*This article was originally featured in MBA Insights on March 21, 2017.
The job of a lender has never been easy. And despite how quickly workplace technology has permeated other industries and made work faster and easier across the board, the $1.6 trillion U.S. mortgage market still operates primarily on paper, fax machines, scanners, and decades-old software. This puts lenders and LOs in an even tougher situation, where they need to perform at increasingly higher levels and grow revenues, but don’t have secure and compliant technology to help them do that.
Enter the digital mortgage.
The digital mortgage first grabbed the attention of the mainstream with Quicken Loans’ Rocket Mortgage commercial during last year’s Super Bowl, which helped wake the industry up to the fact that digital is not just for millennials anymore. Now, banks, lenders, and third-party financial technology companies are racing to create the new digital mortgage standard.
This type of overhaul is long overdue for this industry, which serves as the cornerstone of the American Dream and a pillar of the country’s economy.
As digitization infiltrates the home-buying process, we anticipate even greater benefits, including accessibility and higher quality data collection and insights. But before we can realize that potential, the industry must rethink its approach more broadly. This starts with industry education around the benefits of the digital mortgage and how it’s beginning to drive safer, more transparent, more efficient home lending.
Taking the Process from Dated to Digital
Paperwork has long dominated the mortgage experience, with loan files easily exceeding 500 pages. To successfully apply for a loan, borrowers must track down years of financial records, often across multiple employers, and make numerous in-person trips to their lender’s offices in the middle of the workday. On the other side of the coin, loan officers are stuck scrutinizing and verifying hundreds of paper documents per loan, by hand, must frequently request additional documentation from borrowers, and have very little flexibility in their work schedules.
And where most borrowers only apply for a mortgage a handful of times (at a maximum) in their lives, huge amounts of paper are a daily reality for LOs. What’s more, borrowers often feel like they are left in the dark about the status of their applications, while loan officers are forced to dedicate tens of hours to a single file.
As we work to digitize the process and make it easier for LOs and consumers, however, this inefficient workflow is being turned on its head. By employing high-fidelity income and asset data sources to pull and pre-fill the mandatory 1003 form, digital connectivity can eliminate the age-old reliance on paper documents. By electronically connecting borrowers to their financial and personal data, including bank and credit information, tax forms, pay stubs and more, the digitized workflow is powering faster application completion and document collection for borrowers, thus massively simplifying the verification process for LOs.
Because the certified data comes directly from the source, lenders can confidently confirm the information is accurate and up-to-date, sending the application on the fast track.
In addition to improving the overall application process, mobile is an important part of the equation to consider as more consumers are turning to their mobile phone as their primary computing device. As digital mortgage providers tackle this issue, borrowers gain unprecedented “anytime, anywhere” access to their loan applications. In minutes, they can complete, submit, review and sign their applications – all from their mobile devices. This flexibility simplifies borrower/lender collaboration and cuts down on the cycles LOs must go through to help a borrower complete a mortgage application.
A Two-Way Street
Historically, borrowers haven’t had access to lenders’ systems, and LOs haven’t had a reliable, secure way to provide timely status updates to borrowers. As a result, LOs are left fielding borrower-initiated requests and wading through paperwork to provide answers to their clients.
With the rise of digital mortgages, this one-sided accessibility is evolving and making way for increased transparency between borrowers and lenders. By offering a window into the process, borrowers are able to stay on top of documentation requests and proactively check their loan status, and are empowered to take more accountability and ownership in the process. Simultaneously, the two-sided digital approach frees up LOs from constant application status requests from borrowers, realtors, and other interested parties. This way, LOs can focus more on understanding the needs of clients and delivering a strategic, personalized experience.
Cutting Down the Timeline
Navigating the loan process can be a taxing, time-consuming experience, with borrowers waiting nearly three weeks to receive underwritten loan approval and roughly 50 days for the loan to come to fruition. All the while, LOs are working behind the scenes to move the application along and get answers in a timely manner.
Thankfully, technology is propelling the mortgage process forward to meet modern expectations and provide borrowers with faster, more familiar mobile and Web experiences. By implementing human-centric design, coupled with insightful data science and intelligent automation, borrowers can follow a self-guided experience, all while being offered real-time assistance from a LOs.
With these advancements, we’re shifting the narrative of LOs extracting data to using the digital experience to create a partnership between the borrower and their LO to complete the mortgage application.
Automated, Air-Tight Compliance
Security and compliance are constant concerns for lenders. Something as simple as sending a notification to the borrower at the wrong time or providing an outdated version of a document can trigger major consequences. So why put all that pressure on LOs when computers can handle that part of the job?
The 2008 mortgage crisis has served as the catalyst for new regulations set forth to ensure responsible lending practices are upheld and information is disclosed to borrowers early and often during the loan process. As these rules continue to take shape, technology is allowing lenders to more easily comply with regulations, while still delivering a delightful borrower experience.
Improvements in automation and workflow intelligence serve as a prime example. Both have played a critical role in enabling lenders to achieve full compliance, especially in reference to the TILA-RESPA Integrated Disclosure (TRID) rule.
Rolled out in October 2015, TRID was introduced to simplify the loan product comparison process for borrowers. For lenders, however, the rule’s stipulations require substantial data tracking and generation of notifications to verify borrowers receive a written estimate of loan terms and fees within the allocated three business days. Armed with technology, lenders can now automatically prompt the production and delivery of electronic disclosures upon receiving the necessary information. This advanced method drastically contrasts with the traditional, document-driven approach, which was heavily human-reliant and error-prone.
What’s more, digitization has enabled full auditability. Audit logs provide a time-stamped archive, chronicling every interaction between the lender and borrower, which yields more accountability and helps stave off fraud and manipulation. These advancements have also facilitated on-the-go readability and approval of disclosures by borrowers. With recorded evidence that shows when specific borrower consent is received, including credit consent, e-consent, and intent to proceed, all of which are required to move the file down the pipeline, there can be no confusion about whether a process was completed properly.
Huge Cost Savings
Originating a single loan costs lenders more than $7,000, with a significant portion of that going to pay LOs and other employees for completing manual, repetitive tasks. These responsibilities include translating documentation requirements into emails and tracking requested, received and missing items on paper forms. Frustratingly, in an effort to remain in the black, a chunk of these costs must then be passed down to borrowers in the form of fees.
Strategically leveraging technology to automate manual, repetitive tasks can significantly reduce these inefficient costs – to the delight of both borrowers and lenders. It also helps curb errors and accelerate the loan process, all the while, lessening the dependency on intensive human capital.
Still, technology isn’t a silver bullet that can replace the unique value lenders bring to the table. Rather, by diverting menial tasks to the machines, LOs can focus on higher-value activities, like business development and account management, to boost revenue streams and improve the overall experience. As a result, lenders can increase productivity, cut costs, and pass the savings along to borrowers.
If lenders continue to implement and prioritize digitization, there’s no doubt we’ll see a drastically improved mortgage ecosystem, marked by increased financial inclusivity and profound data-driven insights.
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