The documentation that forms the basis of the mortgage loan transaction includes the legal disclosures and the detailed repayment agreement between the homeowner and the lender. For reasons of legal compliance, this documentation must conform to local, state and federal laws related to the lending of money collateralized by real estate. To mitigate against catastrophic loss in the case of default, the documents must also stand up in court, comply with applicable law, and meet investor requirements.
Because the documents used to create a mortgage loan differ by jurisdiction, it is not preferred for lenders to handle the document preparation work on their own and so they outsource it to expert firms. In this blog, we will spotlight the benefits of dynamic digital document generation, answer key questions about mortgage loan documentation, and provide numerous links to additional information.
Of all the tech the mortgage industry has developed and implemented over the past forty years, the innovations made to loan documents have had the most visible impact on borrowers. The forms we generate mark the primary touchpoints with the consumers we serve.
Today’s leading doc prep platforms are some of the most sophisticated systems the lenders depend upon. Every year, we continually innovate to optimize the efficiency and experience for the lenders and borrowers we serve. For mortgage and consumer lending document technology, innovation is being driven by a combination of cost savings, compliance, and improving the experience for the borrower.
How compliance is driving doc prep technology development
Compliance impacts nearly every facet of mortgage lending, and lenders are always working to mitigate the expensive risk of non-compliance. Regulators have targeted mortgage documents because that is the interface with the consumer. Long and confusing documents are a source of borrower dissatisfaction. Regulators have tried to increase the clarity and reduce the size of mortgage disclosures with new regulations such as TRID. These efforts have received mixed reviews by industry and consumers, but are a step in the right direction.
Secondary Market Document Compliance
For mortgage lenders, document compliance also extends into the secondary market. To lower their risk of loss, investors will often place overlays on top of the legally prescribed rules to make sure they do not run into problems down the road.
Lenders are working within a constantly shifting regulatory landscape where any potential change to the law can create ambiguity, which results in uncertainty in the secondary mortgage market which can be exacerbated by the use of overlays.
Since there are no uniform instruments for secondary loans published by Fannie Mae or Freddie Mac, lenders are operating in a gray area, where each lender may utilize different forms. This can make it difficult to know how certain state requirements should be incorporated into a document and many lenders will have different interpretations, resulting in diverse loan documents.
The solution is to utilize technology to mitigate risk, which is exactly what the best document preparation partners have done. By leveraging the LOS and document technology to allow tighter controls, data tracking and audit capabilities, lenders can adapt to the double layer of regulator and investor requirements.
This is much more efficient than trying to meet these requirements manually. For example, Docutech’s technologies enable secondary market loan officers and investors to run analytics on loan files and track data points without paper. A powerful link between the ConformX dynamic document generation engine and a lender’s LOS ensures that the data is accurate and secure. An audit trail completes the compliant solution.
When it comes to originating and selling digital mortgages into the secondary market, Docutech’s Solex eSign and eClose technologies play a critical role. These tools add an information overlay that ensures the data in the loan file is accurate and meets all requirements. Technology’s role in maintaining document compliance cannot be underestimated when it comes to success in the secondary market.
When it comes to document compliance, having a good strategy for dealing with regulatory and investor requirement changes is vital. We counsel our clients to face every new regulation with the “Three C’s of Document Compliance” – comply, communicate and cooperate – to evaluate and select the right document management provider to ensure that no documents “fall between the cracks” and are fully compliant.
Compliance in the consumer lending space
We’re not just talking about mortgage lending. Documents for consumer lending are also subject to significant regulatory oversight. Some basic compliance concerns for consumer lending consist of:
Company licensing and how this will affect loan documentation.
The lender’s licensing can affect the specific products and features offered by the lender. These requirements may also impact the number and type of disclosure documents the lender is required to provide to borrowers. This may require a new integration between the document preparation vendor’s system and the lender’s loan origination system.
The use of arbitration agreements.
These agreements are still used in the consumer lending space. While the CFPB has made public statements that suggest the Bureau is against the use of these agreements, Congress and the current Administration have not allowed the Bureau to take them off the table. Lenders should be mindful of what arbitration clauses they choose to include in their agreements.
Ensuring compliance requires a move to digital
If you are currently working in the residential mortgage finance industry, you are very familiar with the push to the digital mortgage. There are many reasons that lenders and servicers want to get rid of the paper and go fully electronic. One of the most significant benefits of digital lending is increased ability to document and prove compliance.
Because financial services companies must provide documentation and audit trails to regulators, keeping that information electronic is the very best way to organize and maintain it. Electronic systems also help avoid re-keying errors, the most common type of errors found on loan documentation. From a compliance standpoint, the most significant benefit eDocuments provide is greater data integrity.
Electronic documents are stored in one place (the eVault) from which they are made available to any party within the mortgage chain. If any changes are made to the eDocs, they are at once applied to all related documents and then made available immediately to all parties. In this way, all parties are assured that there will never be differences between the data in the system and the information on the documents.
From a doc prep standpoint, going electronic allows the lender to make the move from static to dynamic loan documents. These data-driven loan documents are created as needed, combining the right information for each loan program and borrower. Changes are made electronically and the documents themselves are often signed electronically, too.
They support a more robust investor compliance framework as well. When the documents are ready to go to the investor, they are sent to the post-closing department electronically, checked for accuracy by quality assurance and then sent on for funding.
The many benefits of dynamic loan documents
While compliance may be the driving force in the move to dynamic loan documents, this approach provides many other benefits as well. First and foremost, they allow the lender to deliver the level of customer service expected by borrowers.
As we have pointed out elsewhere on this blog, success depends upon the ability to deliver a streamlined and digital experience to the customer – one that enables the borrowers to feel more knowledgeable and empowered in the process.
That’s because in the lending process, the customer’s experience is impacted primarily by the many documents a consumer must read, sign and deliver. Documents are the touch points for much of the lending process. Accurate and easy access to these documents and their processing can be the difference between a frustrated borrower and satisfied customer.
To achieve this, you must optimize the delivery of an exceptional customer experience by focusing on the manner in which documentation is delivered to your borrower, recovered from them and then processed. On the front-end of the mortgage origination process, electronically delivering initial disclosures and allowing the borrower to eSign from any device at any time is key. Extending that digital document experience all the way through to a full eClose is a game changer. This is one of the most powerful ways the right provider can help any lender deliver an excellent customer experience.
How dynamic docs improve the borrower’s experience
Delivering an excellent customer experience is absolutely possible with dynamic loan documents. In fact, we have identified 3 ways digital document management improves the borrower’s experience.
- Dynamic mortgage documents can make it easier for lenders to create processes that ensure the borrower is not asked for the same information twice; something we know degrades their experience and reduces their overall satisfaction.
- It adds checks and balances to help ensure the data on the documents is accurate and complete. In fact, good document technology is better than RegTech that sits at the end of the process flagging loans that are already a problem post-closing.
- Finally, dynamic documents ensure that the information gets back to the borrower faster. This is critical as every moment the borrower must wait for information on their loan their dissatisfaction with the process grows.
The drive to reduce lender costs
Of critical importance in the current market is the ability to reduce overall lender costs. Today, managing the full lifecycle of a loan is more expensive than ever, due in large part to changing regulations. If lenders cannot find a way to reduce their costs of origination, they may find it impossible to profit in the mortgage business.
According to HousingWire, loan production expenses have averaged about $6,224 per loan from 2008 to 2018. These expenses increased to $8,957 per loan in the first quarter of 2018, up from $8,475 per loan in the fourth quarter. Lenders must find a way to streamline the loan process if they hope to decrease the time and money required to originate a loan.
Fortunately, these high costs can be mitigated, in part, with the right document technology. By implementing a dynamic mortgage loan doc prep solution, institutions can standardize processes across all applicable regulatory changes well in advance of the deadline. By combining technology and compliance, institutions can easily achieve their efficiency goals and reduce costs.
While loan document preparation technology can provide vital operational benefits for the overall mortgage process, it can also lead to greater efficiency in a variety of other areas, such as on-boarding and training employees and maintaining a positive customer experience. All of this contributes to lower overall costs to originate.
Finally, a fully digital process for document preparation and delivery contributes to the lender’s goal of continuous process improvement. The best lenders are committed to programs of continuous improvement and those that adhere to principles such as those delivered by the Six Sigma program deliver significant benefits. This is viewed favorably by both regulators and investors.
Finding your path to digital documents
The path to digital lending is fraught with peril. This is because there are too many options that are expensive, difficult to implement and maintain and fail to produce the desired result. Fortunately, achieving a fully digital process is possible and has been achieved by many lenders who are succeeding today.
Much depends upon choosing the right partner, and so we have provided a great deal of guidance on our website that will aid any interested party in winnowing down the options to find the trusted partner they seek.
If you’re ready to take your operation digital and benefit from a process powered by dynamic documents, be sure to see:
- Two key qualities your Doc Prep Partner should posses
- Three critical capabilities your next Doc Prep Partner must deliver
- Three often overlooked things every CIO should ask about loan document software
- What sets good Loan Document Providers apart: Clues to Success
In this article, we have discussed how compliance has driven changes in document preparation and delivery and how the need to provide a better, fully electronic experience to the borrower has resulted in the need for dynamic documents combined with eSignature and eClosing technologies.
These electronic loan documents are created as needed based on the data in the lender’s system. They are safe, secure and more reliable than paper loan documents, and they offer a degree of data integrity well beyond that afforded by paper documents.
Finally, we have provided some guidance for those lenders seeking a new doc provider. Far and away the best way to evaluate a new doc prep relationship is to contact the prospective provider, see the technology they offer and meet the people who will be responsible for helping you optimize your loan origination process.