(By guest blogger, Sam Baker, Xerox Business Development Principal sam.baker@xerox.com) I’m sure I’m not alone in my enthusiasm about the housing marketing picking up and banks lending prudently. Citi’s “prudence to lend” was discussed in a recent CNBC interview with Sanjiv Das, CEO of Citi Mortgage. He talks about “responsible lending” being the theme of the day – but he also talks about the mandate for the right amount of documentation and good underwriting being part of the equation for prudent lending as well. Additionally, JPMorgan Chase has announced that they are aggressively re-entering the private securitization market and has learned that private investors can be very picky about having clean loan files.
As much as I am bullish on the mortgage marketing growing – the once bitten – twice shy rule definitely applies in terms of how these mortgages are serviced and securitized post-origination. There’s a lot more to post-securitization documentation than one can imagine though – and “transparency” is the buzz word you’ll hear throughout the mortgage industry.
In the past (pre-2008) the actual loan files and documents for mortgages – that were securitized and sold to investors – were often absent from the equation. Kind of hard to believe, but sadly true from what I have learned from some of our Financial Services clients. You can imagine why having the correct documentation associated with a mortgage that’s been securitized is important from a transparency and risk mitigation perspective. Therefore, a 0% error rate is the goal. Unfortunately, a 20% to up 30% error rate in the pages contained in a mortgage file has been the reality for many banks. Investors and regulators are now calling Banks to the carpet to produce this documentation.. The errors can be characterized as finding “other” borrower information in a file that is not associated with the mortgage borrower. A situation like this triggers two risks: (1) The investor may demand the repurchase of the mortgage or the whole tranche; (2) A Personal Financial Information breach results from the inclusion of inappropriate materials.
This problem turns into a major headache for banks that are not given a ton of time to produce and fix this documentation for investors. For many, it’s been a manual process that, depending on the number of files, can result in between 90 and 120 days to deliver back to the purchaser. That’s really not acceptable for most investors – nor should it be. You’re probably wondering why there isn’t some kind of technology that can address this issue more expeditiously – and so were a few of our banking clients. We call it the “Mortgage Remediation” process (yeah I know, rolls right off your tongue) using OCR (optical character recognition) combined with a sophisticated rules engine technology and Xerox is doing it for clients today.
To put it quite simply – mortgage file pages are fed through the OCR / Rules platform. Then they are sorted into good and bad, or borrower and non-borrower groups of pages, and posted back to the Bank for review. A Xerox Quality Review loop takes the automated results to over 98% accuracy. This process can reduce the review time to less than 7 days per request.
I’d like to see this process become part of the securitization workflow rather than the post- securitization fire drill, but I’m just glad Xerox can offer the service so that we can play a part (albeit small) in getting this industry back on track.
