Mortgage Lending Looking Up...and Looking Out for "The TRID"

Finally some light at the end of the tunnel for the Mortgage Lending industry, and it’s not a train coming head on.  John Bancroft from Inside Mortgage Finance (IMF) noted, “Fannie Mae and Freddie Mac…issued $141.83 billion of single-family mortgage-backed securities during the second quarter, an encouraging 9.4 percent increase from the dreary levels recorded in the first three months of 2014.”  The market has a way to go before we can be confident it’s out of the woods but Fannie & Freddie saw a solid 15.2% increase in single-family mortgage backed securities being issued from May 2014 to June 2014.

Along with that promising news, IMF reported that lenders are improving their closing times for purchase mortgages and increasing the accuracy of good faith estimates which results in fewer closing-cost surprises for borrowers.

In the mortgage lending industry, the name of the game is having the best-in-class Loan Production processes as measured by shorter cycle-times and increased throughput, while ensuring quality credit decisions and accurate loan documentation.  I work with several mortgage lenders who use diagnostic-based analytic techniques and self-service Business Discovery platforms to continually monitor the proficiency and productivity of their Loan Production processes.  When they see blips on the performance radar, they zero in on the deal, team member and/or originator to determine root cause and effect the necessary change to bring performance back into alignment with corporate performance benchmarks.

The reason for a best-in-class Loan Production process is because Loan Originator (Broker, Correspondent, etc) “lender loyalty” is largely a function of which lender can get the best credit decision back the quickest while providing a frictionless experience in producing the interim and final loan documentation.  Improvements in “lender loyalty” performance measures increases market share of that originator’s business and that means more earning assets in the lender’s portfolio.

Here comes the TRID! The CFPB’s (Consumer Finance Protection Bureau) TILA/RESPA (Truth in Lending Act/Real Estate Settlement Procedures Act) Integrated Mortgage Disclosure rule.   In short, this rule applies to “most” closed-end consumer mortgages and mandates the consolidation of four (4)  forms down to two (2) more understandable/informative forms. The rule also mandates timing requirements for when those completed and accurate forms MUST be delivered to the loan applicant/borrower.

·         First, the Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) have been combined into a new form, the Loan Estimate.  The Loan Estimate must be provided to consumers no later than the third business day after they submit a loan application.

·         Second, the HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms) have been combined into another new form, the Closing Disclosure.  The Closing Disclosure must be provided to consumers at least three business days before consummation of the loan.

My “spidey-sense” tells me TRID is a report specification change (new layouts, new filter criteria, new reporting elements) and a new set of performance benchmarks against which lenders MUST manage their operations. Are mortgage lenders anxiously awaiting a software “regulatory patch” from their Loan Origination System (LOS) software vendor(s)?  Maybe there’s a better way.  How about using their Enterprise Business Discovery platforms to produce reports (forms), track performance and proactively trigger alerts for loan applications requiring attention BEFORE they violate regulatory performance rules?  Today’s Business Discovery tools are by-and-large the most agile and nimble platforms for modifying existing/creating new “reports”, providing interactive performance dashboards and generating alerts.  Even if the lender doesn’t have all the necessary loan application detail flowing into their enterprise data warehouse, they can still use their business discovery platforms to bring the right data together to handle regulation changes such as TRID.    

The CFCB’s TRID rule is targeted at the core steps within the Loan Production process. After all that hard work optimizing the Loan Production process, it would be ill-fated to erode that performance as a result of scrambling to make LOS system changes and business process changes to comply with the rule. (Deadline is August 2015).  With the right business discovery platform, the new forms can be simulated within days to weeks and the new processing performance measures can be modeled and implemented now.

Still not convinced?  Please consider the fact that the CFCB has just recently completed taking over responsibility for RESPA from the Department of Housing and Urban Development.  During this several year transition, the enforcement of REPSA Section 8 was in abeyance. Industry experts are now forewarning that “…the CFCB is picking up where HUD left off, and then some.” This means there will be more rules passed down with the intent of making things clearer to the borrower. That sounds like more meaningful reports and more regulatory performance measures to implement in order to avoid costly fines for non-compliance.

TRID is considered to be massive and should not to be taken lightly. A lot can be done in thirteen-months using your business discovery platform.  Consider using it to get a jump on implementing regulatory changes such as TRID.

Why Can't the BI Hardware & Software Vendors Leave Good Enough Alone?

It's tough being a VP of Business Analytics these days.  The vendors are relentless. They'll call on anyone in the enterprise and convince them to acquire their technology. My business community is restless, dare I say, sometimes reckless.  They buy into these pitches and acquire products often times without my even knowing. And Oh my...The myriad of options out there are mind-boggling and seem to be growing every quarter.  Why can't I just keep my shop running as it is?

The challenge facing most providers of business analytics (BI/DW IT Shops) is their solutions take too long and typically miss the requirements mark. After a lot of hard work they end up with a largely dissatisfied consumer population.  Our heritage is to focus on getting that "single version of truth". A pristine set of curated data before we allow the business community to consume.  Our techniques and our architectural reference patterns were built upon an industry heritage and historical tradition developed on technologies that are rapidly becoming obsolete. Our understanding of the true meaning of operational data is limited and our mission has become too data centric. (We think data is the "ends", when it is merely the "means" an end.  Namely, Optimized Functional Performance through actionable insights from better business analytics)  End-result, the business community takes BI into their own hands. Wham! Spread-marts, user-marts, data-sprawl, data-anarchy,  disastrous business decisions, fines, lost licenses, jail time, workforce reductions, bankruptcy.  That is a bit unnerving!  So I get the CIO to convince his peers to slap the business' hands, allocate spend time & money to  rationalize/simplify that data mess back into IT control, recoup costs, mitigate risks, get it under control.  Whew, success... then Wham! The 2-3 year cycle starts again. Where's the innovation in that?

Over the last 7-8 years the BI tool offerings, especially the self-service data discovery tools, cut through the critical path of any data warehouse/BI project because the end-consumers who really know their data, interact WITH production data through advanced visualization techniques. In collaboration with IT the business drives out the formulation of a federated, integrated business view, complete with difficult integration, transformation and data quality rules applied against it. All validated by the business in real-time. End-result?  Usable, reliable, agile self-service solutions to enable better decision making now.   If that same set of information needs to be accessible to other consumers via other tools, the developers now have a validated set of specifications from that self-service BI tool metadata repository. This metadata export is used as the basis for implementing the more traditional ETL-->Enterprise DW-->reporting Data Mart(OLAP) architecture. This may not be for everybody. However, it behooves us to continually assess the viability new self-service enabling technologies. The sooner the better, because next on the horizon will be self-service near=time time Predictive & Prescriptive Analytics! The pristine designs that we spent years, even decades refining are built on enabling hardware and software stacks which are increasingly becoming obsolete and relatively more expensive to maintain vs the newer options in the market.  So I ask myself.  "Self? What is the acceptable life-span of good enough?" 

On the big data front. For the last 3 years that term ("big data") raised the hackles on my neck. "We've been doing big data for decades folks!" Well, while that is true, I had to reckon with the fact that a lot of investment is being poured into hadoop-alooza. It is a new architecture that is spawning a whole new revolutionary round of innovation. More importantly, there is a deluge of digital information sets floating around the world waiting to be monetized, now. This is information that previously just wasn't available.  Information properly harnessed, which can bring richer insight to the markets, competitive landscapes, prospect/customer behaviors & psyches, world events and causal relationships that can & will impact/influence how my enterprise leaders can be better informed.  “Big Data” is enabling just that. It is my responsibility as a BI solution provider to investigate how we can cost-effectively snatch that data out of the air-waves and avail it to the creative minds of our business analysts & data scientists to find that next "a-hah" moment and proactively act upon it before the competition does or before an early-stage outbreak becomes the next world epidemic.

Data Warehousing/Business Intelligence has been mainstream for a good 15-20 years. It was the radical idea back in those early adopter years and was met a lot of resistance.   Imagine the state of our world had we took the position that the truckload of green-bar reports delivered to mailroom was good enough?  As I look across the Business Analytics landscape, I see a new generation taking the helm in our business management and leadership roles.  This generation literally grew up with technology in their hands. They were weaned on gaming technology that learns overnight based on the previous days' world-wide interactions.  They are demanding their business operational systems learn how do the same.

I applaud the innovation coming out of our hardware and software provider communities. They challenge me as a Business Analytics solution provider to establish an "innovation culture".

What's good enough? A culture that comes in each morning firmly anchored in the truth that change is a constant that must be embraced. A culture excited to learn one new thing and propose one new idea to try. I challenge myself and my team to find ways to uplift our current investment value and embrace new technologies and techniques with prudent governance.

HANA - Is it Real? Should You Wait?

I'm a practitioner that initially reserved a high-degree of skepticism on the HANA promise. That is, until I had the chance to put HANA to the test. My findings? There's a lot of conjecture floating around about HANA.  It's new so there's not a lot of 1st hand experience being shared.

HANA is the real deal and that's based on 1st hand experience.

I invested in and led a development team that took an Oracle DW, pointed the DDL at HANA, ran the existing ETL and loaded the new HANA tables all in just a couple days. The ETL jobs and the existing report queries showed immediate performance improvement with very little development effort.

Then we got after building an application that included mapping and loading of additional source data to the integrated data schema on HANA, triggering event-based invocations of statistical scoring models (R), generating dynamic messages & alerts to mobile devices, capturing and committing write-backs from the mobile devices and dynamically updating a set of performance management dashboards. In less than 4 months with an agile team (1 DW Architect, 1 Data Scientist, .5 BI Architect, .5 Mobile Architect & access to the client's subject-matter-experts) we designed and deployed a robust application that is revolutionizing the business of higher-education.

Performance for ingest & load times, statistical model execution, mobile device alerts/write-backs, and dashboards response times all measured in seconds or less. In my experience this raises the bar on the other platforms I've worked (and I've worked on most of them).

As for migrating the BW-tables from traditional RDBMS platforms to HANA IMDBMS? With the Rapid Deployment Solutions (RDS) approach, migrating BW to HANA is a short and relatively simple tactical exercise. Out of the box, the load and query performance is many X faster (mileage will vary depending on deployment). Then you have the opportunity to optimize the underlying analytic and calculation views to extend functionality and improve performance of your BW info-cubes and reporting.

SAP has already starting migrating the more intense/complex OLTP transactions to read and commit updates to the ERP tables that have HANA underneath them. They are seeing positive results. Why would you do this? Simple performance lift is one key reason. The more compelling reason is you will start to realize the benefits of IMDBMS supporting the hybrid workloads of OLTP and OLAP against a single integrated database design. Yes, the need for the split of OLTP vs OLAP into separate eco-systems is on the path towards obviation as IMDBMS eliminates the performance constraints which forced the need to split OLTP & OLAP workloads out to begin with.

SAP's Hardware partners are coming out with scale-out reference architectures to leverage HANA's parallelism. This on top of the high compression ratios (10X plus) and innovative temperature-controlled archiving solutions from 3rd party software partners is opening up a capacity planning model for scaling on HANA while providing a compelling overall (OLTP & OLAP eco-system) TCO.

The visionary enterprises are seeing the value proposition of moving to a platform that enables ultra-low latency OLAP and OLTP applications while significantly reducing the resources and level of effort to design and maintain these applications. Less effort because you don't have to over-engineer the data models, ingest layers and query SQL in order to squeeze out marginal performance gains. You don't have to peel off subsets of data to run the complex multi-pass statistical scoring models for fear of dimming the lights on other workloads. That means more accurate scoring algorithms and more agile plan, test. do cycles.

You can wait, but you may end up wondering why you did as you look at your competitors' taillights. I highly recommend taking a good look at the platform, get out of the box, find a compelling use-case and map out the business outcome potentials before you decide to wait and see.