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» VISIT US ONLINE @ DSNEWS.COM 63 housing sector with a little goodwill and honest bipartisanship from both major political parties. "If there were a better balance struck between consumer financial safety and soundness, you could reduce some of these regulatory burdens for servicers and at the same time improve outcomes for consumers," Kaul said. SOLUTIONS IN THE CLOUD According to Fitch Ratings, servicers like Flagstar, HomeStreet Bank, First Republic Bank, and PNC Mortgage Services all grew solidly dur- ing last year's final quarter. As the bigger banks withdrew over regulatory concerns, the agency shared in its January servicer handbook that regional and midsized servicing institutions like these swept in to sop up the extra market share. Fourteen of the 17 servicers that merited Fitch's attention came from the nonbank sector. And sophisticated new technology may be behind all the wind in their sails. Bailey touted PennyMac's audit ratio with the CFPB as one of the lowest in the industry. He credited in-house software with their success rate. "Changes in compliance is the enemy of automation," he said, "but a thoughtfully designed software program can reduce the chance for error in compliance." Bailey acknowledged the increasing impor- tance of apps and cloud-based solutions. Big data can help servicers reach their borrowers and consumers more often, he said, allowing decision- makers to create reliable profiles about their behavior and habits that can guide strategy. e move to big data, artificial intelligence, and other technologies reflects a sea change that's occurring across the U.S. economy and, indeed, the world. Forrester Research released a report in November 2017 with the startling assessment that 70 percent of enterprises plan to implement artificial intelligence over the next year. at's an increase from 51 percent in 2017 and 40 percent in 2016. If digitization and big data are waves, they're washing over the housing industry, too—at least in part because lenders and servicers see technol- ogy as a helpful life preserver on the sea of compli- ance uncertainty. In 2016, Fannie Mae conducted a survey that found that nearly four in five lenders and servicers think the mortgage industry is increasingly embracing tech in their workflow and operations. Respondents wanted more automation in the approval process, state laws that accept apps that provide e-signatures, and standardized platforms that would ease the burdens for in-house compli- ance staff. Dave Worrall, President of LoanCare, spoke favorably of automation, which he said supports the crucial but onerous task of documentation management. "e technology has matured to the point where you can use artificial intelligence tools for document recognition and do some exciting things to manage data and electronic document records," Worrall said. "ese were things that couldn't be done three years ago." It's easy to see why servicers want to surf this wave in 2018 and the years to come. Regulatory audits drudge up paper trails with time stamps and correspondence records. An automated process minimizes human error and reduces op- portunities for dual tracking for homeowners who fear foreclosure. Brousseau praised his industry's shift to auto- mation. He said that Carrington built in-house proprietary technology to address everything from bankruptcy to claims processing to mitigation plans. e company also uses software platforms such as Fiserv, LoanSphere, and Compliance 360. "ere are too many changes in the regulatory environment, so you can't [comply] manually," he said. "You have to automate your technology to make it bulletproof." Bailey said that he's looking into artificial intelligence for PennyMac. Servicers new to technology need to see the big picture in their design strategy, he explained, with a focus on flexibility, data integration, and scalability for their businesses. "You want to make sure you're building an ap- plication that by design will evolve in the future," Bailey said. "Flexibility is key. You don't want to build [software] so that it's in a rigid box. You want to structure your databases so that you can deploy the best strategies." "You don't want to be enslaved to one vendor or database platform," he added. No matter what plays out on Capitol Hill this year, our sources held that servicers could take shelter from regulatory uncertainties in innova- tive new technology. at rush to digitization will continue to transform the default-servicing industry in 2018. "It's been a long time since servicers thought about profitability as a primary objective in how they invest in technology," Worrall added, "and I think we'll get back there in 2018." COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT INDUSTRY INSIGHT INDUSTRY INSIGHT "If there were a better balance struck between consumer financial safety and soundness, you could reduce some of these regulatory burdens for servicers and at the same time improve outcomes for consumers." -Karen Karl, Research Associate, Urban Institute

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