The digital mortgage is upon us. Between Quicken Loans, Wells Fargo and others, these large industry players have created a new user experience for loan origination that will likely grow to become the norm in a few years. The benefits to the consumer and mortgage provider are now clear to most people. This is not the only revolution that must occur. The second digital revolution won't be advertised with slick commercials of rocket launches, but will be just as important as the first one.
Part two of the digital revolution
When the day comes that the online paperless mortgage becomes a commodity, where will the savvy mortgage institution go to become more competitive? The goal in this second revolution is to maximize every system to work at peak efficiency. The second digital revolution will focus on the back office to lower the cost for processing and underwriting. This is the bones of the organization and essential to managing lending risk, compliance, and other essential functions. Sadly, the back office team is a cost-center, not a profit center. Thus, removing cost here is fundamental to financial performance in a competitive landscape. The groundwork laid by the current digital mortgage movement will enable the continued digitalization of the mortgage process.
What we learned from the Industrial Revolution
The industrial revolution was the point in history where we migrated from craftsmen-built hand goods and entered the age of industrial manufacturing on a large scale. We traded a work force that fully crafted their widget into a work force that specialized to craft a part of the widget. If you were a blacksmith, you had to jump from project to project, making plows, horseshoes and axes. The variation in the workflow was inefficient.
Many mortgage companies' back offices are still working in the pre-industrial revolution stage, while the front end has a digital mortgage experience for the user. In the back office loans are being processed by hand, calculations done by calculator and pencil, and each person is following their process versus a standard process. People are constantly jumping from task to task much like the blacksmith analogy. This back office environment will be the location of the second digital revolution.
What does the mortgage factory of the future look like?
Some larger lenders already have specialist activities that streamline the process. By focusing efforts into specialist areas such as a credit expert, an income expert, an appraisal expert and so on, these organizations observe a noticeable efficiency improvement. Specialization allows people to become very good at a single task which lowers error rate and improves throughout.
The current batch of digital mortgage solutions stop at the bank lobby, but the second wave of solutions will carry through to the back office and into closing. The mortgage team of the future will be digital, cloud based, and interactive. Growing organically from the current digital mortgage revolution, the second digital mortgage revolution will see the electronic data flow down into a series of cloud-based software tools to automate the processing and underwriting flow. These tools will replace the manual, monotonous, and human-error-prone activities.
The mortgage factory of the future will be a highly integrated suite of software solutions. The software will allow the sequencing and specialization of work tasks to be assigned to a flexible and dynamic workforce of processors and underwriters no matter where they are located. Most importantly, the software will automate calculations and analysis, alleviating time lost in human calculations and error and allowing people to focus on the art, not the science.
The key is integration
Automation in isolation is what we have today — many disparate systems each providing a piece of the automation puzzle. What is lacking is the seamless integration of these systems. The entity that provides a standard open-source interface to allow these systems to communicate in a standard way will win in the end. The key to this second digital mortgage revolution will be the interface: the lowly, boring interface specification of how two software products can exchange information for interoperability. .
Without this, standard interface organizations will be locked into a monolithic enterprise solution. The interface must be an open source to allow modularity and competition in the marketplace, thus allowing software vendors to compete on features and performance. This lowers the cost to switch software vendors and promotes healthy competition. In the end, the market gets better products and can build a better mortgage factory.