December 16, 2013

As 2014 dawns, the mortgage banking industry is facing a crossroads. New regulations from the Consumer Financial Protection Bureau will require banks to have even more extensive documentation on the loan process from beginning to end. Meanwhile, a market downturn means banks will be trying to increase mortgage revenue — or even keep it flat — with a decrease in customers.

However, there are also some signs that technology can help mortgage bankers through these turbulent times. The promise of increased automation and use of e-documents means more efficiency and cost savings for what has always been a paper-intensive process. If banks can hold steady through 2014, there could be light at the end of the tunnel.

According to Jay Brinkmann, chief economist for the Washington, D.C.-based Mortgage Bankers Association, loan origination levels are predicted to drop around 32 percent less in 2014 compared with this year. This is largely because of a “big drop-off” in refinanced mortgages, he notes. This means banks, which have relied heavily on refinanced customers over the past several years, will have to change their focus to attracting purchased mortgage customers, he says.

But Brinkmann says independent mortgage shops have been much better than banks at acquiring that segment of customer, because they attract more aggressive loan officers by generally offering better commission compensation.

“There’s a perception that banks have simply relied on their name brand to bring in refinance applications,” Brinkmann says. They will have to invest in retraining their lending workforce or recruiting loan officers with different skills.

All of this upheaval has left many in the industry simply looking for a degree of predictability, says Clayton Baker, national banking practice leader for Ernst & Young http://www.ey.com.

“With the market shifting from a refi to a purchase market, it’s caused everybody to step back and look at the large picture and say, ‘How are we really gonna make money in this business?’ ” he adds.

While the mortgage banking industry is most concerned with “stabilizing the environment,” there will be a need for institutions to invest more in their loan architecture going forward. That’s not happening right now, but Baker says the next two to three years “will really move the needle” in that regard. He says data management, document management, and mobile will be likely areas of investment in the mortgage industry.

The MBA’s Brinkmann also believes technology will play a large role in helping banks do “more with less” in the current mortgage landscape. Some banks, he says, are investing or looking to invest in better quality-control systems, such as those that can capture errors or inconsistencies in paperwork automatically, rather than having to wait for an underwriter to discover it. This can lighten the workloads of internal employees and lead to greater efficiency among the workforce, he notes.

The industry also is looking at how to better use imaging in the mortgage origination process, says Brinkmann. While e-documents and mobile image capture technology are widely used in other parts of banking, the mortgage process is still one that is paper-heavy. Banks have begun to use imaging somewhat in the mortgage process, but “it usually involves scanning documents that start as paper,” Brinkmann notes. “We have been working on a true electronic mortgage [where even the original document isn’t paper], but we’re not totally there yet.”

That’s a goal that First Niagara (Buffalo, N.Y., $33 billion in total assets) is working toward as well. The bank implemented Fiserv’s Unifi loan origination system last year in order to gain efficiencies in servicing loans by capturing pertinent data earlier in the process and automating certain processes, says Tom Faughnan, senior director of residential mortgage for First Niagara.

Faughnan says First Niagara is seeking to explore how imaging and automation can be brought further into the mortgage process. He says there’s a “considerable amount of automation” that can be used in the loan origination process. Regulatory statutes require that banks keep physical paper records of certain key documents, such as a title policy, but many of the documents can be electronic.

Faughnan hopes to be able to invest in new imaging technology that can do just that with an eye toward making the entire mortgage process less paper-heavy and eventually introducing e-signatures for loan documents.

“From a workflow perspective, having an imaged work file is critical and something we are working toward,” he adds.