Mortgage Technology, February 2011 issue

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Exploring Return on Automation

mortgage–technology.com

Special ReportHub EvolutionEnding Robo-SigningNeutralizing E-Mortgage Myths

Loss Mitigation Automation

Vol.

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Exploring Return on Automation

Special ReportHub Evolution

FOCUS:

SERVICING

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ContentsMortgage Technology puts the spotlight on servicing

with a special report on the most rapidly transforming segment of mortgage finance. Inside, find features on the latest trends and issues and expert commentary on how technology will permanently change the sector.

FOCUS: SERVICING

10 Hub EvolutionBy Austin KilgoreSystem of record technology wasn’t ready for the onslaught of foreclosures. Some say it’s improved, but new advances are needed to lead servicers out the crisis.

18 The End of Robo-SigningBy Scott KersnarMany technologies exist to contain robo-signing and monitor compliance with governing foreclosure statutes.

22 Neutralizing E-Mortgage MythsBy Austin KilgoreAdvocates of electronic mortgages are taking on critics who claim paperless is bad for servicing.

28 Loss Mitigation AutomationBy Austin KilgoreIndiSoft CEO Sanjeev Dahiwadkar talks about how his company evolved

to address the needs of servicers and why he sees even more changecoming to the entire mortgage industry in the future.

Features

Columns

4 Lender ViewsBy Roy Briggs IIIOutsourcing may be the latest trend, but with the right technology, lenders can bring their servicing back in-house.

6 Tech OutlookBy Paul WhiteThe right technology can prevent human error and reduce the legal risks of mortgage servicing.

8 Servicing SideBy Gagan SharmaChanges in the servicing industry require a new approach to technology.

Inside

3 Editor’s NoteThese days, the industry is just about all about servicing— and so is this month’s edition ofMortgage Technology.

4

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� Mortgage Technology » February 2011

002_MTFeb11 1 2/1/2011 11:14:54 AM

Tim Anderson Lender Processing Services

Brian Boike Flagstar Bank

Brenda ClemFifth Third BankRoger Gudobba

Compliance SystemsMichael Hammond

NexLevel Advisors

Patrick Hartford Quicken Loans

Kathleen MikulaFiserv Inc.Greg Smith

Xerox Mortgage ServicesScott Stern

Lenders OneDavid Zugheri

Envoy Mortgage

Welcome to our servicing spectacular! There are two reasons we have made our February issue all about servicing. Most obviously, the industry is now just about all about servicing. And secondly, this issue of Mortgage Technology will be on display at the Mortgage Bankers As-sociation’s annual servicing conference in Dallas. (Feel free to buttonhole either

myself or managing editor Austin Kilgore during the event.)Can there be any doubt that servicing holds sway over the in-

dustry? Some predict foreclosures this year will outpace 2010’s re-cord 1.3 million cases. Scandal threw an unwelcome spotlight on the shoddy foreclosure practices of the big servicers. Government programs like HAMP and HAFA tried valiantly all last year to make a difference in the default logjam (without quite achieving it).

So in this issue we are presenting stories on the future of servic-ing hubs, software that can help prevent the embarrassments of robo-signing, the myth that e-mortgages pose challenges to fore-closing, and an interview with Sanjeev Dahiwadkar, CEO of Indisoft. Sanjeev, who recently won a Mortgage Technology Award, speaks about the biggest servicing issues that technology can help.

Our columnists have also been thinking about the servicing. Roy Briggs III of Gateway Mortgage Group writes about the decision to bring servicing in-house. Paul White offers a primer on managing disparate municipal foreclosure requirements and Gagan Sharma writes about using technology to improve worker efficiency.

Enjoy the issue, and see you at the servicing conference!

Mark [email protected]

editor’snote

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All About Servicing

www.mortgage-technology.com �

003_MTFeb11 1 1/31/2011 3:01:35 PM

OutsOurce, OutsOurce, OutsOurce—it’s been the word on the street for many years and has grown even more popular with the financial downturn and onslaught of new regulations. As lenders coped with falling volumes and skyrock-eting costs, the best solution was to send the time-consuming, costly aspects of lending out the door to a company that focused solely on those areas. Outsourcing theoretically freed up time and money to focus on origination and growth.

And this was the situation for Gateway Mortgage Group when, in December 2008, we decided to start outsourcing our servicing operations. Gateway, one of the largest privately held mortgage companies in the Midwest, funds more than $500 million in mortgage loans each year and services nearly $1 billion. When the company first started retaining servicing rights to our loans, there was not enough manpower to manage the process. A subservicer seemed like the problem solver.

Unfortunately we were wrong.Our goal at Gateway is to offer the convenience and products of a

large institution while providing the service they would expect from a small community lender. After engaging a subservicer, we quickly learned that this service could only result from handling the process ourselves from start to finish. We had been outsourcing for less than two years when we switched gears and brought our servicing in-house.

We were obviously bucking the industry trend, but we knew it was the right one this time. Working through the subservicer had reduced the contact we had with our borrowers and left us with little control over delinquencies for which we were ultimately responsible.

In addition, our vendor had several hundred other clients to manage leaving little time and attention for Gateway. Not only did we desire better service for ourselves, but we demanded it for our borrowers.

Building a department to handle such a volume of servicing could have spelled disaster. However, with meticulous planning, the addition of staff and a servicing platform customized for our needs, the switch was nearly seamless.

First, we had to develop and write Gateway’s policies and procedures covering all areas of servicing, but especially concentrating on the default area of operations. With the investor and regulatory guidelines surrounding the loss mitigation, we wanted to make sure no gaps occurred in handling delinquent borrowers after the servicing transfer date. The technology we chose had to automate policy enforcement.

We then began hiring the staff to handle the department. Gateway brought on around 10 new employees and quickly ramped up training efforts. The only prob-lem was finding enough people in the area with extensive servicing experience.

LENDERVIEWS by Roy Briggs III

Outsourcing may be the latest trend, but with the right technology, lenders can bring their servicing operation back in-house.

pERS

pEc

tIVE

S

Switching GearsOur servicing department had to

hit the ground running so that our customers would not experience any disruption from the switch. To simplify the learning curve, we needed technology that would stand up to our expectations but would not be complicated to learn and operate.

To build our new department, the choice was GCC Servicing Systems’ G/SERV platform.

The transfer went smoothly. Our new partner provided a great deal of handholding throughout the switch. Unlike with the subservicer, we had resources dedicated to us and could easily call and have questions answered quickly. We even had assistance in developing new vendor contacts for items such as insurance and tax accounts.

In addition, the system was user-friendly and easy to operate. The new staff was trained on the software and working with customers within one week. We had successfully moved a servicing portfolio approaching $1 billion in volume from a subservicer to an in-house department without any negative impact on our borrowers.

We selected GCC’s fully hosted servicing platform because it provides the lowest total cost of ownership and gives us robust capabilities without the high overhead associated with larger providers. By not installing an internal technology platform, we avoided the need to hire additional in-house technology staff as maintenance is handled behind the scenes by GCC.

With 33 branches across 14 states, the Web-based format also saves us significant headache since the platform is accessible anytime from anywhere and separate software does not need to be installed in each branch.


004_MTFeb11 1 1/31/2011 3:01:34 PM

it’s been the word on the street for many years and has grown even more popular with the financial downturn and onslaught of new regulations. As lenders coped with falling volumes and skyrock-eting costs, the best solution was to send the time-consuming, costly aspects of lending out the door to a company that focused solely on those areas. Outsourcing theoretically freed up time and money to focus on origination and growth.

And this was the situation for Gateway Mortgage Group when, in December 2008, we decided to start outsourcing our servicing operations. Gateway, one of the largest privately held mortgage companies in the Midwest, funds more than $500 million in mortgage loans each year and services nearly $1 billion. When the company first started retaining servicing rights to our loans, there was not enough manpower to manage the process. A subservicer seemed like the problem solver.

Our goal at Gateway is to offer the convenience and products of a large institution while providing the service they would expect from a small community lender. After engaging a subservicer, we quickly learned that this service could only result from handling the process ourselves from start to finish. We had been outsourcing for less than two years when we switched gears and brought our servicing in-house.

We were obviously bucking the industry trend, but we knew it was the right one this time. Working through the subservicer had reduced the contact we had with our borrowers and left us with little control over delinquencies for which we were ultimately responsible.

In addition, our vendor had several hundred other clients to manage leaving little time and attention for Gateway. Not only did we desire better service for ourselves, but we demanded it for our borrowers.

Building a department to handle such a volume of servicing could have spelled disaster. However, with meticulous planning, the addition of staff and a servicing platform customized for our needs, the switch was nearly seamless.

First, we had to develop and write Gateway’s policies and procedures covering all areas of servicing, but especially concentrating on the default area of operations. With the investor and regulatory guidelines surrounding the loss mitigation, we wanted to make sure no gaps occurred in handling delinquent borrowers after the servicing transfer date. The technology we chose had to automate policy enforcement.

We then began hiring the staff to handle the department. Gateway brought on around 10 new employees and quickly ramped up training efforts. The only prob-lem was finding enough people in the area with extensive servicing experience.

Outsourcing may be the latest trend, but with the right technology, lenders can bring their

Our servicing department had to hit the ground running so that our customers would not experience any disruption from the switch. To sim-plify the learning curve, we needed technology that would stand up to our expectations but would not be complicated to learn and operate.

To build our new de-partment, the choice was GCC Servicing Systems’ G/SERV platform.

The transfer went smoothly. Our new part-ner provided a great deal of handholding through-out the switch. Unlike with the subservicer, we had resources dedicated to us and could easily call and have questions an-swered quickly. We even had assistance in develop-ing new vendor contacts for items such as insur-ance and tax accounts.

In addition, the system was user-friendly and easy to operate. The new staff was trained on the software and working with customers within one week. We had successfully moved a servicing portfolio approaching $1 bil-lion in volume from a subservicer to an in-house department without any negative impact on our borrowers.

We selected GCC’s fully hosted ser-vicing platform because it provides the lowest total cost of ownership and gives us robust capabilities without the high overhead associated with larger providers. By not installing an internal technology platform, we avoided the need to hire additional in-house tech-nology staff as maintenance is handled behind the scenes by GCC.

With 33 branches across 14 states, the Web-based format also saves us significant headache since the plat-form is accessible anytime from any-where and separate software does not need to be installed in each branch.

One of the main reasons for bring-ing servicing back under our roof was to have control over delinquencies.

When we were using an outsourcer, we had to rely on the abilities of the subservicer, with very little input on

how and when to contact our borrowers. The alarm-ing part was that delinquen-cies would affect our port-folio, not the subservicer’s, and we didn’t have a way to control rectifying them. Gateway needed a way to implement our ideas for borrower outreach.

By managing our own servicing, the delinquency rate has decreased signifi-cantly. With the new plat-form, the servicing depart-ment receives daily reports based on Gateway’s specific guidelines that list the ac-counts to contact each day.

With automation, we are able to intelligently focus outreach on borrowers who are at risk of entering default status. The system deciphers risk by tracking payment history. If payment history shows that Borrower A consistently makes their payment on the 15th of each month, they will not receive a call on the 12th looking for a check. However, if Borrower A has not paid by the 17th, a flag is raised and the borrower gets a call.

GCC’s updates to the software, such as investor requirements, are made in real-time and occur in the back-ground so that we do not experience any system downtime.

Gateway has also been given the opportunity to create longer lasting relationships with our borrowers. Us-ing G/SERV, we provide several pay-ment options that increase their ex-posure to Gateway.

Customers can use Gateway’s on-line portal to make their monthly payments, view account history and manage statements.

For the more traditional crowd, pay-ments can be accepted at the local of-fice where borrowers have the chance to develop a relationship with us.

When working with a subservicer, our relationship with the borrower es-sentially ended when servicing began. The in-house department has not only extended our time with customers, but service has greatly increased.

They now have the option to call a Gateway office, easily speak to some-one familiar with their loan file and have any issues they’re dealing with resolved quickly. This is a big improve-ment over the days of borrowers call-ing our subservicer and being herded through a robotic answering system.

Obviously an in-house servicing de-partment is not the best solution for every lender. Fluctuating regulations and shaky volumes continue to make outsourcing a necessity for many lenders. For Gateway, however, the benefits of taking over our servicing efforts have been invaluable. We have cut costs, taken control of delinquen-cies and reduced the rate at which they occur, and vastly improved cus-tomer service and retention.

I believe the secret to our success was thorough internal planning, as well as choosing a provider that would be with us every step of the way. GCC not only made sure we experienced a flawless transition, but has continued to work with us to tailor the system to our changing needs. They fill the role of an internal servicing technol-ogy support department while giving us the reigns to run our program the way that is best for our business. By moving our servicing portfolio from a subservicer to our in-house depart-ment, we no longer have to adhere to rules declared by a vendor—we make the rules ourselves, and spend less money in the process.

Roy Briggs III is the vice president of mort-gage servicing at the Tulsa, Okla.-based Gateway Mortgage Group.

LENDERVIEWS

When we were using an outsourcer, we had to rely on the abilities of the subservicerwith very little input on how and when to contact ourborrowers.


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With its nonstop faultfinding and finger pointing, the housing crisis is a case tailor-made for the court of public opinion.

On trial: the public itself, charged with an irresponsible and overzealous pursuit of the American dream—a dream apparently unfulfilled without homeownership. But is Wall Street the real criminal? Did so-called predatory lending spur the crisis?

Or, just maybe, could the real culprit lie in weak process, poor training and inflexible supporting technology? Could the nationwide wave of foreclosure have been prevented though simple checks and balances at originator’s back office?

The Human and Business ProblemInexperienced and junior staff is often placed in unknowingly crucial roles at many

organizations. They are tasked with processing an enormous amount of foreclosure paperwork.

In my experience auditing and consulting bank-ing contact centers, one of the main problems I find is inconsistent foreclosure review processes due to a lack of thorough documentation review and difficult access to customer information.

Robo-signing is responsible for a lot of foreclosure paperwork being completed without a true under-standing of the context of the situation. Drastic er-rors could have possibly been avoided and homes could have remained occupied, if a little more ef-fort was made to review the paperwork. This is all about managing workflow in the right way.

Another leading human error is lost mortgage files resulting in foreclosures on borrowers cur-

rent on their payments. This is all about staff not understanding the customer cir-cumstances and history. The fact is, compliance rules are not being adhered to and junior staffers do not have the means or training to take the correct action.

Failure also lies in the size of the crisis. Over-reliance on manual processes, rather than using automation, has left banks struggling to keep up and maintain compli-ance. Automated processing and guided workflow would alleviate the problems that are exacerbated when the magnitude of foreclosures increases rapidly.

A foreclosure typically involves some 250 steps and the fine print is often ignored. Banks do not properly document seizures and sales, spurring more inconsistency.

TecHOUTLOOK by Paul White

The right technology can prevent human error and reduce the legal risks of mortgage servicing.

Pers

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Foreclosure Fix

Continued on page 27


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007_MTFeb11 2 2/1/2011 2:56:50 PM

Mortgages – Not Credit CardsIn the past, the vision for mortgage

technology has been to streamline the process so much that borrowers only has to interact with a website. The goal has been to replicate credit card borrowing: Go online, fill out an application and click submit.

Many believe the mortgage process can be automated the same way. Imagine equating a credit card app with a mortgage. How shortsighted.

Every case is unique and human touch is needed because of the large sum of money at stake with each loan. Rather than trending toward a assembly-line approach, we believe servicing is evolving to a custom-shop approach.

The modern servicing systems were designed to automate collections and payments for millions of loans. It was not designed to handle hundreds of thousands of foreclosures and individual loan modifications.

These new challenges for servicers require a qualified staff with the expertise to make in-depth loan file revisions and decisions. Technology should be about giving employees that data in one place so they can make decisions quickly, rather than doing something because a computer says so. Black box, or automated underwriting systems, have proven that.

Servicing technology can improve the way foreclosure data is gathered and reported, ensure mortgage documents are in order before foreclosures are filed, that affidavits are done properly and to avoid robo-signing.

In our shop, we empower individual professionals to monitor a loan file from start to finish. In that way, they become more involved with the case, reducing the risk of error and giving the borrower a single contact to work all the way through payoff, foreclosure or other resolution.

A better combinAtion of AutomAtion and human touch enables spe-cialty servicers to work with borrowers and keep homes from entering foreclosure.

The servicing industry has used technology to streamline and automate processes. The recent “robo-signing” scandal is a recent example of one evolution, yet it also demonstrates how change is limited by what technology can do—at least by itself.

Servicers today are asking themselves: What can be streamlined and automated and what requires human intelligence and oversight? It raises the interesting ques-tion: What is the larger vision and goal of technology? Is it to simply replace as many personnel as possible or to enable people to work more efficiently?

In our view as a specialty servicer, the answer is the latter. Technology works best when it enables us to do a job better and provides full visibility of results. The goal shouldn’t be to automate everything. That approach can prove to be more costly and

time-consuming than having no technology.Technology may be used to automate servic-

ing tasks in smaller bites with human capital employed at checkpoints to avoid mistakes.

None of this is meant to diminish the role of technology in the mortgage industry—far from it. The sheer volume of loans that servicers handle means they will always rely on technology. The task of servicing performing loans lends itself to an automated process. A megabank simply could not service tens of millions of mortgages without highly efficient technology.

But what we’ve learned—often the hard way—these past two years is that technology in the mortgage business needs to evolve. Problems within the servicing industry were apparent

even before the recent robo-signing and documentation scandals. What the recent foreclosure mess did is to expose and bring to the surface the overdue need for changes and improvements in the residential mortgage servicing industry.

Current mortgage servicing systems at many large companies have not been up-dated in 30 to 40 years and have not kept up with changes in the industry. What is re-quired now is nothing less than a thorough updating of industry servicing systems.

We have to ask ourselves though, what is the vision and goal of the technology that we will put in place? The answer to that question has changed significantly, fol-lowing the explosion in the number of distressed loans and foreclosures cases and now more recently with the robo-signing fiasco.

SERVICINGSIDE by Gagan Sharma

Changes in the servicing industry require a new approach to technology.

pERS

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S

Fresh Look


008_MTFeb11 1 1/31/2011 3:02:18 PM

SERVICINGSIDE

Mortgages – Not Credit CardsIn the past, the vision for mortgage

technology has been to streamline the process so much that borrowers only has to interact with a website. The goal has been to replicate credit card borrowing: Go online, fill out an ap-plication and click submit.

Many believe the mortgage process can be automated the same way. Imagine equating a credit card app with a mort-gage. How shortsighted.

Every case is unique and hu-man touch is needed because of the large sum of money at stake with each loan. Rather than trending toward a as-sembly-line approach, we be-lieve servicing is evolving to a custom-shop approach.

The modern servicing sys-tems were designed to auto-mate collections and payments for millions of loans. It was not designed to handle hundreds of thousands of foreclosures and individual loan modifications.

These new challenges for servicers require a qualified staff with the ex-pertise to make in-depth loan file revisions and decisions. Technology should be about giving employees that data in one place so they can make decisions quickly, rather than doing something because a computer says so. Black box, or automated un-derwriting systems, have proven that.

Servicing technology can improve the way foreclosure data is gathered and reported, ensure mortgage docu-ments are in order before foreclosures are filed, that affidavits are done prop-erly and to avoid robo-signing.

In our shop, we empower individu-al professionals to monitor a loan file from start to finish. In that way, they become more involved with the case, reducing the risk of error and giving the borrower a single contact to work all the way through payoff, foreclo-sure or other resolution.

While some may regard it as contro-versial, I believe the recent foreclosure documentation crisis will slow the end-less talk about a paperless mortgage process. The troubles experienced by the Mortgage Electronic Registration Systems underscores the weakness of

a completely paperless process. MERS’ role in the robo-signing crisis exposed the fact that many mortgages were never recorded properly.

Increased Risks of Going Paperless

Recent events should give everyone in the servicing business a rea-son to pause and reflect. Given the threat of law-suits and litigation from improper foreclosures, the risk to servicers of switching to completely paperless processes has increased sharply.

As a small specialty servicer, we don’t want to be the one experiment-ing with paperless because what if it’s contested in the future?

Whenever there is a little bit of am-biguity, people are going to err on the side of caution and just not deal with the risks. Who is going to be the one now who to be the first to jump in and take the risk?

Consider the electronic filing of documents and electronic signatures on mortgage modifications. We’d love to do e-recordings and e-signatures on modifications, but we don’t want to take the risk that they will not be accepted by a local county courthouse and then eventually get it thrown out of court in a foreclosure.

There are only a certain number of counties in the U.S. that accept elec-tronic recordings, but many more that don’t. If anything, that is only going to make us even more cautious about ex-ploring paperless technology.

A subsequent move away from paperless systems along with more automation—plus the consequences of the robo-signing crisis—will make the mortgage process more costly and time consuming. We expect significant cost increases as servicers come under increased political, legal and regula-tory pressure to improve systems.

New Disclosures on the HorizonIn addition, compliance with regu-

latory requirements at both the fed-eral and state levels has become even more challenging and more legal and regulatory disclosures are coming.

We expect servicers will be required to provide more comprehensive track-ing of the loans they service, particu-larly with appraisal data. The recent jump in demand for loan documenta-tion and foreclosure process reviews is also expected to increase costs.

As delinquencies and defaults be-come more expensive for servicers, lenders will have to budget for it in their loan decisions. All of these sys-temic changes will require servicers significantly update systems. Minor upgrades will not cut it. Borrowers can be expected to pay more and the loan application process will take longer.

But more often than not we be-lieve the end results will justify the increased costs. Subservicers and spe-cialty servicers will be better able to work with borrowers and keep homes from entering the foreclosure process. That will translate into fewer defaults and greater profits and also help the industry avoid costly litigation.

That’s why a lot of the mortgage as-sets that need workouts are coming to specialty servicers and subservicers. They can provide that additional layer of touch to each loan file. That means a process that is perhaps not as auto-mated but works better and is more efficient in the long run.

Gagan Sharma is president and CEO of BSI Financial Services Inc. in Irving, Texas.

Many believe the mortgage process can be automated the same way. Imagine equating a credit card app with a mortgage. How short-sighted.

and human touch enables spe-cialty servicers to work with borrowers and keep homes from entering foreclosure.

The servicing industry has used technology to streamline and automate processes. The recent “robo-signing” scandal is a recent example of one evolution, yet it also demonstrates how change is limited by what technology can do—at least by itself.

Servicers today are asking themselves: What can be streamlined and automated and what requires human intelligence and oversight? It raises the interesting ques-tion: What is the larger vision and goal of technology? Is it to simply replace as many

In our view as a specialty servicer, the answer is the latter. Technology works best when it enables us to do a job better and provides full visibility of results. The goal shouldn’t be to automate everything. That approach can prove to be more costly and

time-consuming than having no technology.Technology may be used to automate servic-

ing tasks in smaller bites with human capital employed at checkpoints to avoid mistakes.

None of this is meant to diminish the role of technology in the mortgage industry—far from it. The sheer volume of loans that servicers handle means they will always rely on technology. The task of servicing performing loans lends itself to an automated process. A megabank simply could not service tens of millions of mortgages without highly efficient technology.

But what we’ve learned—often the hard way—these past two years is that technology in the mortgage business needs to evolve. Problems within the servicing industry were apparent

even before the recent robo-signing and documentation scandals. What the recent foreclosure mess did is to expose and bring to the surface the overdue need for changes and improvements in the residential mortgage servicing industry.

Current mortgage servicing systems at many large companies have not been up-dated in 30 to 40 years and have not kept up with changes in the industry. What is re-quired now is nothing less than a thorough updating of industry servicing systems.

We have to ask ourselves though, what is the vision and goal of the technology that we will put in place? The answer to that question has changed significantly, fol-lowing the explosion in the number of distressed loans and foreclosures cases and

Changes in the servicing industry require


009_MTFeb11 2 1/31/2011 3:02:02 PM

These systems have evolved over the decades and new players have en-tered the space with various offerings to complement and compete with the established providers. But like servic-ing itself, the systems of record weren’t ready for the onslaught of foreclosures servicers are still dealing with today.

That’s changed as the industry nears five years since the housing market’s 2006 peak, with new technology com-ing to the aid of servicers. Many pre-dict that even more development and improvement is not only coming, but will be vital to leading the sector out of the crisis and creating a lasting im-pact on how servicers utilize technol-ogy to manage operations.

There are four primary players in the system of record technology space, explained Jeff Lebowitz, president of MORTECH, the Bend, Ore., mortgage technology research and consulting firm. Two firms that have tradition-ally focused on small to midsize ser-vicing shops, like community banks, credit unions and regional servicers, are Financial Industry Computer Sys-tems and its Mortgage Servicer plat-form and Harland Financial Solutions, which offers the Interlinq platform.

Both companies also offer loan origination technology, which gives lenders the choice to have their entire end-to-end technology provided and maintained by one vendor.

The sector of small mortgage lenders that a vendor like FICS targets with its technology is increasingly originating more mortgages for sale to the gov-ernment-sponsored enterprises. In re-sponse, FICS said its added new func-tionality to both its LOS and servicing system of record to provide connectiv-ity and meet new requirements.

Even when these small to midsize lenders sell their mortgages to Fannie Mae and Freddie Mac, many choose to still hold onto the servicing rights. The lenders that implement a combined LOS and servicing platforms have built-in connectivity right out of the box.

It’s a feature FICS says helps it stand out among LOS providers, as more than half of the company’s LOS cus-tomers also use its system of record.

“Scale makes all the difference in the world in designing servicing systems,” Lebowitz said. One firm that’s found its place with mid- and large-size servicers is Fiserv. Fiserv’s first servicing platform was called Data-Link. Fiserv entered the new millennium with MortgageServ, which later evolved, expanded and was renamed Fiserv Loan Servicing Platform. In September 2010, Fiserv gave the tech-nology its current name, LoanServ. The Web-based platform incorporates tech-nology for mortgages, home equity lines of credit and other consumer loans.

By far the biggest system of record is the Mortgage Servicing Package, a product of Jacksonville, Fla.-based Lender Processing Services. LPS is what Lebowitz calls the “IBM of servic-ing,” because of its dominant position among servicing vendors. MSP claims an industry market share of more than 50% by dollar volume of all mortgages serviced in the U.S. and boasts some of the industry’s largest servicers among its clients, including Bank of America, JPMorgan Chase and Wells Fargo.

Like FICS and Harland, Fiserv and LPS offer mortgage origination tech-nology, along with a slew of products and services that makes the two firms some of the largest not just in mort-gage technology, but among all finan-cial services technology vendors.

Traditionally, the business model for servicers is to automate as many pro-cesses as possible and remove the hu-man element in every feasible way to keep costs at a minimum. The systems of record assist in that because they are essentially large accounting sys-tems, explained Duke Olrich, president and CEO of DRI Management Systems in Newport Beach, Calif.

“The majority of the work is done by the servicing system,” he said. “The payments come in and they distribute the dollars appropriately.”

For tasks outside data storage and payment processing, servicers use dif-ferent pieces of module software that tap into the hub to retrieve and upload information. Some of these modules are internal technology that a servicer develops on its own or outsources to a custom software builder.

The system of record providers of-fer their own suites of modules to plug into the hub, while others are offered by third-party vendors similar to the way software companies build ancil-lary applications that integrate with origination systems to assist lenders in automating mortgage originations.

DRI has offered software to perform default servicing tasks since the Savings & Loan crisis of the 1980s. Olrich called technology like DRI’s a subsystem to the servicer’s accounting system. In August 2010, DRI launched the fifth in-carnation of its default platform, called Rincon. It was built from the ground-up as a Web-based platform to replace its 12-year-old predecessor, The Default Solution. Rincon took three years to de-velop, but was a needed upgrade for servicers tackling the foreclosure crisis.

“You’ve had rolling recessions throughout the economy and at dif-ferent times defaults in areas would spike, but on average they would stay in the 2% to 5% range,” Olrich said. “2007 hit and that model went away where 95% of the work was done by the accounting systems.”

The need for a separate default mod-ule is a matter of numbers. The system of record can’t operate entirely with-out human touch, but Olrich estimates that one full-time servicer employee can handle as many as 1,500 files, de-pending on the system of record the servicer uses and the procedures and workflow that it has in place.

“It’s a high volume and very efficient system,” he said. “What happens when you get to default, that drops to 200 to 250 files per FTE. In the default arena, you have different requirements be-cause more touches are involved.”

But for many servicers and technology vendors, it’s not as efficient or modern as it could be. The criticisms are largely lobbed at MSP, which as the biggest player in the space has an unusually large target on its back.

“People have been grumbling about the system being out of date for 30 years,” Lebowitz said. “But they keep using it because it’s good enough.”

The earliest version of MSP dates back the 1960s; drawing criticism that MSP hasn’t kept up with the rapidly evolving information technology sector, choosing instead to maintain the status quo. Others point to MSP’s mainframe-based architecture that still exists in the face of new client-server architecture that is available and in use by other IT sectors. Others contend the risks are too great to change system of record technology, essentially trapping servicers using the legacy system, further strengthening the LPS stranglehold on servicing technology.

“It’s very complicated to move from one servicing system to another because you’re converting a lot of history, a lot of data,” Lebowitz said. “There’s great room for error, much more so than in an origination system because you’re not converting history.”

Another concern about leaving an established and dominant player like LPS for a smaller vendor or industry newcomer is that it puts servicers at risk of losing support for their vital platform if the company doesn’t survive, Lebowitz added.

“They are the dominant player, and if you’re making the decision about switching systems, or want to if you’re the IT manager or the servicing manager, you need to have a pretty good reason to get off of LPS,” Lebowitz said.

“The politics of switching from a dominant provider is very treacherous within a company,” he continued. “The argument has to be absolutely compelling and whoever’s making that decision must have superb control over the conversion risks.”

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For tasks outside data storage and payment processing, servicers use dif-ferent pieces of module software that tap into the hub to retrieve and upload information. Some of these modules are internal technology that a servicer develops on its own or outsources to a

The system of record providers of-fer their own suites of modules to plug into the hub, while others are offered by third-party vendors similar to the way software companies build ancil-lary applications that integrate with origination systems to assist lenders in automating mortgage originations.

DRI has offered software to perform default servicing tasks since the Savings & Loan crisis of the 1980s. Olrich called technology like DRI’s a subsystem to the servicer’s accounting system. In August 2010, DRI launched the fifth in-carnation of its default platform, called Rincon. It was built from the ground-up as a Web-based platform to replace its 12-year-old predecessor, The Default Solution. Rincon took three years to de-velop, but was a needed upgrade for servicers tackling the foreclosure crisis.

“You’ve had rolling recessions throughout the economy and at dif-ferent times defaults in areas would spike, but on average they would stay in the 2% to 5% range,” Olrich said. “2007 hit and that model went away where 95% of the work was done by

The need for a separate default mod-ule is a matter of numbers. The system of record can’t operate entirely with-out human touch, but Olrich estimates that one full-time servicer employee can handle as many as 1,500 files, de-pending on the system of record the servicer uses and the procedures and workflow that it has in place.

“It’s a high volume and very efficient system,” he said. “What happens when you get to default, that drops to 200 to 250 files per FTE. In the default arena, you have different requirements be-cause more touches are involved.”

But for many servicers and tech-nology vendors, it’s not as efficient or modern as it could be. The criticisms are largely lobbed at MSP, which as the biggest player in the space has an unusually large target on its back.

“People have been grumbling about the system being out of date for 30 years,” Lebowitz said. “But they keep using it because it’s good enough.”

The earliest version of MSP dates back the 1960s; drawing criticism that MSP hasn’t kept up with the rapidly evolving information technology sec-tor, choosing instead to maintain the status quo. Others point to MSP’s mainframe-based architecture that still exists in the face of new client-server architecture that is available and in use by other IT sectors. Others contend the risks are too great to change system of record technology, essentially trap-ping servicers using the legacy system, further strengthening the LPS strangle-hold on servicing technology.

“It’s very complicated to move from one servicing system to another be-cause you’re converting a lot of histo-ry, a lot of data,” Lebowitz said. “There’s great room for error, much more so than in an origination system because you’re not converting history.”

Another concern about leaving an established and dominant player like LPS for a smaller vendor or industry newcomer is that it puts servicers at risk of losing support for their vital platform if the company doesn’t sur-vive, Lebowitz added.

“They are the dominant player, and if you’re making the decision about switching systems, or want to if you’re the IT manager or the servicing manag-er, you need to have a pretty good rea-son to get off of LPS,” Lebowitz said.

“The politics of switching from a dominant provider is very treacherous within a company,” he continued. “The argument has to be absolutely com-pelling and whoever’s making that de-cision must have superb control over the conversion risks.”

Still others complain that its system lacks real-time access to updated data and too heavily relies on “screen scrap-ing,” a sort-of makeshift way for soft-ware to mimic a human user’s inputs to pull data from a mainframe terminal.

In the Q&A of this edition of Mort-gage Technology, IndiSoft CEO Sanjeev Dahiwadkar said the systems of record compared to today’s technology is like comparing a horse-drawn cart to a car.

“When cars came along, at some point people made the decision that there was no way you could fix the horse cart so that it could keep up with the car,” Dahiwadkar said.

“Those legacy systems of record are facing the same dilemma. No matter how much better you can make the cart, it’s never going to turn into car,” he continued. “At some point, the leg-acy systems have to sunset and have their own natural death.”

Joseph Nackashi, executive vice president and chief information of-ficer of LPS, acknowledges that some of those issues may have affected the MSP of the past. But he defended the platform, explaining that LPS has ad-dressed those problems in earnest, particularly over the past 10 years.

The company faces a perception bat-tle, he said, not one of technological inadequacy. He points to $100 million in annual investment LPS puts in MSP every year to bring new features and functionality to its system of record, as proof of the company’s dedication to its flagship technology product.

“The MSP application that existed 10 years ago versus the MSP application that currently exists today are light years different, which is represented by the hundreds of millions of dollars in annual investment,” Nackashi said.

“When you step back and look at the LPS architecture today and the core system of MSP and what it represents, is it still a mainframe-based applica-tion? It absolutely is,” he continued.

“And with that mainframe-based application gives us the kind of reli-ability and scalability that a large cus-tomer like a Chase and a Wells enjoy today—our ability to turn year-end cy-cles in record-breaking time; our abil-ity to provision access to the data in a near-24/7 mechanism,” he said.

Olrich believes there hasn’t been much change in the systems of record, but added it’s not necessary. “Things don’t change at lightning speed in the servicing arena,” he said. “That account-ing system doesn’t really change and it probably doesn’t need many changes.”

The system of record is like the cen-ter on a football offensive line, Olrich added. “He’s big and stays and doesn’t move very far at any one time, but he’s big and strong.”

Where the speed, agility and innova-tion come from are the modules. “You have running backs and receivers that are running around all the time, that’s like the default modules. We have to be quick and move on a whim. That’s where things are changing in the in-dustry,” Olrich said.

“The MSP application that existed 10 years ago vs. the MSP application that currently exists today are light years different.”Joseph NackashiExecutive Vice President and Chief Information OfficerLender Processing Services

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But even with the constraints of the systems of record, Olrich said he ob-serves developers like LPS reacting to their customers’ demands.

“It’s not fair to say they’re not do-ing new things,” he said. “I see some of the pressure that gets applied for them to do certain things that maybe they haven’t done in the past.”

Even if the system of record relies on antiquated technology, it’s not dif-ficult to minimize its impact on new modules, Olrich added.

“We can be extremely innovative and very effective and still use the big accounting system to grab the infor-mation when we need it,” he said. “But then we can go off and be rather ef-fective and efficient and use the latest tools that we can come up with to in-tegrate with the outside world as well as the servicing system.”

Nackashi said LPS also has dedicated resources to develop its own modules. One example is its LPS Desktop, a mod-ule that provides a Web-based interface to MSP for third-party servicer vendors like attorneys, property preservation vendors and real estate brokers to as-sist servicers in their foreclosure, de-fault and real estate owned sales tasks.

Technology developers that want to be relevant in servicing long ago ac-quiesced to the reality that the game’s played on the system of record play-ground. Instead, they’ve put their fo-cus on building competitive modules that rely on system of record interfaces with the goal of providing a superior experience for a dedicated task to what the system of record provider offers.

That’s where the new innovation in servicing will come from and it’s a challenge that both the module build-ers and system of record developers believe they have the advantage.

“I don’t have a tangible example of a specific niche or functionality that we are inferior to,” Nackashi said, adding he believes LPS has the advantage in predicting and responding to servicers’ evolving technology needs.

“We have earned the credibility of some of our largest customers and we have great visibility into their road-maps and their strategies,” he contin-ued. “We see where there are oppor-tunities for us to further invest in our core technologies to support more of a migration off some of the niche play-ers onto our products.”

As for Olrich, he sees module ven-dors as a nimble source of innovation, not unlike the wide receiver that can zip down the field anticipating the game-winning touchdown.

“In our arena, we can make changes pretty quickly as the industry changes, we see it the way it’s supposed to work and we’re off and running,” he said. “The servicing system has to make sure any change they make works all the way up and down the line. That testing mode is an onerous task.”

Seeking to give itself the ultimate upper hand, LPS has added another component to its quest as the ulti-mate servicer technology company. After three years of development, LPS recently began a campaign to branch out MSP’s technology to service other kinds of consumer loans. LPS’s goal is for MSP to service mortgages, HELOCs, car loans and credit cards, all from the same system of record hub.

LPS believes its position in servicers’ mortgage operations will make it eas-ier for servicers to better understand their customers, their customers’ risk, as well as the servicers’ exposure to risk by servicing a variety of consumer loans together on MSP.

A mortgage is many times a com-bined lender/servicer’s longest-last-ing and important relationship with a borrower. Managing other consumer loans with MSP provides new oppor-tunities for growing that relationship.

For borrowers who already have multiple loan products with the ser-vicer, the company can monitor per-formance and payment trends with the goal of spotting potential delinquency problems and intervene to head them off before they happen.

“We believe as the industry evolves and we look at securitization of con-sumer loans, we believe there will be a need for a system that has securitiza-tion capabilities like MSP for loans that are outside of the mortgage space, like home equity lines of credit, consumer loans, auto loans, etcetera,” Nackashi said. “We continue to pour investment dollars into our servicing capabilities past the primary mortgages and into the secondaries and other consumer portfolio products.”

Becoming LPSThe company now known as Lender Processing Services has gone through a series of transformations since Computers & Systems first launched MSP in 1965. C&S changed names to Computer Power Inc. in 1969. ALLTEL Information Services acquired it in 1992. Title insur-ance company Fidelity National Financial purchased ALLTEL Infor-mation Services in 2003, renaming it Fidelity Information Systems. Combined with payment services firm Certegy, the company was re-named Fidelity National Information Services and spun-off into its own publicly traded company, under the stock ticker FIS, in 2006. Then in 2008, the mortgage processing and services portion of FIS was spun off into a separate publicly traded company, which is the current LPS. In 2010, the company reached a total 37 million mortgages serviced during MSP’s more than four-decade lifetime.


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Most servicers were not as proactive in preventing foreclosure-gate. Tech-nology vendors even claim some ser-vicers actually approached them seek-ing the tools to enable robo-signing.

A critical step of initiating a foreclo-sure is to document the borrower is sufficiently delinquent that the mort-gagee of record is entitled to foreclose. Once the necessary due diligence is complete, servicers want the neces-sary paperwork signed and notarized as summarily as possible to prevent bottlenecks.

“They were relying on their people in their organization to the point where the VP said, ‘Hey, listen, by the time this thing gets to me, it’s been looked at by several of my people, it’s gone through a lot of our processes, it’s been signed off on,’” said Brian Fitz-patrick, CEO of Fort Washington, Pa.-based Aklero Risk Analytics.

“But the law says that’s not adequate. The law says, ‘I’m looking for your per-sonal attestation, Mr. VP, that you have looked at, you have signed in front of a notary that this indeed is all correct and has been done properly,’” he said.

For example, when former Ohio Secretary of State Jennifer Brunner referred robo-signing allegations that her office compiled against Chase Home Mortgage and MERS, the Mort-gage Electronic Registration Systems to the U.S. district attorney’s office in September 2010, she said, “Mortgage foreclosure documents must be nota-rized according to the law. Requiring this is not an afterthought or an exer-cise of form over substance.”

Also, former Ohio Attorney General Richard Cordray sent letters to judges in October, requesting they pay close attention to foreclosure affidavits. Some judges responded by issuing new bench rules, like Trumbull County Judge Andrew Logan, who sent a let-ter to foreclosure attorneys requiring affidavits state that the signatory “has personal knowledge of the file and has personally reviewed the documents.”

Fitzpatrick and others observe that the megaservicers, notably Bank of America, responded to the robo-sign-ing scandal “by throwing bodies at it,” hiring tens of thousands of new em-ployees and expensive auditing firms to ensure foreclosure documents were indeed in order and properly signed.

After a series of temporary foreclo-sure halts and process reviews, ser-vicers have started to crank their fore-closure machines back up as quickly as possible. With CoreLogic predicting U.S. foreclosures will exceed 1.3 million in 2011, the servicing industry will face continued scrutiny to make sure robo-signing doesn’t creep back into practice as stacks of files grow higher.

Many Technology Fixes for Robo-Signing

Though officials at Fiserv and other technology firms believe it is impos-sible to absolutely prevent robo-sign-ing, there is no question that many technologies exist to contain the prob-lem and monitor compliance with governing foreclosure statutes. Aklero, for example, offers data validation and integration services that scrutinize loan files to ferret out errors and de-ficiencies. The company’s Web-based platform boasts integrated workflow and tracking to zero in on problems such as robo-signing. Systems like Aklero’s Q-Close platform deploy elec-tronic workflow measures to provide a time- and date-stamped record show-ing that the user took the time neces-sary to review foreclosure documents before signing off on them.

While Laguna Hills, Calif.-based Acris Solutions offers no technology specifi-cally aimed at preventing robo-signing, its AcriSign product, like other electron-ic signing systems, could be used for that purpose, said its president, Richard Johnston. Just like end user agreements on software, technology can prompt users to confirm they have read and understand mortgage documents.

“All those tools are available in an electronic environment and they can be overlaid on any PDF,” with time and date stamp to verify that the user took the time to read the required docu-ments before signing, Johnston said.

“The big question obviously is the hampering of productivity,” he added. “Without a doubt, in the absence of regulation, there’s not going to be a real widespread adoption.” Acris has only had one inquiry about using its system to prevent robo-signing.

For regulators, hampering the pro-ductivity of the foreclosure assembly line takes a back seat to holding affi-davit signers and notaries to high stan-dards. Technology can monitor wheth-er signers are meeting expectations.

“I don’t care how fast a reader you are, it takes time to read a document,” said Joe Filoseta, president and CEO of Bellevue, Wash.-based DepotPoint, another technology vendor offering to address the problem. “In technol-ogy that’s task-based and workflow-centric, you can simply measure from the time a task is initiated—in this case, reading documents—to the time the documents are closed.” If a task takes 14 minutes to review, but the signer closes it after two, the system reports it to a supervisor, who can then track who’s robo-signing.”

“The robo-signing problems stem from lack of due diligence to ensure that the borrower has indeed stopped making payments and the loan is tru-ly in arrears, all attempts at workout have been fruitless, and the loan does indeed belong to the owner and there is a chain of title to prove it,” said Joe Dombrowski, Fiserv’s executive consul-tant for loan servicing solutions.

Like Fitzpatrick and Filoseta, he stressed the need for a default system to have an easy-to-use workflow and provide real-time access to all aspects of the loan file, including any workout efforts, borrower performance data and have a rules engine capable of handling exceptions on a case-by-case basis.

He said the end-to-end LoanServ system calculates financial positions and compliance impact to the borrower, investor and servicer and offers data storage and reporting tools to capture when loss mitigation and foreclosure events occur.

Brookfield, Wis.-based Fiserv believes adoption of e-notes and e-mortgages will go far to eliminate the mortgage industry’s foreclosure problems.

“E-mortgages provide a unique set of tools that allow servicers and investors to track all original documents, alterations to documents and changes in ownership easily and efficiently,” said Dombrowski. “E-mortgages eliminate lost or missing document problems and cannot be damaged or stolen. This can eliminate some of the problems we’ve seen in the foreclosure arena.”

With about half of all mortgages (by dollar volume) serviced using its Mortgage Servicing Package, Jacksonville, Fla.-based Lender Processing Services found itself prominently linked to the foreclosure crisis and has since set out to take a role in creating solutions.

“We have to establish a consensus on what is the personal knowledge standard, the gold standard for establishing personal knowledge,” said Rod Hatfield, LPS managing director of electronic content management solutions. “The second thing is making sure that when the servicer puts in policies that we have the technology to enforce those, especially the personal knowledge standard.”

To deter robo-signing, LPS has created an “affidavit of indebtedness” to help ensure policies and procedures are followed. Leveraging LPS Desktop technology, the affiant reviews the information on an electronic copy of the affidavit alongside the corresponding data stored in MSP to confirm the information is correct. The rules-based workflow asks the signer a series of questions that must receive a positive response to ensure data points are validated before the affiant can proceed.


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“All those tools are available in an electronic environment and they can be overlaid on any PDF,” with time and date stamp to verify that the user took the time to read the required docu-ments before signing, Johnston said.

“The big question obviously is the hampering of productivity,” he added. “Without a doubt, in the absence of regulation, there’s not going to be a real widespread adoption.” Acris has only had one inquiry about using its system

For regulators, hampering the pro-ductivity of the foreclosure assembly line takes a back seat to holding affi-davit signers and notaries to high stan-dards. Technology can monitor wheth-er signers are meeting expectations.

“I don’t care how fast a reader you are, it takes time to read a document,” said Joe Filoseta, president and CEO of Bellevue, Wash.-based DepotPoint, another technology vendor offering to address the problem. “In technol-ogy that’s task-based and workflow-centric, you can simply measure from the time a task is initiated—in this case, reading documents—to the time the documents are closed.” If a task takes 14 minutes to review, but the signer closes it after two, the system reports it to a supervisor, who can then track

“The robo-signing problems stem from lack of due diligence to ensure that the borrower has indeed stopped making payments and the loan is tru-ly in arrears, all attempts at workout have been fruitless, and the loan does indeed belong to the owner and there is a chain of title to prove it,” said Joe Dombrowski, Fiserv’s executive consul-tant for loan servicing solutions.

Like Fitzpatrick and Filoseta, he stressed the need for a default system to have an easy-to-use workflow and provide real-time access to all aspects of the loan file, including any workout efforts, borrower performance data and have a rules engine capable of handling exceptions on a case-by-case basis.

He said the end-to-end LoanServ system calculates financial positions and compliance impact to the bor-rower, investor and servicer and of-fers data storage and reporting tools to capture when loss mitigation and foreclosure events occur.

Brookfield, Wis.-based Fiserv be-lieves adoption of e-notes and e-mort-gages will go far to eliminate the mort-gage industry’s foreclosure problems.

“E-mortgages provide a unique set of tools that allow servicers and inves-tors to track all original documents, al-terations to documents and changes in ownership easily and efficiently,” said Dombrowski. “E-mortgages eliminate lost or missing document problems and cannot be damaged or stolen. This can eliminate some of the problems we’ve seen in the foreclosure arena.”

With about half of all mortgages (by dollar volume) serviced using its Mort-gage Servicing Package, Jacksonville, Fla.-based Lender Processing Services found itself prominently linked to the foreclosure crisis and has since set out to take a role in creating solutions.

“We have to establish a consensus on what is the personal knowledge standard, the gold standard for es-tablishing personal knowledge,” said Rod Hatfield, LPS managing director of electronic content management so-lutions. “The second thing is making sure that when the servicer puts in policies that we have the technology to enforce those, especially the per-sonal knowledge standard.”

To deter robo-signing, LPS has cre-ated an “affidavit of indebtedness” to help ensure policies and procedures are followed. Leveraging LPS Desktop technology, the affiant reviews the in-formation on an electronic copy of the affidavit alongside the corresponding data stored in MSP to confirm the in-formation is correct. The rules-based workflow asks the signer a series of questions that must receive a positive response to ensure data points are val-idated before the affiant can proceed.

A common thread in these tech-nologists’ prescriptions for preventing robo-signing is the need to operate in a fully electronic and paperless loan origination environment.

“By law we can’t compel a consumer to e-sign,” noted DepotPoint’s Filoseta.

Beyond that, he stated flatly, “There is no place where we should be touch-ing paper anywhere in the process.”

Dual Processes and Centralized Access to Data

Truly eliminating robo-signing re-quires more than implementing work-flow stops to ensure signatories take their time. It means transforming the relationships between the servicer, in-vestor and borrower. A comprehensive remedy for robo-signing includes ef-fective borrower outreach that makes foreclosure the option of last resort.

Today, mortgage servicing rights are booked as profits and sold at will. There is nothing in that process that mandates interactive borrower contact.

Fannie Mae and Freddie Mac pay 25 basis points of a performing loan’s face value for collecting payments and otherwise managing loans. Megaser-vicers have long been able to profit from that 25 basis points, until waves of mortgages started going sour.

When the rising default level turned into a widespread market collapse, leg-islators and regulators put heavy—and sometimes conflicting—pressure on ser-vicers to offer borrowers loan modifi-cations and other loss mitigation.

For servicers, foreclosure was the devil they knew. “There is less exposure for servicers when they let the loan go to foreclosure,” said Steve Horne, CEO of Carrollton, Texas-based Wingspan Portfolio Advisors. Servicers have a fi-duciary duty to investors and cannot justify holding off foreclosure proceed-ings for of loan modifications twith un-clear outcomes and uncertain costs.

“The law makes it difficult to help the borrower,” he said. “We’re seeing servicers caught in the middle between the investors and their regulators.”

Having more time and resources than primary servicers do—plus a fi-nancial stake in working with borrow-ers—specialty servicers like Wingspan stand ready to handle underperform-ing or nonperforming loans.

“Wingspan by its very nature is robo-signing-proof because the loans we service are done on the part of the stakeholder,” Horne said.

Because it’s objective is to get nonper-forming loans performing, Wingspan has no interest in merely documenting it checked files to verify proper over-tures were made to delinquent bor-rowers. Instead, it puts highly trained personnel in touch with borrowers and uses workflow technology to monitor call logs to ensure a sufficient amount of time is spent with them, Horne said.

It’s higher-touch, “but our borrowers need that extra attention if they are go-ing to have a chance to succeed in bring-ing their mortgage current,” he said.

“You can’t turn default into a profit center. Foreclosure is always supposed to be painful to the megaservicer.”Steve HorneCEOWingspan Portfolio Advisors

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There are two generally accepted assumptions about the mortgage in-dustry—that paperless, electronically signed mortgages will one day domi-nate the origination landscape and the ongoing and unprecedented level of foreclosures will eventually subside. No one can say with certainty when those two events will happen, but they’re both widely considered inevitable.

The two theories may seem unrelated. But experts predict that the gradual and continuous increase of paperless origi-nations will result in a growing number of e-mortgage defaults—even after the current flood of delinquencies recedes.

It’s already begun. Lien holders have foreclosed on mortgages where the loan was originated in a completely paperless, e-signed process. But it’s still a new and relatively untested concept, with little precedent to alleviate uncer-tainty. With few e-mortgage foreclo-sures to rely on as a model, some have suggested the notion that confusion about e-signatures and misgivings about the way paperless mortgages are managed and tracked could cause judges unfamiliar with e-commerce legislation to disallow e-mortgage doc-uments in a foreclosure case.

If realized, the problems would at best delay the foreclosure process. At worst, it could result in dismissed foreclosures and borrower litigation, resulting in even greater losses for mortgage investors. These problems may not be documented as ever hap-pening, but it’s a “what-if” that indus-try participants are concerned about as they navigate uncharted territory.

“I do know that there are loans se-cured by electronically signed prom-issory notes that have unfortunately gone into foreclosure or other recon-ciliation and no, that has not been an issue,” said Kim Weaver, vice president of product management at Wisconsin-based Fiserv Lending Solutions.

The risk that e-doc issues could pre-vent a creditor from recovering a debt isn’t entirely the stuff of urban legend.

In 2004, a federal bankruptcy court would not accept digital records of-fered as evidence of nearly $41,600 in credit card debt from a borrower who declared bankruptcy.

“The witness from the company couldn’t describe the controls that were in place, the reliability of the system,” said Margo Tank, a partner at the Wash-ington, D.C. law firm BuckleySandler and author of numerous publications on e-signatures and e-mortgages.

“American Express lost this case be-cause they couldn’t get the credit card statement introduced as evidence.”

The case serves as a strong warn-ing for the mortgage industry. Since the early stages of e-mortgage devel-opment, considerable care and atten-tion has been placed on developing a sound process to avoid problems for servicers and to ensure the integrity of the investment for the government-sponsored enterprises and private sec-ondary market players.

“The GSEs both have very well de-fined requirements on what has to hap-pen,” Weaver said. “It’s been a very good mortgage industry success story in terms of setting up the structure from both the process and legal perspectives.”

The federal Electronic Signatures in Global and National Commerce, or ES-IGN, Act paved the way for electronic commerce in 2000. The Uniform Elec-tronic Transactions Act has been in place in nearly every state since the National Conference of Commissioners on Uni-form State Laws approved it in 1999.

Together, the two laws spell out the technology and workflow require-ments that originators, servicers and their attorneys must maintain to pro-tect the validity of electronic docu-ments and signatures from being de-nied because of their digital nature.

But it’s still a complex set of guidelines that can trip up even those eager to im-plement e-sign technology, not to men-tion those charged with enforcing the law, like judges overseeing foreclosures.

“I wouldn’t expect every judge in America to understand this. It’s kind of a niche space,” said Nancy Alley, vice president of product management at Xerox Mortgage Services, a division of the copier manufacturer that provides technology for electronic document and signature transmission and stor-age to the mortgage industry.

Before Xerox launched its BlitzDocs product, the company had lawyers from outside the company review it to ensure to met all ESIGN and UETA requirements and draft a legal opinion that Xerox provides to customers.

“It is important for e-vendors to get third-party opinion letters on their so-lution so that before you end up in a court of law, you have an opinion letter on how you meet the tests,” she said. “It’s also a good sanity check in your own product management and development stage to make sure you haven’t missed anything. I’d like to think I know the laws inside and out, but there’s nothing better than to have an attorney do a sanity check.”

Many investors, including Freddie Mac, require lenders have their e-mortgage origination process reviewed by an attorney for legal, technical and security compliance. Those reviews are a critical ingredient to establish authenticity of documents when servicers and their attorneys begin executing more e-mortgage foreclosures.

“It will be harder initially because the courts are going to ask ‘What does that mean, e-sign?’” Tank said. “There’s going to have to a little work done to explain what the electronic equivalent of a promissory note is, but on the other side of that, the transparency and accuracy and reliability will all be there.”

Making the task more challenging are efforts to vilify paperless originations and electronic document storage as attempts to circumvent legal processes.

Some consumer advocates have taken to the Internet, creating websites asserting that electronic origination and data storage are not legally supported by ESIGN, UETA and the Uniform Commercial Code. Taking it one step further, the critics claim this loophole allows borrowers with e-signed mortgages or paper documents converted to digital format to stop paying their mortgage and avoid foreclosure.

It’s a high-tech version of the “produce the note” strategy that borrowers have used, largely as a delay tactic, in recent foreclosures. But the arguments against e-mortgages are based on faulty logic.

“With the proliferation of blogs, everybody being able to express themselves over the Internet and the flood of misinformation out there, lenders, when we work with them, are very careful,” Weaver said.

Much of the bad information about e-commerce centers around a misunderstanding of the difference between a promissory note and a transferable record and the roles of two technologies owned by the parent of the Mortgage Electronic Registration Systems, MERSCORP Inc.— the MERS System and the MERS eRegistry.

“I’d like to think I know the laws inside and out, but there’s nothing better than to have an attorney do a sanity check.”Nancy AlleyVice President of Product ManagementXerox Mortgage Services


024_MTFeb11 3 2/1/2011 9:51:00 AM

Together, the two laws spell out the technology and workflow require-ments that originators, servicers and their attorneys must maintain to pro-tect the validity of electronic docu-ments and signatures from being de-nied because of their digital nature.

But it’s still a complex set of guidelines that can trip up even those eager to im-plement e-sign technology, not to men-tion those charged with enforcing the law, like judges overseeing foreclosures.

“I wouldn’t expect every judge in America to understand this. It’s kind of a niche space,” said Nancy Alley, vice president of product management at Xerox Mortgage Services, a division of the copier manufacturer that provides technology for electronic document and signature transmission and stor-age to the mortgage industry.

Before Xerox launched its BlitzDocs product, the company had lawyers from outside the company review it to ensure to met all ESIGN and UETA requirements and draft a legal opinion that Xerox provides to customers.

“It is important for e-vendors to get third-party opinion letters on their so-lution so that before you end up in a court of law, you have an opinion letter on how you meet the tests,” she said. “It’s also a good sanity check in your own product management and development stage to make sure you haven’t missed anything. I’d like to think I know the laws inside and out, but there’s nothing better than to have an attorney do a sanity check.”

Many investors, including Freddie Mac, require lenders have their e-mort-gage origination process reviewed by an attorney for legal, technical and se-curity compliance. Those reviews are a critical ingredient to establish authen-ticity of documents when servicers and their attorneys begin executing more e-mortgage foreclosures.

“It will be harder initially because the courts are going to ask ‘What does that mean, e-sign?’” Tank said. “There’s go-ing to have to a little work done to ex-plain what the electronic equivalent of a promissory note is, but on the other side of that, the transparency and accu-racy and reliability will all be there.”

Making the task more challenging are efforts to vilify paperless originations and electronic document storage as at-tempts to circumvent legal processes.

Some consumer advocates have tak-en to the Internet, creating websites as-serting that electronic origination and data storage are not legally supported by ESIGN, UETA and the Uniform Commercial Code. Taking it one step further, the critics claim this loophole allows borrowers with e-signed mort-gages or paper documents converted to digital format to stop paying their mortgage and avoid foreclosure.

It’s a high-tech version of the “produce the note” strategy that borrowers have used, largely as a delay tactic, in recent foreclosures. But the arguments against e-mortgages are based on faulty logic.

“With the proliferation of blogs, ev-erybody being able to express them-selves over the Internet and the flood of misinformation out there, lenders, when we work with them, are very careful,” Weaver said.

Much of the bad information about e-commerce centers around a misun-derstanding of the difference between a promissory note and a transferable record and the roles of two technolo-gies owned by the parent of the Mort-gage Electronic Registration Systems, MERSCORP Inc.— the MERS System and the MERS eRegistry.

A loan promissory note, including a mortgage, is a type of negotiable in-strument as defined in the UCC. The ESIGN legislation specifically excludes negotiable instruments from its pro-tections. Since its inception in 1952, the UCC dictates that negotiable in-struments and other negotiable docu-ments must have the ability to physi-cally transfer between owners. By their nature, e-records can’t meet that stan-dard. If an electronic file transmitted from one system to another, it results in the creation of a duplicate record, as opposed to the physical transfer of a paper negotiable instrument.

On its own, it would appear that ex-clusion would prevent the existence of e-mortgages. But that argument over-looks another key ESIGN and UETA provision, transferable records.

The laws effectively establish the le-gal standing for electronic negotiable instruments, within a specific set of conditions. It has to otherwise be con-sidered a note or document under the UCC if it were a paper-based record and its issuer must expressly declare the rocord a transferable record. The laws also set standards to allow e-sig-natures and custody protection to con-trol how the records are transferred.

The concept of transferable records is a basic tenant of e-commerce. But even if servicers and lawyers can eas-ily refute those foreclosure defense claims, widespread attempts to block or delay cases could further cripple the foreclosure process—which is already fraught with delays and setbacks.

“It’s 10 years later and that education effort and need to provide comfort is still out there,” Tank said.

Attorneys and vendors are help-ing lenders and servicers understand e-mortgage requirements and imple-ment technology and procedures to establish what Tank calls “thoughtful document management,” where the proper controls are in place when the document is created, signed, stored, transferred and maintained.

“The standards for electronic are ar-guably higher than they are in the pa-per world, but it’s just a matter of time where before people become more comfortable,” she said.

A key piece to effective e-mortgage servicing is the MERs eRegistry, the nationwide system of record to track ownership, servicer and document custodians of the more than 207,000 e-signed notes created since June 2005.

Among the confusion about e-mort-gages in the foreclosure process is the misconception that the technology to track paperlessly originated promis-sory notes is the same as the system used to electronically track ownership changes of both paper and electronic promissory notes. Both are owned by MERSCORP Inc., but the MERS eReg-istry and the MERS System are two different platforms. And contrary to some assertions, neither system origi-nates or stores e-notes.

“There’s a lot of misunderstanding of what MERS is and what kinds of things they provide to the industry,” Weaver said. “We do the eRegistry as this third-party utility to track all the information about the e-notes that are in existence.”

“They really provide services that save everyone in the whole value chain money and make it a lot easier and transparent and accountable to people,” she added.

It’s not enough for advocates to promote accurate information about paperless originations and for lenders and servicers to implement technology that meets statutory requirements.

There’s also an inadvertently volatile element, what Xerox’s Alley calls “adop-tion risk.” If not neutralized, it can be just as combustible as the deliberate efforts to incite the demise of e-mortgages.

“We look at risks in our solution associated with compliance and the risks associated with adoption,” she said. “You not only have to consider the adoption risks from the borrower’s perspective, but you have to consider who has to accept this document.”

“I’d like to think I know the laws inside and out, but there’s nothing better than to have an attorney do a sanity check.”


025_MTFeb11 4 1/31/2011 4:54:07 PM

Alley recalled one instance of adop-tion risk that she observed after an in-surance company implemented elec-tronic signatures in its operation. After the technology and processes were put in place, some claims underwriters were mistakenly rejecting e-signatures created with a type-style font.

In mortgage servicing, it’s not just internal staff and lawyers who have to understand an e-signature’s valid-ity; judges in foreclosure cases must also be convinced. Regulations allow for myriad signature types but picking the right one can deter confusion.

Among the advanced options is a public key infrastructure signature.

PKI digital certificates are similar to the technology used to authenticate website transmissions. Each user has a pair of unique digital keys, one pri-vate and one public. The user signing a document certifies it with the private key. Other users authorized to view the document are given the public key. The technology ensures that both the public and private keys are designated to the same signer, providing a tamper seal on the document and ensuring that the certificate is authenticate.

“There’s no reason that can’t be con-sidered a signature if you do it in the right signing context,” Alley said.

“But there’s nothing on the docu-ment other than that it’s encrypted, so I could see a judge asking, ‘Did this person intend to sign? How do I know they weren’t just trying to se-cure the document?’”

Xerox’s e-sign technology uses a script-style font that resembles cursive handwriting. Some e-sign technology uses a type-style font.

Still other vendors provide the same tablet and stylus hardware that re-tailers use to capture a digital image of their customers’ handwritten sig-nature. That option most accurately replicates the handwriting experience that the public is used to doing, but Alley said the hardware requirement makes it impractical for promoting a streamlined and efficient e-mortgage origination process.

“You’re not going to have consumers with tablets in their homes,” she said.

“As hokey as it is, placing that image on the signature is not what makes it le-gally binding, but it decreases the adop-tion risks of people accepting it—both from the person trying to apply it and the person relying on it,” Alley said.

There are many elements that can disrupt e-mortgage servicing. But the counterbalances to neutralizing those negative elements aren’t limited to fore-closures and servicers are beginning to realize it impacts the entire sector.

“Using electronic mortgage processes and electronic records and signatures reduces a lot of the operational risks in regard to foreclosures and when the loan pays off happily,” Weaver said. “Particularly during a refinance boom, being able to complete those payoffs in a timely manner and service those customers quickly, so hopefully they’ll come back to you for their next loan.”

In summer 2010, the Federal Deposit Insurance Corp. auctioned a $23 billion portfolio of mortgage servicing rights previously owned by the now-defunct AmTrust Bank. Many of the loans in that pool were e-notes. The auction generated interest from servicers who wanted to know what they needed to do to accommodate the e-mortgages.

“That really got people’s attention, that this is coming and we need to pre-pare for it as a servicer,” Weaver said. “I may acquire a pool of loans and get some e-notes in there and I need to have the proper safeguards in place.”

The AmTrust portfolio has received the most attention, but Tank said ser-vicers and mortgage portfolio buyers are increasingly coming across other pools of loans and servicing rights for sale that include e-mortgages.

“That was a turning point because once they did the diligence and real-ized this e-stuff is really kinda cool and how much money it can save, then they’re saying, ‘Let’s do disclo-sures and e-notes ourselves,’” she said.

Since the AmTrust auction, Tank said servicers are inquiring about handling e-mortgages for pools of loans that may only have a handful of e-notes. “It definitely helped. It was fortuitous in terms of pushing the e-mortgage market forward,” she said.

The use of electronic records elimi-nates the issues that have arisen in the recent foreclosure-gate scandal, where allegations of lost documents and improperly signed affidavits set of a nationwide review of servicers and temporarily halted foreclosures.

In a future where e-mortgages are the norm, it will be easier for servicers to prove debt obligations and note ownership and deter future “produce the note” claims in foreclosure cases.

“You won’t lose notes or not know who the owner is or where the mort-gage is because of the way the systems are being structured,” Tank said. “I’m completely convinced that if you do it right, technology is the way to go.”

“There’s a lot of misunderstanding of what MERS is and what kinds of things they provide to the industry.”Kim WeaverVice President of Product ManagementFiserv Lending Solutions


026_MTFeb11 5 2/1/2011 9:51:03 AM

Yet another factor at the heart of the issue is the fact that each state has its own individual foreclosure laws, result-ing in a disconnect between managing foreclosures and loss mitigation.

Between human error and internal issues, institutional inefficiencies have inflated the magnitude of the crisis.

This not only has the added affect of compliance and regulatory problems, but ultimately huge problems can be created for customers that have many unintended consequences.

The SolutionAside from better education and

shrewder judgment on the part of homebuyers, mortgage servicers need to update the manner in which con-tact center and workflow processes are implanted and carried out. This means that there should be more, better-de-fined rules, business processes and workflow to improve how borrower issues are managed.

There has to be a more flexible and process-centric technology system with strong integration capabilities. Once a servicer has that in place, it can guide inexperienced and junior personnel through the correct workflow, reduc-ing the risk of incorrect processing and the burden of adding staff.

The system can store all documen-tation in a digital format. Every step produces an audit trail, which aids compliance, record keeping and secu-rity. Where possible, manual processes become automated. Every interaction with the customer is captured, regard-less of the method of communication. This is particularly important in times like now, with regulators investigating servicers and borrowers challenging the industry in court.

A process-oriented approach can en-sure that current customers do not face unintentional foreclosures. As laws change, the system can be adjusted. Automating and organizing these pro-cesses can help an organization reduce costs and help protect profit margin. These efficiencies can save millions of dollars and reduce timelines.

The overall outlook for the mort-gage crisis unfortunately remains grim. What is important, however, is to place the blame on a few specific, correctable failings and fixing those issues before the market can return to a more posi-tive and robust environment.

If technology is used in a process-oriented approach, then customer rep-resentatives will make fewer mistakes and organizations will do a better job of ensuring that mortgages are not in-correctly foreclosed on, keeping good borrowers in their homes.

The key is to make sure whatever technology is used supports the com-pliance rules and customer business processes of the organization.

And when those rules and processes change (as they always do), the sys-tem must be agile and flexible enough to facilitate those changes. Too many businesses fall into the trap of systems that dictate their business processes rather than the other way around.

Paul White is the Americas CEO of Sword Ci-boodle, an international customer service and interaction technology vendor.

Tech OutlookContinued from page �

Wingspan pairs its workflow with DRI Management Systems’ Rincon de-fault platform and IndiSoft’s RxOffice.

When modification and foreclosure processes take place simultaneously, it is important to have centralized access to loan file data, said IndiSoft presi-dent and CEO Sanjeev Dahiwadkar.

Open architecture is crucial in default software because the data must be drawn from diverse sources in rela time.

It’s also essential for regulatory review. RxOffice is a good example, said Dan Schmerin, COO of the Treasury’s Public Private Investment Program, because it enables “multiple participants to easily exchange data in the reporting process.”

Audit capabilities are another cru-cial component of any system effec-tively addressing robo-signing. Fiserv touts the advantages of its LoanServ product for enabling audit trails that can track dual foreclosure and loan mitigation efforts. Another problem is the cost for servicers that need to conduct simultaneous foreclosure and loan modification processes, while still avoiding robo-signing practices. One way to maximize the effectiveness of the dual process is to notify borrowers that the foreclosure process has com-menced, which can motivate borrow-ers to resume paying their mortgages.

The Conference of State Bank Su-pervisors and the Consumer Financial Protection Bureau plan to jointly su-pervise financial services providers, including the mortgage industry.

When state supervisors and the team leading the creation of the CFPB signed a memorandum of understand-ing in January, they said the goal of their coordinated effort is to promote consistent and effective enforcement procedures and minimize regulatory burden on the industry.

When regulatory scrutiny leads to actual best practices, the burden sub-sides and technology is crucial for that objective to be successful.

Whether or not the servicer hands off nonperforming loans to specialty firms like Wingspan, “the lesson is to rede-fine the mission of the servicer to make nonperforming loans start performing. It’s the model that works,” he said. “You can’t turn default into a profit center. Foreclosure is always supposed to be painful to the megaservicer.”

Robo-SigningContinued from page 21


027_MTFeb11 6 2/1/2011 11:05:24 AM

Mortgage technology: How did Indi-Soft get started and what were its first ventures?

Sanjeev DahiwaDkar: We started IndiSoft in 2005. Back then, we were primarily a custom development shop. We were like work for hire. Compa-nies would hire us to build software to meet their specific needs.

Within the financial industry, our main area of expertise has been de-fault servicing activities since day one. But we didn’t have our own product.

In 2007, the crisis caused us to pause and think about how we were going to come out of the crisis. We saw it as a great opportunity to change the company’s direction and get into the development of our own software products, instead of just doing the consulting services.

We developed our default servicing product based on technology from the health care services industry. It uses the concepts of priority of information, timely analysis, proactive manage-ment and centralized view based on a need-to-know basis. The workflow all applied similarly in mortgages and health care and it seems to be putting us in the right direction.

Mortgage technology: Can you ex-plain the similarities between health care and mortgage technology?

Sanjeev DahiwaDkar: We saw that the needs of a sick patient are no dif-ferent than a sick loan. Both need timely intervention. As soon as actions are taken, the better the outcome.

Financial health for a servicer is no different than human health for a doc-tor. If you don’t get help soon, you just make the problem worse.

Q In health care technology, you have the ability to have centralized views and complete knowledge of the patient. There’s the same need in mortgages. The patient’s medical history is no dif-ferent than loan’s payment history.

Also in the health care product is a diagnostic model that collects informa-tion related to a specific condition or medical specialty. Each specialty has in-formation that is critical to collect and information that’s just nice to have.

You have to do the same thing with mortgages. Look at the different treat-ments that you’ve put on the loan and decide when it’s back healthy or needs more attention. It also lets you define what is normal. The conditions of one group of patients are different from another. Mortgages with different lev-els of risk have different conditions of what is healthy.

The most interesting observation is that financial health is confusing to the borrower and education is mini-mal. But if you stop people on the street and ask them health-related questions, they know why it’s bad to smoke or drink. But if you ask them what their debt-to-income or loan-to-value of their mortgage, they wouldn’t know how to answer.

Borrowers are well educated about their medical health, but are unedu-cated about their financial health. They’ll ask their doctor lots of ques-tions during an exam, but when they go to close a mortgage, it’s different. Someone just tells them to sign here and sign there, with no explanation of the what’s happening.

Mortgage technology: Does IndiSoft still do custom technology development?

Sanjeev DahiwaDkar: We have been trying to reduce that. Our goal is by 2014 we will be a total product-based company and any new development we do will be for new products that we want to bring to the industry.

Mortgage technology: How did you go about changing the direction of the company?

Sanjeev DahiwaDkar: It was a two-step process. The first step was the foundation of managing goals. We got a good head start by having product implementing experience. At the same time, we had to build from the ground up all the information fields unique to the financial services industry. Aside from the name and address, everything else is pretty much different.

We also had to build the user inter-face layer and the data layer. We took a solid two years to look at different stake-holders’ best models.

Besides building the product, the biggest challenge we had to overcome was beating the perception that we were just a great development shop. We had to change the image of Indi-Soft to a product-offering company.

Mortgage technology: What have been IndiSoft’s biggest successes so far?

Sanjeev DahiwaDkar: One of the biggest is our work with our client the Hope LoanPort. They license our technology and we are growing our market in the counseling and servicer space. We are seeing specialty servicers use our software. This is a new busi-ness that has emerged from the crisis because there haven’t been good so-lutions out there. We have the niche and that’s why clients are coming to us based on our ability to complement their existing investment and helping them maintain compliance and keep up with changes in the market.

Mortgage technology: What are the biggest challenges facing servicing technology?

Sanjeev DahiwaDkar: Right now, the biggest challenge to the industry is that if you look at just 2010 alone, between the Treasury, the GSEs, private inves-tors and insurers, on average, every alternate week, there’s been a policy change by one entity or another.

When you’re talking about having technology keeping up with the business, you also have to talk about training employees to be compliant with the new rules. Stakeholders were looking for technology to help them be agile and implement the new policies.

This is what we see as our strength. Not only do we have the technology that’s open architecture, it is easily adaptable and easy for the end user to navigate and they feel comfortable and see technology as helping hand.

Mortgage RxOffice suite fit into a servicer’s existing system of record technology?

Sanjeev Dahiwacore of our patent application. What we have at the core is workflow, document and centralized case view management. There are complementary layers on top of this nucleus based on the various pieces of RxOffice. That is combined with our open architecture-based communication.

We are respectful and mindful of our clients’ investment in their system of record. Our goal is to help our clients leverage what they already have and fill in the gap with what they lack to be up to date. Any information that is captured in RxOffice can be imported and exported to the system of record.


030_MTFeb11 3 1/31/2011 3:03:18 PM

echnology: How did you go about changing the direction of the company?

It was a two-step process. The first step was the foundation of managing goals. We got a good head start by having product implementing experience. At the same time, we had to build from the ground up all the information fields unique to the financial services industry. Aside from the name and address, everything else is pretty much different.

We also had to build the user inter-face layer and the data layer. We took a solid two years to look at different stake-

Besides building the product, the biggest challenge we had to overcome was beating the perception that we were just a great development shop. We had to change the image of Indi-Soft to a product-offering company.

echnology: What have been IndiSoft’s biggest successes so far?

One of the biggest is our work with our client the Hope LoanPort. They license our technology and we are growing our market in the counseling and servicer space. We are seeing specialty servicers use our software. This is a new busi-ness that has emerged from the crisis because there haven’t been good so-lutions out there. We have the niche and that’s why clients are coming to us based on our ability to complement their existing investment and helping them maintain compliance and keep up with changes in the market.

echnology: What are the biggest challenges facing servicing technology?

Right now, the biggest challenge to the industry is that if you look at just 2010 alone, between the Treasury, the GSEs, private inves-tors and insurers, on average, every alternate week, there’s been a policy change by one entity or another.

When you’re talking about having technology keeping up with the busi-ness, you also have to talk about train-ing employees to be compliant with the new rules. Stakeholders were look-ing for technology to help them be ag-ile and implement the new policies.

This is what we see as our strength. Not only do we have the technology that’s open architecture, it is easily adaptable and easy for the end user to navigate and they feel comfortable and see technology as helping hand.

Mortgage technology: How does the RxOffice suite fit into a servicer’s existing sys-tem of record technology?

Sanjeev DahiwaDkar: That is the core of our patent application. What we have at the core is workflow, docu-ment and centralized case view man-agement. There are complementary layers on top of this nucleus based on the various pieces of RxOffice. That is combined with our open architecture-based communication.

We are respectful and mindful of our clients’ investment in their system of record. Our goal is to help our clients leverage what they already have and fill in the gap with what they lack to be up to date. Any information that is captured in RxOffice can be imported and exported to the system of record.

Mortgage technology: As a relative newcomer in this space, do you come across any difficulty working with other technology vendors, like the systems of record providers?

Sanjeev DahiwaDkar: Everyone has their own priorities. Vendors all have their own priorities and vision. Our goal is to find common ground and the path of least resistance.

When we launched, something that we thought would happen is that cli-ents would want to update their sys-tem of record updated all the time. But that is not necessarily true all the time.

Most of the systems of record have one placeholder to capture financial information. If a stakeholder employ-ee is talking and updating the system of record with the borrower income or expenses and if another third party captures the same information and tries to send it over, the main system doesn’t have a place to keep those two pieces of information separate and ends up overwriting it. For compliance reasons, the servicer may want to keep both records of information. What we are seeing is that integration is not al-ways a necessity.

The stakeholders using the legacy sys-tems of record have their own unique challenges and things are not as easy to change in the old legacy systems com-pared to the new technology.

Mortgage technology: How do tech-nology vendors overcome that challenge? Do you see new products in the industry pushing new innovation with the legacy systems?

Sanjeev DahiwaDkar: The systems of record are trying to move ahead and trying to keep up with the world.

But I don’t think they’re keeping up with the latest technology. My un-derstanding from the external view is they are trying to get there.

Mortgage technology: What do the existing systems of record lack or what could be implemented or added to them so they would be more advanced?

Sanjeev DahiwaDkar: It’s like in the old days when the horse cart was the preferred mode of transport. When cars came along, at some point peo-ple made the decision that there was no way you could fix the horse cart so that it could keep up with the car. You had to completely abandon it and go to the new platform to stay current with the latest technology.

Those legacy systems of record are facing the same dilemma. No matter how much better you can make the cart, it’s never going to turn into car.

At some point, the legacy systems have to sunset and have their own natural death. There’s no point to keep trying to push it further.


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Mortgage technology: What do you think will de-fine the next generation of system of record technology?

Sanjeev DahiwaDkar: Efficiency should be the key factor driving new technology any-where. We take things for granted. When you talk on your iPhone and get in your car, the Bluetooth takes over and you can talk on the phone hands free. As soon as your turn off the car, it transfers back to the phone without losing the call. We take these things for granted in our day-to-day lives. The core servicing sys-tem technology needs to go through this process of improving efficiency for the end user.

Whether it’s with different internal or external systems, they have to have the ability to look at a single loan from day one of delinquency all the way through to REO property disposition. A minimum of 10 different players are touching that loan, whether it’s inter-nal employees, foreclosure law firms, credit reporting and others. That basic foundation is the need to communi-cate in a secure and efficient manner.

Mortgage technology: What are some other things you’ve learned about how servicers want to use technology?

Sanjeev DahiwaDkar: We underes-timated our role in the expectation of clients. We never thought the client would look to us for a reporting, slic-ing and workflow analysis tool because that was not what we were selling. But because of the richness of the data we were capturing, the clients wanted us to give them management reports.

In our mind, that was not our focus, but be-fore we realized it, cli-ents were jumping on us saying, “You have a great tool, we wish we had a reporting tool like that.” We didn’t expect our reporting to be popular and we expanded to include those tools.

Mortgage technology:What will happen to default technology once the flood of foreclosures subsides?Sanjeev DahiwaDkar:I truly believe that even in good econo-mies, there will still be default issues. The financial industry will still need their default servicing operations and if done right, the

technology can play a wider role. It’s like switching from the horse cart

to the car. Planes and boats have come along and changed things, but the car will still has its place.

It will go through variations with the needs of the time, but what we’re go-ing through is a permanent transition in terms of technology that is going to stay here for the next 10 to 15 years.

Mortgage technology: What has been the biggest impact of the Hope LoanPort?

Sanjeev DahiwaDkar: Our technol-ogy and its place in the industry is as a neutral platform where stakeholders who may have conflicting interests can still work together to achieve a goal that they share in common.

The great role of our technology is that we make sure the application will never get submitted to the servicer un-til all the information is captured. The servicer can spend much less time on an application that comes through this channel as opposed to others, which makes the process more efficient.

The open architecture communica-tion allows them to do different things to help borrowers and communicate better with them and no documents get lost in the portal. That makes a huge impact on the servicer’s ability to move quickly on these cases and en-gage the willing borrower who’s work-ing with a housing counselor.

Index of AdvertIsers

Advertiser Pg #

CoreLogicwww.corelogic.com/nextgenfund 16-17

Harland Financial Solutionswww.harlandfinancialsolutions.com/nofear 1

ServiceLinkwww.servicelinkfnf.com 7

Wipro Gallagher Solutionswww.gogallagher.com 14

Spotlight onSanjeevDahiwaDkar

dahiwadkar is a technologist and

the president and CEO of IndiSoft in Columbia, Md. In his work creating new technology and leading vendor firms in default servicing and small business e-commerce, he’s de-veloped three patent-pending products.


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Mortgage Technology, February 2011 issue

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Transcript of Mortgage Technology, February 2011 issue