(Curt Doman is president of International Document Services, a mortgage document preparation vendor for closing documents, initial disclosures and reverse documents. He can be reached at firstname.lastname@example.org or 1-800/554-1872.)
Thanks to the slew of mortgage and financial regulations issued over the past year, mortgage documents are no longer the commodity they once were. The recent chaos in the foreclosure arena surrounding missing documents and erroneous document packages underscores how invaluable docs have become to the loan process from beginning to end and beyond.
Today, loan documents are the last point of validation before the loan is packaged, and investors and regulators alike are relying heavily on a loan’s closing documents to ensure compliance.
The expectation now is that when documents are generated, compliance of the documents is guaranteed, investors' lending requirements are met, high cost/predatory lending checks are completed and secure investor-approved e-delivery methods are provided. That’s a pretty tall order for something as seemingly simple as documents and one that requires an extraordinary amount of expertise, finesse and attention to detail. However, given the extraordinary demands on lenders in all areas of their business, these may be in short supply when it comes to docs.
To make the lives of lenders easier (and to create a one-stop-origination-shop), some LOS providers have begun to incorporate the ability to generate closing docs into their systems. In this era of lending where cost reduction is on the tip of everyone’s tongue, the thought of eliminating doc prep services from the budget and doing doc prep in-house is seductive, and while the desire to further simplify the origination process is commendable, there is a reason why doc prep providers have flourished.
The real value that doc prep vendors provide, and what has moved mortgage docs out of the realm of commoditization, is domain knowledge--the intimate understanding of regulations at all levels concerning mortgage docs and the ability to advise lenders about the execution of docs when a loan is anything but standard. Anyone can fill in the blanks on a standard set of loan documents, but, “If it’s something weird and it don’t look good, who ya gonna call?” The last time I checked, Ghostbusters wasn’t in the mortgage business. Luckily, there’s a much better resource available--your doc prep provider.
For example, when the revised Real Estate Settlement Procedures Act rules came out, many lenders found themselves burdened significantly just in trying to convert to the new GFE and HUD-1 forms. And in the midst of all this confusion, lenders were further blindsided when what were once simple transactions to record, such as the Owners Title, became impossible to note on the new disclosure forms. It’s instances like this when a doc prep provider can become an invaluable compliance resource and prevent costly delays in a market where margins are already tight. Therefore, it is critical that lenders include their doc prep systems as part of an overall compliance strategy.
As the focus of compliance moves from underwriting to point of sale, closing docs, being the final record of all loan activity, become that much more important to the salability of the loan. Repeated submissions of non-compliant loans can threaten an otherwise steady relationship with an investor and have a trickle effect down to the warehouse line when loans sit in the pipeline longer than expected. Additionally, many investors, such as Wells Fargo, have developed stringent e-delivery requirements, which lenders would be hard-pressed to meet on their own. Many doc prep providers have already been approved for e-delivery and can provide lenders with that capability at little to no extra cost.
This shift in thinking regarding compliance and the redefined role of mortgage documents means lenders need to reevaluate their doc strategies to shore up origination protocols and maximize compliance. Without a solid document foundation in place (and a solid doc prep vendor to provide assistance and guidance), lenders may find themselves at the short end of the compliance stick without a way to get back to the top.
(The views expressed in this article do not necessarily reflect the views or policies of the Mortgage Bankers Association, nor does publication connote an endorsement of a particular product or company. MBA NewsLink welcomes your contributions; articles or inquiries should be sent to Mike Sorohan, editor, at email@example.com or 202/557-2855.)