Providing loans secured against real estate is the core function of the mortgage banking industry. The loan can be provided either at the time of purchasing the real estate or in case of refinance, against property already owned by the borrower. The mortgage banker can either retain these loans on its own books are sell them off to another banker or investor. In fact, the loan could be a part of multiple transactions where it is split or packaged with other loans, securitized and sold. These multiple transactions that can happen between mortgage bankers and investors comprise the Secondary Mortgage Market. The Primary Mortgage Market covers the initial transaction between the consumer and the original mortgage banker.

The industry is divided into residential and commercial mortgages. The residential mortgage banking industry is further divided into prime and sub-prime. The prime mortgagor caters to a segment of population that has good credit history and traceable and stable income as opposed to sub-prime. The sub-prime segment is more risky and as a result attracts higher interest rates to compensate for the increased chances of default.

We look at the Mortgage industry in terms of four main process area; Origination,  basically everything needed to create a new loan, Secondary market, the selling and reselling of loans, Servicing, the regular monthly processing of the loan and finally, default management, the process that kicks in when the borrower is unable continue making payments towards the loan. The diagram above depicts the sub-processes and the participants in these main process areas.

Mortgage Bankers can specialize and focus on just one of these processes, i.e. they can mainly originate loans or service them or maintain a portfolio of loans. Some organizations are involved across the complete value chain. In addition there are a host of vendors who provide services such as appraisals, title verification and insurance, mortgage insurance, hazard insurance, credit reports, listing services, legal services, etc.

There is a lot of governmental involvement in the Mortgage Industry. It has actually sponsored a bunch of organizations that will securitize home loans, Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae) and Government National Mortgage Association (Ginnie Mae). The Federal Housing Agency (FHA) provides mortgage insurance. The department of Veterans Affairs guarantees loans taken by veterans.

There is also a significant degree of regulation by various state and federal agencies. Mortgage brokers and bankers are typically regulated by state agencies, such as the Department of Real Estate and by acts such as Real Estate Settlement Procedures Act (RESPA). Various aspects of the mortgage banking process such as the fees payable, turnaround times for processing of requests, etc. are regulated. These regulations are primarily to ensure that the consumer is protected.

Some of the factors that we feel are critical for successes in Mortgage Banking are:

• Compliance with strong regulatory regime, e.g., diverse state based fees and turnover rules, FDCPA guidelines for contacting borrowers, etc.
• Managing interactions with varied external stake holders, borrowers, investors and vendors such as brokers, appraisers, attorneys, title agencies, Mortgage Insurance agencies, etc.
• Ensuring high quality, consistent and informed decisions where the stakes are high, e.g. the right loan product selection and pricing during origination or the right workout option in Loss Mitigation, etc.
• How to improve productivity of the large number of manual process
• How to drive technology innovation while retaining legacy systems of record
• How to outsource business processes to decrease the cost while ensuring consistent quality

The mortgage banking segment is the least mature in terms of IT adoption within the Financial Services industry. The level of IT adoption ranges between firms. Most firms have legacy applications that handle the core Loan Servicing functionality and are the systems of record. A large number of processes are still manual in most firms. High impact decision areas in origination and default management are getting targeted by solutions that use business rules and artificial intelligence. Imaging and Document Management solutions are widely deployed given the presence of large volumes of documentation. Some firms are moving towards modern end to end solutions. There is also a strong push towards automating the interfaces with the various stakeholders within the industry.

Based on our wide ranging experiences deploying solutions for the Mortgage Banking industry we have the following solution vision:

• Workflow solutions to automate the complex manual workflows with automated allocations, escalations, approvals, etc.
• Inclusion of external entities such as borrower, broker, investor, etc. within the workflow
• Flexible business rules to encode and enforce internal guidelines and external regulations
• Complex and comprehensive calculators to provide quantitative support to decision making
• Complex and comprehensive decision assist tools based on flexible business rules
• Template driven document generation and context based document management functionality embedded within the applications
• Anywhere, anytime access to information via multiple channels, viz., web, email, cell phones, etc. Self service portals for customers, investors and vendors.
• SOA platform to enable enterprise access to vendor provided services, viz., BPO, Credit Reports, etc.

New applications are built as a layer over the existing legacy systems of record providing the rich solutions set described above. The users shift to the new applications, which in turn, ensure that the systems of record stay up to date.

We have delivered the following benefits consistently to our clients while deploying the IT solutions vision described above:

• Improved Compliance – Business Rules, Workflow
• Improved Accuracy – Calculators
• Improved Decisions – Models, Business Rules, Calculators, etc.
• Improved Communication – Workflow, Anywhere Anytime Access
• Improved Image – Self service portals, Anywhere Anytime Access
• Improved Flexibility – Workflow and Business rules change with the business
• Improved Productivity – Workflow, Calculators, Models, etc.
• Improved Turnaround Time – Workflow, Calculators, Models, etc.
• Improved Ability to Outsource – Workflow, Anywhere Anytime Access
• Improved Ratings – Better Audit Trail, Models, Business Rules, etc.
• Improved Reusability – SOA based vendor services