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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 52 November 2023 F E A T U R E S T O R Y FROM MANUFACTURING TO MORTGAGES, QUALITY DATA IS KEY When it comes to accurate data, companies can't afford not to use AI. B y PA U L F I S C H E R " I n God we trust; all others must bring data." This quote, widely attributed to statistician and business management theorist W. Edwards Deming, serves as a stark re- minder of the importance of using data to improve manufacturing quality—which is what Deming became known for in the automobile industry. Of course, quality is as critical to the mortgage industry as it is to car man- ufacturers. And yet, efforts to ensure high-quality data are often at odds with another industry need—speed, whether that applies to speed in mortgage pro- duction, transferring MSRs, or countless other business needs. For this reason, lenders and ser- vicers alike have gravitated toward data extraction technologies in recent years to streamline workflows and reduce costs. But unfortunately, not all solutions deliv- er the same results. Accurate data is essential for the smooth flow of operations, meeting regu- latory requirements, and profitable trad- ing in the secondary market. Yet methods of checking loan data for completeness and accuracy have traditionally been time-consuming and error-prone tasks that not only drive up costs but also place organizations at risk of repurchases and noncompliance with the GSEs, investors, and state and federal agencies. For lenders, ensuring data accuracy is essential to streamlining workflows, com- pliance testing and audits, and producing high-quality loans that can be confidently sold on the secondary market. The ability to extract accurate data promptly also empowers lenders to make informed de- cisions, improve underwriting processes, and reduce the risk of costly loan file errors and defects. Such defects are growing more costly as well, particularly in today's pur- chase-oriented market. Earlier this year, Fannie Mae and Freddie Mac introduced new repurchase strategies to deal with the increase in defects for loans originated in 2020 and 2021, when lenders were dealing with capacity issues. A recent analysis by Freddie Mac found that purchase loans had a 36% higher rate of defects com- pared to mortgage refinances. Similarly, servicers rely on accurate data to streamline the loan onboarding process, enhance servicing efficiency, and automate critical servicing functions, such as payment processing and escrow management. Ideally, these efforts result in improved borrower experiences and increased operational efficiency, too. For these reasons, both lenders and servicers have increasingly turned to third-party data extraction technologies. However, the bulk of these offerings not only fail to improve loan data quality but often add extra time and cost to the equation. The root of the problem is most of these providers rely on legacy technology and optical character recognition (OCR) tools that have not evolved over the years to keep up with the increasing diversity of loan document types or new data extraction methods. This leaves orga- nizations with the burden of spending additional time manually reviewing and fixing errors by hand. Of course, third-party loan QC pro- viders have emerged as an option for en- suring higher quality loan data. However, there is a trade-off in terms of turnaround time. In fact, one of the chief complaints often heard in the business is that lenders and servicers can rely on their third-par- ty providers to get perfected data back, but they must wait a day or longer to get it—which often results in bottlenecks in mortgage workflows and hampers timely decision-making. Thankfully, lenders and servicers can achieve the best of both worlds—fast and accurate data extraction—by harnessing the power of AI. By leveraging sophisticated algo- rithms and machine learning capabili- ties, AI-powered document automation technologies can accurately extract and analyze data from a wide range of mortgage documents, including pay stubs, tax forms, and bank statements. P A U L F I S C H E R is the director of professional services at Paradatec Inc.