Technology has significantly improved the process of consumer and home mortgage lending, but progress has been limited in the commercial mortgage sphere. Obtaining a commercial real estate loan is often painful. Between the various lender-specific forms, different degrees of underwriting and the undefined timelines, it can be a frustrating experience.
Commercial mortgage lenders, however, are starting to catch up in number of ways. Technological tools are being adapted for commercial real estate that are changing for the better how the underlying mortgages are originated. Tech has finally started to reach this final frontier in lending.
The commercial mortgage market has been slower to adopt new technologies. The complexity of the underlying collateral makes it more of a challenge to implement industrywide changes. Each commercial mortgage deal tends to be unique. Technology, however, has been moving forward along several different tracks to the benefit of mortgage brokers and borrowers.
Tech tools have advanced to the point where they can significantly improve the user experience for mortgage lenders, brokers and borrowers.
Tech tools have advanced to the point where they can significantly improve the user experience for mortgage lenders, brokers and borrowers. Innovations are leading to more accurate property data and market analytics, as well as a drive toward a paperless application process. Breakthroughs in artificial intelligence and document recognition will eventually lead to increased efficiency and faster processing times.
Going digital
Digitization, or the drive to move away from paper-based documents to an online process, stands to improve all aspects of obtaining a commercial mortgage, from application through funding. One of the greatest benefits is transparency.
In moving the process online, commercial mortgage companies can establish a more uniform system for gathering and reviewing documents. Borrowers and brokers will have immediate access to needed forms, and can submit their documents via online portals rather than scanning and faxing hard copies. This information can be made accessible through a central dashboard, where the lender can easily alert the broker and borrower about each of the needed tasks. Additionally, each of the various parties are privy to the same information. The forms are viewable in a central location and don’t necessarily need to be passed along individually through multiple e-mail exchanges.
Online status bars are another tool that can be used in commercial mortgages. These help borrowers and other parties keep track of the loan in process, similar to how customers track their packages in e-commerce deliveries. A status bar also can be made into a handy tool for updates and to forecast potential bottlenecks that would delay or prohibit a loan from closing.
Likewise, workflow software and tools — such as Dealpath, CRE Simple and Salesforce — can help keep all parties involved in a commercial real estate transaction on task, thereby ensuring that the deal moves forward on schedule. Workflow tools can ensure that nothing is overlooked and that mistakes are minimized.
Centralized portals are another innovation that have allowed corporate teams to share information online. With commercial mortgages, some lenders have begun to use portals to share information among the parties, and their use is bound to grow among lenders and mortgage brokers. A borrower also can go to a central portal to review term sheets and legal documents. The parties don’t have to pass the documents back and forth via e-mail, fax or standard mail.
Sharing data
Various tools are being developed that can eliminate the tedious and time-consuming manual tasks that are involved in organizing and analyzing data in loan and property documents. Mortgage companies, for example, are frequently using software that automatically sorts documents by rent rolls, operating statements, title reports and so on. This automates and shortens the processing timeline.
Programs that help underwrite commercial properties have evolved tremendously in the past decade. Before specialized underwriting software was developed, financial modeling was mostly performed manually in Excel spreadsheets. Argus has become one of the dominant financial-modeling software programs for real estate and now incorporates machine learning, artificial intelligence and application programmer interface (API) integration features. Other companies such as Assess+RE and Beek Hill also are developing innovative tools.
As these tools advance, commercial mortgage companies will increase the speed and accuracy of their financial modeling. The availability of alternative datasets and further technological improvements will significantly improve loan underwriting from the issuance of the term sheet to the closing.
Most of these tools have been made possible by API integration, which enables software applications and devices to communicate with each other and work together. This is another innovation that is advancing how data and information can be used through cloud sharing. Details about property and loan records can be put into readable, digital formats and made accessible to multiple parties. CoreLogic, for example, is using API effectively to digitize and deliver property details from its raw data. Continuing advances in API integration could have wide-ranging implications for commercial mortgage underwriting.
Just as the consumer loan and home mortgage industries have been transformed by technology, so too will commercial real estate lending.
For cloud-based document sharing to become a mainstream practice in commercial mortgage lending, however, all parties involved in the transaction will need to use the technology. Also, document security becomes an even greater concern. The documents will have to be password protected and the various parties should only be given access to the information that is relevant to their role. As more of the process is accomplished online, commercial mortgage companies are expected to face greater scrutiny from the government about how they share documents.
Adapting artificial intelligence
Mortgage professionals spend much of their time processing hundreds of pages of documents from disparate sources and concisely distilling that information into an intelligible form. Artificial intelligence and optical character recognition can streamline much of this manual work. Although the technology is still in its infancy, it shows great promise for the commercial mortgage industry.
These technologies should eventually cut several hours from the loan processing timeline. Checkr, Plaid and Visionet, among others, have created programs and protocols that conduct automated background and credit checks, integrated payment connectivity and automated loan processing. These technology suites will continue to become more robust in their offerings and will significantly increase the ease of making commercial mortgages.
Just as the consumer loan and home mortgage industries have been transformed by technology, so too will commercial real estate lending. It will take more time for commercial mortgage companies to adopt these tools. Within the next decade, however, changes should come that will allow lenders to use much more precision in analyzing property data. The gap between budgeted forecasts and actual performance will significantly narrow, and potential investor returns for commercial real estate will be able to be more accurately predicted.
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With new technologies, the future for commercial real estate is bright. The process of making a loan will become faster, more efficient and less painful for all involved. The next chapter in commercial real estate will be tech driven. There is no doubt about that.
