A best practice is a process generally accepted as achieving superior results to alternatives. The key to that sentence is “results,” which are subjective depending on your goals. Because the scope of the data and documents relied upon by servicers has blossomed in the last decade into a manually improbable challenge and the margin for error is thin, those goals today are primarily focused on proving compliance. However, business is business, and best practices have to meet the practicality test when weighed against many factors, to include sustainability and cost-effectiveness.
In a recent mortgage industry survey, three pain points identified by servicing executives as “highly challenging” include the following:
- Moving mortgage data from loan origination to servicing systems (21%);
- Archiving and auditing for compliance and customer contact (20%); and
- Onboarding new loans or acquired portfolios (17%).
In today’s fintech-rich environment, best practices are more accessible and the technology required to achieve them is more approachable than ever before. A strategy to marry your strategic vision for best practices with mature technology and strong vendor partners can have you executing servicing processes with more confidence, less risk and higher margins.
Servicers can find best practice solutions to turn the “highly challenging” into very manageable processes using mortgage boarding automation, smart document mortgage management and effective servicing quality control (QC). Although the prospect of implementing such a strategy may seem daunting, the benefits and efficiency greatly outweigh the investment and implementation effort.
Mortgage boarding automation
“Garbage in. Garbage out.” There has never been an effective operations team that didn’t adhere to this mantra. If you can’t rely on some of the data in your system, can you rely on any of it? Mortgage boarding automation provides an effective best practice to ingesting data and documents onto your servicing platform with confidence.
Whether flow or bulk acquisitions or servicing transfers, the mortgage documents need to go into a document repository, and data needs to be extracted. At a minimum, the data needs to be validated against what’s on the actual mortgage documents. Trust but verify.
The mortgage file often comes over as a single-PDF binary large object file (BLOB) of 500-1,000 pages. The acquiring servicer knows whose loan it is but not which documents are included in each file or if the data is accurate. To effectively manage electronic mortgage documents and BLOB files, it is necessary to use advanced document scanning and capture software that includes document classification, optical character recognition (OCR) and workflow automation technology.
Automated document classification and workflow
Advanced document capture software first breaks down BLOB files into individual documents, classifying them by type using MISMO standards (e.g., the mortgage itself, deeds, W-2s, etc.). No advanced capture software classifies documents 100% of the time, so when a document can’t be properly classified automatically, the software routes the document(s) in question to a mortgage expert using automated workflow technology so it can manually classify the document by type.
Once they are fully classified, the documents for each loan are compared with the originator’s or other servicer’s defined list of required documents – e.g., 18 documents for loan type A, 12 for loan type B and so on. If the loan has all of the right documents, it passes and goes into a loan QC queue. If it doesn’t pass, the loan goes into a pending or incomplete loan queue and is followed by an email alert to the originator or seller, as appropriate, to inform it what missing documents are needed so it can upload them. If it does not do so in a timely manner, automated reminders and escalations are sent.
Automated OCR and workflow
Whether from an originator or previous servicer, a QC review is the last step in boarding a loan and ensures that the data now in the servicing platform is accurate. Traditionally, this has been an expensive, labor-intensive, and error-prone “stare and compare” process in which the servicer looks at both the servicing platform and the mortgage documents to ensure the information in the servicing platform is correct.
Today’s best processes use advanced capture software’s OCR engine to automatically extract data from the loan documents and compare it with the servicing platform. When there is a mismatch, workflow automation software automatically prompts the servicer to review the data and determine what needs to be done to correct the error.
The capture platform can also extract additional useful information needed in the servicing platform. One example is capturing the date field so documents can be stored in the right order, including both preliminary and final disclosure dates to satisfy truth-in-lending regulations. Dates can also determine the recency of a document, such as a bank statement. All of the above helps the servicer understand any deficiencies and eliminate risk.
How much time does automation save?
In analysis of origination channels, automated document classification, capture and workflows can improve underwriter performance by almost 70%. In servicing, it is harder to quantify. But anyone who has tabbed through 1,000 pages to find a tax cert knows the value of a well-indexed file, or if you have experienced the adrenaline spike of fear preparing for an audit with thousands of non-indexed files and no certainty that the documents are available or that their data is reflective of your system’s. Throwing dozens of temps at the problem is only slightly less frightening.
Smart mortgage document management
Servicers require secure instant access to their mortgage documents. They also need to satisfy document retention requirements and destroy these documents when no longer needed to eliminate unnecessary liability. Additionally, servicers have general business requirements for back-office document support, such as human resources, accounting and contracts.
Smart document management offers workflow modules to ensure new loans are boarded properly and deficiencies are resolved expediently.
Most loan origination systems and servicing systems have some form of document management capability. However, “document management” usually consists of a simple document repository that does not include workflow automation, document deficiency ID, notification capabilities or reporting. Retention scheduling is not automated, and there is no certified document destruction process. Searching capability is often very limited, and access is only available if the software is loaded onto your desktop and/or you connect with your laptop via VPN.
Servicers require more than a digital filing cabinet stuffed full of PDFs with inconsistent or inaccurate naming conventions and multiple duplicates.
Enter “smart” document management, with instant searchability; workflow automation saving countless high-value hours; automated retention scheduling; third-party and auditor self-service; and the option of “the cloud” to ensure instant access anywhere, from any device, by authorized users. What follows is a breakdown of what smart document management encompasses.
Having documents is important, but being able to find and retrieve the documents you need is critical. Whether conducting daily business or fulfilling Consumer Financial Protection Bureau (CFPB) requirements to provide a requested servicing file to the borrower within five business days, servicers increasingly rely on the ability to quickly identify, action and/or transmit documents. This no longer has to be a stressful, last-minute scramble. Smart document management with workflow automation not only looks for relevant servicing documents in the archive and in the servicing platform, but also renders relevant comments, notes and histories as documents to provide a complete servicing file package.
Most capture software does have a workflow to handle OCR exceptions, but workflow automation is typically a module of the document management software. One example is the identification of, reporting on and acquisition of missing documents.
Workflow automation is also useful when key loss mitigation documents are received. If the borrower loses his or her job, he or she will send in a qualified written request. Once received, workflow automatically logs the receipt, times and tracks each subsequent activity, escalates if the activity is not completed on time, and opens workstations and letter generators in the loan servicing system. This workflow saves significant time and reduces risk.
Automated retention scheduling
Another type of workflow is document retention scheduling. This is used to automatically assign documents for destruction but only after the appropriate person is alerted and authorizes the process. In this way, all government regulations, plus any additional company policies, can be fulfilled. If there is litigation involving a mortgage file loan, it can also be put on litigation hold so the file is not deleted when it would normally reach its end of life.
Cloud document management
Document management in “the cloud” allows for authorized people to securely access all mortgage documentation without a VPN if they are working from home, are in the field or are simply out to lunch – on any desktop, laptop, tablet or smartphone. The cloud option also allows the servicer to pay a monthly fee instead of having to commit to a capital expense and nearly eliminates the servicer’s IT resource requirement.
Back-office document management
The same document management software used to manage mortgage files can also be used to manage any type of back-office document. Combined with workflow automation, document management can streamline invoice processing and the new employee onboarding processes by 90%.
It’s also recommended that servicers conduct servicing QC audits to pass a regulator’s audit with flying colors. Whether you perform servicing QC in-house or use a trusted vendor partner, the CFPB, the agencies, and, increasingly, states all expect mortgage servicers to maintain a robust quality management system. Servicing QC not only is a best practice, but also defines the best practices for your entire servicing channel by protecting your assets. Monthly and quarterly reviews of your findings, trend analytics, and progress on action plans are mission-critical.
The last decade has redefined servicing. Everything has gotten more complex: data, documents, customer service, statements and deadlines.
Given these challenges, many mortgage servicers have questions about compliance: What are the best options for investment in technology? How does one right-size resources to ensure both compliance and profitability? Fortunately, we have also seen the rise of seriously strong fintech companies to complement loan servicing systems, with plenty on their development schedule.
These three achievable best practices can provide meaningful lift to your servicing operation. Mortgage boarding automation, smart mortgage document management and effective servicing QC are three achievable best practices that can provide meaningful control, transparency and risk mitigation. If you are exploring your options, you need to find a strong partner(s) with experience in each of those functions.
Ruth Lee is senior director of mortgage services for MetaSource, a global business process outsourcing firm offering mortgage loan quality, risk management and automation solutions. She can be reached at firstname.lastname@example.org.