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Pandemic ushers in a new era of digital lending

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Amid this global pandemic, mortgage rates have been at historically low levels, borrower demand has increased, refis have broken records and lenders have had to shift in many instances to a remote workforce. In addition to moving to a remote workforce, most face-to-face interaction with borrowers has either not been allowed to occur, or the borrower’s willingness to meet has declined dramatically. That has caused a remarkable shift to a digital lending model that has significantly impacted a lender’s ability to do business during these challenging times.  

Josh Friend
Josh Friend – guest columnist
March HW Magazine

Record-low interest rates have driven home sales to a 14-year high and spurred a 200% annual increase in refinancing. While this boom in volume has generally been positive for primary mortgage originators, it has also exposed underlying weaknesses in their digital strategies that could create challenges down the road. According to the J.D. Power 2020 U.S. Primary Mortgage Origination Satisfaction Study, mortgage originators’ shortcomings in self-service tools for application and approvals, frequent communication, and extended loan processing times could negatively affect customer satisfaction over time.

“It’s been a complicated year for the mortgage industry,” said Jim Houston, managing director of consumer lending and automotive finance intelligence at J.D. Power. “Between surging customer volumes on the origination side, an influx of customer inquiries on the servicing side, and a workforce that has been completely displaced by the pandemic, resources have been stretched to their limits.”

Digital and online banking have already been on the rise in recent years, but the pandemic forced large-scale uptake. According to an analysis by Fidelity National Information Services, an international financial services firm, there was a 200% jump in new mobile banking registrations in April of 2020. That jump accompanied a 50% drop in branch bank traffic in the same month, according to U.S. banking data firm Novantas. 

“This is a sign for how this generation is digitizing in the current situation,” a Venmo spokesperson said. 

The shift has been palpable. “Everything they did in person they’re now doing online or even on mobile,” says Allie Fleder, COO of SimplyWise, a retirement and Social Security resource.

According to a new survey commissioned by Plaid, 80% of Americans now say they can manage their finances without a physical bank branch.  Fintech is viewed as the “new normal” by 73% of Americans, according to the report, and 67% plan to continue managing most of their finances digitally after COVID.

These elevated levels of origination during a global pandemic have forced lenders to embrace technologies that allow them to operate remotely while finding ways to engage borrowers. What has begun to emerge is a hybrid digital lending model that converges principles of consumer direct and retail lending. 

Let’s start with what these traditional models look like.

Retail lenders originate loans through their in-person retail branches. Typically, they rely on branch traffic, referral partners, and in-branch loan officers interacting with potential borrowers face-to-face to originate loans.

Consumer direct lending is a method for lenders to originate loans through an online experience for completing the entire loan process digitally. Typically, these loan originators rely on lead sources, call centers, and other marketing activity to drive inbound leads to their consumer direct loan officers.

We’ve seen an influx of lenders asking us about our consumer-direct experience and the digital lending solutions needed to compete. People are moving more and more to a consumer-direct model due to the pandemic and the inability of retail loan officers to meet with their customers in the same manner that they used to.

COVID-19 has not only accelerated this adoption, but it has forced retail lenders to rethink how they are going to engage customers in this digital world. That’s where this hybrid digital lending model has emerged.

For the lenders who embrace this new hybrid model, it is a way for them to increase capacity more than they ever have before. The key for this new hybrid model to be successful lies in a lender’s ability to provide superior customer service by developing the right culture of service — implementing innovative technology that allows lenders to engage borrowers during each step of the borrower’s journey where the borrower is at.  

The cautionary tale here is:  let’s not do what we’ve done so poorly in the industry for so many years. That is, when volumes go up, lenders provide poor customer service and demonstrate poor follow-up in a failed effort to build relationships with borrowers. When the average customer goes back to the current lender, which happens only 19% of the time, we know we’re not doing a great job delivering superior customer service while building relationships with our borrower. 

Take the time now — when we have this mass influx of more customers — to build service levels that create customers for life instead of one-and-done lending. You’re going to get more customers this year than you’d get most years, and more chances to build those into customers for life. So, whether it’s consumer direct, whether it’s retail or this new hybrid model, it’s all going to be the same thing. It’s how you are dealing with that consumer and how you continue to manage that relationship.

Lenders who embrace this hybrid model with an emphasis on delivering superior customer service will gain a significant competitive advantage, close more loans, better handle capacity issues, enhance borrower engagement, and improve the borrower experience considerably.

To read the full March issue of HousingWire Magazine, click here.  

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