Financial Passports a Near Reality?

Service could speed compliance, reduce fraud

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One of the most problematic areas of the mortgage process is assembling the various financial and employment information that borrowers must provide to lenders to get loans.

From W-2 income forms to bank account statements, the process is paper- and labor-intensive, time-consuming, and fraught with potential for errors and fraud. The Advancing eMortgage Innovation Challenge Team that Fannie Mae assembled has an idea for a better way.

The team proposes the creation of an online employment and financial profile with which a borrower can electronically share information with a lender.

The so-called “borrower financial passports” would enable borrowers to have their banks, employers, and other parties provide key information directly to the lender electronically.

That would make life significantly easier and more efficient for everybody involved, says Kelly Purcell, executive vice president, global sales and marketing at eSignSystems. The Princeton, NJ, company provides software used in the banking, mortgage, and insurance industries for electronic signatures and delivery of data and record retention.

Fannie Mae has launched five Innovation Challenge teams made up of industry participants to propose solutions to some of the industry’s leading problems. The “eMortgage” team was charged with the task of improving the mortgage process, including moving more elements of the process online.

“It pretty much eliminates fraud,” Purcell says. “This is a complete win for every person in the food chain, (from) the borrower and the lender to the investor.”

The value of the passport is readily understandable to anybody who has gone through the process of buying a home.

Rather than digging up paper documents and having to fax, email, mail, or otherwise move them to the lender, the borrower would simply provide data to the passport provider such as their address and employment information. The passport supplier would then work with banks and other key service providers to deliver information directly to the lenders.

It’s difficult to put a value on how much money borrower passports might save the industry, experts say. Still, members of the Advancing eMortgages team say the value of passports would be significant to a mortgage industry that is grappling with increased compliance demands from regulators.

For instance, having all of the borrowers’ financial data electronically available in one place would make for easier detection of fraudulent behavior or reckless spending by people who are trying to obtain home loans.

“You can look at the numbers, do modeling, and ask, ‘Do the numbers make sense?’ ” says Kristin Hoffman, program manager at Fannie Mae.

Barriers to Adoption

With so many industries going electronic, it’s easy for a layperson to look at the mortgage process and think: Why don’t these passports exist already? What’s holding them back?

The answer is complex, experts concede.

“I don’t think the lending community in general has been focused on the consumer experience,” Purcell, of eSignSystems, says. “The consumer experience has not necessarily been the Number 1 driving piece of the mortgage process. That’s why something like the (borrower financial) passport has (to be) created.”

Ironically, while borrowers would be among the biggest beneficiaries of adoption of a passport-type service, consumer uneasiness with the security issues associated with this concept could hold it back, at least initially. Although with the rapid adoption of electronic applications such as online banking, bill paying, and brokerage accounts, the barriers are falling. Future homebuyers are of the digital generation, and this generation is going to demand it.

“The borrower will have to trust in whoever is offering this service,” Purcell says. “Borrower trust and borrower willingness — those are two things that will prevent adoption.”

'In the larger scheme of things, though, the consumer banking world has gone digital.'

Indeed, a certain number of borrowers may be suspicious of providing sensitive information to a supplier of passport services, she says.

In a similar vein, any provider of this service would face obstacles in “gaining a critical mass of users so the passport becomes a viable replacement to traditional documentation over time,” says Nancy Alley, vice president of strategic planning at Simplifile, which helps ease the process of recording mortgages electronically. “As a provider of passport services, you would have to (ensure) your solution provides the necessary consumer protections, including security and privacy, around this sensitive data.”

But, she added, the major barrier “is getting acceptance from all the various stakeholders that currently rely on today’s standard of income and asset documentation. The question is not whether I will accept a financial passport, but will all my trading partners accept it. There is an adoption curve.”

In the larger scheme of things, though, the consumer banking world has gone digital, Alley says.

“I think the security and privacy policies around consumer banking services would be a good model with which to start,” she says. “To speed adoption, a provider would need to (ensure) that key stakeholders in the mortgage value chain understood the value and lift created. The (return on investment) should be there from many angles. It would require some governance structure and stakeholder buy-in.”

No Commercial Version Yet

At the moment, there is no company that provides a passport-type service to the public, although there are private working models around, experts say.

Perhaps the closest thing for now is a business called Mint.com, which assembles information about a consumer’s finances in one place online for budgeting, financial planning, and other purposes.

A unit of the financial software company Intuit, Mint.com also helps uncover savings opportunities unique to each user, according to its website.

“Mint.com is probably a first generation of a type of passport service,” Purcell says.

Companies such as Mint.com, along with credit reporting agencies like Experian, could become veritable passport providers by simply adding a few services, she added.

“There are services out there, but they’re not the whole (package) that we’ve put into the financial passport,” Purcell says.

Taking a Stand

The good news is that it may be a matter of when, and not if, somebody like Mint.com opts to become a passport provider, experts say.

“We do … need to see key stakeholders, such as large investors and certain regulators, take a stand that a borrower financial passport can be used in lieu of traditional paper documentation,” Alley says.

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