Lenders are doing all they can to get borrowers into their pipelines faster. Speed is a requirement for both customer satisfaction (see J.D. Power & Associates) and to ensure high pull-through rates, which are essential for cutting the overall cost to originate. If the lender can’t move quickly enough, today’s borrowers will go elsewhere in search of home financing.
According to STRATMOR research, customer satisfaction is tightly correlated with turn times. Today, only about one in five loans closes in under 30 days, but if it takes more than 45 days, customer satisfaction scores drop dramatically. Proving to the customer that the lender can move quickly starts with loan approval. This matters to Millennials, who Ellie Mae says are pushing for faster closings. In March, Millennials closed new mortgage loans in only 39 days, their fastest time yet and the fastest of any demographic.
Knowing that lenders are under this kind of pressure, some vendors are rolling out new products designed to help speed up the process of taking and processing a loan application. The sooner the lender can tell the borrower that they will be approved for a loan, the more likely they are to keep that borrower.
As a result, we’re seeing all kinds of claims touting offerings that allow the lender to provide the consumer with a “conditional loan approval.” On the surface, this seems to mean that the loan is approved as long as conditions are met. Unfortunately, a closer look at some of these offerings reveals a significant gap.
An application, a credit report and the findings from an automated underwriting (AU) system does not constitute a Conditional Approval. That’s called a pre-approval, which borrowers depend upon to help them shop for the right new home. Lenders have been offering this to consumers for a very long time, but this does nothing to speed up the processing of the actual loan, nor does it give the lender the quality they’ll need without excessive and costly operational resources.
To truly speed up the loan process and to know, in advance of underwriting, that the borrower is actually qualified, requires a much more robust offering. It would include a complete application, quality data, complete documentation, accurate disclosures, credit report, appraisal, AU findings, etc. to support the borrower’s application and meet product guidelines. If this is delivered in a quality package to the underwriter, the lender will be able to issue a real conditional loan approval, ensuring borrower loyalty and staying ahead of competitors in the market.