In a host of industries, the promise of digital marketing and commerce, particularly through mobile channels, has exceeded the hype with consumers using digital channels to research and purchase everything from prepared meals to automobiles. Expect the same to occur in the mortgage industry.
Today’s borrowers are displaying not just a preference, but an expectation, that they will be able to manage much of the origination process online or on their phone. And mortgage originators are taking notice.
Two hundred executives working within banks, credit unions, community banks and mortgage banks of all sizes took part in a recent survey conducted by Equifax. Of those, 44 percent surveyed say their most urgent objective over the next 12 months is automating more lending processes and tasks.
The same survey data indicates that originators recognize the importance of data analytics and intelligence in enabling this transformation. This was listed as a top priority over the two-year horizon as companies develop new products and bring them to market. The reality is that, in the current rising-rate environment today, mortgage originators who are the most committed to improving the customer experience, and to creating greater operational efficiencies, stand to separate themselves the most.
Reshaping the business
Mortgage originators should understand that there are fundamental changes happening, not only in how they connect with borrowers, but also in how they interact throughout the mortgage origination process. For generations, the process has been a reactionary one: A borrower decides they are in the market for a new home, speaks to a real estate agent, who in turn may direct them to an originator.
Today, the industry is moving closer and closer to operating in an environment that allows borrowers to find a home online or via a mobile app, tour that home in person and, while still there, deploy the loan application and close in as little as two weeks. Increasingly, this is all happening within a single point of contact.
Consider Zillow, which has a command of the home data, community data, comparable-pricing data, school-district data and more, all through a single app. With its recent announcement that it has acquired a mortgage lender, Zillow now effectively has controls within the entire lifecycle for a number of house-hunting borrowers.
This is actually reflective of a trend that has been developing in our industry for some time. More than half of mortgage originations are made through nonbanks and nondepository institutions, according to another study by Equifax.
Increasingly, these nontraditional lenders are winning market share through their deployment of new technologies — tools that automate more of the process, provide greater levels of transparency and access to information for borrowers. Most importantly, these tools shorten the timelines to closing. All of this helps to enhance the customer experience.
Most mortgage originators are generally already on this path due to the impact of Fannie Mae’s Day 1 Certainty program. In place for more than two years now, the program was designed to make the origination process simpler, faster and more user-friendly. The success of the program hinges, in large part, on the inclusion of third-party data that automates the verification process and subsequently helps reduce risk for originators.
In many ways, Fannie Mae’s Day 1 Certainty has served as a catalyst driving companies to automate the income-, asset- and employment-verification process to better determine the borrower’s ability to repay a loan. Automation and new technology is expediting this process as originators increasingly seek to leverage the mobile phone to onboard new borrowers.
Now, originators more readily validate that borrower’s information (including credit, income, assets and employment) — which helps move borrowers through the pipeline much faster. Instant access to income, employment and asset data will enable originators to counter projected volume losses through operational savings and the improved speed of response — without sacrificing loan quality or adding risk. This will help better position them competitively within the marketplace.
Marketing to digital natives
Before originators can improve the mortgage process for borrowers, however, they must attract them in the first place. This is one area where use of alternative data can provide tremendous benefit. In many ways, originators’ future success will depend on their ability to proactively market to a new generation of “mobile first” consumers, or “digital natives.”
Historically, if mortgage lenders were actively marketing to potential borrowers at all, they tended to rely on traditional, pull-based marketing approaches: print/over-the-air/display advertising promoting interest rates; uniform mail-based solicitations to entire ZIP codes or metropolitan statistical areas, etc. Essentially a “shotgun” strategy to marketing versus a more highly targeted “market of one” approach.
Sophisticated data and analytics give originators clearer visibility into individual borrowers’ financial situations, with the option to tailor their marketing to suit. In doing so, originators can largely realize greater return on their marketing investments by presenting more relevant loan-product information to the right borrowers at the right time.
Rather than view entire ZIP codes through a homogenous prism, originators can market to different personas within that same geographic region based on actual aggregated demographic and financial information. So, whether the opportunity lies with a first-time homebuyer or an existing homeowner who may be an ideal candidate for a refinance or home equity loan, having the proper infrastructure and workflow in place is necessary to identify and market to these borrowers sooner and verify their income and employment data faster, expediting the overall loan-origination process.
Ready access to property and community information (as well as to more informed financial-management strategies) has resulted in a much more prepared, educated class of borrowers entering the homebuying process. The market opportunity for originators lies among this technology-savvy group of borrowers.
They are increasingly deciding to make their purchase decisions based on the convenience, speed and quality of the user experience over brand history or loyalty to any particular lender. In the absence of these, today’s borrowers have shown they easily can — and typically will — seek out better options for themselves.
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Originators who maximize the value of the resources available to them — from improved digital technology to access to alternative data and analytics — are much better positioned to meet (and exceed) those borrower expectations in the new era of the digital mortgage.