The mortgage process is getting faster, less burdensome and more digital – but only up to a point. To date most of the innovation and investment has been focused on the front-end of the origination process: the steps necessary to collect the information and documents to qualify and make a credit decision. Once that milestone has been reached, much of the rest of the consumer experience remains decidedly analogy and manual. The valuation and closing processes, for example, are still done primarily by phone, text or email. And after the loan closes, the interaction between customer and servicer often is, for the most part, limited to monthly snail mail statements.
The next phase of the consumer mortgage experience will focus on downstream gaps in the process and removing pain-points and friction for consumers and lenders. Our industry will have entered this next phase when we’re able to solve for both the consumer experience and operational efficiencies across the entire mortgage continuum.
Where we are now
Many observers believe that the race to build a digital mortgage officially began on Super Bowl Sunday 2016, when television commercials told consumers that they could have a “rocket-fast” mortgage experience. Since then, experts estimate $10 billion or more has been spent, primarily on front-end point of sales technology, and a new group of fintech players has sprung up to help banks and lenders offer a digital mortgage experience.
To date, real strides have been made in making the application process more convenient for consumers and more efficient for lenders. A recent study by the Boston Consulting Group said that new front-end technology is improving lender productivity, customer satisfaction and cutting an average eight days off the mortgage process. But the digital mortgage is far from complete. And in terms of customer experience, only early stages of what is conceivably a 30-year customer relationship, have been addressed so far.
The next phase of the digital mortgage will begin post credit decision and add convenience and self-service to the interactions between the consumer and the lender, and the lender’s vendors, that occur later on the origination process and continue over the life of the loan. The experience should be omni-channel: that is, consistent whether it’s through digital or at a retail channel during origination or a mobile device or call center during servicing.
Mind the gaps
When you think about it, the two parties that matter most in a mortgage transaction are the consumer, who wants a home, and an investor, who wants a safe, compliant asset with an attractive yield. To originate and service that mortgage, however, you need dozens of parties working behind the scenes, and this creates complexity and friction. All the consumer really cares about is the home or the refinance loan, not what it takes to make it. Unless, that is, the process becomes too burdensome or frustrating.
Historically, consumers were willing to put up with the hassles of getting a mortgage, because that was the only game in town. The concept of a seamless, digital mortgage experience—and its promise of being simple, fast and easy—raised consumer expectations. And it has particularly resonated with the next generation of home buyers: Millennials.
Today, thanks to digital front-end technology, the beginning of the mortgage process lives up to that promise. Need a $400,000 mortgage? Apply online or on your mobile device and get a preliminary credit decisions instantly and full pre-approval in as little as 15 minutes. But that’s only part of the consumer journey.
It’s also only part of the information needed to complete the loan. Is the property valuable enough to support the loan? Are there any legal or ownership issues that would cloud the transaction? To answer these questions, the lender/customer engagement becomes decidedly “old school.” The lender assigns an order to an appraisal management company. The AMC picks an appraiser, who then begins the process of connecting with a real estate agent and/or a homeowner in a purchase transaction or just the homeowner/consumer in a refinance. Typically, this involves a fair amount of phone tag, and can add days, even weeks, to the final loan decision.
Similarly, if there are liens or judgements against a property, there’s no easy way to put these judgements in front of the homeowner. As a result, the process of clearing them often takes days, when, in some instances, it could have been resolved in minutes.
Because of the multiple parties and calendars, scheduling a closing can also be a chokepoint that slows down the mortgage process and creates needless inconvenience for buyers and sellers.
Finally, as the internet of things continues to evolve, consumers are expecting that they can use their smart phones, tablets and voice assistants to better manage their lives and their finances. But, when it comes to what is often the biggest investment in their lives – their home—getting answers about their mortgage status, payments, taxes, etc., still requires phone calls, often with long hold-times, to servicers. And why can’t they push a button on their phone or ask Alexa to make that mortgage payment in a secure manner?
For the moment, consumers are willing to accept these gaps. But they are also seeing how other industries are using technology to radically simplify the purchase experience, even for high-ticket items. Want a $124,000 Tesla? Go online, customize your car, order it, finance it and have it delivered to your home within three weeks. Or pick one from inventory and get it in four days. From the consumer’s perspective, this is a truly seamlessly painless process.
Getting to the next phase
Meeting heightened consumer expectations, particularly from Millennials, will be one of the big drivers behind the next phase of the digital mortgage. But the need to take time and cost out of the origination and servicing processes will be another.
For a large lender being able to consistently originate and close a loan in 15 days, versus say 45, would produce significant savings. At the same time, shorter origination cycles would also produce customer satisfaction gains. Based on what we’re hearing from clients, the tipping point today between a happy applicant and an unhappy one seems to be 30 days from start to close. Hit 29 days and the satisfaction scores are high, but as soon as the 30-day mark is reached, satisfaction levels fall precipitously. Some large lenders are on record as saying they will soon be able to do 10-day, and even 8-day, start-to-finish mortgages. When that happens, it will then become the new target that the rest of the industry will have to hit.
One of the ways the industry will get there is via plug-and-play scheduling technology for appraisals and closings that can cut days off of the loan cycle time.
Similarly, servicers know to the penny the cost of each call to a call center, and how many of these calls could be avoided if the customer could self-serve. They also know how frustrating the current communication options are for consumers, and how this experience can motive, or de-motivate, a consumer’s decision to refinance with an investor.
How quickly will our industry get to this next phase? The early adopters, so far, tend to be private, nonbank lenders that are aggressively building out their origination capabilities, along with some top banks, and sub-servicers that are focused on the borrower experience. There is also growing interest from fintech providers looking to offer more downstream solutions to their bank clients. How quickly large banks will adopt these technologies varies from institution to institution and whether they are approaching these projects as part of their digital mortgage strategy or their overall enterprise digital transformation. But these projects are in every IT queue, and are moving up quickly.
When they’re done, the digital mortgage—and its promise to simplify home buying experience for consumers—will be complete.