Digital disruption: How consumer demand is pushing lenders to a new normal

Do legacy lenders or tech startups have the advantage?

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If I get paper in the mail, I get annoyed. If I have to go to multiple sites, I get annoyed. If I can’t see it in a simple format, I get annoyed. Anything that minimizes that disruption is valuable.”

— Sandya Swamy, 34, director of global eCommerce at Walmart and recent SoFi mortgage loan applicant

Welcome to the new normal: a paperless, streamlined and simplified mortgage process, as dictated by consumers.

Saddled with legacy systems and burdened with changing regulations, the mortgage industry has been slow to adopt digitization compared to many other industries. Now, however, the industry must provide more transparency to regulators and satisfy consumers while managing tighter margins. In this perfect storm, there’s only one lifeboat — a digital process.

The need for digital gets stronger every year. As the refinance share of activity falls to the wayside and the highly anticipated Millennial buyers start to enter the scene, competition is escalating. The Mortgage Bankers Association has predicted that mortgage originations will drop 10% in 2016 to $1.32 trillion, down from $1.45 trillion in 2015.

With originations declining, lenders must compete more effectively for market share, said Kelly Adkisson, a managing director for Accenture Credit Services. Today’s borrowers tend to select a mortgage originator based on product price and their expectation for an easy, speedy transaction process. And they won’t hesitate to stray, Adkisson said. According to Accenture survey research, only 37% of U.S. retail bank customers have a mortgage with their primary bank. This percentage is even lower among customers at some large banks.

“For bank and nonbank lenders to increase loan origination volumes, they will need to better understand and anticipate the driver at the center of market change: digital-savvy borrowers,” she said.

All types of banks, from mega banks to credit unions or alternatives lenders, are answering the demand of consumers, but how it’s executed on a case-by-case basis is different for each company. After all, it’s new territory for everyone.

For nonbank lenders, the benefits of being a monoline business means they can prioritize investment dollars in digital mortgage capabilities, Adkisson said. “Mortgage operations in traditional banks, on the other hand, must often compete with other business lines for funding to drive transformation.”

However, traditional banks also have plenty of tools to work with as they adapt to digital. “Traditional bank lenders possess inherent competitive advantages in the digital world, including large customer bases and vast amounts of customer and transaction data. They can leverage that data to deliver a streamlined, personalized customer experience,” Adkisson said.


That customer experience is at the heart of it all.

Wells Fargo, established in 1852, is the largest mortgage lender in the country and has led the mega banks in digitizing its processes.

“What sets the pace of what has to happen is how consumers are using digitalization in other products and services,” said Mary Coffin, executive vice president with Wells Fargo.F1 wells fargo

Nick Stamos, CEO and founder of Sindeo, a mortgage marketplace founded in 2013, said, “The key is to give consumers what they want and how they want it, and technology plays a role in that.

“Consumers in general, not just Millennials, are pushing the home financing industry to go digital because they have already experienced and have come to expect the ease of use and level of service that comes with 24/7 access  and a digital experience. Consumer expectations have been elevated because every other part of their lives have been made better through technology,” Stamos said.

“All of this leads to the mobile phone,” he said, “It’s one thing to be online, but it’s another thing to create an experience where a consumer can get done in seconds what they want to get done on their phone.”

Julie Lane, senior vice president of home lending digital sales with Wells Fargo, agreed. A whopping 92% of American adults own a cellphone, 64% own a smartphone and approximately 19% of the U.S. population relies on their smartphone for online access with no home Internet access, Lane said.

“Phones are now an appendage to your body,” Lane said.

Wells Fargo’s experience mirrors this reality, with three in 10 visitors accessing mortgage applications on from a mobile device.

Perhaps the most visible entrant in the digital mortgage space is Quicken Loans, whose Super Bowl commercial for Rocket Mortgages put the company’s process into the spotlight. Quicken Loans was established in 1985 and is the No.1 nonbank lender in the industry.

“It’s a fact that a growing number of consumers prefer to interact through their phone or other device, and have an expectation that they should be able to do anything that way,” said Rocket Mortgage Product Lead Regis Hadiaris.

“It is not isolated to Millennials. There is just a growing expectation that I can do anything online, so why can’t I do this online or while I am sitting at Starbucks?” Hadiaris asked.

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Everyone implements digital mortgages differently. The word itself is broad, and how lenders interpret it is even broader. Even the three lenders listed range from the largest mortgage lender in the country with one of the longest histories in the space to a 30-year-old company that’s the No. 1 FHA lender. The needs of their borrowers are different and so are their processes.

A digital mortgage can still include some paper elements, but typically features much more automation and less need for face-to-face meetings. For instance, buyers can submit their documents by snapping a photo on their phone or by importing third-party data so they don’t need to manually enter anything. Borrowers can also get prequalified or preapproved online or on an app then choose to get in touch with an actual mortgage professional for the rest of the process.

Digital processes have evolved into myriad tools for buyers, lenders and real estate agents to use on the go through mobile applications or even robust websites.

Then there is the full-fledged digital mortgage; the industry’s latest innovation where everything can be done online with no interaction required.

Quicken’s Rocket Mortgage, launched at the end of 2015, was the result of three and a half years of work by Hadiaris and his 1,400-member technology team.

“We took the entire mortgage process and ripped it apart,” Hadiaris said. “How do you take a consumer and put them in the cockpit of that airplane and make it so simple that they can fly it? It’s been interesting.”

Rocket Mortgage was placed under the public’s social media magnifying glass after it’s major Super Bowl 2016 commercial aired. Critics called the digital mortgage irresponsible and the makings of another housing crisis — a view that’s far from the truth.

“Following the airing of the ad, tens of thousands of Americans visited the site to learn more about Rocket Mortgage or start the loan process. Many were approved to refinance or buy a home,” Hadiaris said.

F1 tabletIndeed, the criticism that Rocket Mortgage received illustrates the paradox of going digital — it needs to be fast and easy while still safe and compliant.

Quicken Loans handles that balancing act by combining digital access with a more traditional underwriting process. “We don’t even deliver solutions to clients until we take them through questions, they have inputed income, and we have verified it and have analyzed their credit. We are in the business of delivering things that they can get,” he said.

Quicken’s ability to pivot to the digital side is no accident. The company sees itself as “a tech company that happens to originate mortgages,” according to Hadiaris.

“The company’s growth can be attributed to the success of our scalable, technology-driven lending platform, which was developed almost entirely in-house. Our loan platform enables us to take the complex mortgage process and break it into smaller pieces handled by specialists in each step of the loan transaction,” Hadiaris said.

Consumers seem happy. J.D. Power has named Quicken Loans the highest in customer satisfaction for primary mortgage origination for six straight years — 2010 through 2015, and also ranked the company the highest in the nation for client satisfaction among mortgage servicers in 2014 and 2015.

Sindeo’s Stamos sees a clear advantage for startups in this area.

“We are fortunate to have had the opportunity to build and are in the process of building our technology from the ground-up with compliance in mind,” Stamos said. “We start with the consumer and work from the premise that they deserve a better way to navigate one of life’s biggest financial decisions.”

Michael Tannenbaum, head of SoFi mortgage, another startup in the mortgage industry, echoed similar advantages.

“We’re at a competitive advantage because we built the SoFi mortgage app internally — our own ‘intel inside’ — so we can move faster than others,” said Tannenbaum

The ability of fairly new mortgage lenders to quickly pivot to a digital product is reasonable, but how does a legacy lender make that change?


Capital One, established in 1988, recently stepped up its game to be a major player in the digital space. And echoing others in the industry, it moved into digital because that’s what consumers want.

“At the heart of it, it’s really about making sure that we are meeting our customers’ needs where and how they prefer to engage with us,” said Ravi Raghu, head of home equity for Capital One. “Customers live seamlessly between the digital world and the physical world and that is at the heart of what we are about here.”

The digital home loan experience first launched in Dallas-Fort Worth and other select markets at the end of 2015. Capital
One’s perspective is that it doesn’t want to grow until it perfects its foundation.

“We are extremely focused on the customer experience, and until we are satisfied that it is working exactly how we want it to be, we don’t really talk about how big we are,” Raghu said.

“I think getting the foundational systems right is really important. You can’t build digital tools on top of a cobbled together architecture. It just doesn’t work,” said Eric Schuppenhauer, head of mortgage for Capital One.

Wells Fargo has been moving more and more into the digital space in the last few years. “The digital space comes down to another way the organization is revolving around its customers. It’s the way we have to work with our customers,” said Julie Lane, senior vice president of home lending digital sales. 

Two of Wells Fargo’s main tools are its Home Loan Comparison tool, which provides information on rates, loan options and fees, and yourLoanTracker, which provides a view of a customer’s home loan progress throughout the application process.

Research shows people are multi channeled, so Wells Fargo looks at the digital mortgage process and tries to make it as seamless as possible through a multi-channel experience.

The tool yourLoanTracker, for example, allows customers to access it from any computer, smartphone or tablet, and allows  users to securely upload important documents and receive, review and sign select documents electronically.

Both startups and large legacy lenders have been able to make the transition to digital, but for many smaller lenders, the time and expense of going digital is still daunting.

“There’s a reason it took us three and a half years,” Hadiaris said. “It’s hard. A lot of the industry has had to play defense, which makes it hard to play offense.”

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That defensive position is due in part to increasing regulations from the industry’s top regulator — the Consumer Financial Protection Bureau. But the CFPB has also been one of the biggest drivers for digital adoption. In April 2014, the CFPB launched a pilot program for electronic closings with seven lenders to test out the benefits to consumers of a more digital process.

The results, according to the CFPB:

  • Better consumer understanding — The study found a 7% positive difference in perceived understanding scores for borrowers using eClosings compared to borrowers using paper documents.
  • A more efficient process — The study found a 17% positive difference in scores for borrowers using eClosings compared to borrowers using paper documents.
  • Greater feelings of consumer empowerment — The study found a 15% positive difference in the scores for the eClosing borrowers compared to borrowers using paper documents.

CFPB Director Richard Cordray noted at the time of the pilot project that while technology alone will not address all consumer concerns in the closing process, its study showed that eClosings do offer the potential to make the process less complex.

Consumer satisfaction and regulatory scrutiny come together to pressure lenders to adopt digital in other ways, too. The CFPB’s TILA-RESPA Integrated Disclosure rule, which went into effect in October 2015, was the result of the bureau’s efforts to make the closing process more understandable to consumers. But complying with the timing of disclosures in the new rule is immeasurably easier with an automated process. For the mortgage industry, TRID is both a carrot and a stick.

“We have a great relationship with regulators. We’re aligned with them in that we all want to ensure the customer experience is awesome,” Capital One’s Raghu said.

Quicken Loans agrees that the convergence of consumer demand and regulatory push will make the process better for everyone.F1 check

“By importing and verifying important data, Rocket Mortgage makes the loan origination process safer. Instead of a client faxing in printed copies of statements that can be altered or forged, our system pulls the information in directly from trusted sources eliminating any potential for fraud,” Hadiaris said.


While the industry was slow in adopting digital technology at first, the pace of change from here on out is only going to grow exponentially.

“You can’t rest in the world of today. It’s a fast-paced and continuous development and the age of the customer and focusing on what they consider of value,” said Coffin of Wells Fargo. “Consumers desire change almost immediately.”

“Our team lives by ‘innovation is rewarded, execution is worshipped.’ Constantly pushing updates and changes. That’s the kind of effort that this takes. It’s a living, growing, breathing thing,” said Hadiaris.

And lenders are certainly not the only ones changing.

“Right now, we’re doing everything digitally that we can in our mortgage process, but the mortgage industry isn’t limited to just the buyer and the lender,” Tannenbaum said. “There are third-party vendors like counties, title companies and the government that all have their role, but as lenders continue to innovate, we anticipate that others will follow suit to help make the experience as pain-free as possible.”

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