Residential Magazine

Endeavor To Go Deeper with Technology

A better lending experience starts at the outset with exploring the borrower’s situation

By Luke Johnson

In the realm of home-financing technology, the market has become saturated with front-end mortgage-application systems that primarily capture only data — and can be replicated across a swath of competitors. To truly bring the industry on the right side of the digital divide, technology needs to go far beyond collecting user information.

A true improvement in mortgage technology should provide actual underwriting and e-documentation so that the loan can be automatically produced. Providing clients with absolute certainty at the outset restores trust in what is largely considered a Byzantine process.

Yes, not all home loans — or applicant situations — are straightforward. Financial profiles can be complex, whether it is related to self-employment income, real estate holdings, ownership interests in multiple businesses or investment holdings that generate a recurring income stream. Consequently, variables that go into whether a loan is approved or denied are often multifaceted and not transparently communicated with applicants.

Noting this reality, a technology-based lending solution can and should deliver efficiency and transparency when it matters. Here are some ways that technology, if deployed to its greatest potential, can improve the borrower experience.

Gathering a clean and accurate profile at the outset increases certainty that applicants are genuinely eligible.

Right questions

The reason most loans take so long is the manual approval process: underwriting happens in the background weeks after clients receive a preapproval, and after a client “locks” a rate for which they may not even qualify. With many lenders, it is not uncommon for borrowers to learn weeks after going under contract to purchase a home that they do not qualify for the terms they were expecting.

Until underwriting is completed, borrowers sit in a vulnerable position with regard to their final interest rate, loan program and the downpayment required to close. The reality is that most of the issues that cause uncertainty can be addressed within a real-time digital approval system that asks the right questions, provides feedback and automates documentation upfront.

Asking certain critical questions early on helps mitigate risk and ensure borrowers will close on time. Are they self-employed? Do they pay or receive alimony or child support?

An intelligent application engine is going to ask all the right questions at the outset. This gives people a chance to explain unique circumstances and make better decisions. For example, consumers should know which accounts to liquidate for closing and what this means for their larger financial profile.

Applicants also should learn whether their assets and income are in line with their purchase goals. They should be able to select downpayment and loan amounts that they clearly qualify for and that meet their net worth objectives.

Yes, it sounds so simple, but too many technology providers just don’t do it. Gathering a clean and accurate profile at the outset increases certainty that applicants are genuinely eligible. And if they’re not, they deserve to know why — and how to fix it.

Accurate documentation

Clients should be able to easily and electronically document their situation at the outset. One of the more daunting requests from underwriters is asking a borrower to document and support all nonemployment-related deposits that show up on bank statements. A better mortgage application should, at the very least, link bank-account activity in real time, identify which deposits require attention and allow users to document and support these transactions while they complete an application.

Is a financial gift being provided for a home purchase? Documenting that should be easy and accomplished through a digital process, including electronic signatures. Normally, it takes several weeks into underwriting for these issues to surface, which all have the potential to cause a major delay — or halt a closing entirely.

Accurate and clean credit is crucial to achieving a better interest rate. The ability to leverage technology to identify fraud and clean up any errors on a credit report while completing an application could save a transaction. Borrowers may be unaware that a debt they paid off is still showing a balance, or that a car they traded in is still reflected as an active balance. Knowing about these inaccuracies as soon as possible, with enough time to correct them, is critical.

Borrowers should be able to actually see how lenders are determining their ability to qualify. Although the vast majority of the industry does not provide this information and leaves much of the puppeteering to the discretion of originators, for a borrower to truly understand and learn from the mortgage process, they need to know if their earned income and the money they’ve saved is enough to qualify for the loan they seek. Standard industry preapprovals may look at a pay stub and a W-2, and then check credit without performing any of the additional calculations that could take weeks to verify through a manual process.

Homebuyers should be able to digitally compare various loan options, as they would when buying a TV or laptop.

Unique factors

It makes sense to identify risk factors related to the property earlier in the process. A client can afford a certain house — but what if, for example, nobody realized that the property is located in a flood plain, which requires flood insurance? The high cost of that insurance may cause the borrower to either not qualify for financing or simply walk away in frustration.

The traditional process typically takes two to three weeks before flood certification is ordered. Automated property underwriting should incorporate all of the unique factors, such as acreage, property type, etc., that determine eligibility before a rate is provided to a client. This helps borrowers avoid disappointment as early as possible.

Homebuyers should be able to digitally compare various loan options, as they would when buying a TV or laptop. An intelligent dashboard can provide side-by-side comparisons of the loan programs for which a borrower qualifies, helping them clearly see the pros and cons of these options. Dynamic loan-selection technology should be designed to allow clients to transparently understand the impact to their net worth, or savings based on their tax rate and the amount of time they expect to own the home.

By leveraging top technology, borrowers can see a competitive rate at every level of downpayment — so they won’t have to worry that a salesperson is steering them into a more expensive or limited set of products. But much like an airline exchange, instead of just searching one airline’s site, they can use an intelligent platform to access a whole universe of mortgage products. It’s technology that has penetrated pretty much every other industry and highlights the question of why the mortgage industry has been lagging.

In the end, it’s all about trust. You don’t walk into a car-share or home-share service because it’s easy. You trust services that provide the background information, pictures, names and peer reviews to make you feel safe. Technology in home financing should be the same by helping to build a bridge between the known and the unknown.

• • •

Smart technology can help mortgage originators focus on their relationships and avoid being bogged down by an inefficient, manual-qualification process and scenario analysis. Being thorough, educating borrowers and asking the right questions early in the process can make all the difference.

By leveraging technology to uncover and address unique situations that could impact a borrower’s eligibility, mortgage fintech can become more effective in delivering certainty at the outset. The result: improved trust in the home-financing journey and greater satisfaction from everyone involved.


  • Luke Johnson

    Luke Johnson is founder and CEO of Neat Capital. Johnson has extensive experience in real estate, finance and corporate development, having completed mergers, acquisitions, turnarounds and divestitures in the U.S., Latin America and Europe. He holds a finance degree from Tulane University and an MBA with honors from the University of California, Berkeley. He lives with his wife and two daughters in Boulder, Colorado.

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