Mortgage lending is a complicated and time-consuming business transaction for both lenders and borrowers. It often requires many hours of preparing, reviewing and sharing stacks of documentation, with constant communication between those involved.
Many lenders still process mortgages with paper documentation and manual entry. But they can take a cue from other sectors that have streamlined customer journeys with powerful technology that gives users a streamlined interface. In a 2020 survey conducted by ICE Mortgage Technology, 58% of borrowers said “…the availability of an online application would affect their lender decisions,” and 55% of homeowners said they “appreciated the simpler application process.” A McKinsey survey found that “getting things right the first time;” “24-hour preapproval;” and “quick, clear 24/7 status” were all high on the list of desirable customer experience improvements.
“Using technology is key to providing high-quality customer experience, retaining customers, and getting repeat business.”
“Using technology is key to providing high-quality customer experience, retaining customers, and getting repeat business,” said Grant Thornton Transformation Principal Jeff Kelly. “Embracing the latest technology advancements ensures that your customers are satisfied. It also helps ensure that your process meets or exceeds regulatory standards like fair lending and keeps the loan approval time as short as possible.”
The objectives of technology investments in the mortgage industry have shifted over time from post-crisis compliance spending driven by Dodd-Frank to an emphasis on streamlining the borrower experience. That consumer-oriented spending was interrupted by the COVID-19 pandemic, which accelerated remote technology spending as the acceptance of virtual processes skyrocketed out of necessity. The resulting shift in how people conduct mortgage transactions, combined with lower interest rates, created an opportunity to drive outsized production volume. Originators with efficient, technology-enabled processes captured an outsized share of the refinancing and purchase transactions. Other lenders that staffed up to chase the production volume have been forced to slash bloated operating models to sustain themselves with the rapid onslaught of higher interest rates and the precipitous drop in transaction volumes which, according to the Mortgage Bankers Association, is expected to continue with a 9% overall decline in 2023.
Lenders can turn these market shifts into opportunity by streamlining tedious mortgage processes, reducing reliance on manual interventions, and improving accuracy across the mortgage lifecycle. Technology can have a significant impact on both mortgage origination and loan servicing, with important benefits for issuers and borrowers alike.
Loan origination systems (LOS)
Customer expectations are driving constant advancements in loan origination technology. While the market has been served with several primary vendors that continue to invest in platform improvements, a number of alternate LOS systems have become available, touting streamlined application processing, better orchestration across third parties, and improved adaptability to changing policies from Government Sponsored Enterprises (GSEs) and state regulators. Just as important are the middleware offerings that supplement origination processes. These tools often are integrated applications sitting behind the LOS that automate appraisal assignment, enable broker engagement, streamline underwriting, and facilitate document ordering (e.g., titles, appraisals).
Many of these offerings take advantage of the most advanced digital capabilities to help originators effectively orchestrate the end-to-end process from application through setup, underwriting, closing, and post-closing. Better workflow requires more information from an applicant and other participants. Artificial intelligence (AI) can send customized requests based on the applicant’s current answers and can create a more precise view of the applicant’s ability to repay the loan. It can also gather information from disparate sources quickly, to further complete the picture of the applicant’s creditworthiness. A dynamic workflow engine can help to orchestrate the entire process efficiently, even when regulatory changes or temporary policy announcements demand flexibility to adapt and comply.
Loan management system (LMS)
Similar advancements are in play for mortgage companies when servicing loans. Mainstay LMS offerings are providing new capabilities to stay ahead of the market. The push has been to fully cloud enable the loan management core, while providing a digital customer interface to help borrowers track repayments and see their progress. A modern LMS can generate reports, track repayments, calculate interest, fees and more. It can also accommodate a multitude of loan types and repayment options.
As with loan origination systems, loan management systems are being enhanced with middleware to facilitate servicing transfers, incorporate e-notarization and e-signatures, and expand payment options. Beyond improved processing, servicing overall can benefit from AI machine learning. For example, AI capabilities can help predict economic factors that might negatively affect repayment across different loans. This can help a mortgage company better prepare for potential loss mitigation defaults.
Your best path
“Innovation and adaptability sit at the heart of doing business today … It’s vital that your solution is done right, and for the right reasons.”
Mortgage technology must be scalable for regulatory changes and adaptable to state-by-state variations. Like many businesses, mortgage lenders have needed to adapt their processes in recent years — and changes will continue.
“Innovation and adaptability sit at the heart of doing business today,” said Grant Thornton Partner, Risk Advisory Services, RAS Mortgage Industry Leader Matthew Cooleen. “That’s especially true if you are implementing solutions in a crowded business-to-consumer or business-to-business environment. It’s vital that your solution is done right, and for the right reasons,” Cooleen added.
Mortgage lenders can choose to develop, purchase or contract new technology. The best path for you is determined by how best you can improve regulatory compliance, customer satisfaction and employee productivity.
In-house development for custom solutions
In-house development might be the most complex path, but it can yield favorable and workable results. An in-house solution can be easier to integrate across your business and can foster familiarity and ownership among employee-users. It can be tailored to your specific business needs and targeted to your specific customers. Lastly, an in-house solution sometimes provides more control to manage costs because the costs are internal.
Packaged or as-a-service solutions
A more direct approach is to simply buy a solution. There are many types of mortgage software and technology solutions available, including software-as-a-service (SaaS) products, application programming interface (API) integration, software development kit (SDK) integration, plugins, apps, and web-based products that can be customized. These solutions might come with a longer learning curve, but they typically offer support for integration, training and use.
Some mortgage lenders choose to outsource solution development and even management. Collaborating with an established company can provide a more pain-free solution and experienced technology management for your portfolio. Many companies have decades of experience; provide advanced technology capabilities such as AI and machine learning; offer training and education; and cover all aspects of the process from origination to management to closing. However, the costs can be more difficult to control in this scenario.
“Whichever form of technology you use, the most important component must be adaptability,” Kelly said. “That will help ensure your solution can serve your customers, keep you on top of regulatory changes, and increase your productivity — which is directly tied to your bottom line.”
Your customer expectations
As business-to-consumer relationships change, so do expectations. In recent years, most consumers have changed how they interact with businesses, and businesses had to quickly adapt.
The home-buying public saw low interest rates, which increased demand. This demand revealed a bottleneck in many outdated lending processes. Now, mortgage technology is becoming a standard expectation from consumers, even as interest rates have increased. Taken further, mortgage technology becomes a market advantage when it offers innovation, speed and simplicity along every step of the process, ensuring experiences that meet expectations.
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