The Holy Grail of Loan Processing

Though no mortgage lender has yet created a fully automated end-to-end loan process, the industry is moving closer to a paperless mortgage. "There are pieces that are getting easier every day," says Keith Luedeman, CEO of goodmortgage.com (Charlotte, N.C.). "We're finding it more common to do automatic valuations for appraisals, and often these days the appraisal never gets printed," he says.

As an Internet-only lender, the company has invested heavily in the front end of the loan transaction. In addition to its own Web site, the company has joined the Lending Tree network and licensed the network's Lend-X ADE, a rules-based automated decision engine that checks credit scores and issues a loan offer based on pre-defined criteria. "Before, we could just quote rates based on assumptions," says Luedeman. "Now, we know what [an applicant's] credit score is, we know what loan to value and we can provide them an instant pricing offer."

In some ways, Internet lenders have a leg up on brick-and-mortar mortgage lenders. "We don't have the overhead of all those legacy systems," says Luedeman. "We can build from the ground up, which means we really can pass some of those pricing advantages on to our customer."

In fact, many lenders that have achieved efficiencies in loan processing are passing on the savings to mortgage applicants as a way to increase market share, according to Craig Focardi, senior analyst in the consumer lending and bank cards practice at TowerGroup (Needham, Mass.). So why haven't more lenders made the move to straight through mortgage processing? "It's a highly complex process, but that doesn't mean many lenders haven't made significant strides," says Focardi.

In a recent research report, Focardi identified four technology categories he believes will have the largest impact on mortgage lending process automation during this decade. They include enhanced automated underwriting and credit scoring technology; enterprise document management; business process management; and electronic mortgage closings.

While progress is still needed in all of these areas, much of the groundwork has already been laid. "The good news within the mortgage industry is that there are some well-established and developing standards for data exchange." In addition to electronic data interchange (EDI), the Mortgage Industry Standards Maintenance Organization (MISMO), a group sponsored by the MBA, has developed a broad series of XML-based standards for data transmission. "Between that and Fannie Mae and Freddie Mac data file delivery standards, that facilitates integration," Focardi says.

The MISMO standards will help define a smart doc, according to Dave Williamson, senior vice president of technology and strategic initiatives at consultancy The Performance Group (Concord, N.H.) and a member of MISMO. "A smart doc is what we all dearly hope eventually replaces all this paper," he says. By combining the view of the document and the data in one XML format, data collected during the loan process is perpetuated throughout the systems automatically and electronically.

Though the technology is currently at a point where it's usable, Williamson says he doesn't anticipate the industry moving to a true e-mortgage for 100 percent of mortgages any time in the near future. Lenders' biggest concerns are gauging return on investment and determining the best way to start a project of this size, he asserts. "I think very few of them can afford to rip out every legacy system they have now and go to one of the larger vendors that are offering one of the end-to-end platforms," says Williamson. "It's such a huge investment and such a large amount of risk that it's hard to make the decision that you're going to go fully e-mortgage."

He suggests starting with the piece that's most important to the business. "You can do something as simple as the recording of your documents electronically, start with smart docs at the front of the process or work," says Williamson.

As for the ROI part of the equation, studies done by the eMortgage Alliance, a group founded by DocuTech Corp. (Idaho Falls, Idaho), and of which Williamson is a member, have shown savings of $1,200 to $1,500 for mortgages processed electronically from point of sale to closing, according to Williamson.