When it comes to applying technology to automate processes and increase transparency for consumers, the mortgage industry has come a long way. But mortgage lending doesn’t just involve transactions between lenders and borrowers. Beyond what the borrower sees, there are many more transactions that take place among wholesale lenders, correspondent lenders, servicers, investors and other parties. In fact, more than 50% of origination volume flows through wholesale and correspondent channels, while mortgage servicing rights transfers impact nearly every loan originated. All of these are B2B transactions.
Sadly, automation and transparency are critically lacking among these transactions — so much so that it’s slowing down mortgage timelines, creating unnecessary costs, and even impacting the consumer experience.
There are many reasons why this is the case. One is the fact that originators, wholesale lenders, correspondent lenders, investors and servicers all use disparate technologies that do not integrate well with each other and cause friction for these transactions. For example, the average correspondent lender partners with 10 different investors, most of which are using different systems and have different stacking order and data requirements, which drags down efficiency and adds costs for all parties.
Another contributing factor is the widespread lack of data standardization and technology sophistication between parties involved in B2B transactions. For instance, currently, there are no standard processes for the exchange of information in MSR transactions — creating a high degree of variability in terms of how documents and data are transferred, with dissimilar processes that are complicating transactions between buyers and sellers. This too creates an environment that’s laden with friction and costs to manage risk. The problem boils down to a lack of portability of data, whether it’s digital or contained in documents, that can be trusted between parties.
The current pandemic and its capacity challenges have also exacerbated these issues. Everyone is so overwhelmed with volume that they have not taken the time to evaluate new technologies that could improve matters, let alone invest in and implement them. In fact, many companies aren’t even aware of all the tools that are available to improve transactions or how to use them.
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Clearly, all channels could use automated technologies that are configurable based on the requirements of individual buyers, which would enable faster loan portability by normalizing data and document delivery. When combined with data standards, such technologies have the potential to transform the secondary and servicing market, deliver more consistent outcomes for all parties, and establish a more natural alignment of priorities between B2B participants.
We already have some of the tools to make it happen. For example, cloud native applications, machine learning, blockchain and other emerging technologies have been proven to vastly accelerate and improve B2B transactions by digitizing and transferring data soundly and securely. These automated technologies can be aided by new B2B data standards, which will make sure loan files and data are portable between sellers and buyers. In fact, the Mortgage Industry Standards Maintenance Organization is in the process of creating new standards and best practices designed to improve the quality of MSR and loan acquisition, making it faster, more transparent, predictable and trustworthy.
As these tools begin to be deployed and we move into the next stages of frictionless commerce, there also needs to be an ongoing assessment as to whether they are being used properly and consistently to achieve a solid return on investment. This evolution will require a focus on training and changing behaviors, as well as feedback that will drive continuous technology and process improvements.
There are some promising examples of how some of these technologies are already yielding massive results. For example, Freddie Mac’s online tool, Freddie Automated Servicing Transfer (FAST), has streamlined the transfer of MSRs by extracting information from imaged documents and standardizing and simplifying the exchange of documents and data. For lenders, this removes the burden of managing the requirements and processes for every individual servicer, while simultaneously eliminating time-consuming manual tasks. FAST is backed by data extraction and document processing automation technologies that use machine learning and other sophisticated algorithms to transform digital images and scanned documents into verified and validated data.
Such achievements are just the beginning. There is much more work to be done, and it won’t be easy. B2B transactions are extraordinarily complex, so it will take the involvement and collaboration of many participants to remove friction on a wide scale. As the B2B space catches up to the same speed and efficiency that is currently being achieved in B2C environments, you start to see the results will be well worth the effort. And the time to start is now.
