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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2017

Embracing the Future of Lending

Technology can be a catalyst for transparency, efficiency and success

For the past six years, most of the investments in mortgage technology have centered on responding to increased regulations driven by historic market challenges. Even though many of these regulation-driven innovations have focused on providing increased education for borrowers about the mortgage origination process, the results have not always been beneficial to those borrowers.

Complex and varied interpretations of these requirements too often added confusion and delays to an already cumbersome process. The more that mortgage companies and lenders attempted to be compliant with newly added regulations, the more complex the process became for the borrower.

Finally, with the culmination of the TRID consumer-disclosure rules launch in October 2015, the industry released a collective sigh as the six-year period where compliance and regulations were primary drivers for mortgage technology came to a close. Today, mortgage technology solutions have shifted more toward improving the borrower experience as well as borrower education.

Current innovations are leading to transparency-based, borrower-centric solutions driven by a desire for simplicity, efficiency and accuracy throughout the process of acquiring a mortgage. Originators should be aware of the history, issues and best practices driving innovation in lender technology so they can better serve their borrowers.

History of mortgage technology

Historically, efforts around technology advancements were lender-based and focused on loan origination systems (LOSs), document imaging and automated underwriting tools. Core initiatives emphasized creating consistency, scale and greater efficiencies for the secondary market.

Integrated LOSs, combined with Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Prospector, created objective tools to streamline processes for qualifying borrowers and originating saleable assets. In some instances, however, these efforts led to unintended consequences surrounding the borrower experience and negatively impacted cycle times and customer satisfaction.

Then, as mentioned earlier, from January 2010 to October 2015, many of the industry’s technology resources began focusing on how to incorporate new legislation and regulations into mortgage platforms. As expected, innovation took a back seat to development efforts needed to address changes in mortgage policies and procedures.

Existing platforms became increasingly challenged, as technology vendors attempted to keep them efficient and scalable while meeting the increasing demands of changing requirements. These reactionary enhancements did not always lead to better experiences for borrowers.

Catalysts of change

Today, the combination of these two catalysts — the borrower experience combined with regulatory compliance — are influencing how next-generation technology is shaping the mortgage industry.

In the current regulatory environment, technology is pivotal to operating in a compliant and efficient manner because regulatory changes can be both stringent and complex. Although the ultimate goal is to streamline processes and better inform borrowers of the required steps in obtaining a mortgage, rules like TRID employ strict deadlines and create a higher demand for a more manufacturing-oriented loan process.

Back-office costs have seen fourfold increases over the past 10 years, mostly due to increased compliance costs. The current average loan file contains 600 pages of documentation, which forces mortgage companies and lenders to rely more heavily on the assembly of information through integrated technology platforms that compile and lock down data-based loan files from trusted sources.

In the current regulatory environment, technology is pivotal to operating in a compliant and efficient manner.

In addition, as variances in product offerings and price continue to shrink, competitive advantages for originators in the marketplace become more dependent on who can provide the best service levels while delivering highly compliant loan files in a scalable, customer-focused process.

This brings us to the customer experience. Borrowers have expanding expectations based on experiences with technology-related advancements in other industries. Today’s borrowers demand the same proactive assistance and self-service conveniences they receive from other online financial and marketplace applications.

Innovative, borrower-controlled solutions and the “there is an app for that” culture are already dramatically influencing the mortgage technology space. This includes the availability of mobile applications and 24/7 access to originators as well as the ability for borrowers to access portals to simplify the steps and shorten the overall timeline during the mortgage application process.

Transparency creates efficiency

Transparency continues to progress through recent technology and regulatory developments. It wasn’t long ago — before the Fair Credit Reporting Act, for example — that critical data like credit scores was not discussed or even shared with borrowers. Regulatory advancements, evolving disclosure requirements and borrower education efforts have led to unprecedented transparency in the process.

Borrowers are now informed, active participants during critical junctures and decision points throughout the process. Transparency is equally important from both a regulatory and customer-satisfaction perspective and technology is the key enabler for achieving success in both.

The walls that used to exist between lenders, originators and borrowers are being eradicated, empowering borrowers to play an integral and more inclusive role. Best-in-class platforms allow borrowers to access their loan status and complete tasks through integrated portals to trusted third parties. These portals serve to expedite the process and put the borrower in control.

Today, the key value propositions for success in the mortgage industry are control, simplicity and efficiency.  

Previously, delays related to items such as missing signatures or pages of a document could delay the mortgage process for days because the communication process between lenders, originators and borrowers was somewhat siloed. Those lenders that provide proactive communication in combination with the ability for originators and borrowers to track loan processing and complete tasks through multiple channels can offset delays, increase efficiencies and, most importantly, significantly decrease critical cycle times in the process.

Industry technology providers also have become more adept at interpreting regulations and building related communication workflows into loan-processing software. Today, the key value propositions for success in the mortgage industry are control, simplicity and efficiency. Technology facilitates transparency and increases communication, making these a reality.

Shaping future lending

Successful innovations in other industries can provide a roadmap for the future of mortgage lending. In fact, paying close attention to how these new technologies may be adapted or applied to the mortgage sector has become a best practice for leaders in the mortgage industry. Lenders need to anticipate market trends and take steps toward building competitive advantages.

More and more we hear terms like “manufacturing process” and references to loan files being characterized as assemblies of validated data. These terms might have been viewed as negative concepts in the past because they carried overtones of rigid objectivism, but they are the foundation of success for future models.

Many market-leading investments in technology over the past 12 months have been based on manufacturing-related concepts and designs. The key is that they involve active participation by the borrower in a controlled, simplified and efficient module. This approach allows the originator or the borrower to assist in “manufacturing” their own loan in an efficient and compliant environment. As mentioned earlier, this is achieved through portals and integrations with trusted third-party source partners.

From a competitive advantage perspective, it is not enough to stay updated on technology. Gathering customer feedback regarding that technology through surveys and active communication also is a must. It is essential to maintain a constant focus on the customer experience and the continuous improvement of supporting technologies.

By allowing customer-driven changes during smaller, pre-staged rollouts, lenders can adjust requirements throughout the implementation process to reflect valuable input gained from their customer base during quality control.

•  •  •

To be the premium provider in an era driven by demands from regulatory compliance and customer experience, lenders should think first about the borrower experience and clarity of process and then drive their solutions from those horizons. It’s all about how regulations are understood, managed and then explained to consumers.

Technology is an exciting reality leading a paradigm shift toward increased transparency, quality and efficiency in mortgage origination process. Lenders must embrace it, engage with it and innovate along with it — even push its boundaries — to both thrive and eclipse expectations in a customer-centric environment. Originators must be aware of which lenders are leading the charge because, ultimately, it impacts their clients — the borrowers.  


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