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Mortgage Document Automation - Why is IDP a Suitable Document Processing Solution?


Mortgage industry has to deal with massive piles of documents for making verification checks and clearing loan approval. On the flip side, the age old document solutions (manual keying, OCRs…) aren’t enough to comprehend existing needs. The blog focuses on the process of mortgage, the documents used, documentation challenges, and intelligent document processing as a solution for mortgage document automation.

[8 min read]
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As stated in a report by FreddieMac, the U.S. mortgage market is expected to close at $2.1 trillion in the year 2022. Adding to it, the demands will be rising despite geopolitical turmoil and post Covid-19 economic slowdown.

On the contrary, the banks providing mortgage loans to the applicant will stay under constant stress due to the huge volume of document processing manually. With massive documentation requirements, the industry is constantly trying to optimize the processes for verification checks to approvals and make them faster.

The hindering issue are the traditional ways of document processing which are incompetent as per today’s requirement keeping customer service/experience into mind. To bridge this, the mortgage industry is focusing on finding a mortgage document automation solution. A solution that can optimize their document process and help them with faster mortgage approvals.

To further explain and keep things in perspective, let’s start by learning how mortgage works and further lead to the challenges, and the proposed solution.

How does Mortgage Work?


Mortgage is derived from two old French words i.e. “mort” which means dead and “gage” which means pledge. So, a mortgage is kind of a pledge that dies once the loan is repaid from the borrower to the lender.

Mortgage is usually used for applying for real estate where the collateral is the property purchased by the borrower itself. By taking a mortgage loan, the borrower loans a sum of money to purchase any real estate from the lender and is contractually obligated to repay within a certain period with a fixed or floating interest rate. In this, the title of the property is in the name of the lender until the completion of the loan (hence the pledge). If the requirements are met and the loan is paid, the title is transferred to the borrower otherwise the lender can choose to recover money in whatever ways they feel is ideal.

Types of Mortgage Loan


Primarily there are 5 different types of mortgage loans an applicant can choose from. These are:

  • Standard Loan: Standard loans are provided in two ways i.e. conformational and non-conformational. Conforming loans have a set standard fixed by FHFA (Federal Housing Finance Agency) which includes credit, debt, and loan amount. A conformational loan can’t exceed the set limit and is ideal for purchasing small properties. On the other hand, non-conformational loans are ideal for purchasing huge properties simply because they are not regulated by FHFA. Standard loans are ideal for people with subpar credit scores or who have faced any financial setback in the past. The loaning time for a standard loan can be up to 30 years.
  • Jumbo Loan: These loans are provided for areas that are on the expensive side such as Los Angeles, New York, San Francisco, etc. These are ideal for huge loans.
  • Loan Insured by Government: Divided into three categories i.e. FHA (Federal Housing Agency), USDA (the U.S Department of Agriculture), and VA (the U.S. Department of Veteran Affairs) are loans provided to people with poor credit scores. These loans require less down payment and are ideal for someone who doesn’t clear for a standard loan.
  • Fixed-rate Mortgage: These offer fixed interest rates throughout the entire mortgage time period.
  • Floating-rate Mortgage: These offer floating rates depending upon the market. The interest rates in this type of mortgage loan can go both up and down.

Each of these mortgage types can have varied documentation requirements. With so much diversity, the process of documentation also becomes tricky considering the data processed is unstructured in nature. However with a mortgage document automation solution, each of these mortgage types can be catered to easily.

Documentation Required for a Mortgage Loan


Tons of paperwork are required before a mortgage loan is finally authorized. Below are the documents required for applying for a mortgage loan in the USA:

  • Bank statements and other assets
  • Tax returns
  • Credit history
  • Proof of income
  • Renting history
  • Gift letters
  • Photo ID

Mortgage Loan Processing Steps


Multiple steps go in before approving a mortgage application. To get a better understanding of the same, below are the steps mentioned for mortgage loan processing:

Getting Pre-Approvals


It is a quick step that requires a pre-approval document. This document is based on a three-bureau credit report also known as tri-merge.

The document shows the credit record and the credit history reported by a third party. It is important because it allows the bank to foresee the permissible amount of loan it can lend. Also, it helps the bank to decide the interest within a range.

Mortgage Application


This stage focuses on the sources of income, the amount of income, income source, child support, current properties, address, bankruptcies, foreclosures, etc. The process of verification requires multiple documents. It is a time-intensive step and requires thorough background checks. Also, the credit history of the applicant is considered the most important factor before releasing a loan.

Processing of Loan

During this step if the bank provides approval for the loan, the borrower will receive a loan estimate valid for 10 days. On the contrary, one can expect a rejection within 3 business days of the loan application.

Upon accepting the loan estimate, the bank will start to go through the information provided by the applicant if not done previously. These can include:

  • Demanding a credit report if not done previously during pre-approval.
  • Inspection of the property and appraisal.
  • Verification of employment and deposits made in the bank.
  • Verification of title.

Underwriting Process

This is the process that essentially decides whether the applicant will receive a loan or not. In this step, underwriters would thoroughly review the application and demand for appraisal. Appraisals are simply the valuation of the property. The purpose of the step is to identify if the provided loan would be enough to purchase the property. Once everything is checked, the interest rates would be locked over for which the loan would be approved for the applicant.

Closing the Deal

This is the final step of the entire ordeal. At this stage, the applicant will be called to sign huge piles of paperwork related to the mortgage. The most important document during this process is the closing disclosure form. It displays the original cost of the property and the final cost of the property after complete loan repayment.

Challenges in Document Processing for Mortgage Loan


Considering the surge in mortgage loan applications, there are certain challenges the mortgage industry faces quite often while processing loans. These are:

Faster Processing Demands by Customers


Mortgage has been relying on primarily three methods for processing documents i.e. manual keying, OCRs, and outsourcing. The initial two don’t qualify for today’s requirements considering the TAT (turnaround time) in manual keying, and the limitations of an OCR with unstructured data. Adding to it, outsourcing seems like a reasonable solution but can be quite expensive and doesn’t provide any direct control. New-age solutions like intelligent document processing are highly efficient in processing unstructured documents for data extraction and verification. Also, they are capable of running without any manual intervention and are quite cost-intensive in comparison to outsourcing.

Qualifying the Applicants


The process of qualifying the application happens at the stage of underwriting. It requires thorough verification of a resource which is ideally a time-intensive process. Although with the help of an IDP, it is possible to cross-verify documents in batches to make the work faster.

Scalability for Work


Mortgage industry has been continuously progressing giving out more paperwork to process. To deal with the problem, the industry requires a scalable document processing solution that can fit the requirements of changing demands. An IDP is a scalable solution capable of processing hundreds, thousands, and millions of documents in a single go with zero manual intervention.

Incapability to Focus on Core Operations


Amidst the process of manually processing documents and staying within bounds with the existing compliance, a collateral time of banks is lost. This time can be utilized for dealing with core operations and not manually processing the documents.

Benefits of Using Intelligent Document Processing in Mortgage


Considering the kind of propositions an IDP platform brings on board, there are multiple added benefits to using an IDP in mortgage processing:

Faster Processing: An IDP is exponentially faster than all the conventional methods of document processing. It also gives better control over the process considering the platform is deployed in-house.

Unstructured Data: For mortgages, banks have to go through a variety of documents with different templates, sources, formats, structures, fonts, and data. An IDP can process unstructured documents and provide processed verified data on the other hand. It also allows for custom data extraction from ‘n’ number of fields from a batch of documents.

Higher Transparency: An IDP seamlessly integrates with the existing DMS. It can be EDGE-based or Cloud, there is no issue with the integration. Also, the data generated by an IDP is sorted, segregated, and in the form of digital files i.e. excel sheets, CSV sheets, etc.

Centralized Data and Data Digitization: With an IDP, all the processed data can be easily stored in the central database. As mentioned above, an IDP supports cloud integration giving the employees access to data anywhere in the world.

Customization: Depending upon the vendor, IDPs offer customization of workflows and selection of documents for the verification process. Also, the customization is completely DIY and can be molded as per the requirements of the banks.

No Errors and Zero Manual Intervention: An IDP requires zero manual intervention while processing documents and offers processed data without any errors. For anything that raises an exception, an IDP would demand a human reconciliation and later on learns & evolves with the solution.

Reduced Time and Cost in Operations: Considering its capability to process documents in bulk and the speed of an IDP to process documents, there is a tremendous decrease in the TAT. Also, it directly affects the cost incurred on document processing because every business hour spent on manual processing is the hourly wage of an employee performing a subpar task.

VisionERA - Intelligent Document Processing for Mortgage Industry


VisionERA is the latest intelligent document processing currently available in the market. It offers document processing from structured to unstructured documents. The platform can perform data extraction and verification of documents in huge volumes with higher accuracy and automation figures with zero manual intervention.

Built using smart technologies such as Artificial intelligence (AI), Machine learning (ML), Natural language processing (NLP), and Computer Vision, it comes loaded with high cognitive abilities, intuitiveness, and OCR capabilities.

It also offers a host of industry leading features such as an automated table detection system, autocorrect data, QR scanning, etc. The platform is capable of extracting data from a variety of file types such as Text, Images, PDFs, sheets, handwritten docs, XLS, signatures, etc. It provides custom DIY workflows, plug-n-play integration, and a smart insights board with useful KPIs.

VisionERA is an industry and use case agnostic solution that follows a three pronged approach of decode, decipher and decide.

Conclusion


Mortgage industry is constantly under pressure with tons of paperwork to process. Also, the pressure from the applicants to clear the loans as fast as possible is a constant requirement. Choosing a mortgage automation solution such as an IDP would tremendously aid the industry in wisely treating their customers. It will help them sort the due work related to document processing and help employees with timely completion. This will make the processes much more sustainable and optimal with added reduction of TAT and cost.

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Mortgage Document Automation
Intelligent Document Processing for Mortgage Document Processing
IDP for Mortgage Industry
Faster Mortgage Document Processing via IDP
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