Posts Tagged ‘Compliance’

“I am Not the Man I Was”

Tuesday, January 5th, 2010

Looking Outside of the Comfortable Norm, Seven Pragmatically Determined Projections for 2010

By Mark P. Dangelo

www.Innovative-Relevance.com

Welcome a new decade – and good riddance to the first decade of a new millennium. With a mix of cautious optimism and somber restraint, we let our feelings of aspirations rejoice that future events will leave an indelible positive mark on our fortunes. Yet, wondering aloud, what is hidden within – behind the veil of positively spun reemerging domestic and global economies. What icy reality is poised to strike fear into recoveries balanced precariously on edge?

Per a recent U.N. economic report, the U.S. economy has very steeply increased its external debt ownership during the last 25 years (to foreign holders) — from near zero in 1986 to nearly $4 trillion. Half of that externally owed debt came within just the last two years. The stark economic realities have created multiple operating threads within the new decade – some with answers, some driving towards convergence.

As servicers, lenders, and vendors the ability to predict the next year is coming into focus – albeit narrow in their definition. However, what the 2010 budgets fail to recognize are the holistic implications of a declining dollar, a three to five year lag of unemployment recovery, and economic risks that are slowly building only to burst our holiday of joy after years of decline. Is this an overly detrimental assessment? No, no, just looking at the data that is already aligned if we care to interpret.

When examining the stark reality and meteoric changes anticipated across numerous third-party simulations, the projections below regrettably resemble the dark and foreboding figure within Charles Dickens A Christmas Story – as I play the unwilling part of the Ghost of Christmas Future.

1. Outsourcing, Offshorer Beware: The premises and value of outsourcing (on or offshore) cannot be denied – although it will surely be debated. Yet, understanding the resulting dynamics of a “100-year” recession. It may be a decade before unemployment decreases to pre-2007 levels. Moreover, it may be (barring any new tribulations) that the Federal deficit will begin only turning positive by 2020 (i.e., we can begin paying it off). Where will the money come from to reeducate the American worker looking at a decade of drift? The new decade will witness increasing implicit nationalism as the new political currency to tax foreign enterprises under the guise of rebuilding the economy. Empathy and balance of operations will be the new form of payment for those enterprises who anticipate regulatory change and consumer sentiments.

2. Regulation – A New Wrapper: Whereas politicians will finally make regulatory changes approaching the mid-term elections, the breadth and meaning of those changes will be far less clear. In an effort to exact a “pound of flesh” to soothe disgruntled voters, they will fail miserably at doing what Henry Paulson, former Treasury Secretary, said needed to be done in 2007 – a regulatory structure that works for the new millennium and for the globally interconnected markets that mortgage and lending products are now participating within. Congress is unwilling to do what must be done, and thus they will extract concessions from those individuals and operations that are believed to have benefited from the now three years of chaos.

3. An Investor Driven World: The “age of origination” has been permanently transformed. As the disposition of the GSE’s is debated, the leadership forces entering the markets are coming from the other side of the globe and the reverse financial supply chain – driven by investors demanding transparency, data, and real-time valuations (see newcomer DelphX launching in 2010). This mantra is quickly spreading as we can implicitly witness from previously benign places such as the IMF, World Bank, BIS, the UN, and even the ASF and project RESTART. The tables have turned on the traditional mortgage operator, as if they want private money to lend and originate, it comes with far greater demands and rules in product forms previously scoffed at by domestic firms. With 60% to 65% of the global liquidity sitting offshore, domestic firms now find themselves in a position not previously experienced in their lifetimes. The driver has become a mere passenger.

4. Our Heads are Firmly in the Clouds: The last five years have witnessed remarkable advancement with new technologies rooted in principles that transcend nearly four decades – cloud computing. As progress goes, cloud computing continues to advance against hyped expectations resulting in layering of innovative technology. However, the measurements and benchmarks needed to direct and evaluate technological approaches are not familiar or even clearly defined. The resulting adaptations will therefore be incrementally iterative in their design and implementation. The capital light structure of cloud computing will continue to offer needed innovation at price points and operating capabilities that will accelerate change while reducing fixed costs. Orchestrated innovation will be the discipline and rigor used in place of once standardized processes. Cloud computing will play a larger and larger role in the management innovation and principles of orchestration.

5. Global Interconnectivity – New Responsibility: For the time being, America has released control of its financial future. Additionally, domestic lending, be it securitized or portfolioed, is now and permanently tied to international finance. The ability of stoic mortgage operations to unilaterally determine their destiny is now firmly in the hand of evolving global regulators, carried international agendas, new investors, and even new establishments being defined outside the influence of old-line monarchs. 2010 will experience a marked rise in new instruments, exchanges, and regulator sanctioned hybrids. Money to fund not only pipelines but improvements will likely face a risk aversion in the first half of 2010 as external events (e.g., stimuli, elections, exchange rates, unemployment, asymmetric recoveries) play out daily on the front pages. A new series of covenants and demands will trickle in from non-traditional players impacting historical processes – which will be cast aside in favor of relevance, financial innovation, and market viability.

6. Back to the Future: Innovation of both business and technology will witness a rebirth of vertical provisioning. For nearly two decades organizations have been shedding operations and outsourcing all “non-core” competencies as a method to cut costs and improve delivery. The expansion of this “fact” has witnessed resistance as small and very large organizations have begun to rebuild their end-to-end verticalization chains. When markets and consumer behaviors are stable, standardization or commoditization of sub-processes cannot be outsourced – at least not in a traditional sense. It is this management reality of the need for increased vertical control that not only drives the use of layered innovations (i.e., cloud computing), but also the methods, models, techniques, and profits that are now demanded by businesses and their customers. Although, verticalization of the past is not the same as what awaits those seeking greater specialization within their delivery value chain today. It is about the assembly of segments in unique and competitively different arrangements that will create longevity – both short and long term.

7. “Unholy” Alliances – A Brave New World: 2010 holds a chance of experiencing a double-dip or retrenching of the pain. While the second blood-letting is not expected to be as deep, the nascent recovery is fragile and in some cases, unsupportable using the very instruments that saved it from destruction. Even President Obama has indicated that this double dip, double bottom might happen in 2010. It will be the resurgence of private firms and proper use of “hot money” that will craft firm relationships between previously disjointed firms. Moreover, as a result of necessity and new rules, former competitors and groups will be forced to make peace and forge alliances across the finance and mortgage markets (FMM). In 2010, the first half will witness several of these public announcements. What you ask? Well no sense giving away the answers to that question – at least not yet.

It is here at the end of all prior things, which shaped the industry as we know it, new beginnings dawns. As the gaunt and thin hand of the future points the way, we must look to Scrooge for our true reality.

Like the story penned over 150 years ago, we must take control of our destiny in new and unique ways – stepwise innovation, technology, process, and yes, people. All assembled in strange and unique ways – some with alliances previously, sometimes arrogantly deemed unnecessary.

In closing, just because the future is anticipated or debated, does not make it a reality. The future makes fools out of those of us who dare conjecture its path. “I am not the man I was” – the same can be said of our industry.

Perhaps our future is best described from a detached and introspective viewpoint.

Beat the heart of industry mortality,

From the ashes raise a cheer,

Our focus is a gauge of simplicity,

Our relevancy is our fear.


UN World Economic Situation and Prospects 2010, Global Outlook, December 2, 2009.

ibid

International Society of Professional Innovation and Management (ISPIM), December 8, 2009, at New York City.

Pause – It is Time for Reflection

Tuesday, July 21st, 2009

Five mortgage industry leaders offer their end-to-end insights and expertise on forthcoming CAR’s – Challenges, Actions, and Results.

By Mark P. Dangelo

www.Innovative-Relevance.com

Stating the obvious, we are not nearly finished with the 2-year consumer and industry rebalancing saga.  If anyone had cherry plum visions that this was merely a prolonged business as usual (BAU) cycle, they might want to check the consumer’s pulse and the underlying analytical facts.  Recessions, like recoveries, are played out in “fits and starts.”  Today, which ever condition you believe we are still in, our economic “patient” is suffering from rapid-cycle schizophrenia with a touch of “job-envy.”

Poor jocularities aside, there is still significant opaqueness surrounding real estate, lending, business activities, and yes, domestic financial practices and oversight.  So as we reach a bottoming of the severest recession in 80 years, it seems a good of time to reflect and listen to the domestic market challenges created as it struggles with a projected multi-year jobless recovery.

It is against these challenges, that we must ask, “What actions should be undertaken?”  Furthermore, can we assess the implications or results from political, industry, and organizational actions?  How can we avoid the BAU trap?

Therefore, in an effort to gain unique insights within the entire end-to-end mortgage process, I have asked six industry leaders their CAR’s (Challenges, Actions, and Results) to secure a new focus across the persistently difficult operating environment.

·         Cheryl Lang, CEO, Integrated Mortgage Solutions

·         Anil Suri, CEO, Intelli-Mine

·         Bill Cary, Director, Lender Processing Services, Inc. (LPS)

·         Lester Dominick, President, MortgageFlex Systems, Inc.

·         Judy Margrett, President, The Turning Point

* * * * * * * *

Cheryl Lang, CEO, Integrated Mortgage Solutions (www.imstoday.com).

 

Ø  Challenge:  Loan modifications will continue to pose the largest risk and opportunity for servicers dealing with delinquencies, consumer loan viability, and consequences of workouts.  However, the rising demand is creating unintended costs and burdens for consumers, lenders, investors, and servicers. 

o   Action:  With rising unemployment and overburdened staffs, servicers are being forced to find and internalize new operating procedures faster.  The rejection of BAU coupled with the complexity and volumes of workout demands, cannot hinder the primary goal of keeping consumers in their homes in an effort to reduce property loses, while ensuring community prosperity and reducing REO losses.  As part of a comprehensive loan modification approach, predictive and causality driven analytics must be utilized not just at a macro level, but also on a granular basis to ensure that actions foot to results.  Quantities of modifications are not a substitute for quality of results – today the linkages are too generalized and implications of actions not well understood. 

§  Result:  By clearly understanding the linkages of what constituents a “viable” modification, servicers and investors stand to reach long-term profitability with the borrower and property.  Additionally, the use of teams in dealing with workouts aids the servicer with a faster response to the borrower, greater transparency of the efforts, and conformance to vastly expanded government oversight.  By keeping viable borrowers in their homes, communities benefit and crime is reduced.  Furthermore, using an adaptable end-to-end roadmap for discrete borrower profiles, servicers are able to be responsible to their stakeholders, create a viable exit strategy from the crisis at-hand, and reduce current herculean efforts to a manageable subset of what they are experiencing.  By addressing the problem holistically, we now understand that what we are dealing with cannot be fixed overnight – we are only now building the skills needed to deal with a persistent and growing set of interconnected servicing challenges. 

Anil Suri, CEO, Intelli-Mine (www.intelli-mine.com).

 

Ø  Challenge:  During the current recessionary markets, tight credit and vanishing consumers, companies are increasingly faced with the challenge of re-examining their historical decision making processes in order to remain profitable.  Mangers need a clear visibility into their operations, while gaining clear insight into the performance of loan, programs, and channels.  The nagging challenge is the ability to pinpoint the leading and lagging indicators of the business, while realizing a single, consistent 360 degree ROI analysis of the organization across multiple departments.

o   Action:  Products and solutions enable organizations to meet this challenge by harnessing the power of interrelated data to increase performance, reduce risks and drive competitive advantage.  Through the deployment of dashboards, scorecards, pre-defined Key Performance Indicators (KPI’s), analytics and reporting functionality, organizations must act on the three main questions facing executives daily.

        Where is my organization today?  Deployment of customizable dashboards which displays and aggregates KPI’s providing executives a snapshot on where they are and the predictive trends. 

        What is the true picture?  Adopting a BPM framework standardizes the measures, metrics, and KPI’s used throughout the organization by combining all the business data into a common data warehouse.  This inculcates the discipline of using data from a single source resulting in one version of the truth.

        Where are we going?  An adaptable BPM framework provides executives with an early warning system and triggers alerts based on business rules, competitive actions, and third-party intelligence.

§  Result:  The status-quo of designing, developing, and deploying a BPM solution is expensive, time-consuming, and results in an inflexible solution.  What we recognized is that for organizations to prosper, a dynamic and sustainable BPM framework was needed to properly assess rapidly shifting market conditions.  Using a vetted framework generates a solution set which is adaptable to the rapidly changing business, systems, data sources, and user profiles.  A leveraging and integration of multiple vendor offerings is no longer optional.  Proactive organizations are using integrated, mortgage-centric analytical specialty firms to deliver performance and risk management solutions for their operations.  Our team has spent years saving clients millions of dollars with the use of pre-defined templates, indicators, and maps for all aspects of the varied mortgage processes.  It is with these experiences that we learned the bottom-line value delivered from a comprehensive approach, roadmaps, and technology – not just one-off applications.  In conclusion, it is this superior organizational performance, risk, and objective analytical framework which yields unsurpassed ROI, market power, and operational versatility over the growing cloud of data assets and “wandering” warehouses.

Bill Cary, Director of Origination Solutions, Strategic Consulting Services, Lender Processing Services, Inc. (LPS) (www.lpsvcs.com).

Ø  Challenge:  In the early part of this decade, financial institutions were very focused on making the mortgage origination process more efficient and streamlined.  There was a great deal of re-tooling to incorporate automated workflow tools and automated decisioning models to make the mortgage process easier for more people.  Then, the buildup of the housing bubble occurred, followed by the ultimate crash of the real estate market.  Understandably, many financial institutions ‘overcorrected’ by assuming that everything they had relied upon in the past was ultimately proved to be wrong.  They lost confidence in many of their automated tools - in particular automated underwriting engines - as well as in their risk assumptions.  Unfortunately, the resulting credit tightening that has occurred and impacted both high risk and low risk consumers.

o   Action:  What is needed is an approach that allows lenders to avoid high risk transactions, while still making the mortgage process simple and streamlined for people who are good credit risks.  Risk segmentation is the answer. The use of automated tools and streamlined processes for people with good credit histories, are appropriate for the large segment of the borrowing population that has continued to stay current on their mortgage obligations.  It was not a mistake to use automated tools and decisioning in years past – but rather, the problems facing many servicers today stem from the large number of high risk loans that were made.  By using the comprehensive, robust analytical modeling that LPS offers, and accessing the company’s database of over 40 million loan level records, servicers can make lending more streamlined for low risk customers.

§  Result:  88 to 90% of mortgage loans are being paid on time. If servicers segment their customers and prospects into tranches, and utilize a mortgage process and decisioning model that is appropriate to the level of risk, they will make it much easier for credit-worthy customers to do more business with them.  The industry must get beyond its fear of losses and move forward to attract profitable new business.  By using the advanced workflow tools, sophisticated risk analytics and industry leading data offered by LPS, financial institutions can streamline lending for their lowest risk customers and earn more profitable business.

Lester Dominick, President, MortgageFlex Systems, Inc. (www.mortgageflex.com).

 

Ø  Challenge:  With rapidly accelerating regulatory compliance guidance for FHA loans, how can originating technology and automation of processes be utilized to increase end-to-end efficiency, auditability, and adherence during times of industry uncertainty and reduced budgets?

o   Action: On-going research, assessment, and development of conforming loan originating technology must be diligently performed by both the software provider and the lender in anticipation of the final rulings from Congress and the Regulator (e.g., GFE).  The use of iterative, agile techniques must also be adopted to ensure not only accuracy, but also adaptation as future clarifications are issued.  Active, cross-team collaboration (between lender and software vendor) must be utilized as part of a rigorous discipline to address stringent product and consumer oversight demands.

§  Result:  The use of a collaborative vendor to lender iterative approach improves not only the quality of the end result, but also addresses the lenders internal challenges – education, training, communication, conformance, and cost to execute.  Moreover, while most assume reporting and adherence as a non-differentiator, hidden benefits may be realized in data accuracy and integrity, automated conformance to policies and procedures, and consistency and repeatability (using rules and decision engines).  With this tight integration and preparation for oversight, the security of the transaction is also improved, thereby providing the lender and the customer with much needed trust and risk mitigation.

Judy Margrett, President, The Turning Point (www.turningpoint.com).

 

Ø  Challenge:  The continually missed opportunity for many organizations resides with their inability to profitably leverage multi-faceted customer approaches, which satisfy four interconnected responsibilities: a) pervasive government mandated consumer regulations, b) the need to manage, maintain and foster the relationship with not only customers but all sources of new business, both direct and indirect, c) comprehensive, rule-driven accountabilities, and d) organizationally aware intelligent marketing solutions.  Organizations can collect, analyze, and manipulate data intelligently, but if they can’t build relationships and a social networking framework in a way that guarantees returning customers and house holding, then they are just another company offering the same or similar products.

o   Action:  Overwhelmingly more important than point-driven contact or sales solutions, this “next generation” software will cohesively knit together the organizational marketing strategy, performance tracking, automated execution, and even regulatory compliance.  Organizations that deploy non-intrusive technology (e.g., SaaS), which supports extensive industry business application services, will be able to achieve results faster and with less organizational turmoil and cross-department demands.  Intelligent marketing is not just about contact management and analytics, but real people speaking to real people about the products and services of a given company.  Moreover, it is those discrete actions to control the customer content messaging, without losing the personal touch, which drives social networking to deliver viral marketing so they attend, join, or buy.  By examining the end-to-end implications of disjointed technologies, business functionality, marketing frameworks, consumer compliance, and operational strategy, organizations may be able to achieve greater returns in a market that will be very difficult well into 2010.

§  Result:  By accepting that technology and data are facilitators to marketing intelligence, the integration of independent organizational actions (and technologies) will succeed at driving revenue growth, while at the same time enhancing operational efficiency and managing risk.  We have personally witnessed that through the integration of pre-defined business services enhanced with superior technology (e.g., data collection, database management, activity design and copy, campaign execution, production and fulfillment, compliance capable, results tracking and performance analysis), organizations may achieve outstanding returns without traditional capital expenditures.  The results of intelligent marketing are not singularly about customer relationship management, but achieving vastly tailored and positive relationship management with B2B’s, partners,  prospects, employees, and others that are needed to keep, foster, and maintain interactions across an ever shrinking timeframe.  By deploying an expanding array of services (and technologies), key players across the organization and its processes are held accountable for results, actions, and plans – all delivering much needed end-to-end marketing intelligence solutions that provide results today and tomorrow.