After dominating industry discussion for nearly two years, the TILA-RESPA Integrated Disclosure rule (TRID) went into effect on Oct. 3. Leading up to the effective date, lenders placed their bets on how best to comply with TRID, and their solutions are now in place. For the majority of lenders, these solutions include increasing head count. In fact, in a recent survey conducted by Capsilon Corporation, 67% of the lenders polled reported that they had hired additional in-house staff or engaged with outsourced labor to handle compliance-related activities, including managing TRID compliance. But is a labor-based approach to TRID sustainable in the long term?
As lenders begin working in a post-TRID world, it’s critical that they not only evaluate the effectiveness of their approach to TRID, but that they also take this opportunity to re-examine their entire loan-production process. This re-examination is critical for lenders to understand how they can optimize their entire loan workflow to shave hours and days off of loan production times; hours and days they can recapture for use in meeting compliance requirements, including TRID’s three-day rule.
In the run-up to TRID, most lenders defaulted to an approach to TRID that included an increase in head count, either by hiring more staff or engaging with outsourced labor. While “staffing up” seems to be a popular approach to handling compliance issues, it is unsustainable for a number of reasons.
First, with nearly 1,000 compliance changes since 2008, adding labor to address compliance issues is getting expensive. Identifying, hiring and training qualified staff is time-consuming and costly, not to mention that loan turn times slow as the new hires get up to speed.
This approach isn’t scalable and doesn’t allow lenders to respond immediately to new regulations, or to changes in loan volume, without additional hiring and training. And quality suffers as “green” help is more prone to errors – the types of errors that TRID is designed to address.
And whether a lender adds in-house or outsourced staff, personnel-related loan production costs increase, sometimes to levels that are unsustainable. In the Capsilon survey, 80% of respondents said that their loan production costs will continue to rise in 2015, an increase driven by personnel costs. This increase is supported by a recent Mortgage Bankers Association report that states that personnel-related loan production costs now average $4,000 per loan, an amount that is more than double what it was in 2009.
Clearly, rather than adding labor, lenders need to look to technology to manage compliance and lower loan production costs.
So now that lenders are well on their chosen paths of TRID compliance, what happens next? In a post-TRID world, lenders should ask themselves: Is a labor-based solution to TRID sustainable for our business? Is it possible to satisfy TRID’s three-day rule with our current workflow without lengthening time to close? Is our workflow optimized to achieve the turn times we need? Do our current operations support our targeted loan production costs?
Lenders must use TRID as a lever to help identify the weak points in their entire loan-production process that need to be addressed to achieve more profitable operations.
It is imperative for lenders to examine their entire mortgage operations to see what can be done to save time and satisfy compliance requirements, all while reducing total loan-production costs. To do this, lenders need to turn to technology to automate key steps in the loan production cycle, from loan onboarding to TRID tolerance checks and post-close compliance.
The right technology reduces the labor required to manufacture a loan by up to 80%, speeds loan turn times, and increases loan quality by introducing consistent, repeatable processes that minimize human error. For example, automated document recognition technology can dramatically speed the onboarding of loans by automatically identifying, naming and indexing more than 250 common loan documents to create an electronic loan folder.
This radically reduces the time and labor required to name, sort and compile loan folders. The technology also provides notification of missing documents, giving lenders the information they need to immediately rectify the problem so they are onboarding complete, compliant loan files.
As another example, data-extraction technology can be leveraged to extract critical data from a number of loan documents, compare values, run the data through a rules engine, and provide alerts on any values that fall outside established parameters or tolerances. Only if a document contains a data point that falls outside of the rules parameters would it be sent to a human for review. This approach is ideal for automated TRID tolerance checks, automated pre-funding and post-closing quality control, and other compliance checks.
Using an exception-based model, where human intervention is required only if something falls outside of established parameters, eliminates the costly and time-consuming “stare and compare” approach and the multiple touches used by many lenders today to ensure data integrity. And using technology not only saves labor costs, but it expedites the process and eliminates human error. This approach is also highly scalable, so capturing additional data points to comply with new and expanded regulations is easy and doesn’t require additional labor and training.
And, because of the costly and time-consuming nature of manual quality checks, lenders typically send only a small fraction of loans through a quality control process, even with today’s mounting regulatory oversight. Quality control is usually performed by in-house staff or an outsourced third party late in the origination process, or even after a loan closes. This drastically reduces the ability to take cost-effective corrective actions, leaving the lender vulnerable to compliance risks. With an automated approach, quality control moves to the front of the loan process and it becomes feasible for lenders to perform quality control for 100% of loans.
Technology that supports the electronic signing of borrower disclosures and other mortgage documents is another technology that shaves valuable time off the loan-production cycle and saves costs. Rather than printing, assembling and shipping disclosure packages, forward-thinking lenders are adopting eSignatures technology that automates the process and offers borrowers a straightforward, intuitive electronic interface for signing documents. Technology not only streamlines the process and ensures compliance, but eSignatures technology also improves the consumer experience as the general population is becoming increasingly comfortable with electronic transactions.
And, as many of us have experienced, lenders lose valuable time trying to resolve issues with loans in time-draining ways, as efficient collaboration is impossible to achieve by exchanging emails and searching through email threads for documents or clarifications. This problem is being magnified in today’s highly regulated environment, as collaboration on compliance issues is critical.
The right technology can help here, too. Innovative document management solutions provide the ability to securely collaborate with co-workers, service providers, borrowers and other parties by providing secure “workspaces” where lenders can invite trusted stakeholders to collaborate and upload and share documents.
The practice of emailing and faxing documents that contain sensitive information in the clear should be obsolete, as technology provides a secure, more efficient alternative. Efficient collaboration helps resolve issues faster, shaving more valuable time off the loan cycle. And all communications and actions in the secure workspace are included in a comprehensive audit log, which aids with compliance.
This brings us back to TRID. The TILA-RESPA Integrated Disclosure rule represents a major sea change for the mortgage industry. And forward-thinking lenders are realizing that in the “post-TRID” world, it’s critical to examine the entire loan-production cycle to not only ensure compliance, but to ensure viability in our new, highly regulated, competitive mortgage-lending environment.
Smart lenders are leveraging technology to gain a competitive advantage. The right technology automates key steps in the loan production cycle, saving time and labor costs. And the hours and days saved through automation can help lenders buy back time needed to comply with regulatory requirements including the TRID three-day rule.
As loan production costs continue to increase, with compliance-related labor a big component of that increase, lenders need to re-examine their mortgage operations to understand how technology can help automate not only compliance checks, but the entire loan-production process.