To mortgage lenders, adoption has been the constant, insurmountable challenge keeping the industry from realizing the benefits of technological advances. Why embrace the new when the folks in the back office were doing just fine with the tried-and-true tools — even if these tools were pen and paper? It’s no wonder that lenders as a group have seen disappointing results from their efforts at change management. Well, that was yesterday’s problem.
From my perch as the CEO of a digital lending platform, the past two years have witnessed a sea change in technology adoption. I’ve witnessed heroic feats in my clients’ back offices, where armies of underwriters and processors push loan files down the same waterslides to fulfill the historic loan volumes throughout the pandemic.
I’ve also seen a maturation of the C-suite’s approach to technology due to a confluence of factors, most notably due to: the shift in consumer expectations toward digital-centric experiences, their own maturation of perspectives on tech enabling them to look beyond the buzzwords and their own inherent build-first biases, and the ready availability of platforms as-a-service.
In fact, over the past two years, I’ve seen in each new client a change in mindset from an IT-centric “technology adoption” to a business-centric “digital adoption.” And that has changed everything.
Mortgage technology experiences a change in tense
For years, technology was an expensive, hard-to-implement but required solution to a problem lenders were experiencing in the present moment. This complicated things because at the same time staff was busy solving those problems using existing tools, the new tools were being installed. Crossover was dreaded by many and few expected the new tools to work right the first time they were put into production.
But today, lenders are looking at technology in a new way. Now, it’s not just about solving problems lenders are experiencing today. It’s also about preparing the lending enterprise for the coming generation of homebuyers.
Millennials and Gen Z borrowers look at technology in a different way than their parents did. Their demands are different and any lender who can’t keep up will get left behind. We’re beginning to see this now and it will become more pronounced as more of them embrace homeownership. This is driving mortgage lenders into the future and forcing them to keep up.
Today, mortgage technology is responding to challenges in both the present and future tense.This is the digital transformation that so many lenders are going through today. And that’s a journey that lenders are just beginning.
The path to digital lending
While mortgage technology is mature in all respects, the digital game is still in its early innings. But that isn’t keeping lenders from buying into tools that will get them closer to the goal of meeting the new generation of home loan borrowers where they are today.
Financial services companies, including mortgage lenders, are driven to adopt technologies that will allow them to meet the needs of these new customers. It’s a result of this new rush to adopt technology we’ve been seeing over the past few years that is changing everything about the way we build these tools today.
That’s because the journey to digital is not a straight path and it’s different for every lender.
It would be nice if technology developers could make a single platform that would serve the needs of all lenders. In fact, all of the early digital Point of Sale technology went down this path. It did not always work so well. The reason is dispersion.
Mortgage lending is a very complex business. I’m not talking about the piles of data required to underwrite the deals or the stacks of documents it takes to prepare the file for sale into the secondary market. Everyone knows that’s a complex process. I’m talking about running a mortgage business.
Consider the following
Product dispersion: Any investor can create any type of mortgage loan product at any time. Lenders can’t afford to stick to their existing product menu when a competitor can offer new loans that borrowers may want, especially in an environment with falling loan volumes.
Borrower dispersion: Lenders used to set their underwriting criteria and then sell mortgages to any borrower who fit into their box. Those days are over. Today, we have loan products to serve virtually every kind of borrower. Meanwhile, big tech firms have trained our consumers to believe that they deserve whatever they want.
Operating model dispersion: We used to have wholesale lenders and direct lenders and correspondent lenders. There was a time when online lending was a category. Today, every lender has the ability — and the competitive mandate — to operate through a number of origination channels.
Competitor dispersion: Traditional banks once had all the business. Then came the savings & loans, credit unions, and independent mortgage banks. Now we have the builders and fintechs coming in and the big tech firms are still toying with the idea of offering home loans to their massive customer bases.
Can a single tech stack serve the needs of every lender in a space this complex? Well, actually, the answer is yes. But it will require a new kind of technology platform that can easily adapt to the varying needs of lenders in this complex marketplace.
The rise of Platform 2.0
When the new technologies for digital lending started to hit the market, it was basically a financial supermarket. Find the tools you need, stick them in your cart, buy them and then bolt them on to your legacy origination technology.
Initially, these systems worked because the pilot programs limited the complexity. But as they were applied to ever larger portions of the lender’s complex business, it became clear that these tools could not scale. They were never viable.
What the industry will depend on going forward is something we call Platform 2.0. These new digital platforms are technology driven but simple to scale. They are perfect for the mortgage industry.
But how do they respond to the dispersion problem, the inherent complexity in the home finance industry? With no-code/low-code capabilities.
The rise of no-code/low-code
Creating software languages with increasing levels of abstraction is nothing new. All coding languages eventually translate their instructions down to machine language the computer can understand. Over the years, algorithmic languages have become easier for humans to use and understand.
The result has been drag and drop interfaces that allow users with no computer programming experience to code complex websites. While those no-code solutions cannot serve mortgage lenders, something similar can.
No technology developer can afford to expose the code to anyone who wants to manipulate it. But by creating another level of abstraction between the technology platform’s base code and the end user, trained personnel can quickly make alterations to the platform’s inputs and outputs without ever changing the core code.
Instead of hard coding every change required by the lender into the platform, a no-code/low-code solution allows the developer to modify the technology to meet the changing needs of any user.
In effect, a single technology platform can serve the needs of any institution because customization is fast and much simpler. Much more so than changing the base code for every new instance of the software.
This is what lenders need if they hope to navigate the path to digital on their own terms, taking into account whatever complexity they want to build into their businesses. It’s the only way technology can effectively scale with a growing mortgage lender.
It’s the future of lending, but it’s available today.
Valentin Saportas is co-founder and CEO of MortgageHippo.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story:
Valentin Saportas at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]