Like many entrepreneurs with a business idea, mine was born out of personal frustration. When I was buying a house in Athens, Georgia, I became dumbfounded by the amount of important paper documents I had to submit in order to close the deal. Having spent years creating technologies for the financial services industry, I thought we’d passed the age of photocopies and faxes. But we hadn’t and I knew there had to be a better way.
I started a company that specializes in taking paper out of this process. While electronic processes do eliminate a huge amount of waste and hassle from the lending process, there is also another, more important reason for lenders to say goodbye to paper. Paperless processes can actually take the strain out of figuring out how to comply with one of the industry’s tough new regulations.
“Ability to pay” lies at the heart of new Consumer Financial Protection Bureau (CFPB) regulations, which require lenders of all residential mortgages to verify the borrower’s ability to pay back the loan. But what exactly does “ability to pay” really mean – especially if there are always going to be some borrowers who will not or cannot live up to their mortgage obligations?
To figure this out, let’s start at the beginning. According to the CFPB, lenders must prove a borrower’s ability to pay by demonstrating and taking into consideration certain factors, many of which used to be evaluated in the mortgage industry on a fairly routine basis before the housing bubble of the mid-2000s:
This article was originally published in The Niche Report.