Every mortgage lender wants to reduce closing times and increase profitability. Yet for years, many seem to keep moving backward. On the whole, it takes roughly the same amount of time to manufacture loans as it did two decades ago, and loan production costs continue to climb in spite of the growth in technology adoption.
Of course, today’s lenders and originators face many additional regulatory and compliance hurdles than they did previously. A global pandemic hasn’t helped matters either. Nor have unbelievably low interest rates, which have clogged up pipelines and created a shortage of underwriters. All of these factors are stretching everybody’s resources — and their closing dates.
It is still possible, however, to turn the tide. Getting results depends on a variety of factors, including the technology you’re using and how well you’re able to leverage new tools to build relationships with today’s buyers. Most of all, it involves a change in mindset, because nothing happens without it.
Even though lenders and originators have access to more digital technologies than ever, the average loan cycle from point of sale to closing has remained between 40 and 50 days for years. Still, not all technologies are the same. Over the past several years, a large gap has formed between legacy systems that many companies have relied on for decades and newer, cloud-based technologies that have totally reimagined loan production as a digital endeavor and less of a manual, paper-based one.
The trouble is that lenders can’t reduce loan processing times and save money while still maintaining allegiance to legacy systems that stand in the way of their progress. In fact, many lenders are still using old technology platforms that are no longer being maintained by the vendor and have no application programming interfaces, which enable seamless system-to-system integrations with other third-party technology and service providers.
Many legacy systems also have no tasking or automated compliance tools, which create more manual tasks that require more people. Anytime you require users to go outside the system for information and manually key it in, it creates duplicate data and increases the chance of errors. Because they are so disjointed and require so much human intervention, legacy systems not only prevent lenders from reducing closing times and increasing profits, they actually work against them.
Another disadvantage of using older systems is that they often haven’t updated their processes to enable some of the advancements in automation. Take, for example, a lender that uses a preprocessing checklist for originating loans on its legacy system. All the tasks on the list are performed manually and tracked on an Excel spreadsheet. Easily 80% to 90% of the items on this checklist could be automated through technology.
Situations like this are why so many lenders — and by extension, their sales teams — continue to fail at reducing loan turn times and spend so much money doing it. The problem is they haven’t taken advantage of updates to newer technologies that benefit their entire organization, including not only their back-office processing, underwriting and closing teams but salespeople as well.
To be sure, there may be limits to how quickly digital technology can speed up mortgage transactions, given the number of rules that are in place. With the right operations, processes and technologies, however, it’s possible for lenders to shorten the application-to-funding timeline to as little as 14 days.
Getting there really starts at the very beginning of the loan process, whether the borrower is accessing self-serve tools or working with an originator, and simply being able to automate as many manual tasks as possible. Much of the back-and-forth work that takes place between different teams can easily be compressed through automation, and this is especially true if lenders are able to capture real-time data, which enables them to perform tasks correctly the first time — which saves time and money.
For example, exception processing is a key candidate for automation. Traditionally, lenders handled exception processing manually through email, which can slow things down tremendously based on how many other tasks their processors and underwriters have on their plates. By leveraging automation and modern technologies, these tasks can be immediately and automatically routed to specialists without any human effort.
Call this “just-in-time tasking,” in which tasks simply show up in someone’s queue when needed. No calls or emails, and nobody has to manually put something into a conversation log — it just happens. Similarly, if a condition is added to a loan, the originator can be notified automatically or the condition goes directly to the borrower to address.
The ability to speed up loan timelines, sell more loans and provide better service can often have a lot to do with an organization’s size and its approach to technology. When it comes to processing mortgages, both large and midsize lenders have advantages and disadvantages, which is important to know when choosing which company to align yourself with.
Generally speaking, the larger the lender, the more resources it generally has to leverage automation and workflow metrics to take much of the labor and costs out of the loan cycle. Also, they’re more likely to have a dedicated team that looks at workflow efficiencies.
For this reason, large lenders are typically better able to focus on granular elements of loan origination and identify elements that can be done faster, such as a particular borrower’s verification or disclosure.
That being said, large lenders — especially banks — have a more holistic approach to their clients. For them, mortgages are just another product along with auto financing, checking accounts, investment accounts and others. This means that proactively improving the mortgage process is not their top priority — they can basically take their time.
On the other hand, mortgages are the bread-and-butter for mid-tier lenders and independent mortgage bankers. They generally zero in on borrower satisfaction and convenience. It’s more important for these lenders to find ways to differentiate themselves. What better way to do this than by closing loans faster than your competitors while providing a better borrower experience?
It’s important to remember that technology can’t do everything. You can have the best technologies in the world, but if you don’t adjust business processes and operationalize them, there’s no point in bothering. If your process manual says you have to go to John or Jane and get them to sign off on a piece of paper, progress can’t happen.
This may be the biggest obstacle to change. Everyone involved in the mortgage production chain —from managers and underwriters to processors and salespeople — can be so ingrained in the way they’ve always done things that it’s hard to visualize a much better way. The key is not only taking the time to demonstrate the value of a more modern digital platform to the entire team but also to create new ways of doing business using that platform. It’s not the technology implementation that generates real results — it’s the operational change and enablement. This requires buy-in from the executive leadership level on down.
Another obstacle to change is the myth that speeding up the loan process through automation creates additional risk. The exact opposite is true: The more people you have in mortgage production, the greater chance there is for errors, simply because humans are more capable of making mistakes than machines.
Through more modern, cloud-based digital platforms, you can take the human element out of the process by automating many route-type actions while going straight to the source of data to ensure its accuracy. There is a time and place for human interaction, of course: You can automate as much of the loan process as possible, but there will always be exceptions that require special handling, such as borrowers who are self-employed or small-business owners. But wherever there is human interaction, there is a greater chance of error.
Another myth about modern platforms is that they are just as difficult to learn as any other system. The truth is there are modern digital technologies so intuitively designed that people with little experience working on any loan operating system can sit down and start using them immediately with minimal training. There’s no manual with hundreds of pages telling you how to originate a conventional loan. Their ease of use allows lenders to easily move away from their old systems.
● ● ●
Even in the midst of a global pandemic and soaring refinance demand, it’s still possible to reduce closing times and save money. At the end of the day, however, achieving this goal involves change — and change is rarely easy or comfortable. But looking at the big picture, it is certainly more profitable. ●