Can Digital Mortgages Connect You to Millennials? Find Out in the Latest Compliance Insights Podcast

Digital mortgages, clarifications on Russian sanctions under CAATSA, and more guidance on the new FASB lease accounting standard are the topics in the December issue of Compliance Insights. Listen to our podcast below for a discussion of two of these topics by Protiviti Managing Directors Steven Stachowicz and Rob Gould, and download the full issue to peruse all stories at length.


In-Depth Interview
Compliance Insights December 19, 2017 [transcript] 

Kevin Donahue: Hello. This is Kevin Donahue, Senior Director with Protiviti, welcoming you to a Kevin Donahue new installment of Powerful Insights. Today, we’re going to be discussing some of the highlights from the December 2017 issue of Compliance Insights. I’m happy to be joined today by Steven Stachowicz and Rob Gould. Steven is a Managing Director and Leader with our Risk and Compliance Practice while Rob is a Managing Director and Leader with our Internal Audit and Financial Advisory Practice. Rob, thanks for joining me today.

Rob Gould: Thank you, Kevin. Happy to be here.

Kevin Donahue: Steve, great to speak with you as well as always. Let me toss the first question to you. One of the articles in this month’s issue talks about digital mortgages, and here we outlined several reasons why customers and millennials, in particular, prefer the digital process for filing mortgage applications. These included convenience, speed, even cost. In your view, what can a bank do to do differentiate itself in this market? Is there some low-hanging fruit in terms of the digital space?

Steven Stachowicz: There absolutely is, and Kevin, it’s good to talk to you again this month. The topic that we talked about in Compliance Insights is newsworthy, generally speaking, because we talked a lot about financial technology and fintech over in the Compliance Insights and over the years. So much of that has been in the space for payments, consumer payments, small business lending, consumer lending, pay date lending, things of that nature; we don’t really talk a lot about mortgages. It feels a lot like mortgages are one of the last bastions, if you will, to adopt digitization and financial technology. You could think of all products within the financial services sector, the process is very manual. Customers have been forever frustrated with how manual the whole process is to get a mortgage, especially when you start to think about the fact that so many other financial products are easier to obtain through financial technology means today. It’s these purchased money mortgages that are the problem. So, it shouldn’t be a huge surprise that lenders who are beginning to adopt digital means to reach customers are garnering attention, a lot of attention.

The reality of the market for mortgage services, I think, is that we’re talking about a product, whether we’re talking about originating a mortgage or servicing a mortgage, you’re talking about a process that’s always going to have a manual component to it and is somewhat higher-touch than other products, which are much more user-directed. Applicants are not the same. They don’t present the same characteristics. Properties vary. There’s a lot of complications associated with the origination process, and I didn’t even start talking about all the stakeholders that get involved. If you take on a mortgage, you know that there’s a lot of different parties involved.

Customer service is the key, it always has been. Customers want convenience, but they want to know that they’re dealing with qualified individuals that are servicing them in response to their needs. So, differentiation and low-hanging fruit, getting back to your original question, I think there’s a lot of opportunity here to bring in financial technology to replace some and supplement other manual processes. If you think about where some of the pain points in the mortgage origination process are, they tend to be in the application process, which seems to be about one of the more straightforward things. You’re just gathering information and putting it into one single place in a relatively standard format.

Why that’s a manual process for so many lenders is kind of a mystery to me, frankly. Very easy to do a little bit more automation on documentation gathering. If you’ve ever obtained a mortgage, you know what they ask for. Lenders – banks – or non-bank lenders ask for a lot of information that’s necessary to underwrite a loan. Totally fine, makes a lot of sense what they need, but the process to gather all that information – photocopy, fax it, email it – is a lot of effort, and there are still a number of institutions where you still have to go in person to hand those documents over. These are things that can be better automated. There are better ways to capture some of this information and to use it in the underwriting process and really those are just two examples, to your point of some of the low-hanging fruit that I think is right for the picking when we’re talking about digitization in the mortgage space.

Kevin Donahue: Steve, I wanted to follow-up on one point there with regard to what mortgage lenders maybe should be considering. Where do robotics come into play? What opportunities are there for lenders?

Steven Stachowicz: Robotics and process automation are referring largely to the same thing. When you say robotics, I quite literally think about robots who are processing things and are programed to do whatever. I mean, we’re not precisely talking about a bunch of robots sitting out there on your mortgage underwriting floor. We’re still talking about people. But what we talk about in terms of process automation and robotics is better automating processes that today are repeatable, that are regular in many cases, that are pretty standard but are highly manual. Over the years in the work that we do with our clients, we’ve had plenty of opportunities to observe processes that are incredibly manual but are also incredibly standard, and there’s one, two or three ways of doing something and yet there’s no automation around it. It does require a person to sit there and flip through screens in the servicing system, look for a very specific document type or field and then manually input it somewhere and then move on to the next one and do the same thing.

Those are processes that many organizations have, frankly, and those are exactly the types of processes that benefit from enhanced technologies to automate them. So, when we talk about robotics and process automation, and what lenders and servicers probably should be considering at this point, our thought is that it’s sort of twofold. Number one, in the instances where an organization is undertaking a process improvement project or a corrective action project – say something is broken and one of the internal auditors may have noticed that escrow statements are not being produced appropriately, whatever the issue is. There’s usually a project that’s undertaken to figure out why did this break, how long ago did it break, how do we fix it, how do we test it to make sure it’s sustainable – whatever corrective action we put into place.

A lot of those corrected actions are manual. They’re very manual in many cases and they can persist for years before they ever actually get automated because the first goal is to sort of stop the consumer harm. and that’s fine, but I think any of these projects you have to implement quickly to stop consumer harm. that’s what I mean. What’s not fine about the process is that these manual processes persist forever, seemingly. So, part of the recommendation here is that organizations that are undertaking these projects to address specific issues or processes should be regularly considering how process automation and enhanced technology should be brought into the solution, whether it’s the short-term fix or a longer-term fix. I think secondly, and this is maybe the more exciting part of this, if you’re not already in an organization that’s got lots of issues that you’re managing you have a chance to actually think and be proactive. This is exactly the place to do that. So, how does an organization look at its entire process end-to-end, servicing and origination, and judge where their processes could benefit from enhanced process or process automation and enhanced technologies? There’s a lot of them, and it’s a big ocean to boil but it’s an exciting opportunity to evaluate where the pain points are in the process from a customer perspective and from an employee perspective and from a stakeholder perspective and really tackle those in a much more organized project management-oriented way.

So, there’s a couple of ways I guess that we look at this that organization should be looking at process automation and technology. For sure, on those projects that you have to tackle because something is wrong but, secondly, maybe stepping aside or stepping back for a moment and looking at processes more holistically to say, “Is what we’re doing making sense today and can we bring in the right solutions to automate this and improve our processes and improve our customer service and reap some benefits here from a cost efficiency and savings perspective?”

Kevin Donahue: Great insights. Thank you, Steve. I want to remind our audience that they can visit to find the latest issue of Compliance Insights as well as previous issues. Rob, let’s bring you into the conversation now and talk a little bit about the new lease accounting standard. Protiviti has written extensively about this new standard which becomes effective at the end of 2018 for public companies and a year later for private companies. It’s the subject of another article in this month’s issue of Compliance Insights and we talk about some of the very specific impacts this is going to have on companies’ accounting functions and even their decisions on whether to lease or buy. What are some of those major effects that companies need to consider and address?

Rob Gould: Thanks, Kevin. There are a couple of ways to look at this. The standard-setters have really crafted this and some standards more recently to drive comparability amongst the financial statements that are prepared by companies. So, there’s the users of the financials and how they look at it and there’s the preparers on the financials and how do they go about doing that. From a user perspective, investors or lenders alike or interested parties are going to see a big difference in what companies have on their balance sheet. There’s going to be the right of used asset that’s going to be recorded and then there’s going to be the contract liability that’s going to be recorded. This is for all kinds of assets – equipment, real estate, IT assets, et cetera. I mean it’s going to be for anything that is currently off-balance sheet and just arranged as a lease expense and only represented on the P&L. Now, all these stuff is going to be thrown onto the balance sheet so it might change their perspective. It’s intended to give information to those readers of the financial statements and help them have a full picture of what a company employs or uses in order to operate and generate value for the business.

From a preparer’s perspective, in order to be able to get that information and adopt the standard, in the first place, they have to go through quite a bit of work to do this. They have to design processes. They’re going to have to mine data. They’re going to have to consider changes to systems and so forth and really taking a look at not just, “What are we paying each of these vendors on a monthly basis but what’s the total value here of the asset that we’re using or employing in our regular day-to-day activity?” That is going to drive the need for new processes, new focus for people to look at and other organizational change within the business.

Kevin Donahue: Rob, as we wrap up our discussion here, today, let me ask you one more question about this. Where should an organization start to get ready for the transition? And in your view, what are the areas in which they are most likely going to need help?

Rob Gould: One of the things that we consider a fairly big lift is just understanding and developing that inventory of leases. For multinational companies that are spread out, it might be pretty challenging to gather that inventory because there’s different business units creating these arrangements with local vendors and so forth. So, establishing a complete inventory is going to be probably one of the larger lifts. When you think about what the employing the people to get involved in these activities within the organization and consolidating a lot of the data and information isn’t going to be – I mean, there’s not a lot of complexity to this for the most part but developing that inventory is going to be an effort. Even the data requirements to do the accounting associated with the new standard are going to be greater than what they have today. So the information that’s captured in the regular AP transaction isn’t going to be enough in order to maintain the accounting. So, I would say the inventory is probably where companies want to really start the communication around assembling that data right away. That’s something that’s going to take a bit of time.

Kevin Donahue: Rob and Steve, thanks very much for joining me today to discuss some of the highlights from the December issue of Compliance Insights. Again, I want to remind our audience that they can visit to find the latest issue as well as past issues of our newsletter.

[End of Transcript]



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