Digital technology has disrupted businesses and industries from publishing to public transportation, so can the mortgage industry be far behind? Actually, anyone who’s applied for a mortgage recently will have recognized that things are already changing fast.
That’s because the combination of digital technology, predictive analytics, machine learning, complex repetitive tasks and oceans of data make the mortgage industry a fertile environment for automation and a complete make-over. But what’s really driving change are customer expectations. As Millennials rise in the workforce and move from their parents’ basements into homes of their own, they are demanding that mortgages be as easy to buy online as concert tickets, anytime anywhere they want, and at the best possible prices.
Meeting that high expectation will require more innovation, disruption and technology than has been deployed to date. But more technology comes with its own challenges. Understanding new customers’ expectations, realizing those opportunities, recognizing the concerns and creating the right solutions are the keys to a bright digital future in the mortgage industry.
THE CURRENT LANDSCAPE
Until recently, the mortgage process has seen little change from the process 20 or 30 years ago – slow, inefficient, complicated, a mountain of paperwork and requiring manual intervention at every step from application and processing, to underwriting and closing.
Plus, it’s been a daunting experience — especially for first-time buyers. The amount of personal information required feels invasive and repetitive. And with so many moving parts and parties involved, not to mention a ticking clock, the mortgage process is not something consumers have looked forward to.
Add to that an industry culture that is still emerging from a historic downturn so lengthy that many professionals have never experienced a normal mortgage market.
After a decade in which most new lenders in the industry performed refinancings almost exclusively, today these crisis-era mortgage professionals are seeing a rising tide of purchase originations for the first time. Moreover, the customers now include an abundance of first-time buyers. This combination of new business and new customers is creating an opportunity to ask questions and rethink the way things have been done for generations.
First, cost. Right now the average cost to originate a mortgage is close to $9,000 per loan, according to the Mortgage Bankers Association. Many disparate systems and manual labor are the key reasons for such high cost. Just by automating many of those manual tasks, the cost would drop significantly.
Second, why does it take so long to process a mortgage? Usually a customer has to plan on weeks, if not months, for the processing of a mortgage — an anxious time for homebuyers. Digital processing should be able to reduce the turnaround time from origination to completion dramatically – from months to days, and eventually hours.
And third, why can’t consumers get the process started any time they want? The desire for a mortgage does not limit itself to business hours. Consumers want what they want when they want it. That means 24/7 access to service, with or without human intervention, and on any medium, with as little data input as possible. This suggests an entirely new customer-engagement model.
Mortgage originators also have reasons to be dissatisfied with the status quo. Technology promises to optimize processes so that operations at every point in the mortgage lifecycle are faster, more accurate, less bureaucratic and less costly for everyone involved.
WHERE WE'RE HEADED
Of course, there are companies already offering applications online. You can apply for a mortgage on your desktop computer or phone, and that’s the first step in the right direction in terms of convenience. But for the most part, the back-end operations are the same as if you walked into a physical office. Your application information may have been entered online and captured digitally but the rest of the process is analog and largely sequential.
One key next step beyond making applications available online is to take advantage of the vast amount of digital data available, including property information, borrower assets, income and credit information and other publicly available data leveraging technology to automatically process and analyze that mortgage application, and carry it through the entire mortgage lifecycle and eco-system.
This will drastically reduce the amount of information an applicant needs to submit, as well as the need to enter the same information during the different stages of a mortgage application. From the lender side, data analytics can distill insights necessary to make good underwriting decisions.
Right now there are plenty of fintech firms working on developing sophisticated algorithms that will automate more and more mortgage processes. Business rule engines can flag applicant entries that don’t make sense, such as an impossible birth date or an erroneous area code. Pricing engines are being developed that use artificial intelligence, machine learning and fuzzy logic to weight all the data, make the most accurate underwriting decision and calculate the best price. AI-based technology can automate home valuations more cost effectively and provide real-time instant feedback. And the more data the technology has to work with, the better it gets at spotting and reducing the possibility of fraud.
That raises an important caveat about rapid automation. With more data captured, crunched and stored in one place, the opportunities for data theft and fraud increase. Automation triggers a host of security, privacy and liability issues. For example, if there is an automated appraisal on a property and there is a dispute over the value, who is liable for the discrepancy? Part of the technology revolution will have to involve resolving these issues, establishing governance, creating new mechanisms to resolve disputes and standing guard against criminal activity.
A BRIGHT FUTURE
Beyond mortgage origination, the industry is quickly developing technologies that connect the entire mortgage ecosystem and value chain. Innovations like eClosing, automated valuation, AI-based appraisal and “straight through settlement” are all just around the corner. Disruptive technologies like blockchain have the potential to transform and replace decentralized and expensive process such as title search and title transfer. It is not unthinkable that one day in the near future the entire mortgage process will be seamlessly enabled by technology without a single human touch point.
But anyone who has ever tried to talk to a customer service representative when they’ve had a problem with Google, Facebook or their bank knows that humanity is in short supply on the digital frontier. Yes, customers want speed, price and convenience, but they also want a person to talk to when things go wrong, or if they want personal advice.
An automated mortgage process that takes minutes, plus a friendly voice to help answer any questions may just be the best balance of old and new to make the digital future of mortgages an inviting place to do business.