Everyone has heard the saying that there’s no substitute for speed. People often apply this to the sports world, but it is a vital component of many aspects of life, from restaurants to airline service.
The mortgage industry is no exception, and speed is quickly becoming a differentiator for top lenders and originators. New technologies are constantly being deployed to update loan processes and mortgage professionals are under pressure to keep up — particularly in regard to the more time-consuming aspects of the loan cycle.
Why should you care about speed? In addition to maintaining a service advantage, there is another compelling reason. Data demonstrates that the mortgage companies that close faster also close more loans. And when individuals and their companies capture more closings within a specific time period, they grow their revenues and profits.
Time equals money
Loan closing data tracked by Incenter from public and private sources for more than 10 years is illuminating: The average lender in this data population closes about 65% of its loan requests, with overall closing rates ranging from 50% to 90%. Lenders that have streamlined more processes can reach the higher end of this scale and earn more money per transaction.
When it comes to the lower end of the scale, the costs associated with losing 50% of your business can quickly devour any profits from the transactions that do close. To illustrate this point, picture the pull-through rates (the share of applications that result in closed loans) for three hypothetical lenders:
• Lender A has an overall closing rate of 62.5%. This company starts slow and closes less than 1% of its loans within 30 days. More than half of its closings take place in 31-90 days while another 10% take more than 90 days.
• Lender B is a bit faster out of the gate and closes 7% of its loans within 30 days. Within 90 days, it funds another 60% of its requests for an overall closing rate of 82.2%.
• Lender C hits the ground running. It closes 25% of its loans within 30 days and another 53% within 60 days. Only 2% of its business takes more than 90 days to complete and it has an overall closing rate of 90%.
These scenarios demonstrate how closing more quickly leads to doing more business. Lender A is slightly below the average lender. The company is quite slow out of the gate, completes much of its business in the third month and closes out some frustrated clients in the fourth month. This lender likely needs to speed up all points in the process.
Lender B climbs to a pull-through rate of more than 80%, which is strong, while Lender C is extremely fast and is likely the most profitable as well. By closing so quickly, Lender C also eliminates the temptation for borrowers to seek their mortgage elsewhere. Before they know it, they are homeowners, making them more likely to refer friends and family to the same originator.
How can other lenders get to the level of Lender C? The answer lies in tackling the steps in the mortgage cycle that inevitably lead to bottlenecks and delays. Many of these processes can be outsourced to experts that have already found ways to minimize obstacles — especially in relation to title search and settlement, appraisals and closings.
Incenter data suggests that title work typically takes seven to 10 days to complete using traditional methods. To create a competitive advantage for the lender, however, it is better if this time can be dramatically compressed. Many lenders are now working with title agencies that combine artificial intelligence and machine learning to deliver fast-look title decisions and keep the mortgage lending process moving forward.
As a result, title agencies and their lender partners are clearing many clients to close within minutes or hours. And when they do identify issues via this technology, the curative process can often begin and end more quickly, too.
The confluence of the COVID-19 health crisis, a competitive homebuyer marketplace and an immense backlog of valuation requests also have led to the need for more efficient appraisal inspections. Various technologies are now available to conduct appraisals remotely, thereby enabling appraisers to eliminate the travel that can consume much of their time and limit their output.
The most recent solutions, which meet accuracy guidelines, empower appraisers and inspectors to take time-stamped images and close-ups using a homeowner’s camera. They also can capture gross living-area measurements. This helps to shorten the interval between assigning the appraisal and delivering the valuation or inspection report from up to a month to only a few days.
Moreover, it’s worth mentioning that these same technologies are helping mortgage lenders and servicers to improve performance after loans close. For example, after a tornado, blizzard or flood damages a neighborhood, servicers need to make the properties in their portfolios marketable again as quickly as possible.
One major holdup, however, is the cumbersome process to validate property repairs as part of an insurance company’s loss-draft process to reimburse the homeowner. Remote inspection technology is now being used to enable professionals to conduct inspections from their desks, finish their reports and ultimately get mortgage assets on the path to reperforming.
The final (and arguably most vital) step in the mortgage process is the closing itself. This process can seem endless as all parties sign multiple documents. The notarization of these documents has been a frequent point of friction, especially during the pandemic. Is there a way to speed up these closing processes?
Remote online notarization solutions have received more attention as a result of the COVID-19 crisis. These tools have laid the foundation for a continued transformation of the traditional in-person, paper-intensive closing process. They are able to instantly create contracts and agreements online, with electronic notary seals and signatures, which will enable new efficiencies (not to mention less paper) as they become more standard over time.
The pandemic provided a jolt to the mortgage industry, and the smart players in and around the business took the time to reexamine their processes. They are looking for streamlined solutions that will allow them to close faster and drive up their profitability. Like a speedy wide receiver, these mortgage companies are the ones that streak to the end zone. They are always seeking to capitalize on new opportunities to optimize their work, thus enabling them to scale their business and improve service while saving time and money. ●