Mortgage Process as a Service

Why the U.S. Lending Industry is ripe for MPaaS(Mortgage Process as a Service) • Economic and industry indicators are pointing to a slow revival of the U.S. Mortgage industry. • Plan to wind down government-sponsored enterprises (GSEs) is a big positive factor for revival of private investments. • Improved risk management will be the key to win the trust of residential mortgage backed securities (RMBS) investors and mitigate the repurchase risk.1 | ©2011, Cognizant

The U.S. Mortgage Industry remained dormant sincethe meltdown… Post financial meltdown home sales declined significantly and with it the volume of originations. RMBS issuance bore most of the brunt. Home sales have remained flat and are forecasted to increase marginally in 20122 | ©2011, Cognizant

Economic Indicators point to a gradual recovery Research by Federal Reserve Bank of St. Louis points to lower long- term unemployment rate. Household formations, a traditional Household formations, which declined to 578,000 in 2008, rose to 950,000 in lead indicator of demand for 2010. And this figure is expected to rise housing is also on the rise. gradually, aiding recovery of housing demand. - The Wall Street Journal6 | ©2011, Cognizant

But the Banking Industry is challenged to gear up…. • Compliance which is a key to survival is pushing banks to significantly improve/alter their business models, processes and systems. • Compliance costs are expected to rise and so are the costs of origination while the banking spreads are on the decline.| ©2011, Cognizant

Gearing up for a New Mortgage Industry • After the Dodd-Frank Act, banks need to enhance their business processes and IT systems. • Many banks need to address the challenge of IT system silos. • To gear up for the revived mortgage business, banks need to embark on a deep, end-to-end technology and process evaluation. • Crucial to the revival is improving credit quality and assuring the concerns of RMBS investors through improved lending practices and processes.16 | ©2011, Cognizant

Enter Mortgage Process as a Service (MPaaS) • The emerging suite of services “mortgage process as a service” (MPaaS) provides lenders access with access to people, processes and technology, while transferring the burden and risks of their ownership to the provider through offering pay-per-use models. • Enables to switch from Cap-Ex to Op-Ex embracing pay-per-use model. • Unlike the traditional mortgage BPO provider that is measured on how well it executes a lender’s process, MPaaS also addresses more strategic aspects, such as repurchase risk and compliance. • Banks can seek improved risk management enabled by enhanced data quality and by requiring the MPaaS provider to play the role of an independent infomediary. • Coupled with a lender’s ability to manage business processes via MPaaS, banks have a significant opportunity to manage challenges in the new landscape more effectively.17 | ©2011, Cognizant

Risk Management Imperative for Revival of theMortgage Market • The Uniform Mortgage Data Program (UMDP) establishes for lenders’ uniform requirements and file formats for appraisal and loan delivery data. • Ensuring data quality during the loan application and credit underwriting process will remove some of the risk associated with purchasing mortgages. • MPaaS solutions provide loan transparency to enhance the quality of loan originations and reduce repurchase risk. • This will result in increased mortgage performance, and will gradually produce a stronger mortgage market and increase borrower and investor confidence in the housing finance market.| ©2011, Cognizant

What to Look for in Your MPaaS Partner • Can offer services in a utility-like model, providing variabilization of fixed costs. • Strong domain expertise and consulting services • Best-of-breed workflows, data products, analytics and process controls that are aligned to the needs of a changing mortgage business. • Delivers a solution that can process mortgage application documentation and critical underwriting data that empowers the originator and loan purchaser to make better investment decisions. • A partner with the resources and capacity to assist in navigating regulatory hurdles can make perceived barriers to market re-entry less challenging.19 | ©2011, Cognizant

Thank You Authors Rajeshwer Chigullapalli, Head, Thought Leadership Practice, Cognizant Research Center Aala Santhosh Reddy, Senior Research Analyst, Cognizant Research Center Nathan Longfellow, Director, Cognizant Banking and Financial Services Consulting Practice John Geertsema, Manager, Cognizant Banking and Financial Services Consulting Practice Research Analyst Svetlana Malu, Senior Research Analyst, Cognizant Research Center For more information / downloading the report, read the white paper U.S. Lending Industry Meets Mortgage Process as a Service (PDF) http://bit.ly/MPaaS20 | ©2011, Cognizant

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Mortgage Process as a Service

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