• Loan Operating Systems adjust to Lender Demands—Fifth Third Bank seeks flexibility in its new LOS system.

• eMortgages: From Crawl to Walk to Run—Harry Gardner of MISMO recaps a lively session on eMortgages from the Mortgage Bankers Association’s recent National Technology in Mortgage Banking Conference.

• Industry Leaders Discuss Emerging Trends, Part II—A panel of industry experts explore trends in mortgage technology, and what provider are and aren’t doing to adapt.

MBA Tech NewsLink is the newest publication in the NewsLink family, targeting technology issues and trends within the mortgage industry. MBA Tech NewsLink is a service to MBA members; to subscribe to MBA Tech NewsLink, visit http://www.mortgagebankers.org/technewslink/
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Fidelity will continue to build the implementation of the IFX library through its development initiatives in 2005. The build-out will include fully IFX enabling Fidelity's real time and batch core banking systems, as well as Fidelity's channel applications. Currently, Fidelity has close to 100 IFX-compliant messages in production and available for customers.

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A Fitch Ratings Service, New York, report examines Fitch's treatment of assets in structured finance collateralized debt obligations (SF CDOs), and provides an overview of the subprime residential mortgage-backed securities (RMBS) sector. Recent vintage SF CDOs has been linked to the performance of subprime RMBS and could be affected should the sector face deterioration, according to.

SF CDO investors said U.S. RMBS remains one of the safest collateral asset classes, however, rising interest rates coupled with a potential slowdown in home price appreciation could put stress on leveraged subprime borrowers, Fitch said. Fitch has observed an overall increase in interest only, junior lien, and limited-income documentation mortgages which adds potential risk to subprime RMBS pools. On the positive side, higher average FICO scores, a decrease in low balance and manufactured housing loans as well as an increase in average subprime RMBS credit enhancement levels have helped to reduce risk in subprime RMBS.

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Document Systems Inc. (DSI), Carson, Calif., added new features and functionality to two versions of its document preparation software, DocMagic. DSI released version 3.0 of DocMagic Online and version 8.0 of DocMagic for Windows.

Both versions let lenders access DSI's eDisclosure offering, an automated service to deliver a pre-disclosure document package that consists of a Good Faith Estimate, Truth-In-Lending disclosure, state-specific disclosures and other required documents through a secure Web site.

Version 8.0 includes new features including:
• Multiple Worksheet Support makes it possible to have multiple accounts working on multiple worksheets across the enterprise simultaneously. More than one copy of DocMagic can be running at the same time.
• MISMO Import lets the client's loan origination system (LOS) to create a MISMO (Mortgage Industry Standards Maintenance Organization) file, DocMagic can import it to create a fully populated worksheet.
• Ellie Mae ePass integration improves integration with Encompass, Genesis and Contour LOS allows users to draw docs directly from the loan file in the LOS and reduce data entry and associated errors.

DocMagic Online 3.0 uses the new J2SE 5 Platform (1.5 JRE) to run the DocMagic Online applet.

Other features in version 3.0 include:
• Numerous cross-reference databases have been added for quicker data entry and repetitive data storage.
• New High-Cost Analysis screens for Indiana and Wisconsin have been added.
• Expanded Service Provider database.
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In commercial real estate, National Tax Search, LLC (NTS), Chicago, announced formation of a sister company, National Tax Technologies, to develop and manage new software products, such as an enhancement to TaxQ, a Web-based property tax servicing system.

Lori Eshoo, president and CEO of National Tax Search, said “nothing is manual” at National Tax Search, noting the efficiencies of internal management technology in tracking, reporting and payment of property taxes. “The technology allows us to keep the overall overhead and expense down,” Eshoo said of the paperless firm she started in 1996 to provide tax management services to commercial real estate. “We have a full imaging product behind the system. We have a document imaging system and reporting functionalities.”

National Tax Search primarily serves the commercial mortgage industry but could move into the residential servicing space. “Because of the technology and the quality control we built into the back end, [the system] does much of the work with reporting and internal management reminders,” Eshoo said. “It allows us not to have to hire double the amount of people to do it manually.”

REIData Inc., a subsidiary of Stewart Information Services Corp., Houston, launched its PropertyInfo.com Web portal for the residential mortgage industry. “A key benefit of this strategy is greater efficiencies that can result in higher production volume without increased overhead,” said Don O’Neill, chairman of REIData.

PropertyInfo.com includes access to online title searches and analyses, mapping technology, property analysis tools, tax records, document images and flood determinations. Its SearchManager product allows title agents and examiners to combine their own data with public and third party data to build title reports and commitments. “At the same time, [title agents and examiners] can support other needs of the title operation such as customer service and marketing,” said Robert Alcala, senior vice president of market management at REIData.

"The title and realty sectors service the lending sector," Alcala said. "Any efficiencies created on their side are translated into efficiencies and benefits for the lender segment."

Eshoo said commercial servicers could manage and control their tax processing internally with TaxQ, a .Net system, to help them interact with internal management and accounting systems and third parties about tax information. “Those who subscribe to TaxQ will instantly benefit from years of experience with tax management and all the tools to do it well, but still keep this operation in-house,” Eshoo said.

The NTS system uses business logic through .Net technology to set up individual rules in a client’s portfolio based on customer preferences. Customers receive notification of tax bills through e-mail based on the client’s timeline. “It is more efficient than having a person looking at a sheet to determine the wants of each customer,” Eshoo said.

On a basic level, a calendar management program at NTS reminds agents to run down the information to focus on the day and deadlines. “[An agent’s] bottom line is to make sure all the research is being done effectively, everything is being communicated through the system, everything is scanned through the system their deadlines are being met and [the clients] are getting the tax information and the bills they need,” Eshoo said.
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Bascom Arizona Ventures

General Electric Capital Corp. provided the acquisition financing for the transaction. Gary Mozer and Lee Norman of Los Angeles-based George Smith Partners, Inc., Los Angeles, secured the debt financing. Tyler Anderson and Sean Cunningham of CB Richard Ellis represented the seller, a New York based pension fund advisor, Sentinel Real Estate Fund.

"The sale of a property like Ingelwood Village is becoming commonplace with REITs and pension funds as they seek to sell older assets in commodity markets like Arizona and redeploy the funds in high barrier to entry markets with less volatility like the coastal markets in California and the East Coast,” Daiutolo said.

Morrison, Ekre & Bart Management Services, Inc., Tucson, will be providing the third-party property management services. Anaheim-based Commercial Services Building, Inc. will be providing the renovation work for Inglewood Village.

Inglewood Village Apartments, built in 1979, spreads over 20.05 scenic acres with 47 residential buildings, a large resident clubhouse, two swimming pools, indoor spa, two lighted tennis courts, in-line hockey court, a fitness center with spa, basketball court, tot lot, barbeque grills and laundry facilities. Parking includes 432 carports and 227 open spaces for a total of 659 parking spaces. Inglewood Village’s 432 apartment homes consist of 5 different floor plans that range from 680 square foot one bedroom units up to the 1,444 square foot three-bedroom / two-bath units with private balconies.

Bascom's planned renovations include stucco over the existing wood siding, a multi-colored contemporary exterior paint scheme, and the addition of washers and dryers in all units. The buyers also plan to add ceiling fans, upgrade to modern plumbing fixtures and lighting and renovate the leasing office, clubhouse and fitness center.

“The existing positive attributes of Inglewood Village [unit sizes and mix, site plan, and location] provide an excellent platform of basics upon which to improve NOI performance with strategically-placed improvement expenditures”, said Steve Hovland, director of asset management for Bascom Arizona.

Despite a "value-added asset" at a "strong" Mesa Metropolitan in-fill location, Jerry Finney, partner at Bascom Arizona overseeing the asset management and renovations of the portfolio, said there is mork work ahead of the firm. “Although we are extremely bullish on Arizona, our work is cut out for us to expand our portfolio because it is common to see owners operating at 25 percent or more economic vacancy including offering one to three months free rent," Finney said. "Owners are essentially only collecting as little as 60 [cents] to 75 cents for ever dollar of rent quoted.”

Daiutolo and Finney, co-Managers of Multifamily Advisors, L.L.C. are Bascom’s partners in Arizona, with the goal to acquire $400 million worth of multifamily properties in Arizona. "Our target properties include everything from 'A' product to 'D' product, one-off assets to portfolios," Daiutolo said. "We will even consider properties with low leverage, assumable conduit debt.”
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"Mortgage bankers are using this opportunity to illustrate to Congress the important role the real estate finance industry plays in the U.S. economy," said Michael Petrie, CMB, MBA chairman and president of Carmel, Ind.-based P/R Mortgage & Investment Corp. "The better our industry performs, the better it is for all Americans."

"Through personal visits to congressional offices, our members will advocate prominent industry issues directly to their members of Congress," said Kurt Pfotenhauer, MBA's senior vice president of government affairs. "These one-on-one conversations will help federal lawmakers better understand the impact of our industry's issues on the states and districts they represent."

MBA members will be conducting meetings with their House and Senate representatives on the following MBA legislative items:

• S. 190 and H.R. 1461, legislation that will significantly improve oversight of the housing government-sponsored enterprises (GSEs). Preserving the financial safety and soundness of the GSEs, therefore, is an important public policy objective that is strongly supported by MBA.  MBA supports the creation of a new, independently funded regulator with broad powers to ensure the safety and soundness of the GSEs, establish their risk-based and minimum capital levels, and keep the GSEs focused on their charter purposes.

• S. 467 and H.R. 1153, legislation that reauthorizes and extends the federal terrorism reinsurance provided by the Terrorism Risk Insurance Act (TRIA). The legislation would extend TRIA and its "make-available" provision through 2007, maintaining the stability of the commercial real estate finance industry.

• H.R. 1295, legislation that will stop predatory lending in the marketplace. For many years, MBA has attempted to fight predatory lending in communities across the country. However, the proliferation of state and local laws on this issue has resulted in a bewildering regulatory landscape that is both difficult and costly to decipher.

• S. 580 and H.R. 1010, the modernization of real estate mortgage investment conduit (REMIC) provisions in the tax code. These changes are expected to have little impact on federal tax revenue. They will, however, greatly enhance the ability of commercial real estate property owners to upgrade property and perform customary property management activities after the mortgage has been securitized, without the need for costly and burdensome tax opinions.

• H.R. 176, legislation to raise the Federal Housing Administration (FHA) mortgage limit to the conforming loan limit. Currently, the FHA loan limit for high-cost areas is $312,895, while the conforming limit is $359,650. MBA believes that aligning FHA's loan limits with the conforming loan limit in these high-cost areas will broaden the housing stock available to FHA borrowers without shifting FHA from its focus on first-time homebuyers and the underserved. Potential homebuyers in many high-cost markets would be better able to access FHA's low-down-payment financing if loan limits were raised.

Additionally, Petrie will testify this afternoon before the Senate Banking Committee on reforming the GSEs.

MBA NewsLink will provide complete coverage, beginning in tomorrow's issue.
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“For many financial institutions, handling external paper documents is time-, labor- and cost-intensive and pose a large drag on operational efficiency,” Baker said. “The inefficiencies of handling paper have caused severe effects on mortgage lending institutions. From an operational perspective, inefficient work processes slow mortgage origination and securitization and cause poor closing ratios. From a cost perspective, paper-caused inefficiencies negatively impact the sale value of assets as well as customer service.”

As service degrades, lenders fail to retain customers through payoff—which translates into excessive turnover and write-offs, Baker said. “In addition, as service degrades, customers are more likely to re-finance with another lender,” he noted.

The good news for lenders, Baker said, is that many leading banks and mortgage lending institutions are finding that by minimizing or eliminating physical paper handling, they can increase time-to-revenue velocity and reduce costs by accelerating and improving work processes, enhance asset quality and increase customer service levels and mitigate risk with improved regulatory and investor compliance.

By replacing manual, paper-based processes with electronic document management, mortgage lenders are able to achieve tangible, measurable, repeatable results, Baker said:

• Quicker application to funding cycle times. Enhancing Loan Origination Systems (LOS) by adding electronic document management can accelerate origination and underwriting. “Simply put, loan origination and underwriting processes are simplified and streamlined by making the right documents available at the right time for Loan,” Baker said;

• Enhanced loan servicing. “Traditionally, the handoff from origination to servicing can take up to 90 days—and sometimes more,” Baker said. “Naturally, customer service is slowed and impeded when the servicing organization does not have all the information necessary to assist customers.” Instantaneous access to information enables faster and more informative and accurate interactions with the customer.

• Improved customer satisfaction and retention. Retaining a strong customer base is vital to reducing turnover, avoiding pre-payments and write-offs, and preserving servicing asset revenue streams, Baker said. Using electronic document management solutions, customer service can be improved throughout the lending cycle;

• Faster “unload” to the secondary market. The post-closing process and sale to the secondary market is characterized by financial reconciliation and extensive document quality checks, Baker said. The post-closing inventory of documents is greatly enhanced and accelerated when the document management system has insured compliance with the needed inventory of documents. “This acceleration can produce significant savings in warehouse interest costs and an overall reduction in the hedge fund requirements used to offset the warehouse,” he said.

• Process capacity matched to market conditions. “Mortgage processing is extremely volatile,” Baker said. “Electronic document management enables a flexible architecture that can scale up and down seamlessly, move work to where excess capacity exists, and ‘follow-the-sun’ to speed the process, enhance revenues, and shed costs;

• Reliable, cost-effective information access and retrieval. Worldwide electronic search and retrieval capabilities provide fast, reliable, secure access to mortgage file documents and information from a central digital repository. “Using Web browser interfaces, branches, brokers, and central operations can search for and easily access documents on demand, ensuring informed decision-making while reducing delays, errors and costly rework,” Baker said;

• Lower cost of compliance and increased asset value. “Compliance has two key benefits,” Baker said. “First and foremost, compliance with state and federal regulations can avoid significant fines and incarceration and eventual loss of reputation. Next, compliance with the secondary market can enhance the quality of real and servicing assets. Increased quality leads to higher sell values, better trading partner relationships, smoother operations and lower costs;”

• Infrastructure and work process requirements. Obtaining these “digital benefits” requires developing both work processes and an internal infrastructure capable of handling high volumes during peak mortgage lending activity. For paper-to-digital conversion, many institutions utilize central imaging centers, where hardcopy documents are converted to the appropriate digital format in bulk. The newly created digital files are categorized into logically nested Mortgage Loan Folders, identified by industry standard document types, indexed with loan specific meta-data, and integrated into the loan origination and/or servicing workflow using industry standard Web services;

• Conserve capital for revenue growth. “Building an infrastructure and re-engineering work processes can take focus away from a mortgage lender’s core mission,” Baker said. “In many cases, using scarce capital resources to implement an in-house document management system is not a good strategy for an organization.”

(Bakers’s extended views on this issue appear in a Xerox Corp. white paper at www.xerox.com/globalservices. Additional information can be obtained by calling 1-585-264-6596.)
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