The mortgage lending industry is still largely powered by technology that was first introduced before the 2000 dot-com bubble. Even though 90% of prospective homebuyers search online as they look for a place to call their own, less than 10% of lenders offer a complete digital mortgage experience from application to closing.
Instead, borrowers are transported back into the age of copiers, scanners and fax machines to provide application information and financial documentation. It’s an industry Silicon Valley has overlooked, but with the recent surge of fintechs entering the space, it’s finally being brought into the 21st century.
Here are the top five ways technology is reinventing the mortgage process for borrowers and lenders, and enabling quicker, safer lending:
1. Better borrower experience
The mortgage process is inherently document driven, with loan files that can easily exceed 500 pages. For applicants, successfully navigating the mortgage process takes time and patience, as they struggle to fill out dozens of paper forms and dig up documents and financial records and then scan or fax them to their lender, only to get requests for documentation they have already provided or new requests that are added in the eleventh hour. Not surprisingly, all of this back and forth adds days, if not weeks, of extra time to close on a loan.
As the process becomes increasingly digitized, however, bank account activity, credit information, tax forms, pay stubs, and other required information can easily be prefilled into the obligatory 1003 form, streamlining the process for homebuyers and simplifying the collection and verification processes for loan officers. Because the data is independently verified from the source, lenders can quickly confirm the provided information is accurate and up-to-date, speeding up the review process.
Most importantly, a handful of fintechs are powering a mobile-first experience for borrowers that provides them with unparalleled access – from initially completing the loan application to submitting, reviewing, and e-signing documents with just a few taps. This accessibility empowers borrowers to stay connected with their lender and easily collaborate during the loan process, leading to increased satisfaction and a better borrower experience.
2. Increased transparency
Borrowers do not currently have access to lenders’ internal systems, which store application information and loan status. Therefore, borrowers are essentially walled-off during the entire loan process and rely on their loan teams to communicate documentation requirements and status updates. As a result, loan officers often field multiple phone calls and emails from anxious borrowers looking for updates.
Thanks to the work of a handful of innovators, prospective homebuyers are gaining a portal into the process, allowing them to see much of the same information loan officers do, in real-time. This level of transparency enables borrowers to get a complete list of documentation requirements upfront and receive any subsequent requests on an ongoing basis, while having access to their loan status around the clock from any device, including mobile. This allows both parties to work in tandem, easing the minds of nervous borrowers and taking the pressure off of lenders to proactively share updates.
3. A painless mortgage process
From start to finish, it takes roughly 18 days for a borrower to obtain an underwritten loan approval from a lender and almost 50 days to complete the loan process. In a digital world where we can order something on Amazon and get it the next day, 50 days seems like an eternity.
Technology is bringing the mortgage process in line with modern standards and providing borrowers with a faster, mobile experience. By leveraging intuitive design and direct to source connectivity, applicants are able to navigate a self-guided experience, all while being offered real-time assistance from their designated loan officers.
With the ball in the borrowers’ court, we’re able to move away from the established model of lenders painfully extracting overbroad documentation and instead are empowering prospective borrowers to “self-serve,” while providing comfort knowing expert help is only a click away.
4. Digital compliance
New federal regulations implemented in the post-crash mortgage world require lenders to adhere to responsible lending practices and provide borrowers with increased disclosure early in the loan process. As we have seen with the new rules and expect for future ones, technology plays a critical role in empowering lenders to adhere to regulations and remain compliant without negatively impacting the borrower experience.
The advancements in automated rules and workflow intelligence serve as a prime example, with both proving instrumental in enabling lenders to ensure full compliance, especially in relation to the ‘Know Before You Owe’ mortgage disclosure rule. This regulation was designed to make it easier for consumers to understand their loan options, but for lenders, it requires extensive tracking of received data and outgoing notifications to ensure consumers are sent a written estimate of their loan terms and fees within the three business day period prescribed by the rule.
With recent developments in technology, lenders can automatically trigger the generation and delivery of electronic disclosures upon receiving certain information. This modern, streamlined approach is a far cry from the paper-centric, human-reliant process of the past, which was highly susceptible to errors and can now result in fines of up to $1 million per file, per day for certain violations.
Technology has also made great strides in allowing for the creation of a full trail for auditability as well as building intuitive workflows. Audit logs have become invaluable for lenders, as they provide a chronological record of every touchpoint or action between the loan team and a potential homebuyer, which in turn provides a new level of accountability and deterrent for fraud and manipulation. These improvements have also created workflows that enable borrowers to read and sign off on disclosures through any device and move on to the next stage quickly. That’s because there’s clear, documented evidence of when certain types of borrower consent are received, including credit consent, e-consent, and intent to proceed– all necessary to move the file from one stage to the next.
5. Big-time savings
It costs about $8,000 for a lender to complete each mortgage. A large part of that cost goes toward paying employees to complete manual, repetitive tasks like translating documentation requirements into emails and tracking requested, received and missing items on paper forms. Unfortunately, these inefficiencies are, in turn, passed on to borrowers in the form of increased fees and other costs.
Intelligently leveraging modern technology and automating manual tasks reduces these costs significantly – saving money for both the borrower and the lender. It helps to reduce errors and move the process along more quickly, while reducing reliance on human capital. That’s not to say technology can take the place of experts; instead, it allows lenders to dedicate more resources to higher value activities that drive sustainable revenue growth and enhance the borrower experience. As a result, lenders increase their efficiency and benefit from lower costs and can pass the savings on to consumers.
Meaningful technological innovation has finally reached the mortgage lending industry. We’re already seeing it transform the process and power faster, more simple lending interactions. While we don’t have a crystal ball into the future, it’s clear digitization and innovation will continue to improve the mortgage experience. Realistically, getting a mortgage will never truly be a one-click process, and frankly, it shouldn’t be, but with technology it can be a better, faster process than it is. We still have a ways to go, but at the very least, you can let that fax machine continue collecting dust.