Technology has made the mortgage industry faster, more affordable, more compliant, and more convenient—and it’s not done yet. The industry’s top players weigh in on the power of technology, how to harness it, and where it’s headed.
A Path to Stabilization
By Jason Allnutt, Auction.com
Increasingly, financial institutions are recognizing how distressed properties sold in the open market create greater competition among buyers and yield a greater net return, helping communities become more stable and home values increase. By utilizing online marketplaces, banks can see these results sooner, adding additional benefit for themselves, buyers, and neighborhoods within their local communities.
The REO industry has taken steps to mitigate the impact of distressed homes, and while initiatives like requiring Plexiglas (instead of plywood) over the windows of vacant properties does have a positive impact, the only meaningful way to make an asset valuable again is to convert it back into a stabilized property. Distressed homes—no matter the cosmetic fix—can become havens for crime. More important for a financial institution is the associated reputational impact of evicting an occupied property within the very communities it serves.
To mitigate this reputational risk and more quickly (and profitably) convert distressed assets into stabilized properties, financial institutions are leveraging online marketplaces as an alternative disposition strategy. Much like the Multiple Listing Service, which enables real estate brokers to readily view each other’s homes for sale, online auction platforms provide millions of investors the opportunity to purchase properties efficiently. By design, this eliminates the need to wait for weeks for a property to make its way through the traditional REO process, instead facilitating a change in ownership—and a path to stabilization—within days of foreclosure.
Banks looking to leverage this option should first ensure that the marketplace provides the most expansive reach to allow the asset to obtain the maximum exposure possible. Also, well-equipped marketplaces can match properties with buyers using data integrations that provide a well-rounded view of the property and its history.
Online marketplaces operate within the new paradigm created by the digital age and, as such, facilitate the marketing and sale of these properties much sooner. This, in turn, optimizes the sales process, mitigates risk exposure for the bank, and reduces costs for both sellers and buyers. More importantly, it provides a methodology to combat blight within America’s neighborhoods in a way that protects the financial and reputational interests of the bank.
Jason Allnutt is the Chief Business Officer and General Manager of Auction.com, an online real estate transaction marketplace focused on bank-owned and foreclosure properties. Using his more than 20 years of industry experience, Allnutt oversees the company’s business development, operations, marketing, and product strategy.
It’s All About Flexibility
By Rob Pajon, RES.NET
Today’s tech trends change so quickly that it is easy to get overwhelmed. In real estate, we hear things about intriguing new applications like drone photography and 3D tours, but a discerning organization needs to remain cautious and vet out technology prospects to avoid fleeting trends. On the other hand, you can’t afford to be left behind, especially when it comes to increasingly particular consumers. This can be a fine line to walk for any business, let alone one in an established industry like real estate.
It doesn’t matter if you’re an investor buying a large portfolio or a servicer working exclusively with GSEs, at the end of the day we all must cater to the expectations of consumers. People have quickly become used to the idea of doing everything online. In this world, everything happens in real time with clear communication that elicits trust in parties who have never met. This trust is key. As an industry, we must provide the same level of transparency and trust to our customers that they experience throughout the rest of their online lives.
The good news is that ramping up technology will do much more than just meet consumer expectations. Technology will allow us to run more-efficient operations, increase outputs, and deliver faster, more reliable results, all with less labor. Technology is also the answer to the increased government oversight many are already experiencing. When all it takes is a small handful of errors to enact huge fines, no one can afford to overlook this crucial piece of the puzzle. By utilizing current technology offerings, businesses will lower day-to-day costs, while also avoiding major compliance issues. This alone should be enough reason to get the industry up to speed.
A constantly evolving state of technology is now the new normal. It is not enough to simply catch up to current trends, for they will have shifted by the time you have. At the same time, you cannot create internal chaos by changing the way your organization does business overnight.
So where do we go from here? We evolve. Constantly. Like your smartphone that constantly gets upgraded, housing technology must be built to meet the needs of today, while maintaining the flexibility to change with the times.
Rob Pajon is SVP of Marketing and Product Development at USRES and RES.NET, which virtually connects servicers, agents, vendors, and consumers throughout real estate transactions. For more than a decade, he has overseen the organization’s overall marketing and product initiatives.
Survival of the Tech-Fittest
By Martin Morzynski, HouseCanary
We are witnessing the birth of a multi–trillion-dollar asset class. Single-family real estate equity is connecting with institutional capital at scale for the first time in history. Operators in the SFR and fix-and-flip industries are buying homes at a rapid pace, enabled by recent innovations in data science.
As recently as five years ago, the largest private equity-backed SFR operators drew gasps from investors when they proclaimed their portfolio goal was to reach 3,000-plus assets. Now, these same players have assembled portfolios of 50,000-plus homes and taken their firms public.
In an industry where it takes the average consumer 30 to 60 days to select a home for purchase and then another 30 to 60 days to close the transaction, how can these institutions buy hundreds of homes per day without making costly mistakes? Investors need to identify assets that fit their acquisition strategy, submit bids, and manage their financial plumbing quickly and accurately.
“As SFR consolidates, only the owner-operators and flippers who embrace best-of-breed technology will survive and thrive as more capital competes for fewer opportunities. As yields shrink at the MSA level, investors will need granular data to achieve their goals,” says colleague Mike Greene, Head of Capital Markets. Thousands of data elements influence the value of a home, interacting in ways beyond the power of spreadsheets. Now, the industry has the tools to analyze them all fully.
The early cycle winners are already using big data to their advantage. The good news for the next group of investors—those with 50, 100, 500, or 2,000 homes who are trying to get to the next level—is that predictive forecasts, accurate rent estimates, and purpose-built lead generation solutions are increasingly ubiquitous and affordable.
Arm yourselves and stay current—as markets get more choppy, the tools are here to help!
Martin Morzynski is the Chief Marketing Officer for HouseCanary, which provides mobile, web and API products for real estate investors, lenders, appraisers, and realtors. With 15 years of experience in building global brands and advising tech start-ups, Morzynski leads the company’s brand, digital acquisition, and demand generation efforts.
Investing in Tech
By Dennis Cisterna III, Investability Real Estate
In today’s rapidly evolving digital age, the business of real estate investing has largely been known as a more “traditional” industry. Despite not being at the forefront of the tech revolution, there are noteworthy new developments in the sector with important implications for real estate investors. From data to virtual reality to new building materials, technological advancements are shaping the future of the industry.
Big Data. While the rise of “big data” has affected many industries, the benefit to real estate is a combination of two things: Real estate data sets have grown larger over time, and access to cloud storage and strengthening computing power have sped up the processing of information.
Together, these factors mean that we’re now able to analyze more data faster and improve insights, which helps support better-informed real estate investment decisions. With the ability to analyze larger data sets, it becomes important to differentiate the signals from the noise to figure out which variables are most likely to mitigate risk and help predict real estate investment outcomes.
Automation. A significant landlord limitation has to do with the day-to-day management of investment properties. Between leasing, rent collection, and maintenance and repairs, one of the most onerous burdens of being a landlord is the time it takes to address these operations. In response, some new, automated solutions have come online in recent years to address these challenges, simplifying the property management process.
Virtual Reality. Historically, one of the biggest hindrances to investors purchasing outside of their local markets was the inability to see the property or neighborhood in person. There’s a certain level of trust and comfort that comes from seeing something with our own eyes. Thankfully, advancements in virtual reality are making it easier than ever before to transcend geographic boundaries. Tools like Google Street View and PlanOmatic now allow real estate investors to virtually wander neighborhoods and even see inside properties without ever leaving their computer screens.
Drones. More than just a cool toy, drones are quickly becoming an essential tool across many industries, including real estate. Some companies are taking the technology to the next level to perform detailed property inspections and overcome height and space limitations to provide a safer, more-efficient solution. High-resolution, high-definition recordings can even include multispectral thermal imaging to detect leaks and mold issues and can often be completed faster and at a lower cost than traditional methods.
Building Materials. While we don’t often consider technology as it relates to building materials, scientists are making headway in the development of more efficient, longer-lasting materials that may reduce annual operating and maintenance costs. One such example is the development of self-healing concrete by Henk Jonkers, a microbiologist at Delft University of Technology in the Netherlands.
Typically, all concrete eventually cracks, but by mixing standard concrete with a type of bacteria, Jonkers has devised a way to extend the life of the product. The bacteria, which serves as the healing agent and remains intact during mixing, only dissolves and activates if the concrete cracks and water gets in.
Therefore, when cracks eventually begin to form in the concrete, water enters and activates the bacteria capsules which feed on a compound to produce limestone and eventually fill the cracks. That means that once the product comes to market, it may be a long time before you’ll need to patch up that driveway or patio again.
These advancements are just the tip of the iceberg as the real estate industry continues to evolve, making it easier than ever before to be a successful investor in the space.
Dennis Cisterna III is the Chief Revenue Officer for Investability Real Estate, Inc., an online real estate marketplace for single-family residential properties. He hosts a weekly investment-focused podcast called “The Real Investor.”
The Marriage of Mobile and Mortgage
By Dominic Iannitti, DocMagic
Right now, many lenders look at mobile technology as a “bells-and-whistles” feature, when it is actually a key component of an efficient electronic mortgage. Electronic mortgages are the future of our industry; technology is only becoming more portable, and mobile technology is here to stay. Our industry needs to understand that and focus on marrying mobile capabilities with the digital mortgage process. That’s where we’re headed.
Let’s look at where we are today. Most lenders and their vendors have responsive websites. Many have mobile apps for borrowers. That’s great. The issue is, most mobile solutions and online accessibility options address only a single need. We need mobile technologies that function more holistically. To transition to 100-percent, fully electronic mortgages, lenders first need to realize that most homebuyers use mobile devices to conduct both personal and professional business.
There are a few technology leaders in the mortgage industry that have introduced mobile technology designed to facilitate a digital mortgage process. These technologies not only enhance the borrower experience but also protect lenders against noncompliance, delays, unnecessary costs, and lost opportunities.
Mobile apps can bring the borrower into the digital mortgage process. LOS integrations eliminate communication mishaps like errors, redundancy, and other potential compliance disasters, and apps themselves can fulfill several functions—from communicating, satisfying loan conditions, and uploading/sharing documents to electronically delivering and eSigning disclosures. In the end, the future of mortgage lending isn’t about jumping from application to application, but rather, using as few applications as possible to get a more seamless, connected, and secure experience.
It’s exciting to see the progress that we’re making and the advances that are on the horizon. Thanks to the progress the industry’s leading technologists have made together, more borrowers can enjoy the benefits of electronic mortgages, like simplicity, speed, security, and an enhanced loan experience, while lenders gain a competitive edge and improve their bottom lines.
Dominic Iannitti is President and CEO of DocMagic, Inc., which offers fully compliant loan document preparation, compliance, and eSign and eDelivery solutions for mortgage lenders. Iannitti founded the company in 1988.
How to Handle the Upward Trending Default Rate After Years of Declines
By Cindy Walton, ISGN Corporation
Home equity, ARMs, or step-rate modifications all have a higher risk of default when interest rates rise. With the Federal Reserve raising their rates twice over the last six months and the trending increase in mortgage defaults, it is important to evaluate how to handle the influx of defaulted loans after the past decade of downward staffing. Even the slight increase, as seen over the past few months, about 1 basis point per month (according to S&P/Experian First Mortgage Default Index), can affect the workload required of each default servicing representative.
Additionally, if servicers use different systems to manage first and second mortgages, the increase in second mortgage defaults will bring about additional risk and increased need for oversight on liquidation practices to hedge the risk of financial loss. Since servicers today are staffed at a minimum to cut down on cost, a slight increase in default would add to the current workload and could be detrimental to the servicer and increase the required oversight that is needed to handle defaulted loans. This concern can be addressed with technology. The slight increase doesn’t necessarily justify the cost of adding additional staff but can be managed with an effective default management solution.
According to Margaret Dewar’s ‘2013 Emery Law Journal Entry “Regulation X: A New Direction for the Regulation of Mortgage Servicers’,” the mortgage loan origination practices in the early 2000s were the beginning of what the mortgage industry refers to as the financial crisis of 2007. Poor servicing practices and procedures led to unnecessary foreclosures and a heightened financial burden on servicers, investors, and borrowers alike. While there have always been federal, state, and other guidelines that a servicer had to follow, there are now regulatory guidelines, mortgage insurer guidelines, and government entity guidelines. All these regulations have been put into place to control the lack of oversight and poor practices. The adaption of the new requirements are burdensome on the servicers and can be costly due to procedural inefficiencies and lack of technology features.
On top of having to deal with laws and regulations, servicers are also responsible for the multiple aspects of the actual default process. For example, a borrower could be trying to short sell their property, plus one or more of those borrowers could have filed bankruptcy, and the loan could be at a threshold of too many days delinquent which means that the servicer could have been moving forward with a foreclosure filing. Anything that occurs (or sometimes does not occur) on a mortgage or property will cause the servicer to have to deviate from a “normal” default process. This branching of the processes off into many different directions can mean multiple types of handoffs. With each handoff, there is a risk of incorrect processing, untimely turnaround, or quality of data issues.
Everchanging regulations can lead to unwanted and unnecessary costs. A complete servicing system platform which includes default management can manage the unpredictable paths a defaulted loan can take as well as track first and second mortgages within one system, among other efficiencies. It can also mitigate the risk of adding extra burden onto your existing staff, or help avoid having to hire and train additional staff just to manage the increased volume. A servicing/default platform that can service both first and second mortgages will not only allow a servicer to become more efficient but it will also allow for increase quality of servicing on a defaulted loan and help avoid potential write-off scenarios.
Cindy Walton is ISGN’s Vice President of Client Relations. She manages major customer account relationships for ISGN, provider of core and complete default solution including default technology management platform, Tempo, integrated with Loan Dynamix Servicing Software. Walton has more than 19 years of experience in all aspects of mortgage servicing and asset management and has a proven track record of creating strategies and processes that enhance operational productivity and quality.
How Can You Be Compliant With So Many Regulations At Every Level?
Jane Mason, Clarifire
RegTech is a buzzword that over the last couple of years has found its place as a mainstay in the financial services industry. What exactly is RegTech, and how does it differ from FinTech? The answer is simple. RegTech is short for regulatory technology and is a subset of FinTech that has risen out of the global complexity of regulation and its impact on financial services. RegTech firms are emerging in an effort to move the industry away from ‘big data’ towards ‘smart data’ by utilizing robotic process automation and machine learning, along with regulatory repositories. These firms are tapping the data captured to meet regulatory requirements and using it in a way that is more meaningful to the banks, investment banks, and mortgage companies that are producing the data to regulate risk.
How will RegTech modernize compliance going forward?
The FinTech label, which is more widely known, is often applied to RegTech initiatives that are clearly addressing regulatory requirements and corresponding data in ways that impact the financial services industry. Using RegTech to manage compliance needs will be the clear pathway to gaining competitive strength in the near term, diminishing growing resource constraints and costs resulting from engorged compliance requirements. RegTech will create organizations that are ready to handle the future of FinTech, navigate regulatory change, and surmount the complexities surrounding the regulatory landscape. Leveraging innovative technologies will naturally bring down costs and exposure to process failures.
What infrastructure is needed to begin adopting RegTech?
Organizations need operational workflow. There are solutions available that plug into regulatory rules engines and transform the output into compliant workflow. Interactive processes and a business rules engine drives control, governance, and risk mitigation. The infrastructure required for SaaS solutions like this is minimal. All clients need is access to the internet.
Is RegTech for every financial institution?
Large or small, every organization can benefit from RegTech. A full enterprise license for a large RegTech repository may not be necessary for every organization, but a hybrid approach with a workflow automation solution focusing on operational efficiencies while driving compliance is an affordable option for smaller organizations.
What successes are organizations experiencing with RegTech?
Companies have seen elimination of fines, reduced cycle times, and increased visibility across their organizations. The successes come from a blending of tapping into regulatory solutions and transforming workflows based on outputs. This provides the quality control governance and human interaction needed at the exception management levels.
What challenges are organizations facing using RegTech?
In the industry, we’re seeing where some purely RegTech solutions may bring great products. They have the rules, logic and output, but nothing for organizations to execute changes with. This brings me back to an earlier point that organizations need operational workflow. They can incorporate RegTech into that functionality. If an organization already has a RegTech solution, we recommend taking the trends and exceptions and building processes that eliminate those that have a negative impact on the business.
How will RegTech emerge, mature, and change moving forward?
We strongly feel that the trend will remain moving toward a focus on creating operational efficiencies through technology transformation and within that transformation will be RegTech, but RegTech will not be the only focus. RegTech and FinTech companies will need to keep an eye on financial services’ big picture, with the customer front and center. The trend will be a FinTech-RegTech hybrid with a focus on the consumer at the forefront.
More companies will be looking for an end-to-end solution instead of having to manage disparate systems. The result will be more strategic partnerships, mergers, and acquisitions amongst technology providers. As financial services providers innovate, regulators will be doing the same. In three to five years we expect to see the industry as a whole (financial institutions, technology providers, and regulators) working together and not against each other to achieve compliance and efficiencies.
According to Computer Weekly, “2016 may have been the year when you heard about RegTech, but 2017 is going to be the year when you’ll understand that your business can’t run successfully without it.” As technology becomes more accessible, sophisticated, and affordable, more financial services firms are likely to adopt RegTech coupled with workflow automation solutions. Will your organization be the next?
Jane Mason is founder and CEO of Clarifire. She has applied her vast experience (over 25 years) operating process-driven businesses to successfully redefine client-focused service. She has worked with expert programmers to apply cutting-edge web-based technology to automate complex processes in industries such as financial services, healthcare, and enterprise workflow. Her vision confirms Clarifire’s trajectory as a successful, scaling, Software-as-a-Service (SaaS) provider.