It’s time to graduate from stare and compare in mortgage lending

Turn your tassel and get ready for some pomp and circumstance as you leave critical loan errors behind.

May is over – the month when high school and college seniors complete a major milestone in their academic careers and receive their diplomas. If you’ve ever attended a really big graduation ceremony in a football stadium or auditorium, you’ve probably experienced the headache that results from trying to spot your graduate amongst hundreds – or thousands – of smiling students, all dressed exactly the same.

Can your camera even zoom that far?

Trying to use “stare and compare” methods for mortgage lending processes isn’t that much better. In fact, it’s probably much worse.

What if your diploma contained “critical defects”?

Failure to pick out a person in a crowd won’t ruin a student’s ability to graduate. But making mistakes while attempting to verify information across multiple screens showing loan documents and data can cause major problems for lending institutions and homebuyers in the form of critical loan defects.

Critical defects are “the errors that make a mortgage loan uninsurable or ineligible for sale in the secondary market,” according to National Mortgage News.

In fact, the rate of critical errors steadily increased from the end of 2016 (1.53 percent) through the second quarter of 2017 (1.76 percent), with a small decline in Q3 (1.65 percent), as noted in the most recent Mortgage QC Industry Trends report from Aces Risk Management (ARMCO).

Other ARMCO insights include:

  • 60 percent of the critical defects in the third quarter of 2017 resulted from mistakes in underwriting, specifically in borrower eligibility, credit and income employment status
  • Purchases, as opposed to refinances, accounted for a higher percentage of the critical defects
  • Purchase transactions are more complex than refinances and result in “a greater number of critical defects”

It’s time to be proactive

And things aren’t going to change. So maybe you have to.

“We can continue to expect that, barring improvements in lender processes or external impacts such as regulatory changes,” ARMCO concludes, “defect rates will trend upward in a purchase-driven market and downward as market share tilts toward refinancing.”

The thing is, trying to become mindful and take precautions in the middle of a trend doesn’t really work. The prefix “pre” means before, not in-the-midst.

“Lenders need to be mindful of the risks inherent with purchase transactions and take precautions, regardless of fluctuation in purchase/refi market share.”

– Phil McCall, ARMCO President

So what can you do that will best use your resources and quickly put you in a proactive position to reduce critical errors while you’re right smack dab in the middle of it all?

Leveraging an intelligent capture solution has been proven to reduce the number of human touch points in lender processes and increase the accuracy of data. And a combination of optical character recognition (OCR), intelligent capture and extraction functionality virtually eliminates the need to manually classify documents and hand-key data.

It’s time to graduate

If making a technology upgrade sounds like too big of a to-do, lenders should consider technology that offers LOS integration and removes the need for IT resources. This shortens project timelines and makes it possible to have a new system that offers fast, highly accurate processing, as well as real-time analytics, running in days or weeks.

Are you ready to graduate from stare and compare? Speed up your matriculation and check out Brainware for Lending from Hyland.

Michelle has expertise in the financial services industry and has been a contributor to the Hyland blog.
Michelle Harbinak Shapiro

Michelle Harbinak Shapiro

Michelle has expertise in the financial services industry and has been a contributor to the Hyland blog.

... read more about: Michelle Harbinak Shapiro