Tim Nguyen of BeSmartee: So Many Fintechs, So Little Time–Strategic VOIE Automation

Tim Nguyen is CEO & Co-Founder at BeSmartee, a digital mortgage platform empowering mortgage lenders to take their consumers from application to a paid appraisal in minutes. He previously co-founded and led InHouse, a nationwide provider of lender services and technology, from startup to 150+ FTEs before exiting in 2014. He comes from an entrepreneurial background, having taught himself to code and launching multiple websites in high school and college. He eventually found his career in the mortgage industry, where he started InHouse.

As fintechs explode into the mortgage industry, how do lenders know which digital solutions are best for them?

This is the first in a multipart series for mortgage lenders on process automation that cuts operational expenses and delivers the best lending experience for borrowers and lenders alike. By the end of this series, we will have discussed several practical digital implementation strategies that will unlock ROI.

First, a Year (or Two) in Review
The mortgage industry soared over the past couple of years as interest rates dropped into the 2-3% range during the pandemic – creating a veritable top-of-the-funnel frenzy held together by the sheer might of mortgage people who worked their butts off into the late hours of the night.

But now, interest rates have since climbed above 5% – the highest level in more than a decade. Moreover, the Fed recently raised interest rates by a half-point to curb inflation, and a good September would be just a quarter-point hike.

For us mortgage folks who remember 8% and 12% mortgages, 5% isn’t necessarily a scary number. It’s the velocity of rate hikes, record-high inflation, low housing supply, labor issues, supply chain issues, the war in Ukraine… in short, the perfect storm of events of 2022 has thus ended the 2020-21 party.

But it’s not all doom and gloom. Both the Mortgage Bankers Association and Fannie Mae are forecasting ~$2.5 trillion in new mortgage originations across ~7 million transactions, at a ~70% purchase to ~30% refinance split. Not one single forecast pre-pandemic had any year above $2 trillion in new mortgage originations.

So, why the somber mood? I’ll get some flack for this, but let me say it…Many lenders are just mad that the business isn’t easy anymore. Don’t get me wrong, there will be layoffs. Business will be tough and bloody. On the flip side, many lenders are losing real money, some will go out of business, and some lenders who had such a good 2020-21 that they’ve decided to retire – for good. Your competition will weaken. And if you stay focused on enhancing operational efficiencies, you will become a stronger company as a result.

Many lenders were happy to ignore mounting operational inefficiencies while they were focused on top-of-funnel originations. As a result, the cost of origination has risen for six consecutive quarters, reaching almost $9,500 per loan by the end of 2021. When business is good, lenders say they don’t have time for enhancing operations. When business is down, lenders say they don’t have the budget for it. So when do you tackle this elephant in the room? There is an old proverb that says, “The best time to plant a tree was 20 years ago. The second-best time is now.”

Plant That Tree Now
It’s time to get the shovel out, roll up those sleeves and get dirty. Now is the time to retool and focus on long-term operational efficiencies that may truly scale in both good, bad and normal mortgage markets.

The pandemic accelerated the adoption of top-of-the-funnel technology, namely the mortgage POS and E-Close. As lenders, you were able to bring in more applications top of the funnel, but you weren’t necessarily able to close loans more efficiently. Due to record demand, a lower cost of acquisition masked the fact that operation efficiencies didn’t improve much.

Now is the time to challenge your POS and LOS providers with more direct cost-saving features and tools. Lenders can invest in solutions that automate the underwriting process, enhance business intelligence, deploy robotic processes, upgrade their CRM and more. But for today, we will focus on automating verification of income and employment (VOIE), quite simply because the cost has skyrocketed. This is a direct cost savings tactic.

The Perfect VOIE Solution

1. Maximizes coverage with the right vendors.
   It’s not about having the most number of vendors, but the right combination that provides the most enriched data at the best price. For instance, the source of many VOIE vendors’ “instantaneous” VOIE data is ADP. Therefore, you wouldn’t gain much by cobbling together the wrong vendors that do not fill one another’s gaps. Equifax’s The Work Number still remains the largest source of instantaneous VOIE data, with other providers filling The Work Number’s gaps further. Maximum coverage could simply be measured by the sheer number of distinct payroll systems
   available, or by the number of distinct employee records that are accessible through a given
   VOIE data provider.
2. Integrates seamlessly into your Point-of-Sale (POS) and Loan Origination System (LOS) workflows.
   In order to maximize adoption by consumers and originators, avoid point solutions (standalone systems) that are utilities. While you may get the VOIE data you need, you’ll take one step back by persisting separate software for each step of the origination process, which can quickly add back to operational costs. It is more effective and cost-effective to have a VOIE that is embedded into your origination, processing, underwriting and closing platforms. Additionally, platform-embedded, end-to-end solutions eliminate information silos and provide visibility across multiple operational platforms. This is key to both operational excellence, as it is compliance and risk management.
3. Delivers maximum chances of Fannie Mae Day 1 Certainty (D1C).
   Don’t throw the baby out with the bathwater. Good data is still good data, regardless of whether it is D1C or not. The right VOIE waterfall methodology maximizes and prioritizes D1C eligibility, however in lieu of D1C on every loan record, balance sheet risk can still be achieved via backup sources of VOIE data that is not yet D1C approved. For instance, the best D1C approved VOI data claims ~90M records, while source income and employment data providers claim ~170M records and up to 1,500 payroll systems.
4. Satisfies the Form 1005 completely.
   Not all VOIE data providers will provide enough data to complete the entire Form 1005. In these cases, you’ll find yourself going back for more data, which defeats the purpose of paying for the VOIE data in the first place. Be prudent and ask for a complete list of the data elements provided via various intake methods, analyze the hit rate per data field and the corresponding documentation available to support such data
5. Configurable waterfall to meet various strategic goals.
   A rigid waterfall configuration may suffice on day 1, however as business objectives and strategies change over time, your VOIE waterfall should be easily configurable to strike the right balance between data and cost. Every lending institution has its own “secret sauce” when it comes to origination and operational processes, so software can’t be a one-size-fits-all solution. For instance, if money is no object, then you could configure the VOIE vendors in a particular order from instantaneous down to credentialed solutions. However, if cost is a motivating factor,
   you could forego more costly D1C-approved VOIE vendors for credentialed solutions that are ~10-20% of the cost. Recall, good data is still good data, and good data will allow you to defend underwriting decisions to victory. Again, every mortgage business is different, choose a VOIE waterfall solution that allows flexibility to test and iterate owards the best possible outcome.

Tool Operations to Accommodate the Market
Automated VOIE should be a major component of any end-to-end digital mortgage process. The right automated verification solution reduces time to close, reduces balance sheet risk and enhances the consumer and loan officer experience all at the same time.

Stop playing the hiring and layoff game at every market turn. Build a mortgage lending business that can stand all market conditions. Plant that tree today nd let it bear fruit for many years to come.

(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.)