Jim Paolino of Lodestar Software Solutions on the ‘Slow Crawl’ Digital Revolution

Jim Paolino grew up in the mortgage industry, learning the ropes with his family title agency. At age 26, he founded LodeStar Software Solutions, which has become a national provider of compliance data for the mortgage and title insurance industries.

MBA NEWSLINK: For a few years, the talk of the industry was “the digital revolution.” Do you believe that’s still ongoing?

JIM PAOLINO: To some degree, yes. However, I’d say we’ve seen less of a revolution and more of a slow crawl when it comes to accepting and adopting technology. Let’s face it. In this industry, we tend to be creatures of habit. We’re very risk averse. When times are good and origination volume is high, we put our focus on closing loans. But when the cycle changes, we’re so busy watching our margins that we don’t take enough calculated risks through investment and innovation.

As a result, when it comes to making the best use of new technologies, we’ve always tended to be a bit behind other industries which have traditionally embraced innovation more quickly. That began to change for us around 2015 or so, when we were forced to consider anything that would cut our costs. Between market forces and compliance costs, the usual playbook was no longer quite good enough. I do think we’ve taken some serious steps forward. But I don’t think we’ve done nearly enough to make dramatic difference for the consumer.

NEWSLINK: And yet, recent reports suggest that lenders are again turning some profit when they originate mortgage loans. Doesn’t that suggest that technology did have some impact on the process?

PAOLINO: Absolutely. But I think we still have a long way to go. Part of the challenge is that many firms have thrown money at one-off, “shiny new toy” technologies or quick-fix solutions. But increasingly, I’m seeing service providers and lenders who are bringing four, five, even six different technologies to the equation that don’t all integrate or work well together. As a result, we still have a very disjointed process. Closing a loan has always been a choreographed production as the result of the number of participants. But just slinging technology at the problem without having a robust, universal strategy means we now have disparate parties using disparate tools. We’re still wasting time and money. We’ve all too often taken a piecemeal approach to a transaction-wide issue. Which is why I believe we still have a lot of progress to make. The mortgage transaction can and should be even easier (and cheaper to produce) than this.

NEWSLINK: Has the mortgage industry, as a whole, made the home buying process more efficient as the result of increased technology investments?

PAOLINO: We’ve made some progress, albeit in incremental strides. The individual production elements (underwriting, application, title insurance, closing) are certainly more automated and efficient. Again, it’s where the different parties–the realtors, the lenders, the brokers, the service providers–are forced to collaborate and communicate with the end consumer where we haven’t done enough. A title agent may have the latest, greatest title production system and his lending partner might have a top-flight LOS, but the process still bogs down if they’re using emails, faxes, couriers, etc. when the time comes to reconcile the Closing Disclosure and the Loan Estimate.

NEWSLINK: One of the technologies you developed came in response to the TRID (TILA-RESPA Integrated Disclosure rule of 2016) changes. Three years later, are lenders and their service providers collaborating more effectively when it comes to the mortgage transaction?

PAOLINO: I believe so, but again, maybe not enough. There are great technologies out there that make it pretty easy for loan officers or mortgage brokers and their service providers to work together, as the rule intended. But we’re still seeing holdouts who hang on to old-fashioned manual processes that really just slow down the process and cannot be scaled. Having said that, and although it’s a shame that the consumer experience almost had be regulated into becoming a priority for some, we are seeing more and more lenders emerging who do, indeed, make the consumer experience a focal point of their strategies.

Let’s be honest: the direct intention of TRID was to encourage and enable consumers to “lender shop” their mortgages. I can’t say that has happened on a wide scale. I see friends with master’s degrees in finance struggle to go through the process of buying their first home. That shouldn’t have to be the case. I think we’re getting there, albeit slowly. I’d say we’re doing much better than we did in the early days of the rule, but we can still automate a whole lot more of the mortgage process.

NEWSLINK: We’re seeing dueling headlines in many news sources these days: impending recession versus continuing refinance spike. Now comes news that there may be significant changes to the GSEs in the near future. What kind of year do you think mortgage lenders should expect for 2020, and which of these factors will win out?

PAOLINO: I don’t claim to be an economist, but my hunch is that we’ll see this refi spike last another quarter or two before we return to a market that’s purchase driven. The younger generation has still not yet begun buying homes in the numbers they will, and I am hopeful that will pick up regardless of the larger economic climate. If and when GSE reform truly occurs, especially if it results in as much privatization as has been suggested, there will be some adjustment as well.

Overall, though, we’ll adapt. Our industry has been through a lot of ups and downs and at the end of the day, people always need a place to call their own. From my perspective, I think it’s important that the industry make time right now to improve its efficiencies, while we have the budgets and wherewithal.

Traditionally, we’re all-hands-on-deck when revenue opportunities are up. Yet, for some reason, that’s not when we take stock and prepare for the inevitable next down cycle. As a result, when we finally do have time to focus on investments and improvements, our budgets have been whittled down to counter revenue loss. It doesn’t matter whether we see our next down cycle in 2020 or 2025: we need to be working and innovating as though margin compression is not going to go away. Because it won’t. The forces that drove it in the first place are still with us.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)