PERSON OF THE WEEK: Jim Mortensen is vice president of identity solutions for Early Warning, a provider of automated verification solutions to the mortgage industry. MortgageOrb recently interviewed Mortensen to learn more about how today’s auto verification services have advanced, as well as how lenders, investors and borrowers are benefiting from a faster and more accurate initial loan underwriting process.
Q: By now, much of the lending process has been automated. What’s left? What areas should lenders now focus on and leverage technology to improve?
Mortensen: Although many areas of the lending process have been digitized, the location and verification of asset information has generally lagged. Often, this process is largely paper-based, with the burden ultimately falling on the borrower to locate and present paper bank statements. Lenders must then verify each document they receive from the borrower, requiring significant time and resources. This process also places lenders at greater risk of misrepresentation and fraud.
Lenders should shift to automated capabilities that deliver the required data from an agent of a direct source or from the financial institutions themselves to accelerate the process while ensuring accuracy. During what is typically a trying time for the borrower, lenders should take advantage of the opportunity to improve not just the productivity and quality of their underwriting through a systemic and digitized verification of assets, but also the experience for the borrower.
Q: For years, the underwriting process has required borrowers to collect and present financial documentation. How is this practice outdated, and what might make it risky?
Mortensen: When I got my first mortgage 25 years ago, I recall the paper documents and statements I provided; today, the process remains largely unchanged when automation is not employed. Back then, consumers did not rely on technology as we do today; therefore, the process made sense. However, with technology improving almost all aspects of our daily lives, requiring a borrower to collect and submit bank statements perpetuates a perception of a slow and archaic financial system.
All too often, the burden of validating assets starts with the borrower, who provides paper statements, moving then to the lender to validate the assets provided and finally to the government-sponsored enterprise (GSE) to aggregate the manual requests from disparate organizations.
Beyond being inefficient and resource-intensive, this outdated process poses increased risk and can hinder available capital for lending based on representation and warrant relief requirements. Paper documents are much more easily forged, with the technology available today at criminals’ fingertips. Putting the onus on the borrower prevents the lender from having complete confidence in the asset and identity data they receive, leaving them at higher risk for fraud and financial misrepresentation. About 85% of the approximately 8.7 million mortgages originated in the U.S. are sold into the secondary market and securitized. Early Warning is in a position to provide data points to both financial institutions and GSEs – allowing both capital relief for lenders and increased risk aversion for the GSEs.
By giving the same depository asset information to the originator and the GSE, the participating financial institutions will incubate themselves from repurchase action and enterprise risk.
Q: As competition among lenders rises, service and loan quality is essential. What can lenders do to ensure they can make decisions that are both fast and sound?
Mortensen: A viable and sustainable way to truly improve speed, quality, security and customer experience is through industry collaboration and the automation of traditionally manual processes. It is critical for lenders to access a broader set of data to verify the liquid assets applicants claim by utilizing data directly from the source in a secure manner.
There are certainly a number of automated verification services, but thus far, these have lacked functionality and soundness. Some lenders already leverage these services; however, their coverage relies on screen-scraping to aggregate data from sources and often even requires borrowers to surrender their online banking credentials to verify assets in an automated fashion. However, this is not recommended and, in fact, is directly contrary to what banks advise their customers. Borrowers should never provide login credentials, as this creates a greater risk of compromised data that could lead to data misappropriation and third-party fraud.
Q: What are the benefits of automating certain aspects of the loan application and secondary market underwriting process?
Mortensen: We’ve talked a lot about how automation brings value to lenders and borrowers, but GSEs benefit significantly from a more digitized system, as well. Just like lenders, GSEs must ensure that assets are verified and are often doing so in the same, manual way. Instead, they should use technology to more easily and directly access the data used in the initial underwriting process. When they receive a loan file they have purchased, the fast availability of asset verification evidence eliminates the need to re-validate this information. As a result, they can have confidence that the loan conformed to their underwriting standards.
And for borrowers, automating liquid asset verification dramatically streamlines their requirements and exemplifies the type of convenient, technology-driven experience they have come to expect.
Q: Early Warning has a bank consortium model. What role does that play in the technology you’re providing in terms of enabling automation for lenders and also reducing risk?
Mortensen: Early Warning has more than 25 years of experience serving U.S. banks in risk mitigation and payments. Operating in a trusted custodian role to bank-contributed data provided to the company’s national shared database, lenders, borrowers and the GSEs benefit from the timeliness and accuracy of this collaborative industry effort.
Given the issues resulting from the recent financial crisis, the requirement to obtain and verify asset information will not go away any time soon. Our asset search and verification service for home loans is the only solution available today that provides financial institutions and GSEs with an automated means to search and systemically verify borrower assets in a safe and secure fashion. Not only does this remove the burden, risk and inefficiencies associated with borrowers providing bank statements, but it also may help enable representation and warranty relief for lenders, thereby freeing up capital for additional lending to drive revenue growth.
Lenders can ultimately close loans faster and decrease the loss of revenue and loan velocity associated with having their capital tied up in the quality control cycle. And through automation, the solution mends the information dichotomy that occurs when GSEs access underwriting documentation subsequent to the original asset disclosure, improving the quality of the loans they are purchasing while reducing both credit risk and fraud.