Online Originations, the Next Frontier in Mortgage Lending?
Anyone who has been in the mortgage lending and originations space for more than a few years has heard about the push towards e-mortgages, and a completely digital -- if not wholly online -- lending experience for consumers. And we've mostly heard about it from the would-be purveyors of such technology, whose visions of the future were matched only by the industry's (and consumer's) reluctance to change. With an industry in the throes of historic upheaval, perhaps somewhat counter-intuitively, it's clear that the push for e-mortgage originations has never enjoyed the sense of urgency it now does. Lenders, seeing margins squeezed on all sides, are certainly more open than they might have been even two years ago. But perhaps more importantly, it now appears that consumers are willing to embrace a paperless, electronic mortgage process moreso than in the past. "Lending is a consumer driven-business," said one executive at a large bank, who asked not to be named. "And the timing here as been interesting, relative to where the mortgage market is right now." The executive said his bank's internal research had found a significant shift in consumers' attitudes towards actually processing a mortgage online, although the study's results weren't made available to Housing Wire for this story. What's working, what's not A study released last week by the banking & securities practice at Deloitte Services LP found fresh evidence that consumers are more willing than ever to embrace e-mortgages -- but that many financial institutions have yet to catch up. "One area shaping up to be a key battleground is online lending," said Chris Faile, a spokesperson with Deloitte Services. The study by Deloitte found that an overwhelming 93 percent of those who applied online researched their mortgage online before applying; even 71 percent of those applying by phone, and 60 percent of those applying in person, used the Internet for at least some of their information gathering. In fact, even among those that eventually applied in person, 60 percent said the Internet was their primary source of information before doing so. What does this mean for lenders? For most, according to Deloitte, it means that many are doing a poor job of both converting online leads and providing an online origination process that is simple enough to draw consumers in. Only 19 percent of those who applied using traditional methods thought their lender’s Web site was very easy to use, according to the study. Even among online applicants, only 48 percent rated the online process as very easy to use. Banks clearly need to improve upon what they have already established; lending sites often garner low ratings against other industries, as well, something Deloitte said underscored the significant opportunity for those that can get it right. It's an opportunity that goes well beyond capturing share of originations. In the midst of industry upheaval, online originations cost less, too -- providing a vital source of margin for lenders squuezed on more than one front financially right now. "Originating loans online could reduce origination costs by up to 80 percent compared to traditional application methods and, at the same time, that could drive increased service quality, customer satisfaction and strengthen customer relationships," said Annette Tirabasso and Jim Reichbach, the study's authors. "We believe originating online could provide a critical opportunity to gain market share." Market share, lower cost, and greater margins? Oddly enough, that sort of recipe may make right now the best time to be a technology provider in the origination and lending space -- even better than during the recent housing boom.