The Blend Labs Blog

[This post is by Scott Sambucci, the Blend Labs VP of Sales & Marketing. Connect with Scott on LinkedIn.]

National Mortgage News (NMN) today posted "How Technology Could Create the 'Perfect' Mortgage Loan."

I might say the article's title should be "When Technology Could Create the 'Perfect' Mortgage Loan." 

The  article mentions FormFree, a company providing electronic asset verification for the mortgage industry, and Yodlee provides financial account integration for consumers on Mint.com. Companies like Aqumulate and BlueLeaf provide this same service, focusing on account integration for financial advisors.

The IRS now allows taxpayers to request past tax transcripts electronically. For borrower payroll data, check out the list of APIs provide by ADP and ZenPayroll. 

For any documents that borrowers cannot electronically link to their mortgage application, check out the technology TurboTax uses for their SnapTax mobile app.

From the article:

Digital verification of a borrower's assets could potentially reduce that risk and also provide more accurate documentation of a borrower's ability to repay a loan. It's also part of a broader effort to get all the data in a loan file verified before a loan closes.

Freddie Mac is moving in that direction now with their recent Loan Quality Advisor product for lenders. 

Even the FHA is accepting an increasing number electronic documents and signatures.

[Note to our readers: HousingWire generously offered the opportunity for Scott Sambucci to guest blog during the MBA Technology Conference in Los Angeles last week, and ran this post on their REwired blog last Wednesday. We've reposted here in case our readers missed it on HousingWire.]

“CFPB." “Regulation." “ALLL." "Dodd-Frank". “TILA.” “RESPA." “ MDA." "Reg Z." "Appendix Q." "Johnson-Crapo."  Weird. I thought I traveled to Los Angeles for a mortgage technology event, yet it seems the only topics I’ve heard talked about at this week’s MBA Technology Conference are regulation and compliance.  At the ResTech Forum yesterday, the central theme focused on compliance and regulations. While at breakfast this morning, two industry executives sitting at a nearby table mumbled  “CFPB," then a long murmuring conversation ensued. Then I heard them say "regulators” followed by more murmuring.  Later in the morning, the “Impact of Recent Regulation” session had as many attendees as the “Big Data, The Cloud, and Mobile Solutions” session running in parallel. (Yes, I counted.)  In the Regulation session, a panelist stated - “Points and fees. It’s complicated. Too complicated to calculate in most systems.”  Like most in the mortgage industry, I think the compliance rules and regulations are confusing and can be overwhelming. As John Haring, Ellie Mae’s Compliance Enablement Manager put it - “We need a new term around 'final rule.’” 

Okay, we all get it. Regulations are confusing. But where’s the technology part of the conversation?

Instead of stating and restating the onerousness of industry regulations, I wish the conference conversation would focus on how other industries have dealt with regulatory burdens. Instead of worrying about the points and fees on a $100,000 loan, the unequal treatment third party fees, or mortgage insurance requirements at this conference, let’s talk about how advances in technology enable a lender to meet these requirements, even if two separate regulations oppose each other. Instead of worrying about the right to cure processing errors, let’s talk about how deploying good technology removes processing errors altogether. I met with a senior industry CIO today. He said that the CFPB is very clear about what passes and doesn’t passes their requirements - do this and you pass; do that and your fail. What he doesn’t understand is why today’s technology isn’t compliance-ready at the turn of a dial or a few keystroke of new code. 

He asked me - "Why doesn’t the technology exist as standard to implement new business rule and workflow requirements to immediately?" I don’t know why not, but I do know it can and it should, so let’s talk about it.

In his keynote this morning, Google’s Director of Ideas Jared Cohen talked about an FDA-approved wifi-enabled pill that travels through a patient’s body taking diagnostics and then automatically sets a doctor’s appointment. He talked about a cell phone charging shoe invented in Africa. He talked about using Bluetooth to organize political protests in the Middle East. This technology exists, so it’s a little perturbing when the mortgage industry finds adhering to a set of business rules just a little too difficult.  Necessity drives innovation. So let’s talk about the technology solutions that we need to solve this regulation challenge. 

I'm headed to next week’s MBA Mortgage Technology & Fraud Conference in Los Angeles. Lots of very smart industry people will be there. And while there are sessions scheduled around managing big data in the mortgage, cloud computing, mobile solutions for the mortgage market, I think we can do better as an industry. We have to do better.

Here are a five “crazy” ideas for the mortgage industry that don’t have to be so crazy if we just do what's possible today.

1. An Industry Hackathon. The best and brightest from top computer science and engineering programs look for the next Google or Facebook. Besides being Gen-Y anti-establishtarians, they watched their parents lose everything to the “big bad banks.”

We’re in super-duper growth mode here at Blend Labs and it’s darn hard to explain the industry and opportunity to a 21-year all-star Stanford CS all-star. Our industry needs new blood. We need crazy engineers banging away at the industry's technological ineptitude, so why can’t the the industry host a crazy hackathon with a $1,000,000 prize like Salesforce did this year? 

2. Embrace the cloud. The CIA trusts Amazon’s cloud computing infrastructure. Cool.  But even when the federal government mandated it’s agencies to “get in the cloud,” most agencies instead opt for a private cloud. Good, just not good enough.

Banks say they are moving to the cloud. It just seems like the transition is simply taking longer than it should.  Talk to on-the-ground bank executives and too often you still hear - “Oh we could never put customer’s private data in the cloud...”

3. A 7-day loan as the industry standard. It can happen with the right technology applied in the right way, using nothing more than today’s existing technology and software. I talked to leading Bay Area mortgage banker this week about the mortgage customer experience and the approval process. 

“Twenty years ago, people said - 'We can get a loan closed in 30 days!’ - and today we tell applicants - 'We can get a loan closed in 30 days!’. It’s pathetic. Of course we have more regulations, but to think that we’re still benchmarking our time-to-close a loan to 20 years ago is embarrassing.”

We're still stuck in green screens and desktop loan management systems. We still print loan files and require wet signatures. Of course, some lenders can approve a 7-day loan, but these are still the outliers by a long shot.

4. A Group lending mortgage platform. I can help a farmer in Kenya buy seeds and shovels for their 1/2 acre plot of land on Kiva. I can help a college student student pay of student loans on Prosper. But I can’t help a single mother with three kids steadily holding two jobs buy a house in an economically disadvantaged neighborhood.

The Urban Institute just published a report - "The housing bust disproportionately hurt minorities.” Why can’t we enable technology to reach these aspiring homeowners as a group, spreading the lender risk across hundreds of individual lenders instead singularly on the few banks willing and able to fund the mortgage for this single mother?

Maybe treating all borrowers exactly the same way doesn’t make sense after all.

5. A Group Borrowing platform. The Grameen Bank proves that organized groups of borrowers use trust and social pressure to maintain creditworthiness. 

Couldn’t we do the same for aspiring homeowners? Disadvantaged families, immigrants, and neighborhood groups can rebuild dilapidated areas with the trust and faith they've built in each other. These clans believe in themselves and their neighborhood. Check out this TED talk on growing food in South Central Los Angeles.

Let’s get not-so-crazy and just implement the ideas that we know work today. Just doing that will pull us forward together. 

Yes, I know. It’ll never work. There are too many regulations and too many rules and consumers will never listen. I know, I know. But just hear me out. I mean, there has to be a better way. Right?

There was HARP, and HARP 2.0, and now even HARP 3.0 has been introduced to Congress, all designed to reach more borrowers for mortgage payment relief.

CNBC’s Becky Quick wrote last month (see "Why some homeowners are turning down free money") about the enormous number of HARP-eligible borrowers that are simply not taking advantage of the program, citing Quicken’s experience contacting these borrowers with a fast-track refinance opportunity. From the article:

Quicken and other mortgage originators have aggressively tried to let homeowners who qualify know about the program. "We get their home number, the business number, their e-mail, we express-mail packages to their house so it looks serious," says Dan Gilbert, founder and chairman of Quicken. "We leave messages; we tell them, 'Go look up HARP on Google and you'll see it's real.' We don't quit." And yet almost half of these homeowners don't respond. "If you would have told me all the facts about how this works before, I would have predicted we'd get 80% to 85%," Gilbert marvels.

Yes, consumers are fickle and distrusting of mortgage companies. Heck, I’ve know about esurance for years and only today, this very morning, I sat down to get a quote. And it turns out I can save $76/month from my existing policy. And right now, at this moment, my wife is working in the other room, no more than 25 feet from my home office. All I need to do is ask her for her driver’s license then call Geico to cancel my policy with them and I’m done. That's $912 per year in my pocket - a pretty nice dinner or an extra boost for my son’s college fund. And yet here I am writing this blog post, and a notice just popped up in my browser that my session has timed on on esurance's website. Ho-hum...

That’s consumer behavior, and it makes me wonder if there’s another way to reach borrowers.

Maybe it’s a matter of getting in front of these eligible borrowers when they’re actually thinking about their finances instead of hammering them with emails and calls and FedEx packages that sit on the kitchen counter in the junk mail pile. No, consumers don't want to be sold, but I’m darn sure they want to be educated.

Maybe the approach needs to be reach people from within somehow, instead of from the outside. Let's think about where home owners are spending their time thinking about their personal finances. 

1. What about financial advisors? Many people received a quarterly update or have a regular call to discuss their investments and retirement plans. Can these advisors be certified to discuss HARP?

2. What about via Mint.com? I receive emails weekly from Mint.com whenever I have a big withdraw scheduled or my account has seen unusual activity. Many times, I log into the site to insure nothing funky is going on with my personal accounts. Could Mint.com be wired with the public records and mortgage data around my home to estimated borrower HARP eligibility?

3. What about the IRS, or H&R Block, or TurboTax? Why can’t we match up the data between the taxpayer’s primary residence and their mortgage expenses? Everyone takes the mortgage interest deduction. We have home owners and trusted advisors with all of the data needed to estimate HARP eligibility. County records are public and show a home’s transaction price. There are plenty of reliable automated valuation models (AVMs) from companies like Zillow, CoreLogic, and LPS to estimate which borrowers are above/below water.

4. What about the REALTOR that represented the homeowner when the home was purchased if borrowers really require a human touch? Why not give real estate brokers the data to show which of their clients that have bought a home from them in the last seven years might be eligible for a HARP refinance? If my agent called me to say - “Listen Scott, I’ve got your mortgage and housing value data sitting right here in front of me. It looks like you qualify for a HARP refinance. You’d save $400/month on your mortgage payment…” - that’s a very different conversation than a phone call from some guy in Detroit at 7pm on a Wednesday night when we’re building blocks, drawing animals, or reading books with my son.

We couldn't have asked for better timing for this week's California Association of Mortgage Professional’s 2014 Sales & Marketing Conference.

The team has been heads down implementing our Centrio workflow and data management platform for our newest clients, and looking past our computer monitors to think through our next round of product development and platform features.