PERSON OF THE WEEK: Sanjeev Malaney is founder and CEO of Capsilon, a provider of cloud-based document management solutions to the mortgage banking industry, including DocVelocity, an imaging solution that provides document capture, collaboration, delivery and retention. MortgageOrb recently interviewed Malaney to learn more about how cloud-based technology and ‘data integrity’ are reshaping mortgage lending.
Q: What is the biggest trend you're seeing in the mortgage industry right now?
Malaney: The mortgage industry has struggled with challenges surrounding data integrity for years, but we're now seeing a widespread trend of lenders adopting technology to ensure data integrity. Many lenders still rely on internal staff, or outsourced labor, to verify loan information for accuracy and completeness. This ‘stare and compare’ approach, by which a person looks back and forth across multiple documents to verify that the information is consistent, is time-consuming, error-prone and costly.Â
We're now seeing lenders moving quality control to the front of the loan process by employing technology to extract loan data from the appropriate documents for automated review and analysis. Data extraction technology makes it easy to compare data in the system with data on the original document and alerts the lender of discrepancies as well as missing or incomplete data and/or documents.
Without preventive measures in place, including data extraction technology, lenders are still at risk of making poor lending decisions based on inaccurate and incomplete information. This lack of data integrity increases both financial and compliance risks for the lender. The trend toward adoption of technology to ensure data integrity is positive for the entire mortgage industry because technology can help lenders improve the consistency and quality of loan information throughout the lifecycle of the loan, while ensuring compliance and reducing the cost of validating loan data.
Q: In your opinion, are lenders doing enough to harness the power of technology? If not, how can they do so?
Malaney: Every lender uses technology in some way to run its business, but lenders too often rely on a single system, or a patchwork of systems, that are difficult to update and maintain and that don't sufficiently address the challenges of today's lending environment.
Even worse, many lenders still have paper-based operations, so they are at a huge competitive disadvantage, not to mention at greater regulatory risk, compared to lenders who have adopted technology for every aspect of their business.
More innovative lenders look to best-of-breed technologies to streamline operations, reduce costs and ensure compliance. These forward-thinking lenders understand that specific needs require specific technologies, and they adopt the technologies designed to meet the specific need. For example, these lenders are leveraging document management technology that gives them the robust imaging, indexing, collaboration and data extraction capabilities their loan origination systems (LOSs) are lacking.
Many lenders are also embracing the many benefits of cloud-based solutions. A standard in many industries for years, the mortgage industry is quickly realizing the many benefits of software-as-a-service (SaaS) solutions, including no software to install and maintain, automatic updating of new features, secure access across devices, including mobile devices, as well as secure electronic document retention.Â
Q: Why should a lender who has imaging built into their LOS consider a separate, best-of-breed document management platform?
Malaney: The LOS is at the heart of an originator's operations. Often integrating a number of features, today's LOSs meet many of the needs lenders have. But as the industry has seen dramatic shifts over the past few years, including more regulation, many lenders are rethinking their reliance on an LOS for specific functionality, including document management.
Many lenders mistakenly believe that the data contained in its LOS is accurate. In reality, an LOS is a ‘system of record,’ but the information it contains can be mistyped or manually changed many times throughout the lifecycle of the loan. A typical LOS does not have the capability to compare information with data on the original source documents. This is often done manually using the ‘stare and compare’ approach mentioned earlier. This prevents an LOS from providing true data integrity.Â
A best-of-breed document management platform solves this issue because it maintains a link to the actual ‘source of truth,’ the data contained in the original loan documents, even if the information has been changed. Using data extraction technology, an advanced imaging and collaboration platform provides the ability to extract data from loan documents, validate the data across any number of loan documents and link to the original source document.
This gives lenders the ability to perform quality control (QC) throughout the lifecycle of a loan and to ‘QC every loan,’ not just a small sample. Given today's more competitive and regulated environment, lenders are increasingly integrating a best-of-breed, purpose-built document management platform with their LOSs to realize the best of both worlds.
Q: What is data integrity and why is it so important?
Malaney: Data integrity, as it relates to the mortgage industry, is defined as ensuring the accuracy, consistency and completeness of loan data throughout a loan's lifecycle. Data integrity is important to lenders because without this, they run the risk of making funding or purchase decisions based on inaccurate or incomplete information.
Funding a loan, or purchasing a loan, based on inaccurate data puts the lender at risk if the loan falls into default in the future. And selling loans based on faulty data greatly increases the risk of buybacks and hurts the lender's credibility.
In today's heightened regulatory environment, a lender's focus needs to be on the data, and ensuring data integrity. Ultimately, it's the data that facilitates a high quality business process and contributes to the health of the lender's business.
Q: How can focusing on data integrity help lenders be more competitive?
Malaney: A focus on data integrity means a focus on what's important in the mortgage industry. Gone are the days when loans were funded based on inaccurate or incomplete information – because of the part that ‘bad’ data played in the recent financial crisis and increased litigation, the focus on data integrity has never been greater. Our current regulatory environment places the responsibility on lenders to authenticate loan information throughout the loan process, and regulators have instituted harsh penalties on lenders who don't have proper oversight and controls in place.
A focus on data integrity helps a lender be more competitive because it is funding better quality loans and minimizing compliance risk. Lenders that place quality control throughout the loan process, not just at the end, are more competitive because they are able to identify and resolve issues before closings are delayed, or before it is too late or too costly to remedy the problem. Since they have a focus on data integrity, these lenders are also more attractive to investors who know the lender is producing high-quality loans and minimizing risk.
Better data integrity also means better compliance. To remain competitive, lenders are leverage technology that replaces many of the paper-based, manual processes that are both costly and error-prone. More sophisticated technology also gives the lender the ability to extract data from loan documents to identify missing or inaccurate data immediately, before reaching the underwriter. This helps the lender become more competitive because it can resolve issues quickly before they become costly corrections, or before time and effort is wasted on a loan that will not ultimately be funded, or worse yet, is funded and then goes into default.