BLOG VIEW: Everyone knows that compliance will continue to be a huge challenge for mortgage lenders this year. Between high per-loan costs, constantly changing investor guidelines, new disclosure forms and the Consumer Financial Protection Bureau's increasing efforts to root out bad actors, the challenge seems so big that it can be difficult to wrap one's head around what to do.
What follows is my list of three essential things lenders need in order to have safe, healthy and prosperous 2015. If these items aren't on your wish list, I strongly recommend adding them:
1. Regular operational risk audits. For many small and midsize lenders, the concept of a single operational risk audit sounds intimidating, let alone several. Besides helping lenders learn what unknown dangers may lurk underneath their processes, operational risk audits can identify gaps and inefficiencies that can lead to real dollars saved and increased profits.
At its core, an operational risk audit enables a lender to build a compliant business while reducing exposure to future risk. It also provides a chance to fix current problems before they get worse. It's preventative medicine, and with the right help, it's not complicated. In fact, operational risk audits can be boiled down to three simple steps:
- Examining current processes and identifying any potential risks;
- Prioritizing each of the risk areas by severity and potential impact; and
- Creating and implementing a risk mitigation plan.
I put operational risk audits at the top of my list because they're the most important things lenders can do to avoid trouble. The best approach is to find a partner that has expertise conducting audits for other lenders and, thus, has a large knowledge base of results to pull from. Yet, the partner should customize any solutions to match the lender's unique needs.
2. Automation. Lenders are facing very high per-loan costs that are only likely to get worse if they continue to address compliance by simply hiring more staff. Few lenders are leveraging technology to its fullest extent, mostly because the list of mortgage processes that can be automated never stops growing. With so many solutions on the market, lenders also need help identifying where automation can be best utilized and which solutions best meet their needs.
How important is automation? I have seen that when properly implemented, the right level of automation combined with process excellence can help lenders reduce the occurrence of loan file errors to less than 1%. I've also seen them lower the turn times for key processes that used to take three or more days to less than one day.
Automation also ensures a higher level of transparency and data accessibility, which makes managing compliance so much easier. Why hire extra staff to read hundreds of pages of mortgage documents line by line when technology enables lenders to scan digital files for errors and inconsistencies in just seconds? Automation delivers speed, accuracy and confidence that lenders will need this year and beyond.
3. Flexibility and scalability. It's impossible to predict how many people will buy homes or refinance their mortgages this year. But, that's exactly why lenders need processes in place that can be scaled up or down as needed, with little to no impact on operations or customer service. If lenders are unprepared, a large spike in origination can disrupt the lender's compliance processes and create additional risk.
For many, outsourcing processes gives lenders the scalability they need at costs they can afford. Many specialized third-party providers offer per-file and pay-as-you-go pricing models, for example. It can also make sense for lenders to access overseas providers, which open up 24/7 customer service and allow lenders to ensure faster response times and do more with less.
By creating such a short list, I certainly do not want to oversimplify the challenge ahead. Everything I've mentioned requires significant time and effort. But, the time to act is now, while origination volume is relatively low – and before it's too late.
Nicolle Nelson is vice president of business development at SLK Global, a provider of BPM solutions to the mortgage banking industry.
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