by Brooke Mulder – California Mortgage Finance News Spring 2019
It’s officially 2019, which means there are a lot of technological advances that were supposed to happen by 2018, and yet we’re still waiting. I don’t think I’m the only one wondering, “Where are our flying cars?” Hollywood movies, books and other forms of media love to make bold predictions about future advances in technology. It may not be as fun to make predictions about the future of mortgages in movies, but I think our industry has advanced to an exciting place. We still have a ways to go, but the digital improvements of the last few years have been a great start in improving borrower and lender experiences.
There are a few areas where our advancements fell short of forecasts. For one, farming: in 1959 it was projected that by 2018 farmers would no longer be needed and growing crops would be as easy as pushing a button. And space travel: by 2018 we were supposed to have stepped foot on Mars. We do still need farmers and we haven’t taken a long walk on Mars, but at least we have the first fully digital mortgages! Gone are the days when a borrower needed to drive to a brick and mortar location to fill out paperwork by hand and provide hard copies of necessary documentation. Digital mortgages are making the mortgage process more convenient for borrowers and less risky for lenders.
A digital mortgage has myriad positive effects on the industry as a whole, on both the borrower and lender side. So, what exactly is a “digital mortgage?” A digital mortgage consists of a digital lending platform allowing a borrower an intuitive and smooth application process. The digital lending platform should be integrated with other key mortgage technologies: credit providers to enable credit pulls at the point-of-sale, asset, income and employment verification providers to allow the borrower to provide necessary documentation as easily as possible, insurance providers to quickly pull HOI into a file, e-signature and document providers to quickly e-disclose and sign documents, and payment providers to easily accept appraisal payments. These integrations working within a robust digital lending platform have revolutionized the mortgage process. Additionally, the digital lending platform helps loan officers close loans faster by providing an easy-to-use interface that enables LO communication with borrowers and collection of information and documents all in one place. A robust platform will also seamlessly communicate with the loan origination system (LOS) and allow the LO to run the automated underwriting system (AUS). With the right platform, LOs have the ability to run home valuation software, order appraisals, and create pre-approval letters, just to name a few important features. A digital mortgage can and should be digital from the 1003 through closing.
Lenders embracing digital mortgage are reporting many positive effects: a decrease in origination costs, lower fallout during application and processing, and more satisfied borrowers leading to more referrals. PwC recently reported finding a statistically significant relationship between borrower satisfaction and the use of digital tools in mortgage lending. Providing an intuitive and smooth experience is no longer a nice-to-have for mortgage lenders; it’s a necessity in order to stay competitive. Everyone who has worked in originations knows the power of a good referral. Loan officers are much more likely to close a loan for a borrower who was referred to the loan officer or lender by a satisfied client. With the cost to originate each unit so high, referral business is a gold mine.
A recent white paper from Boston Consulting Group addressed the rise in production costs: “Despite production revenue per loan increasing 20% between 2012 and 2017, production costs have risen more quickly, going from just over $5,000 per loan in 2012 to more than $8,000 per loan in 2017, a 57% increase.” Due to such a large increase in loan production costs, the result has been a decline in net production income per closed loan of 68%. Lenders need to do something to combat these costs.
One of the highest areas of loan production costs is attributed to personnel. What if we could close more loans with the same number of loan officers and processors? Digital mortgages reduce the workload per loan, allowing the same number of employees to work on more files. You saw examples of this in consumer direct shops that had LO teams strictly handling streamlines and IRRRLs. An LO on a streamline team could handle a pipeline of 50 or more files at a time, while an LO on a full doc team might have a pipeline of only 8-10 loans. Digital mortgages make the process more efficient by removing much of the redundancy of document collection and therefore take less time to close. An LO or processor with access to a full digital lending platform can handle many more files than their analog counterparts.
As we move into 2019, we’ll see even more mergers and acquisitions than we saw in 2018. With production costs so high, and borrower demand for a better experience even higher, not all lenders are well positioned to thrive in this new environment. The lenders with the best shot for continued success are those that have fully embraced the digital transformation of the industry.
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