By: Craig Inglet, Partner

The days of physically pushing a massive stack of origination documents across an office is finally starting to feel like the days of yore. Just the thought of printing and photocopying everything from paystubs to closing documents and then wet signing them as sufficient proof makes so many of us shudder. The risk of human error, the organizational nightmare of alphabetizing the files, and so much more is enough to make us run for the hills.

Enter: the “Digital Mortgage” with the promise of efficiency, greater compliance, and reduced costs. We were all so eager to jump on the Digital Mortgage bandwagon that some would say we got out too far over our skis. So here we are – living in a digital world where data is fed into a series of algorithms, resulting in a lending decision. Times have been good, so there’s been no need to demand greater transparency into the raw data that resulted in the lending decision. However, as we start thinking about business cycles that historically increase defaults, how does one maintain transparency in a world of digital models and algorithms?

Here’s the good news: If originators provide access to source data, investors will gain the insight and clarity needed to feel comfortable with the outcomes of these models. Improved risk management is facilitated by seamless access to all necessary data, ensuring a secure audit trail complete with detailed timestamps to provide clear evidence of compliance.

The caveat: Investors and the market participants need to continue to apply proactive pressure on lenders and originators to provide access to this information. These digital solutions often require no access to source code, models, or algorithms. They simply confirm data processing and assumptions using historical approaches. Untested business models, especially those of new entrants with limited experience in credit risk management, may be susceptible to vulnerability.

The growing desire for digitization in mortgages will enhance liquidity in the housing market by promoting quicker and more frequent transactions. Now is the time to ensure you are partnering with a due diligence provider that can give you the peace of mind needed to enable long-term success. Contact us to learn more: