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Cost Reduction Moving Mortgage Industry Towards Automated Processing

Cost Reduction with Automated Processing Solution

Cost reduction is likely the primary motivation a company has to change its mortgage processing operations. Currently, most mortgage processing is manual and done primarily offshore. Offshore processing has certain risks for the lender or insurer but significantly reduces the overall processing cost. Even with the additional risk exposure that offshore coding brings, however, the cost to process a residential home loan including document classification, data extraction, analysis and underwriting can easily add up to several hundred dollars per loan. So this is a significant cost that could be greatly reduced with an automated solution.

Automated document classification and data extraction can greatly reduce labor costs by minimizing the need for manual processing.

Real-Time Opportunity Moving Mortgage Industry Towards Automated Processing

Real-Time Opportunity with Automated Processing Solution

Real-time opportunity is another motivating factor for mortgage-related companies to move towards an automated solution. There is a real-time nature to many mortgage-based opportunities and an automated mortgage processing solution can allow a company to better respond to such opportunities.

For example, consider a mortgage insurer who needs to analyze a loan application in order to provide a rate quote. Chances are that several potential lenders have considered funding this loan application (e.g., application was through a Web-based portal like Lending Tree) and that each potential lender has a very limited time window to analyze the loan and assess its value, risk, potential, etc. Accordingly, each potential lender has likely asked for several quotes on mortgage insurance. The insurer that responds the quickest with a rate quote in line with expectations will often get the business. So there is a definite need to analyze loan applications in near real-time by both lenders and insurers.

Motivation for Mortgage Process Automation

Evaluating and pricing mortgage-backed securities (MBS) is another example of a mortgage-related opportunity that is very time-sensitive and motivates moving to an automated, real-time solution. A mortgage-backed security is defined as an asset-backed security that is secured by a mortgage or a collection of mortgages. The mortgages are sold to an entity (e.g., investment bank) that securitizes or packages the loans together into a security that investors can buy. The value of this MBS is determined by analyzing the collection of mortgages it contains. A financial institution that can reliably and accurately evaluate the value of a mortgage in near real-time has a strong advantage.

Processing Equilibrium Moving Mortgage Industry Towards Automated Processing

Processing Equilibrium with Automated Processing Solution

Processing Equilibrium is another factor that leads banks, insurers, and other financials towards an automated mortgage process solution. Essentially, many banks want to ensure equivalent processing time on a mortgage application whether it was submitted online and is completely electronic or whether it was filled out on paper and submitted via mobile device.

Processing equilibrium ensures TAT and processing accuracy are approximately consistent across different input sources and document types.

Understanding Process Equilibrium

Creating a processing equilibrium refers to setting up a system, both in hardware and software, whereby the processing results with respect to time and accuracy are generally consistent. Specifically, mortgage processing turnaround time (TAT) and data accuracy should be relatively invariant to the varying input sources, e.g., digitally-generated loan packet submitted online vs. a paper-based loan packet submitted via mobile device. Even though the mechanics of ingesting the mortgage application documents, classifying them, and extracting relevant data fields are quite different in these two cases, the bank, insurer or financial institution most likely wants to deliver near uniform TAT and data accuracy.

An automated solution for mortgage processing allows a company to level the playing field with respect to loan packet origination (e.g., digital vs. paper) and create a processing equilibrium. The resources required to process a paper-based loan are on the order of 10x-20x the resources required for a fully electronic loan submitted online. With a Cloud-based mortgage automation solution, the turnaround time and accuracy are controlled largely by the number of CPU cores in the configuration. Since the number of cores in the configuration can be scaled virtually on demand in the Cloud, both vertically and horizontally, the output results with respect to processing speed and accuracy can also be controlled by the client to ensure relatively uniform results, regardless of input source.

Scalability Moving Mortgage Industry Towards Automated Processing

Scalability with Automated Processing Solution

Scalability is another factor that is moving banking, mortgage, and insurance companies in the direction of machine-based automation. Specifically, understanding the hundreds of different types of mortgage-related documents for the purpose of classification, document assembly and stacking, data extraction, analysis and underwriting is complex and typically requires a skilled worker with an extensive knowledge of the mortgage industry. These mortgage tasks cannot be effectively crowd-sourced as micro-tasks since, even at the most atomic level, a reasonable degree of knowledge of the mortgage space is required.

Distinguishing between closely related documents types is generally subtle and nuanced. Outsourcing is also difficult to scale quickly as these outsourced workers need to be reasonably skilled in the art of mortgage processing and are reasonably hard to come by.

A machine-based, automated mortgage processing platform is readily scalable. This is true even more so for Cloud-based deployments. Typically, a client would want to scale horizontally and maybe also vertically. In the Cloud, cloning a server is trivial and can be done in real-time. This allows a bank, insurer or mortgage company to respond in real-time to a spike in loan processing demand triggered by anything from a lowering of interest rates by the Fed to a sale of some mortgage-backed securities.

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