements can run into the thousands.
The typical mortgage loan file contains between 25 and 50 different documents and 150 to 250 pages of paper obtained from at least a dozen sources. Lenders may collect these different documents from, at a minimum, 10 different external sources at different points in the lending process. Added together, each loan file created is nearly as unique as a snowflake, even if the credit risks and pricing are considered plain-vanilla to secondary-market investors.
So are we paper-happy Luddites or not?
Compounding the mortgage paper problem is a fragmented supply chain of participants (consumer-broker-lender-service provider-servicer-investor) and technology systems (point of sale [POS]-loan origination system [LOS]-automated underwriting system [AUS]-compliance-collateral-secondary-servicing). Making data and documents flow through these systems is no easier than getting a camel through the eye of a needle.
We are neither magicians nor Luddites. In contrast to mortgage manufacturers, automobile manufacturers can integrate their physical supply chains because there are a few large firms that can mandate exact engineering specifications for supplier inputs. If the spec is wrong, the product won't work. In mortgage lending, paper "works"--just not very well--but lenders have yet to mandate universal electronic data and document delivery to eliminate faxes, couriers and e-mail attachments. The costs appear too great, and few lenders control sufficient market share to force the change.
'Defragmenting' the IT supply chain
Historically we've recognized the paper problem and knew what had to be done, but the technology architectures, platforms, standards and systems to do the job didn't exist. The core LOS, whether mainframe-based or client-server, has traditionally had only basic document-management capabilities. This inhibited broader document automation and integration with loan processing workflow.
In the 1990s, lenders began installing document-scanning, imaging and archiving systems in post-closing compliance and servicing processes. Lenders would usually scan and index documents into these systems from paper, not electronically from the LOS.
Some early innovators such as West Palm Beach, Florida-based Ocwen Financial Corporation used imaging for transactional processes in loan collections, loss mitigation and foreclosure. Given the capabilities and cost of technology at the time, lenders wisely ignored the more complex, work-flow-driven loan origination process. But to further drive down processing costs and timelines, lenders need more than an image-capture and filing system in loan origination.
In this decade, the sophistication of imaging, workflow and document-storage technology has caught up with the mortgage industry's needs, giving mortgage technologists the opportunity to finally realize their vision. Advances in computer processing speed, lower data costs and MISMO[R] data and document standards also help make the vision achievable.
ECM: Not your father's imaging system
For the past two to three years, leading mortgage lenders have been licensing enterprise content-management (ECM) systems to automate loan origination and post-closing lending processes. Many ECM vendors are now in the mortgage industry, including eGistics Inc., Dallas; EMC Corporation, Hopkinton, Massachusetts; Hyland Software Inc., Westlake, Ohio; IBM Corporation, Armonk, New York; FileNet, an IBM Company, Costa Mesa, California; Interwoven Inc., Sunnyvale, California; Laserfiche, Long Beach, California; SourceCorp Inc., Dallas; Vignette Corporation, Austin, Texas; and Xerox Corporation, Stamford, Connecticut.
These systems are more flexible and scalable than previous systems, and lenders are now looking to integrate them with more sophisticated, enterprise-level LOSes that are better able to send and receive electronic documents bi-directionally and integrate documents into loan-processing workflow.
ECM systems can also provide multi-user online access to shared documents. This functionality shrinks loan-processing timelines, and eliminates the labor and expense to photocopy and/or fax documents. It also helps with version control, so that all parties to the loan transaction are looking at the same document version.
But ECM systems in loan origination are still a work in progress. Specialized content-management systems for parts of the lending process--such as compliance, collateral management, closing documents and loan shipping--are more prevalent today.
For example, lenders use Oxford, Mississippi-based FNC Inc. to collect, archive and retrieve loan collateral documents; Tucson, Arizona-based WNS-Trinity Mortgage Services to process post-closing loan files offshore; and Vienna, Virginia-based VirPack to ship completed loan files to correspondent lenders.
Other vendors in this category include Advectis Inc., Alpharetta, Georgia; Capsilon FSG Inc., San Diego; Data-Vision Inc., Mishawaka, Indiana; Epitome Systems Inc., Wayne, Pennsylvania; eLynx Ltd., Cincinnati; Fiserv Lending Solutions, Lake Mary, Florida; Harland Financial Solutions Inc., Bellevue, Washington (the former Interlinq division); Iron Mountain Inc., Boston; Stellent Inc., Eden Prairie, Minnesota; Wolters Kluwer, Amsterdam, the Netherlands; and Virpack.
Over time, however, ECM systems will fill the technology gap between these subsystems and LOSes by centralizing document-management tasks. This is a nontrivial task: For successful ECM adoption, lenders must integrate disparate databases, different source languages and proprietary interfaces.
Next on the horizon
Improved document imaging and workflow are also facilitating the offshoring of mortgage processing and electronic loan file delivery among lenders in the correspondent channel. Lenders are also adopting the mantra of "first touch, first scan," where the first time a paper document enters the lending process it is scanned and remains electronic thereafter. The new vision also includes electronic loan files (ELFs), which will centralize and store most of the paper loan documents and reduce storage in lending subsystems.
For this to occur, ECM must integrate with workflow and business-process management (BPM). Some ECM systems may provide adequate process management, but some lenders will use specialized BPM systems to integrate ECM systems into an end-to-end lending process.
Document management in mortgage loan origination is moving from a relatively static, post-closing imaging and archiving process toward a dynamic, collaborative, end-to-end ECM process that provides all parties to the loan transaction with customized, real-time electronic access to loan documents. ECM is reducing the great paper chase in loan origination, where one party controls the paper original loan file and distributes it multiple times to multiple parties from underwriting through loan closing.
Craig Focardi, CMB, is research director with TowerGroup, Needham, Massachusetts. He can be reached at email@example.com. TowerGroup Research is available to subscribers on the Internet at www.towergroup.com.
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|Title Annotation:||Tower on Tech; Automated documentation|
|Date:||Dec 1, 2006|
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