Wrapping: To use an Encryption Key to authenticate electronic records, electronic signatures, alterations to electronic records and electronic signatures or alterations in a package of multiple electronic records.

“The mortgage industry is primitive in the way it approaches the marketing side of business. Marketing has often been left to chance. Marketing technology has a long way to go and some of the efficiencies technology has can help deliver it.” --Stephen Margrett, CEO of The Turning Point, Sedona, Ariz.

Technology Drives Business for Servicers
Palaparty, Vijay
DALLAS—Technological advances and new strategies have driven innovation in loss mitigation and default management. Panelists here at the recent Mortgage Bankers Association’s National Technology in Mortgage Banking Conference & Expo said technology gives servicers more opportunities to better keep borrowers afloat or in finding alternatives.

Steve Kadel, director of default products at ISGN, Bensalem, Pa., said demand for real-time data integrations is high, emphasizing the importance of data in both loan scoring and risk assessment methodologies.

“Prioritize loans based on risk and workout success potential,” Kadel said. “Evaluating workout options based upon delegated authority and working out the ‘low-hanging fruit’ first will also benefit servicers.”

Connecting data sources and scoring—including areas of credit, valuation and loss severity—is important in servicing, Kadel said. “Data is number one,” he said. “Processes are detail-oriented and consistency in data and having measurable data creates a systematic process.”

Rich Rollins, president and CEO of Jacksonville, Fla.-based National Quick Sale, said short sales provide opportunities for borrowers who are not able to stay in their homes.

“If borrowers are not able to stay in their homes, they have the option of short sale. However, the short sale process could be more efficient,” Rollins said. “Short sales are under-utilized as a viable alternative to foreclosure. They reduce risk and potential exposure of 40 percent to 60 percent in loss severity.”

Historically, the short sale process has been manual and disparate with difficulty in collecting borrower data and forms, making it labor intensive, Rollins said. Furthermore, he said it was a time consuming process of 60 days to 90 days, losing potential buyers in such a lengthy span of time.

“Short sales today are more automated and outsourced,” Rollins said. “Web-based solutions such as realtor registration and offer submission, offer management in integrating data, valuation and analytics and communication and dashboards to track the entire short sale via the web can significantly improve the process.”

Rollins’ company provides a web-based tool for short sales. “Given the default volume this industry is facing, short sales need technology to become an effective loss mitigation tool,” he said. “Technology, including workflow, business rules and document imaging with experienced intellectual capital can make the difference between success and failure.”

The industry also has high amounts of real estate-owned properties as foreclosure numbers escalate. “The inventory of homes is swelling daily,” Rollins said. “Vacant homes are a magnet for crime and damage, burglary, fire and so forth. There is a large problem in keeping realtors and property preservation companies accountable for showing and maintaining the home.”

Rollins said technology could help change the REO landscape with the ability to monitor properties through a stealth device such as the one his company, REO Sentinel, recently launched. The device monitors smoke, water leaks, gases and unauthorized entry via the web. Additionally, it would capture motion-activated photos and alert the owner and police by phone. Overall, it would oversee REO portfolio through web-based dashboard.
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Mortgage Fraud To Reach $2.5 Billion in 2008, Report Says
Sorohan, Mike

New research from TowerGroup, Needham, Mass., predicts that losses from mortgage fraud will reach $2.5 billion in 2008 and that comparable losses could continue for several years to come.

The report, U.S. Mortgage Fraud: Types, Trends and Detection Tools, found that the scope of fraud—by and against lenders—continues to increase, despite renewed efforts by lenders and law enforcement to crack down. The report said lenders will respond to fraud by deploying technology tools to assist in detection and prevention and that their annual spending on such tools will reach several hundreds of millions of dollars in the next few years.

“Much of the growth in mortgage fraud has been due to the ever-increasing sophistication of fraudsters’ schemes to fabricate the values of mortgaged property,” said David Hamermesh, senior analyst in the consumer lending research service at TowerGroup. “Fraud prevention is best done proactively, before the loan closes. Lenders must invest in analytical tools to identify loans at a high risk for fraud, while technology vendors must do more to improve the predictive power of the analytical tools they provide.”

Mortgage fraud is difficult to track and takes many forms, Hamermesh said. For example, fraudsters cheat borrowers out of their properties with false promises of foreclosure avoidance or use the identity of a real person (often without his or her knowledge) to fraudulently purchase one or more properties. 

Key findings of the report include:

· The growth rate in filings of Suspicious Activity Reports (SARs) related to mortgage fraud rose to 56 percent annually between 2002 and 2007 from its previous average of 26 percent annually from 1996 to 2002.

· Lenders, investors and other mortgage industry participants will come to recognize the value of pooling data to support more accurate predictive modeling as well as to facilitate their analysts’ ability to find and react to innovative fraud schemes.

· To combat growing losses from all types of mortgage fraud, technology companies should develop a “one-stop shop” that provides lenders with a truly integrated solution. "Such a comprehensive tool would provide increased predictive power, better system performance and holistic risk assessment that cannot be matched by a lender trying to cobble together individual tools from multiple sources," the report said.
 
“Technology companies that offer fraud detection solutions will need to develop professional services capabilities to provide lenders with file reviewers who are trained in assessing possible fraud,” Hamermesh said. “This service can supplement a lender’s own underwriters and be an efficient way to evaluate those loans flagged as most risky by automated scoring tools.”
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Online Banking Security Continues Application-Level Battle
Palaparty, Vijay
While online banks have built defenses through firewalls, antivirus software and other measures to combat hackers, a Fortify Software report said software inside these defenses remains vulnerable. The online banking world, however, hashas had success in the battle.

“Today, the security challenges for online banks are at the application level—where they [online banks] most leverage advanced security technology and improve their software development process,” said Rob Rachwald, director of marketing at Fortify, Palo Alto-Calif. “The business drivers for online banking are absolutely clear, but they do not come without significant risk. If a consumer can access banking systems from the comfort of their own home, then a pathway to the core infrastructure and priceless data exists for hackers as well.”

The software development cycle for implementing online banking applications involves building with Java or .NET and database languages such as PL/SQL (Oracle) and T/SQL (MS SQL Server), the report said. “Online banking has grown beyond simple consumer banking into investment management services—401(k)s, mortgages, auto loans and much more. Online banking applications often exceed 10 million lines of code, with the full portfolio of applications sometimes exceeding several hundred applications totaling more than 50 million lines of code.”

The report outlined the five stages of the software development lifecycle. The first stage was said to be 100 percent reactionary—when the key question was not whether there would be a successful hack but when it would take place.

“The bank’s security team lived in a constant state of fear knowing that a successful hack was inevitable,” Rachwald said. “And when it happened, impromptu patch management teams had to spring into action.”

The reactionary method proved most expensive and had higher risk of losing revenue from system downtime, damage to brand and unscheduled development time.

“Recognizing there is a problem, the next logical step is to beat hackers at their own game and put in mitigating solutions,” Rachwald said. “Banks employed ethical hackers or manual pen testing to sniff out vulnerabilities. Some chose to conduct some sort of penetration testing—black box testing or web app scanning—on production code in hopes of finding vulnerabilities before the hackers did.”

Tests were done in a manner so as to not crash the system—one disadvantage, Rachwald said. A second disadvantage was that code-level details lacked in black box testing, leaving developers guessing about holes in the systems.

The third and fourth stages cited involved code reviews to find vulnerabilities and pinpointing on real application code—a step in the right direction the report said. To manage the large code bases, online banks conducted static analysis that provided efficiency. Furthermore, security knowledge was built in with predefined vulnerability definitions and descriptions.

“In the final stage, security within the software development lifecycle was a self-sustaining system,” Rachwald said. “This way, the online bank’s security team moved on to oversee the security process in a full proactive manner.” Applications were reviewed on a regular basis and further analysis was conducted as well.”

“Large online banks have blazed a trail, creating a model for application security that others can follow,” Rachwald said. “Online banking is safer than offline banking—real time access to account information means both online banks and their customers have an instant ability to spot fraudulent account activity.

Rachwald also said online banks avoid negative press and can tout security as a competitive advantage to attract more customers.

The push for online banking has seen fast growth world, the report said; “move online or perish.” Online banking in the U.S. grew to 44 million consumers in 2006 despite the worst year for web application hacking in history, Rachwald said. “U.S. consumer perception of online banking security has improved. Sixty eight percent of respondents in a recent survey believe that their financial institutions’ web sites are more secure,” he said.

Rachwald added that because directly hacking systems has been difficult, hackers have resorted to phishing attack by sending consumers falsified emails. “Today, 60 percent of banks report suffering from phishing attacks,” he said. “While they are a major problem today, they pale in comparison to the potential impact of the breach of core systems.”
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Asia-Pacific IT Services Market to Grow to $55.9 Billion
Palaparty, Vijay
The IT services market in Asia-Pacific, excluding Japan, will grow from $37.5 billion in 2007 to $55.9 billion by 2011 at a compounded annual growth rate of 10.5 percent, said a new Springboard Research report, Asia Pacific IT Services Market and Forecast, 2006-2011.

“A substantial portion of Asian IT investments will be new investments and will come from organizations scaling up their IT systems or building entirely new ones to drive business,” said Ravi Shekhar Pandey, senior market analyst for Springboard, headquartered in both Sydney and Singapore. “While on a macro level, there are several factors driving IT investment, it is on the micro level where we are seeing the real action.”

Pandey said chief information officers will continue face challenges such as reducing the cost of IT operations, improving business application performance, finding and retaining skilled technical people and identifying technologies that integrate closely with business goals—reasons also commonly cited by financial institutions for adopting offshore outsourcing.

“The Asia Pacific IT services market is the global leader in terms of growth, supplemented with a mix of mature and emerging markets,” said Phil Hassey, vice president of services research at Springboard. “The markets of interest are not just the top four—China, India, Australia and Korea—but the emerging ones such as Indonesia and Vietnam, which will register significant growth going forward.”

Application hosting with a CAGR of 19.5 percent between 2007 and 2011 will register the fastest growth, the report said. Enterprise application integration at $7.8 billion is expected to be the largest component of the market by 2011.

As businesses in the U.S. and worldwide continue to take advantage of the benefits of offshore outsourcing, India and China IT services markets still show the greatest forecast of growth and potential for growth, respectively, the report said.

“For India and China, local capabilities, offerings and presence is just the start of a list of essential requirements for success,” Hassey said. “On the other hand, existing relationships, marquee clients and strong partnerships can provide capabilities for expansion in markets such as Hong Kong and New Zealand with relatively limited opportunities.”

The report said the Indian IT services market, with an 18.6 percent CAGR, would remain the fastest growing in the region. As a region, China offers the largest market opportunity in dollar terms at the end of the forecast period.

“China will not challenge India as the home of offshore service delivery especially for English language requirements—as skill levels, quality, culture and governance are all more suited to India being a hub of global delivery against China,” the report said.

In Springboard’s 2008 Asia Pacific IT Predictions report, its top prediction was that the subprime crisis in the U.S. would not derail strong IT market growth in Asia this year. Also in the top 10, Springboard predicted that business organizations would become more appreciative of consumer-driven technologies and applications, common among financial institutions.

“In contrast to the ongoing credit crisis in the U.S. and the upward swing in energy prices there, Asian economies in countries like China and India, are likely to maintain their growth momentum in 2008,” said Dane Anderson, CEO and executive vice president of research at Springboard. “Other economies in the region, such as in Australia, Singapore and Korea, are also likely to maintain their current momentum.”

Other predictions foresee that consolidation in the software industry will continue, virtualization will make steady headway in both large and mid-sized companies and that IT governance and risk management will be critical issues.
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Online Docs Lay Track for Mortgage Fraud Prevention
Murray, Michael
Tracking documentation—inside and outside the mortgage industry—becomes more important with estimated future losses in the billions of dollars from mortgage fraud against lenders.

Sharon Matthews, CEO of eLynx, Cincinnati, Ohio, said the nature of online documentation provides mortgage fraud prevention because it tracks mortgage documentation from origination to closing.

“No matter where they come from, we can gather those documents together and move them securely and track them around the network—whether it is inside the lender itself; whether it is between the lender and the broker; the lender and the settlement agent or directly to the consumer," Matthews said.

With full-documentation loans the order of the day in the mortgage industry, Matthews said eLynx’s eLoan folder authorizes certain individuals to access the data within a secure network. Gathering more documentation, users could track a complete history of the application in one place; disclosures delivered and delivery of closing documents to settlement agents, and who has access to documents throughout the process with the eLoan folder, she added.

“It’s all time and date stamped, who has access to what and when and it should [round] up the figures for our clients to get monthly reports on the various documents that come through the network,” Matthews said. “If [documents] fell out of the signature process because someone did not pick up their electronic version of the file and they went to paper, that’s all tracked, too. Auditing and that ability are critical to the security of our customers and built into our network.” 

During and after the origination process, eLynx said its uSign electronic signature provides lenders with better control on borrowers who access documentation.

“Paper-based processes offer little control and visibility after the documents leave the lender,” said Robert Nilsson, vice president of marketing and market development at eLynx. “Electronic signatures resolve this control problem by making the transaction digital and viewable throughout its lifecycle. The result is improved management of the business process."
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MISMO, PRIA Publish Draft of eRecording Electronic Instruments
Stokes, Aleis
MISMO, the not-for-profit data standards subsidiary of the Mortgage Bankers Association, and the Property Records Industry Association on March 28 published the IPR (Intellectual Property Rights) Disclosure Draft of a Business Requirements Document that addresses and describes the business requirements for eRecording of electronic recordable instruments in common electronic document formats.

The document, eRecording Electronic Document Formatted Recordable Instruments, describes eRecording requirements for recordable instruments such as MISMO SMART Doc®, eSigned PDF and Adobe Intelligent Document Format,and Microsoft® Word with embedded XML. It also includes business function descriptions, a process flow diagram and project assumptions, constraints and dependencies.

The 30-day IPR Disclosure draft is published in accordance with MISMO and PRIA IPR policies to allow for industry comment and disclosure prior to publishing Version 1.0 Final. This is the first joint publication of the two organizations since forming an alliance in November 2005. The goal of the alliance is to exchange and incorporate MISMO and PRIA standards for use within commercial and residential electronic mortgage transactions. The alliance benefits MISMO and PRIA members, the real estate finance industry and the general public, by fostering cooperation in the development and provision of consistent standards for electronic mortgage transactions.

"While most of today's electronic recordations are performed from scanning paper documents, the need for eRecording of electronic documents will certainly grow across recording jurisdictions nationally as eMortgage adoption continues to grow," said Harry Gardner, MBA's vice president of industry technology and head of MISMO. "eRecording provides many benefits to mortgage lenders, county recorders and closing agents, improving their ability to manage document volumes with fewer errors, faster turnaround and high accuracy."

The Business Requirements Document covers six major objectives:

· Preparing electronic instruments so that they are eRecordable;
· Uploading or transmitting electronic instruments to eClosing systems and various other platforms;
· Executing recordable electronic instruments on eClosing systems and various other platforms;
· Delivering recordable instruments electronically from eClosing systems to various eRecording applications and systems in public land records offices;
· eRecording electronic instruments including fee and payment information;
· Enabling the return of eRecorded (or rejected) electronic instruments to the eClosing platforms, or the retrieval by the eClosing platforms of eRecorded (or rejected) electronic instruments.

"The paper provides the industry with a tangible outline for implementing eRecording procedures throughout electronic document transactions," said Carmelo Bramante, PRIA's co-chair of eRecording business & technical requirements work group. "As electronic transactions at closing gain industry-wide momentum, lenders, recorders, title and closing agents will see even more benefits to the eRecording of electronic documents."  

To download a copy of the joint MISMO-PRIA document go to http://www.mismo.org/SpecificationsAndGuidance/eMortgageSpecificatons.htm or http://www.pria.us/Papers/licensedpapers/dtd.htm.  

The review period runs through April 26.
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Tech Briefs
Palaparty, Vijay
Fidelity Offers Training for Paragon 4 MLS Platform
Fidelity National Financial Inc., Jacksonville, Fla., a provider of products, services and technology to the financial and real estate industries, will provide free training for Paragon 4 MLS, the Fidelity National Real Estate Solution platform which is used on multiple listings services, through its Fidelity National University.

Paragon 4 Essentials focuses on basic concepts and functions in the Paragon 4 system such as set up, property searches, views and reports, listing distributions and input maintenance. Paragon 4 Advanced offers training in user preferences, managing contacts and managing CMAs.

Mid-Florida Regional MLS Renews Contract with MarketLinx
MarketLinx Inc., Santa Ana, Calif., a provider of information technology to the residential real estate industry, renewed its multiple listing service agreement with the Mid-Florida Regional MLS, Orlando, Fla., which is in the process of expanding services to five neighboring realtor organizations.

Once the expansion is complete, the Mid-Florida MLXchange MLS system will serve nearly 37,000 users from 13 separate real estate organizations. MFRMLS also selected MarketLinx’s Membership Director product to replace its current membership management system.

Cogent Road Launches Score Protection with Funding Suite
Cogent Road, San Diego, Calif., a provider of web-based applications for the mortgage industry, launched Score Protection, the company’s Funding Suite’s technology offering that eliminates additional inquiries by protecting any of the scores in a preexisting credit file provided the original file is less than 30 days old.

Funding Suite’s automated credit proofreading tools help originators detect errors in credit files that work against applicants by lowering their credit scores. Once errors are corrected, a new score is calculated using corrected credit file data. Previously, new scores could only be obtained by reordering an entirely new credit file—sometimes lowering unaffected credit scores due to additional inquiry.

Dashboard Analytics Module Added to AMB
Advantage Systems Inc., Irvine, Calif., added a Dashboard Analytics module to its Accounting for Mortgage Bankers software to help lenders ensure loan profitability. The module gives lenders a loan-level view showing profitability by loan, loan officer, branch and funding source.

iEmergent Delivers Mortgage Market Forecasts and Analytics
iEmergent, a Des Moines, Iowa-based market research, forecasting and advisory services firm for the financial services, mortgage and real estate industries, was launched to provide services and tools to help lenders improve efficiency by matching their lending models and products to the right markets.

The company offers mortgage lending forecasts, comparisons and market measurements and the growth rates of mortgage lending. The reporting tools available through iEmergent are based on criteria such as national, state, county or local geographic locations and all types of loan products and borrower segments based on FHA lending, loan sizes, race, income ranges or gender.

Interthinx PredProtect Aids Temporary Conforming Loan Limit Changes
Interthinx Inc., Agoura Hills, Calif., a provider of risk mitigation, mortgage fraud prevention and regulatory compliance tools for the mortgage industry, announced that its PredProtect loan-level regulatory compliance offering can enable lenders to respond to regional differences in limits for mini-jumbo conforming loans —those between $417,000 and $729,000 — in California, Colorado, Hawaii, Maryland, New Jersey, New York, Virginia and Washington, D.C., without waiting for system enhancements or upgrades.

iMS PropertySmart Meets New GSE Home Valuation Code of Conduct
iMortgage Services LLC, Pittsburgh, Pa., a provider of value-added collateral valuation and settlement services for the residential mortgage industry, launched the iMS PropertySmart platform to help mortgage companies ensure compliance with the new GSE Home Valuation Code of Conduct, which mandates the use of independent and unbiased appraisals.

The iMS PropertySmart platform allows lenders to shift between managing the settlement services needs of loan origination and loss mitigation. iMS' PropertySmart also provides lender clients with access to warranties on the accuracy of appraised values. iMS offers a range of origination and non-performing loan valuation and settlement services through its singular PropertySmart platform.

Credit Plus Launches Mortgage Works
Credit Plus Inc.