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Payoff Statements |
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| The Customer |
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An American mortgage banking firm focused on the residential sub-prime segment is our customer. Their activities stretch across the Mortgage Banking value chain, making, servicing and selling loans. They are amongst the top 5 originators of residential sub-prime loans on the strength of their multi-channel origination programs, wholesale, correspondent as well as retail. In addition to servicing their own loans they are also sub-servicers of loans for other lenders. Their strong loan portfolio is offered to individual and institutional investors by securitizing loan pools.
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The Business Context
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Payoff refers to the event in the loans lifecycle when the borrower wants to pay off the loan in advance of the original loan duration. The borrower initiates this process by making a loan payoff request, the response has to be a payoff statement which indicates the final amount the borrower needs to pay to pay off the loan. Most loans have a prepayment penalty clause which specifies the amount to be paid by the borrower in case of a prepayment. This penalty is to assure that the investor is reimbursed for the loss of anticipated future interest earnings on the loan. The pre-payment penalty that can be charged is regulated by the states. Even the turnaround time has to be within standards specified by the states.
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The Challenge |
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Managing payoff requests to ensure an accurate and timely response is an extremely complicated and painful process for the business due to the following:
- Compliance with disparate state regulations while calculating the maximum permissible prepayment penalty
- Turnaround times within state specified standards
- Further these regulations are changed on a regular basis by the states
- Diversity of prepayment clauses since the loans could have been originated by any lender
- Need to access information spread across multiple systems to arrive at the payoff statement
- Need for manual review, intervention, approval given the criticality of the payoff statement
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The Solution |
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We formulated an extremely flexible as well as business user friendly solution to the payoff puzzle with the following key components:
- A flexible business rule engine with a Microsoft Visio based visual rule definition environment. This enabled business users to define the prepayment penalty calculation rules in an environment they were comfortable with. They could also change the state based rules as and when the states legislated changes. The solution could also cater to large variety pre-payment clauses.
- A home grown workflow solution again using a Microsoft Visio based visual environment. The then existing process with a lot of manual checks was implemented within this workflow solution. The business also had the flexibility of changing the implemented process as their business process evolved. In fact, the process did evolve quite a bit; most of the manual interventions were removed as the business gained more confidence in the system.
- A web based GUI to enable business users to monitor, review, approve, etc. This was latter extended to the borrower; they could access their payoff statements online.
- Integration with a bunch of internal systems (most notably Fidelity MSP, the system of record and LenStar, a source of attorney fees and costs) to ensure automated exchange of information about the loan
- Integration with RightFax, an automated solution for faxing the payoff requests to the borrower
All of this was implemented using an industry standard J2EE stack and SOAP based integration between Visio and J2EE.
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The Benefits |
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The solution provided the following benefits while automating the generation of Payoff Statements:
- Improved Compliance – With disparate state specific rules
- Improved Accuracy – In calculating payoff penalties
- Improved turnaround time – Within state specified standards
- Improved Image – With rating agencies, who audited the system
- Improved Image – With the customers as a result of improved service
- Improved Flexibility - The system keeps up with evolving business processes
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