A series of conversations with mortgage technology vendors is making it clear that there is a really good selling point to these products: this stuff is vital to meeting Dodd-Frank compliance.
Next Tuesday, I'm moderating the “Automating Loan Quality” panel at the MBA Operations Conference in Grapevine, Texas, and have been speaking to people in the space in order to see the world from their eyes.
For all of the trepidations the new regulatory regime brings, mortgage technology more than ever is in the business of selling comfort. And it might just be worth the cost.
"Technology is going to play a larger role in cost-effective operations in the sets of changes brought on by Dodd-Frank and other regulations," said Jonathan Corr, chief strategy officer for Ellie Mae.
"On the mortgage side, everything is being touched with new standards: TILA. YSP, appraisal changes...anyone who thinks they can get by on a rinky-dink point-of-sale system is going to have a difficult time adjusting and not able to reduce risk cost-effectively," he said.
To Corr, mortgage processing is essentially a manufacturing model and anything that falls outside set tolerances will still require the eyes of artisans. But anything that's repeatable, process or heavy lifting -- anything that's rudimentary black and white -- should be taken care of by outsourced technological firms.
Darius Bozorgi, chief executive of Veros, is a firm believer that investing in better technology is the only way to control rising costs under regulatory reform.
"Dodd-Frank calls for a second appraisal, which can not be passed to the borrower, so technology becomes critical from a cost standpoint," he said. "It also helps from an audit perspective, in order to meet regulatory compliance."
And it's interesting to see how even the really established tools, such as FICO 8, are evolving to remain competitive.
When Joanne Gaskin, FICO’s director of global scoring solutions, pushes FICO 8 in the mortgage space she mentions that lenders and servicers can expects to see a 15% to 20% predicative lift in repayment behavior regardless if its a 15-, 20- or 30-year product.
But now she has fine tuned the service: "We not only considered the loan-by-loan basis, but also the portfolio angle by applying these to pools of mortgages."
"In this regard it helps in stress testing to meet current and future capital requirements and show regulators that servicers are doing their part to meet those new requirements," Gaskin said.
Investing in the right mortgage technology will show regulators that your business is in order, regardless of what tomorrow holds.