How transforming mortgage lending can boost liquidity

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HousingWire recently spoke with Aditya Udas, Managing Director of Iron Mountain, about the potential for digital transformation of mortgage custody functions and how Iron Mountain is innovating in collateral management.

HousingWire: How does the deposit transformation affect the mortgage industry?

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Aditya Udas: From Iron Mountain’s perspective, holding mortgages directly affects liquidity in the housing market.

Custodians are responsible for keeping the mortgage security documents on behalf of the investor for the entire term of the loan – 30 years plus ~ 4 years after the full payment of the mortgage. There are currently about 55 million files held by document custodians, and this number is expected to grow to 61 million by 2025. Basically, all loans that are sold on the secondary market are held by custodians.

But before long-term storage, custodians are responsible for the crucial task of certifying the mortgage. Lenders send their documents to the custodians, who do the initial certification to confirm completeness and accuracy – and to confirm that the documents are in line with the data that Freddie Mac, Fannie Mae and Jeannie Mae keep in a mortgage. GSEs require this certification to be completed before they securitize and sell mortgages to investors.

If there is a delay in certification, then the mortgage is delayed in entering the secondary market. And if the certification is not carried out properly, there is a risk for the investor due to incorrect data. These are critical issues that an insufficient number of technology providers and fintech companies are focusing on today.

HW: What trends are affecting the keepers?

Australia: First, there is the issue of scalability. For all of us mortgages, it has been an insane 12 months to build and recycle roller coasters. While it generated record profits, the high volume of sales caused a lot of inconvenience to all players in the industry as we tried to scale. Custodians faced the same problem: certifying files is a manual process that must be completed within eight business hours of receipt. During times of high volume, custodians face tremendous pressure to meet this SLA.

Secondly, digital mortgages – we predict that in the next 10 years, most of the mortgage will be digital. The number of electronic notes registered with the MERS eRegistry increased by about 350% between 2019 and 2020 (127,178 files versus 462,671 files). Continued adoption of eNotes often forces custodians to maintain parallel universes — one set of operations for physical certification and mortgage storage, and another for eVault auto-certification and storage.

HW: Where is Iron Mountain innovating to address the scalability of mortgages and the proliferation of e-notes?

Australia: For scalability Iron mountain developed our AI / ML tool for unstructured data called InSight. InSight uses intelligent document processing to certify physical or digital security: it classifies, extracts the relevant data, validates the data, and reports this certification to the GSE. InSight eliminates the need for manual certification, dramatically reducing operating costs, improving accuracy, and enabling rapid scaling.

For eNotes, we are investing in shared infrastructure such as auto-certification (or integration with GSE auto-certification tools) as well as building an eVault for storage. But from a tactical point of view, the more difficult problem is related to the “parallel universe” that I described earlier. To solve this problem, Iron Mountain is exploring a concept called “Bridge.” We asked ourselves: is it possible to certify physical software using the same process and infrastructure as for eNote?

The answer is yes. Bridge is the process of delivering a single physical security management solution, from table of origin to full payment, that reflects the experience of keeping your own electronic closure. This includes:

  1. Digitization of physical support package, creation of quasi-eNote
  2. Launching quasi-eNote through InSight to process and extract unstructured data
  3. Data certification using the eNote certification process or auto-certification tools
  4. Storing quasi-eNote in eVault and allowing the original physical collateral to be retained in the vault if needed
  5. Creation of a convenient data record for each physical collateral, which includes the closing document data checked against origin data and then added with data on final documents, assignments, transfers, investor information, information about service centers, MERS data, partial releases , ransom and paid-full events.
  6. Creation of an industry eBridge platform used to track collateral certification and lifecycle updates for physical collateral that has been digitized and transformed into structured data. The eBridge platform will provide rule-based access to multiple concurrent users with controlled and controlled upgrade rights. This provides a transparent presentation of the title chain at the loan level, both through data and through supporting images.

HW: What does this innovation mean for the industry?

Australia: This will affect everyone involved in the life cycle: investors, GSEs, custodians, lenders, and ultimately borrowers. By focusing on the custodians themselves, outdated manual processes are a major cause of loss or damage to documents, which in the worst case can render the loan unusable. Using InSight, a custodian increases customer value by classifying documents electronically and extracting structured data sets that are compared between documents and loan service data using AIML-based technology. This improves efficiency and accuracy, enforces SLA compliance, and enhances metadata for each file that custodians can analyze for future growth, improved reporting and risk management. With Bridge, custodians can quickly support a hybrid environment of growing e-notes and physical notes, reducing costs as we move steadily towards 100% digital.

Again, the ability of custodians to address these issues will ultimately help increase market liquidity and reduce risk for investors.

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