Faith Schwartz: New Era Borne of Pandemic to Upend Mortgage Costs
Faith Schwartz is president of Housing Finance Strategies and a member of FormFree’s board of directors. In 2007, the Housing Policy Council and the Treasury Department appointed Schwartz executive director of the newly formed Hope Now alliance, a cooperative effort among government, counselors, investors and lenders focused on helping distressed borrowers through the financial crisis.
Just after the Mortgage Bankers Association increased its 2020 origination forecast to $2.65 trillion, the National Association of Realtors announced a surge in pending home sales demolishing expectations. The growth in mortgage origination is largely scaling through existing processes, though all the while benefiting from temporary agency policy adjustments accounting for COVID-19 health hazards.
As longtime industry participants, we at Housing Finance Strategies contend that the pandemic has created a revolutionary opportunity that we must seize and leverage so that the mortgage business can emerge with higher quality prospective products funded through a drastically reduced cost structure.
We observe three navigable beacons to guide our process post-pandemic. They are: the manner in which we evaluate borrower capacity; the tools and technology to capture and store property value; and the ability to leverage remote online digital closings. These tools exist today in proven form, and we are successfully operating through the pandemic in a manner that will finally position us to radically alter the mortgage lending cost paradigm.
Technology to Evaluate Borrower Capacity
Direct source data came of age prior to the pandemic but has scaled up during the crisis, offering an unfiltered lens on borrower income, assets and employment. The underlying technology that pulls these attributes from direct source data creates a borrower DNA profile that is refreshed from application to approval to loan closing. With proper consumer permissions, this profile can be dynamic and extend through loan servicing and secondary market exits to downstream credit investors. Importantly, borrower information is gathered electronically through source data sets and digital execution, insulated from subjectivity or human error. Loan investors can also leverage this transformational capability to continue to glean data. The benefits of such advancement include quality assurance measures that corroborate and attest to data integrity while reducing paper-based manual processes for origination, underwriting, quality assurance and loan servicing.
Capture and Store Property Value
The same technology set of tools that has enabled record numbers of prospective home buyers to view homes for sale during COVID-19 has been available to the appraisal industry for evaluating value and condition of the property. The pandemic forced the issue of appraising homes without property access and opened an important dialogue on how the very same software that enabled autonomous driving could be used for assessing collateral value. 3D scanning of a property interior can be administered by a Smartphone application to not only capture thousands of unblemished images, but also to tag deficiencies and geocode property location. Viewed as the “long pole” in the tent of origination costs, collateral valuation process is ripe for innovation. This, married with extensive property DNA data, would allow for desk appraisals to be evaluated through a digital lens. And fortunately, the appraiser continues to add significant expertise and value while alternative workforces, including the homeowner, execute 3D scans and automated data downloads to accurately measure the property.
This technology exists today. The rules and policies need to follow. Streamlining these processes has ancillary benefits including greater access to rural properties and inner city dwellings, and creates a separation of duties so that more senior appraisers can apply their expertise to valuing more challenging properties.
Remote online Digital Closings
We are excited to see significant progress being realized in digital closing and remote notarization. In fact, Senators Cramer (R-ND) and Warner (D-VA) and Representatives Dean (D-PA) and Reschenthaler (R-PA) have introduced bipartisan bills that would allow notaries in states without enacted remote online notarization. The opportunity to advance these measures has been championed by the Mortgage Bankers Association and we call on all housing policy interests to align and advocate for their passage.
Post-Pandemic Path Forward
We are optimistic that the nation will come out of the COVID-19 pandemic with a number of lessons learned that position financial services for significant efficiency gains. We in the mortgage industry must grab hold of the wave of innovation that COVID-19 thrust upon us. Leveraging smart data sets and secure and borrower-credentialed inputs married to credit, combined with a borrowers’ ability to pay, will lead to more informed credit extension by risk managers and underwriters.
But now is the time for the regulatory agencies to plan policy changes for 2021 that harness an improved lending environment that drives down cost and increases quality.
We note for the reader that the Mortgage Bankers Association’s fully loaded origination expense for Independent Mortgage Bankers was $7,982 in the first quarter of 2020. Regrettably, this cost has been trending up.
We view the existing cost structure as untenable in an era of smart data, machine learning and robotic process automation. Long a paper intensive process, we intend to evangelize a new era of mortgage lending that captures the lessons learned from COVID-19 on the path forward to a lean, efficient housing finance system.
(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.)
