Residential Magazine

Prepare for When the Pendulum Swings Back

Artificial intelligence can help you overcome current challenges and plan for future success

By Joseariel Gomez

Over the past year and a half, the mortgage industry has suffered through a challenging economic environment. Since the Federal Reserve began raising baseline interest rates in March 2022, lenders and originators have experienced a historically difficult period.

Home mortgage lending fell to a 23-year low point in the first quarter of this year, according to Attom. Lenders originated only 1.25 million mortgages for residential properties, defined as homes with one to four units. That’s the lowest number for any quarter since 2000. As the Fed attempts to navigate a soft landing for the U.S. economy, mortgage originators are struggling with declining loan volumes and trying to make do with what they have.

Other factors, including rising costs of funds and regulatory changes to Fannie Mae and Freddie Mac, have made it difficult for mortgage companies to generate revenue. This environment has led to a marked increase in layoffs, exacerbating the challenge. To combat the dwindling workforce, mortgage lenders and their originator partners can leverage rapidly improving workflow automation technology to come out ahead when the industry eventually turns around.

Innumerable uses

The early part of this year also coincided with vast improvements to — and widespread fascination with — artificial intelligence (AI) technology. Breakthroughs in generative AI tools, such as ChatGPT, have captured the imaginations of experts and laypeople alike.

While workflow automation solutions and AI have seen increasing implementation across several industries, their uses in financial services (especially mortgage processes) have been uneven. Financial services are complex and involve nuanced, meticulous details that vary for each client, account and transaction. AI products for financial institutions need to be specifically tailored and data driven. Despite the obstacles, many use cases for AI in mortgage processes exist.

The most obvious of these uses is in customer service. Generative AI has the potential to enable virtual mortgage agents, which can create appropriate responses to client questions and provide helpful guidance. When incorporated into the mortgage provider’s back office, AI-enabled virtual agents can offer applicants detailed information about their loan without sifting through countless files and hours of research.

The implications for the mortgage industry, however, go beyond that. With notoriously long funding times, the mortgage process primarily involves communication between the applicant, lender and third parties such as brokers who request documents and other data. Originators need to determine the documents they have and the ones they need, then individually contact applicants and third parties with requests.

With generative AI, mortgage providers can automatically request, collect, process and archive the necessary documents from all parties involved. Going a step further, AI-enabled agents can then analyze the state of the mortgage application and decide on the next best action to move the loan toward closing. By automating these processes, mortgage providers can save innumerable hours and focus on other tasks.

Dramatic efficiencies

Similarly, intelligent document processing innovations — extracting the contents of a document, identifying the data points and understanding their meaning in regard to the mortgage application — can dramatically improve the lending process. Today, mortgage processes involve manual scanning of documents to find, sort and catalog all relevant information.

With intelligent document processing, mortgage providers can instantly consume all the information they need upon receiving a document. With this and other types of automation, lenders can liberate themselves from countless work hours where they previously would have needed to manually process documents and extract information.

Fraud is one of the largest expenses for mortgage providers. They spend exhaustive hours and resources on combating mortgage fraud cases. Countermeasures must be equally potent as fraud schemes grow increasingly sophisticated. Mortgage providers can also use AI for fraud-detection purposes.

AI-based anti-fraud systems can automatically review massive amounts of data and detect patterns of behavior typically associated with fraud. While it might take a person many hours to review each instance one by one, AI systems can scan thousands of cases in a matter of seconds. In cases where the evidence is inconclusive, AI systems still do the heavily lifting and the automated system can flag them for manual review. At the same time, knowledgeable workers can apply their expertise to the most challenging cases.

Improved experience

AI can also improve general workflow automation. Mortgage and financial processes involve a number of manual and highly repetitive tasks. These tasks soak up significant time and resources, even though they generate little revenue. As the mortgage industry experiences a wave of layoffs, fewer people are doing these monotonous (albeit necessary) tasks, thus slowing things down and negatively affecting revenue.

By instantly completing these tasks and gradually improving the processes, AI-enabled workflow automation steadily and meaningfully increases efficiency. Contacting applicants and transferring data across legacy systems that cannot communicate with each other occupies a significant amount of time for mortgage companies. Automating these tasks can help mortgage providers overcome labor shortages, create consistent processes and increase profit margins.

In all cases, new AI and automation technology tools increase efficiency and impact the cost to serve, the time to funding and the application-to-funding ratios. By automating some of the time-consuming yet most important steps of the mortgage process, companies can fund loans faster and deliver a better client experience.

AI will continue to evolve and adapt in the coming years. This technology will improve and more is yet to come. It will reshape how the mortgage industry goes about its processes. It is equally crucial for mortgage providers to carefully consider the products they need and to not just pick one that is popular. It is easy to fall into the hype and invest in the “new big thing” for the sake of it. Mortgage professionals must assess their needs and find tools that fill any gaps.

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While current economic conditions are unfavor- able for the mortgage industry, nothing is permanent, and the pendulum will swing the other way sooner or later. When that time comes, the people who prepare now will be the ones who come out on top. By implementing ideas that increase efficiency, mortgage companies will improve their operations and set themselves up for success in the years to come. ●


  • Joseariel Gomez

    Joseariel Gomez is the founder and CEO of Shastic, an intelligent process automation platform that allows financial institutions to automate and significantly speed up banking processes while maintaining a personal touch. Gomez’s design of Shastic’s workflow automation architecture combines intelligent process automation with real-time analytics and artificial intelligence to fulfill data-driven automated actions along complex banking processes.

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