Lending a Hand

In the wake of the global credit crisis, most banks dramatically curtailed their lending activity, and those that continued to lend actively were more cautious than ever. With signs of economic recovery as well as pressure from the Obama administration, however, some banks are beginning to restart both consumer and business lending, often taking advantage of leading-edge technologies in areas such as content management/workflow, analytics and straight-through processing to manage both credit risk and operational costs. How has the lending business changed in the post-crisis, post-recession environment? And what kinds of technologies must banks embrace to manage risk, streamline operations and achieve regulatory compliance in their lending practices?

Information Appetite

John Jay
Senior Analyst, Aite Group (Boston)

It's more the business aspect of lending as opposed to any type of special technology that will make a dramatic difference in the lending space. However, technology might be able to contribute to lending's evolution in the post-credit crisis environment in the area of better management and usage of information.

Now more than ever before, lending institutions need every bit of information on every loan. In this new world, it's a matter of getting all information - not only the creditworthiness of the borrower, but also the ongoing performance information on that borrower. It's also essential to get a clear picture of the mortgage banker, for instance, to determine if there is any sort of malfeasance in his or her ledgers. Technology can help monitor his or her origination behavior.

Technology that helps banks keep track of the right data will be essential going forward. Technologies that help aggregate information and break it apart already have become exceptionally important today. Aggregating data may point you in a direction, whereas breaking apart data and making it more granular may reveal the actual drivers of current activities.

If banks are managed well, achieving regulatory compliance will not be a problem. Fraud will happen, but if you have clear guidelines in place and monitor your activities sufficiently, it will not be difficult to comply with regulations.

Platform for Growth

Brett Albert
Director of Systems and Operations, Bank of Commerce/Mortgage (San Ramon, Calif.)

At Bank of Commerce/Mortgage (BOCM), we have transitioned from an operational foundation that employed a patchwork of software programs into an all-encompassing paperless platform that allows all of our staff to work within the same lending program, eliminating duplication of efforts. The new lending system really "flattens out" our company, enabling personnel to complete their jobs regardless of geographic location. Management can now determine if tasks should be reallocated when workloads become imbalanced and to whom responsibilities should be redistributed. The new infrastructure also breaks down barriers to hiring - employees can work remotely, worldwide.

Another advantage to the workflow/content management platform is its ability to assist us in ensuring that all of our lending files are compliant with state and federal guidelines. Our system allows us to send borrowers the correct disclosures electronically and securely, notifies users when initial disclosures should be sent and, if a file's circumstances change (e.g., APR increases/decreases), the system reminds users to re-disclose the appropriate document(s). BOCM has also added a compliance department that monitors all regulatory changes and double checks compliance on all files.

BOCM's updated user platform provides tools to oversee operations on an individual, departmental and company level, providing absolute accountability. Our staff's awareness that the system measures their work has improved overall production and work quality and increased consistency in turnaround times. Implementation of our new platform has minimized overall risk and increased our profitability.

Automated Accountability

Craig Focardi
Senior Research Director, Consumer Lending, TowerGroup (Needham, Mass.)

All participants in the mortgage supply chain - including consumers, brokers, loan officers, lenders, rating agencies and mortgage servicers - will now be held accountable for their data, documents and lending decisions. Within three years the incidences of compliance violations and even little white lies on lending documents will shrink to a trickle.

Within mortgage and consumer lending, the drivers of IT spending are required system enhancements, ongoing maintenance, merger integration, and new systems for risk management and regulatory compliance. Examples include automated loan origination compliance, fraud checks, quality control, and credit and collateral risk assessment systems. Imaging and content management, business rules management, and business process management systems will support these vertical mortgage line of business systems and processes. In loan servicing, IT spending is increasing for automated loan collections, loan modification and integrated credit risk management systems.

Automating regulatory compliance is the most important IT function for 2010. Mortgage investors, credit guarantors and regulators are increasing loan auditing and review activities. The new standard for loan quality is moving toward zero tolerance for missing or inaccurate data, documents and compliance. As a result, loan repurchases and mortgage insurance claims denials (and related lender losses) have jumped and will remain high for the next 24 months. For new loan originations, the cost of non-compliance is now so high that it is no longer possible to argue against compliance automation.

The Regulatory Burden

Steven Croft
SVP, Cypress Software Systems (North Richland, Texas)

In the post-crisis banking industry, financial institutions will continue to see their lending operations burdened by government regulations as well as by the need for enhanced risk management. As the ever-growing and evolving regulations take shape, federal examiners also will be performing deeper exams of banks' lending processes, while demanding documented proof and validation of loan decisions. But most banks don't have the necessary tools or systems in place to sustain viable lending operations during this time of increased scrutiny.

Manual processes are no longer sufficient. Banks need more automation, visibility and control over their lending to reduce risk and ride the waves of compliance. Unless an institution has the resources to man an entire IT and analytics department, then lending technology will be required for banks to grow and become compliant. The best technology solutions feature automated workflow, a decisioning engine and analytics that help institutions quickly process loan applications, streamline underwriting and efficiently provide the information and reports that examiners crave.

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