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The mortgage regulatory landscape - The way forward

The mortgage regulatory landscape - The way forward

It definitely appears like the mortgage industry is catching up with technology advancements and innovation. In the previous years, the mortgage divisions of the banks have engaged their resources to comply with the Qualified Mortgage standards (QM), Ability to Repay (ATR) regulations from Consumer Finance Protection Bureau (CFPB) in US and Mortgage Market Review (MMR) regulations in UK. But we can still notice a cautious optimism and enthusiasm in the mortgage players, lying in wait to innovate. The optimism can be attributed to the stabilized default rates along with the steady improvement in the housing index and the rising housing prices.

In UK market, the MMR regulation seems to have an impact on the cycle time taken to close the loan from the time of origination. While MMR mandates the transition from non-advised to the advised sales, there has been some delay in taking this change forward. This is in the terms of engaging sufficient number of mortgage advisors either in the branches or call centers. There has been a study in the market which says that the mortgage sales interview time has increased by a factor of two. If the sales activities are consuming significant pie of the time to offer, it is necessary to optimize the offer process to reduce to save time.The firms have to increase the number of mortgage advisors by optimizing their back office operations and deploying the, thus available personnel in the customer facing advisory roles. If process optimization, platform rationalization, automation of activities and outsourcing certain operations are a part of strategic roadmap, it is the right time for firms to progress towards these goals.

The banks will have to look at making the processes lean to get to the optimum cycle time that would in turn provide customer satisfaction. I recently worked with a large UK bank to optimize their mortgage sales and offer processes. Though the aim of the program was regulatory, we coupled additional features and optimized existing processes to reduce operational costs and bring significant business benefits to the bank. This is in line with the division's strategic roadmap of reducing the cost to income ratio. The consumer self-service is yet to take off in the UK market with the branches, call centers and intermediaries taking the precedence. With technological advancements, the banks should look at migrating their customers to a self-service model of operation. Most of the customers find the mortgage process to be daunting because of the complexities in understanding the terms, nuances of the product, the structure of the product, fees associated with it and the terminology. Most banks have put in features on their online websites to simplify these overwhelming tasks to the customers in the form of mortgage calculators, pre-qualification, e-documentation, mobile document capture to name a few.

According to a recent survey, most firms claim that 90% of the single-family mortgages fall under the category of qualified mortgages. Most of the firms expect to tweak their credit policies and tighten credit standards. But the same firms claim that they are reducing the repurchase risk with quality control activities and credit policy revision. Mortgage loans which have limited points and fees along with certain restrictive features are considered Qualified Mortgages, which may be acknowledged to comply with these new rules. Also, because of increased regulatory requirements, many lenders are looking at strengthening their quality control (QC) reviews. This is to enhance the mortgage quality, prevent fraud and reduce repurchase risk from the investors. Most banks expect their operational costs to increase as a result of QM rules.The banks have to offset the increase in operational costs with solutions that can cater to the need. This can be a BPM solution - a workflow solution along with an independent business rules engine that can make the division react to regulatory and policy changes with less turnaround time and cost. Banks have started embracing the confluence of big data, analytics and social media to improve the efficiency of customer scoring during underwriting. Credit scoring is undergoing changes with these advancements and the results of the ongoing analysis. Several start-ups are relying majorly on social network data to score customers based on their credit quality. This is an apt recommendation for mortgage and other lending divisions to bank on.

Most young buyers remain pessimistic about their ability to get a mortgage in contrast to that, younger home owners have grown more optimistic. Down payment and credit score are considered top obstacles for buyers in getting a mortgage. Better educational resources on credit, personal finance management, gamified tools and features can help existing customers of the bank, make more informed decisions about their housing and plan their finances early and efficiently in order to fulfill their goals.



Good article Teja

Nice read Tejasvi. Insightful. Glad you mentioned BPM and BRM. Electronic Document Management System (DMS) too shall see sizeable investments. Automation, Analytics and (Operational) Agility shall be key in this era of heightened regulatory scrutiny.

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