Mortgage Industry Archives - Cogent QC: Award-Winning Loan Quality Control & Compliance Software

Mortgage Technology – A Whole New World

April 20, 2018 By Kaan Etem

Mortgage technologists gathered this week at the MBA Tech18 conference to talk about the digital mortgage, mobile applications, artificial intelligence, APIs, block chain, and even drones, robots, augmented reality and the Internet of Things. Heady stuff, and a far cry from pre-crisis days. This is not your father’s mortgage technology, and as the pace picks up, there will be a shake-out of traditional players who don’t adapt.

The theme of disruption was illustrated nicely in the two keynotes. By some miracle, Oakland A’s General Manager Billie Beane made statistics interesting and humorous, showing how he teamed with a baseball outsider to ultimately revolutionize baseball. Quicken Loans’ Dan Gilbert and Bill Emerson were equally entertaining in their keynote, as they bantered about how Rocket Mortgage came to disrupt the mortgage landscape. Speaker presentations are available to MBA members here.

With loan origination costs now up to $8,500 per loan, cost reduction through process automation has everyone’s attention. The cool technology is coming but until then, most organizations can pick the low-hanging fruit by automating manual processes, according to several speakers. Paper-based processes, error-prone data entry into silo-ed systems (requiring redundant re-entry), triple checking of work, and many things involving Excel can be streamlined without new technology. We have some ideas about this in our earlier post, in case you haven’t explored them yet. Look for more posts soon covering some interesting ways to think about using technology effectively in your organization.

Are Your Data and Operations Safe?

May 23, 2017 By Kaan Etem

One of our favorite newsletters, published by mortgage industry veterans of 30+ years’ standing, is the Garrett McAuley Report, a no-nonsense look at some of the issues percolating in the industry. The latest edition mentions the relevance to our industry of the recent ransomware attacks that affected most major countries in the world . Here’s their take. How are you positioned for this eventuality?

For more along the same lines, check out their Articles page.

May 21, 2017

To Our Clients, Colleagues, and Friends:

Everyone has heard about the ransomware attacks last week, and our impression is that very few independent mortgage companies are prepared for this sort of thing. About 70-75% of our clients use Ellie Mae’s Encompass, and when we ask about the security of their loan files, the answer is usually along the lines of, “Not a problem. Encompass is hosted.” True but irrelevant if cyber-attacks take down Ellie Mae and you don’t have back-up. Do yourself a big favor and start thinking through all the ways you need to protect yourself.
Think about all the vendors you do business with, and think about how their sudden failure would affect you. As improbable as it seems, what if Ellie Mae failed, or your hedge advisor, or your biggest investor? I asked one mortgage executive how his company would be affected if Encompass made an announcement that they were immediately ceasing all operations. He laughed and said that could never happen, but people also said that about Lehman, Bear Stearns, New Century, and WaMu. I once met a fellow from Chicago, his last name was Kelly, who owned a bunch of banks. Back around 2005 or so, they bought preferred stock issued by Fannie Mae, and that was when Fannie Mae was considered A+ solid. When Fannie Mae was placed into conservatorship, the securities plunged in value, and the FDIC seized all 5 or 6 of his banks.Anyway, I’d say that 90% of our clients don’t do adequate due diligence on their counterparties, and there’s real risk there. Here’s a 13-page guide, Outsourcing Risk, put out by the Federal Reserve on managing counterparty risk, with an emphasis on outsourcing.

Lines of Defense

August 26, 2015 By Kaan Etem

Here’s a good description of the ‘lines of defense’ approach that many financial institutions are taking to quality control, operational risk management and compliance risk management. Without a framework like this, it becomes much more difficult to meet today’s enhanced regulatory scrutiny, increasingly complex regulatory requirements and rapid pace of regulatory change.

HUD Introduces Defect Taxonomy for FHA Lending

July 7, 2015 By Kaan Etem

In a growing trend towards streamlining and standardization of quality control and compliance methodologies, HUD has introduced a Defect Taxonomy in its “FHA’s Single Family Housing Loan Quality Assessment Methodology“. This document lays out the methodology that the FHA plans to adopt to improve its own QA efforts.

Knowing how FHA will be evaluating loans is helpful in designing your own QA program. Particularly useful is the definition of nine defect categories, numerous sources/causes for the defects, and four levels of defect severity. These can be roughly translated in ‘Cogentspeak’ to audit question categories, preset comments, and findings levels respectively.

For those configuring their Cogent FHA audit shells: your work has just become easier and more complex at the same time.

Perspectives on the New Normal in Mortgage QC and Compliance

February 24, 2014 By Kaan Etem

Several articles in the last week have provided useful insights into the mortgage industry’s new regulatory environment and its impact on lenders’ and servicers’ business models. In no particular order, we suggest the following:

Fates of Bank and Nonbank Servicers Intertwined: MBA Chair-Elect

“The rapid growth and increasing regulatory scrutiny of nonbank mortgage servicers could “severely” affect the whole industry, Mortgage Bankers Association Chairman-Elect Bill Cosgrove said. “…we are keeping a very close eye on ongoing regulatory activities aimed particularly at nonbank servicers,” Cosgrove said in prepared remarks. “Nonbank firms have become an increasing part of the servicing ecosystem, and it is clear that they have captured the attention of regulators and policymakers.”

Tight Margins and Reg Changes Prompt New Interest in Outsourcing

“Lenders remain reluctant to outsource for control and liability reasons. But with volumes down and compliance expenditures up, more have, particularly among midsized firms with limited resources.”

Inside look: What mortgage servicing really needs

“According to… panelists, the compliance burden and need to add additional controls and oversight tripled compliance expense over the last couple of years. At the same time, the revenue has been flat and in some cases we have even seen compression in the top line as the bid for MSRs increased.

“But there was general agreement that the current economic model is tough (to put it mildly) for a new servicer, and it might be impossible for a new mono-line single-focused platform in today’s environment.”

Six Strategies to Cope with Servicing’s ‘Compliance Crisis’

“We’ve gone from a default crisis to a compliance one.” How to cope:

Crunch the numbers
Get big or get a partner
Check yourself
Find opportunities
Keep an eye on originations
Mind the big picture

Investors Drawn to Servicing as Banks Retreat

This one is from September 2013 but gives a sense of who the new players in servicing are and why the traditional players are scaling back.

“Private-equity firms and hedge funds are increasing their control of the rights to collect America’s monthly mortgage payments, an almost $10 trillion market that banks are retreating from amid looming regulations.”