Where Tech Is Taking The Mortgage Lending Consumer Experience
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By Maxime Rieman, Forbes Councils – Forbes Business Development Council, CommunityVoice.
Contributor and Product Manager at ValuePenguin (now Maxime Croll since the original publish date of her article)
May 22, 2018, 07:00am
For some time, advances in digital technology have been driving change in customer acquisition and experience in practically every sector of the economy. Among these, the mortgage industry appears ready for some of the most sweeping updates, particularly with regards to their sales approach and process. New tools like online user platforms and machine learning will make it easier for lenders to guide borrowers through the origination process and discover additional opportunities within the data they collect from loan applicants.
By the third quarter of 2017, outstanding mortgage debt for one- to four-family residences in the U.S. surpassed $10.5 trillion. While the industry hasn’t recovered all the ground it lost a decade ago in the financial crisis, home prices and the volume of originations have been trending upwards for the past several years. Despite these indicators of high demand, mortgage lenders still face a number of technical problems in delivering their services.
These problems typically have to do with the time-consuming complexity that plagues borrowers and lenders throughout the loan origination process. According to findings published by the Federal Housing Finance Authority, 18% of home loan applicants were forced to redo their paperwork in 2016, while nearly 24% ultimately had their closing dates postponed.
While the report goes on to note that borrower satisfaction with the closing process remains fairly high, the numbers also reflect diminishing levels of satisfaction among younger applicants. As more and more tech-conscious millennials enter the real estate market — and mortgage interest rates continue to rise — mortgage lenders will find themselves judged more heavily on the basis of usability and convenience.
To that end, lenders have already begun implementing technology to speed up mortgage origination. Where traditional mortgage lending relies on paperwork, innovators in the space have established an agenda to digitize the process from start to finish. Current efforts focus on two broad areas: streamlining the loan experience for consumers and improving the management of data required in underwriting mortgages.
Smoothing The Borrower Experience
The most visible sign of tech in lending is the growing adoption of online mortgage platforms, which allow users to apply for a mortgage without having to meet or call a loan officer. Giving customers the ability to upload documents and manage applications on their own schedule reduces the time and cost required for each origination.
A monthly survey of home loans from mortgage software provider Ellie Mae found that it took an average of 41 days to close a mortgage in March. Lenders that have moved towards online originations in an effort to reduce that number. Quicken Loans, the largest mortgage lender in the nation, claims an ideal closing time of 30 days for users who go through the company’s digital lending platform assuming no delays arise.
By offering customers faster closing and greater insight into the process, lenders like Quicken not only create a more convenient experience but also lower costs. Due to the role of subprime mortgage lending in the 2009 financial crisis, stricter regulations have driven up the cost of originating home loans. Production expenses hit $8,475 per loan by the end of 2017 — the second-highest in nearly a decade of quarterly reporting (purchase required) by the Mortgage Bankers Association (MBA).
Not all of these costs are passed on to customers, but some eventually find their way into the closing fees that borrowers must pay upfront. Mortgage lenders have turned to reducing these expenses by automating parts of the underwriting process. Beyond giving users a faster way to submit their details, this effort also includes the use of machine learning to verify and track information. The resulting cost savings translate into more affordable loan fees for the borrower.
The costly manual effort required to gather credit reports, property details and other personal data naturally invite greater investment in technology-based solutions. However, increased automation could potentially help mortgage lenders in more ways than one. Not only can lenders use data technology to handle customer information more efficiently — they can also use it to find new ways of analyzing and acting on that information.
Big Data And The Mortgage Backend
In April, the MBA hosted its annual Technology Solutions Conference & Expo, where participants from across the mortgage industry gathered to discuss the new ways in which lenders and service providers could benefit from developing technologies. Aside from discussing improvements to user experience, the conference touched on possible ways of drawing actionable conclusions from the mass of data that lenders collect throughout the loan process.
While the immediate area of focus for most lenders is to emulate and iterate on Quicken’s successful innovations in customer experience, the potential applications of machine learning are just as significant for work that takes place behind the counter. Machine learning algorithms could help lenders identify hidden trends in borrower data in order to market products and support customer needs more efficiently.
However, such programs are only as objective as the data that they learn from. This makes it critical for mortgage providers to guard against human biases creeping into its new data tools. The risk of data theft — starkly illustrated by recent fiascoes at companies like Equifax — is another major topic of concern, as mortgage lenders seek to leverage their deep involvement in consumer information.
The outsized growth of digital technology carries both opportunity and risk in every business, but mortgage lenders have more at stake than most. With a soaring economy and a housing market in which the main problem is the inability of supply to meet demand, there should be no shortage of aspiring homeowners in search of financing. It remains to be seen which companies and solutions will determine the shape of the mortgage industry.