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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2018

The Digital Mortgage Needs a Personal Touch

Value creation powered by technology-enabled humans is the industry’s future

The mortgage industry is similar to other industries that have gone through a rapid digital transformation. Companies are participating in the early stages of moving from marginal improvements of process to technology becoming a fundamental enabler of change.

As the first wave of the digital mortgage approaches ubiquity, brokers and lenders must now take on the next challenges. Those include intelligently empowering their people, challenging the traditional process itself all the while delivering tangible value creation.

There is no question that the pace of change in the mortgage industry has set a new standard of expectations. The 2018 Home Lending Experience Radar from PwC found that over three-quarters of borrowers submitted applications and documents online, stayed engaged with their lender primarily over e-mail and leveraged online educational tools about the mortgage process.

Borrowers, the study found, want to use multiple channels to communicate and engage throughout the lending process. And so, within the last five years, nearly every mortgage originator and lender has begun to leverage digital tools to serve their borrowers.

The changing dynamics

As with any new wave of change, however, we’ve also witnessed a cycle of success and failure. “Full-stack” technology originators backed by millions of venture- capital dollars, yet lacking the understanding of market dynamics, have come and gone.

Traditional lenders themselves have invested millions of dollars in their own software experiences, incrementally improving a process still built on traditional workflows. Even our competitors in the digital-mortgage space have made missteps, creating user experiences that disregard what borrowers actually want from their lenders.

This is why borrowers still score mortgages as difficult and why lenders aren’t seeing meaningful efficiency improvements. The same PwC study found that many borrowers were still confused about which documents they needed to provide, how to track the status of their applications and how to understand next steps.

The digitization of the mortgage process must deliver on the promise of value creation, and not merely promote a ‘better experience.’

So, although digital-mortgage adoption is on the rise, the Mortgage Bankers Association (MBA) reports that production costs continue to escalate. The MBA’s quarterly performance report from March 2018 shows that the cost to produce a loan in fourth-quarter 2017 jumped to $8,475 — the second-highest quarterly mark in the last five years.

The power of people

Borrowers have a basic need to connect with an adviser through the mortgage process, a need that becomes more visible in a purchase-driven market. When Fannie Mae asked borrowers about their present and future communication needs in their 2017 Mortgage Lender Sentiment Survey, borrowers overwhelmingly reported that while phone and online communication were important in their last mortgage, in the future they hoped for more in-person interaction with their mortgage lender, not less.

This finding is bolstered by other studies. Among them are the April 2018 report by Owners.com and the 2018 National Association of Realtors’ Home Buyer and Seller Generational Trends Report, both of which found that millennials use real estate agents more than any other generation.

Mortgage executives are shifting their view of loan officers as an expense, instead asking how to maximize the return on investment of the largest line item in the budget. Reallocating loan officers’ time from routine, administrative tasks to allow them to focus on serving borrowers and real estate agents is the top priority.

Supplementing the relational capabilities of the industry’s frontline people with technology that makes them more effective allows lenders to deliver a superior experience to more borrowers without the need for additional personnel. Even tech titan Elon Musk acknowledged the power of people when he tweeted in April 2018 that “excessive automation at [the] Tesla [factory] was a mistake. ... Humans are underrated.”

Challenge the process

Movement Mortgage has rocketed from the basement of the industry to a leading lender in less than 10 years, closing over $12 billion in loans in 2017. At the core of Movement’s values is the idea of embracing change. They were one of the first lenders to underwrite upfront — now a more common practice — promising underwriting in six hours, processing in seven days, and closing not long thereafter. Their quest to redefine the mortgage process, while equipping their team with the tools to excel, has been a pivotal driver of their growth.

Many digital mortgage tools used by originators today are incremental, built on top of existing processes — the digital version of the paper process. Few technology providers have stopped to ask “why,” and mortgage companies themselves have fallen short in their willingness to reevaluate traditional processes in light of new technology.

Are you taking advantage of available technology tools and placing bets on new, innovative ways to originate a mortgage? Are your technology partners questioning your process and delivering model-changing solutions for your business?

The combined effects of the cloud, neural networks, artificial intelligence, data visualization and analytics will continue to accelerate exponentially. The winners will be those who adopt and leverage these tools effectively. Clayton Christensen, one of the world’s foremost authorities on disruption, believes that, more often, incumbents are the ones that lead innovation at scale in an industry, not new entrants.

So traditional mortgage executives must strike the balance between cost-efficiency for short-term profitability and bold action for sustained long-term revenue leadership. One approach is to become a student of the competition to track the trail of technology investments.

Large banks, even at their plodding pace, were among the first to adopt digital point-of-sale technology, for example. Likewise, track the startups across the globe that are fundamentally reimagining the business. While their business models could be wrong, their innovation could have implications for even traditional mortgage lenders.

Increase the value

In its next chapter, the digitization of the mortgage process must deliver on the promise of value creation, and not merely promote a “better experience.” Originating institutions will be under increasing pressure to broaden their product offerings while also personalizing the experience for the borrower. This diminishes the ability to drive down costs from labor reduction.

Instead, efficiency becomes critical, and that involves automating more aspects of origination, gaining end-to-end production visibility and extending data analysis to each part of the mortgage. Mortgage companies should demand technology partners who openly participate with each other through modern integrations. Open ecosystems will dramatically enhance the ability to create value, rather than slowing it down.

Value also increasingly will be created by deepening the ties between stages of the value chain. Mortgage companies can differentiate their offerings through value-added services that streamline the process. And, by bringing real estate agents, loan officers and other third parties closer together through transparent, collaborative technology, mortgage companies can make their partners better at what they do and promote loyalty in a network that only grows more interdependent over time.

•  •  •

In the first chapter of the digital mortgage, we witnessed a step-change function in the experience. We’ve also learned that the mortgage industry has tremendous value at stake as it continues to evolve.

Complacency is dangerous. Those mortgage executives who recognize the source of strength is in people powered by technology, who challenge the traditional production process, and who intentionally focus on value creation, are the leaders who will captain companies that have every chance of beating the market.


 


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