Here’s a story with a direct bearing on the mortgage industry. A consumer recently went through the experience of buying a car online. He kept a log of every activity within the process. He found and chose the car after a few clicks and used a ride-sharing service a day later to pick it up.
The total time to buy the automobile, including financing, was 35 minutes. He’s been evangelizing his experience to everyone who will listen because, in his opinion, it was far superior to any other automobile purchase he has ever made. Why hasn’t the mortgage industry similarly evolved?
For all of the attention and resources that the pursuit of the digital mortgage has commanded over the last decade, why isn’t the industry further along in achieving this goal? As many as 15 years ago, drivers could successfully purchase auto insurance online from the comfort of their office or home. Today — in a matter of minutes — a consumer can research, apply for credit and successfully purchase an automobile through their mobile device and have it delivered to their home just days later.
Consumers have grown accustomed to the simplicity and ease of self-service applications for just about every aspect of life — from finances to lawn service to child care. Digital is the only way many do business. It’s the “I want it now” generation.
To be fair, the mortgage industry has made strides in a positive way when it comes to leveraging technology to help improve the loan origination process. When it comes to comparing a borrower’s digital experience in the mortgage ecosystem with that of other industries, however, there still exists a chasm in terms of efficiency and performance.
Painful mortgage process
Equifax recently completed an anonymous Mortgage Lending Study in which participants were executives working at banks, credit unions, community banks and mortgage banks of all sizes. One participant had this to say about the slower pace of the industry: “The mortgage process is painful — too much paperwork, too many rules. I can buy a $100k car in an hour, but it takes 30 days to buy an $80k condo.”
The mortgage industry has started down a more efficient digital path with the introduction (and market acceptance) of online real estate sites and mobile-origination products and services, but what would it realistically take to improve the digital homebuying process in the way that online companies have revolutionized the car-buying process? From a practical standpoint, mortgages will always be more complicated and logistically challenging than car purchases, particularly when dealing with the purchase of an existing (already-occupied) home. Borrowers need to account for appraisals, inspections, moving-company logistics, title insurance, utilities set-up, etc. Those simply take time to complete.
What about new construction or loan refinances? Why, for example, is a traditional appraisal needed on a newly constructed unit in a condo development or a new home in a planned community? Why is it necessary to go through a lengthy title-insurance process on properties like this?
Recent products like Freddie Mac’s Automated Collateral Evaluation (ACE) program or Fannie Mae’s Day 1 Certainty are helping to eliminate the need for a full appraisal on certain eligible purchase and refinance loans. This question, however, needs to be asked: What else could be done to create the efficiencies borrowers are enjoying in so many other aspects of their lives?
Changing market dynamics
The industry is already paying a lot of attention to the self-serve digital-application process. In some cases, lender workflow also is in focus, with an eye toward leveraging technology and supporting products to help accomplish a seamless digital engagement.
What other elements need to be looked at to really move the needle? Who is focusing on some of the archaic and redundant requirements that continue to persist in our industry? Mortgage originators still have some road to travel in terms of really achieving the efficiency and automation demanded by many next-generation homebuyers, and we need an industry call-to-action to affect this type of change.
Market dynamics will likely accelerate this move. Data from the latest Equifax National Consumer Credit Trends Report tells us that first-mortgage originations in 2017 were down 7 percent year over year — the first decline in three years. Interest rates are projected to continue to rise in 2018, which likely will feed a continuation of this trend.
The purchase preferences of savvy, technology-empowered borrowers are mandating convenience and speed as a key component.
As a result, many mortgage companies will be challenged with improving operational efficiencies while managing increased competition for borrowers. The market dynamics are going to force the industry to find ways to extend the value of the investment that it has already made in the digital mortgage.
So, what realistically would the self-service experience be for mortgage lending? Today, despite the strides the industry has made in leveraging verification data (like employment, asset and income) to drive pre-approvals and accelerate the front-end of the process, borrowers are still — on average — looking at 45 days from application to closing.
In cases involving new construction and loan refinances, the infrastructure generally already exists to reduce that time frame to around 10 days. Consider for a moment what that would mean in terms of operational efficiency and profitability for lenders to be able to go from application to closing on all mortgages in less than two weeks.
Even though the infrastructure and technology exists now, it will take time for originators to evolve and include these practices into their everyday workflow. It is a cultural shift for originators who have historically employed a certain workflow for many years — to essentially reinvent how they engage with borrowers, and how their existing staff needs to utilize new technology and tools that can give them the efficiency to make a 10-day close possible.
Here’s another story about what the mortgage industry could be. John P. Consumer finds the home of his dreams and wants to purchase it before someone else realizes it’s the home of their dreams. Therefore, John goes online to apply for a mortgage loan.
Instead of John spending hours literally filling out more than a hundred fields of information, and uploading paystubs, bank statements and tax documents, a more efficient digital process could be implemented that would take him less than 20 minutes to get approved for a mortgage loan. John is smart and reflective of today’s buyer. The call to action here is for the mortgage industry to match the convenience borrowers are already experiencing in other areas of their lives.
Now think about what the ideal originator experience might look like. John chooses to work with an innovative originator with a modern online application process. The mortgage company uses workflow advances and potential new government-sponsored enterprise programs to make John’s application experience as frictionless as possible. The company can underwrite his mortgage loan and get it ready to close in 48 hours or less, effectively meeting — and perhaps even exceeding — John’s expectations.
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For generations, the mortgage industry has painted the picture of homeownership as the foundation of the American Dream, but increasingly, the home-purchase preferences of savvy, technology-empowered borrowers are mandating convenience and speed as a key component of pursuing that dream.
Across multiple industries, buyers are now making purchase decisions based more on ease-of-use and quality of the experience than brand loyalty. For those borrowers who are accustomed to instant access and gratification through their mobile devices, taking 45 days to close on the purchase of a home may represent an eternity. They can — and will — seek out better options. Those lenders who are able to capitalize on meeting those expectations will be the mortgage industry’s game changers of tomorrow.