A Call for National Electronic Financial Records

I was watching Brett King’s enlightened video introducing his new book this morning, and I found myself nodding in agreement. Yes, the central value proposition of branches seems flawed.

But then I pulled up the mortgage refinance “information questionnaire” my loan broker recently sent me. See, I want to refinance my mortgage (I know, I should have done so months ago). When I looked at the questionnaire I realized there is more of a fix required than Brett spelled out in his video.

The problem is data — or to put it in a more colloquial sense, the problem is the pain-in-the-assness of data. This mortgage broker should not be asking me to fill out a questionnaire that wants me to write in, for example, my property’s specifications, my employment history, and a list of my liquid and reserve assets. Why? Not just because it is a pain in the ass, but because a) I am going to make mistakes and b) because he is opening the lender to fraud.

There should be a reliance on a centralized data repository. There is a movement for such a thing in health records; there needs to be such a movement in financial services.

This inability to rely on a centralized data repository for underwriting is a failure of many parties, including the lenders themselves, regulators, legislators, and even the existing credit bureaus.

It is also a sad result of the credit crisis. Pre-credit crisis, the financial services sector in this nation was well on its way toward data-driven underwriting. No-doc loans, as you will recall, were being originated in my view not necessarily because lenders wanted to defraud borrowers or because lenders had little care for underwriting quality. In most cases, the opposite was true. No-doc loans were based on a belief in the data and in the automated underwriting. A financial tsunami swept away that noble notion with all the finger-pointing and claims of fraud and self-serving Wall Street financial engineering.

I think Brett will agree that the more accessible and high-quality the data, the better off will be the financial industry — and the more likely will his vision of mobile-centric Banking 3.0 be realized. This is not hard, folks. Most of the data is already available. My broker, for example, can easily find out where I work, what is the relative value of my property, and what is my payment history — without my need to fill out a form. Does he really need more than that to originate my refinance mortgage? If we want financial services to become more accessible and meaningful to consumers, we need to make it easier — and that doesn’t mean cutting corners on disclosure. It just means that we rely on data that has more integrity, rather than on data provided on a long-form, handwritten sheet by the borrower. Lenders should know this, regulators should embrace this, legislators should enact this.

Show of hands, who’s in favor of a National Electronic Financial Records?

(If you didn’t raise your hand, you shouldn’t be reading Bank Innovation.)