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Capitalizing on the Digital Push

Editor's note: This story originally appeared in the January edition of MReport.

At the end of every year, it’s human nature to look back and see what went right, what went wrong, and what could use some improvement. But 2020 was no ordinary year, and the number of lessons lenders can potentially take away from the past nine months alone would fill several books.

But if we learned anything this past year, it may be that most lenders thought they were a lot further down the path to creating a digital mortgage experience than they actually were. In fact,a lender’s overall approach to technology proved to be a real differentiator in how well they did this past year. It will likely be the case in 2021 as well. The key is understanding how.

Lessons Learned
To be sure, every lender has struggled to adjust to sub-3%interest rates and the global pandemic. But their fates varied widely. Those that had the foresight to invest in more cloud-based digital technologies prior to the pandemic were in a much better position to handle the enormous spike in borrowers looking to refinance,as well as shifting their own businesses to a remote work environment. Many others, however, were caught flat-footed.

Those that found themselves in the latter group typically found it necessary to beef up their sales and underwriting teams rather than upgrade their legacy technologies, which inevitably impacted their profitability. Even with larger teams, though, many still struggled because they lacked the ability to streamline workflows, increase efficiencies, and reduce closing times—capabilities that come with more modern mortgage production platforms.

Shifting to remote work when social distancing protocols went into effect only made matters worse. When branches closed and borrowers could no longer meet loan officers in person, many lenders were left scrambling to adjust their operations and to find new ways to attract and maintain communication with borrowers.

While nobody could have predicted what happened, lenders that were tied to a centralized location were caught completely off-guard.

Some lenders didn’t even have work-from-home procedures and tools to be able to transition to a distributed workforce and had to implement them on the fly—while simultaneously trying to keep up with volume.

Hopefully, by now, every lender has a much better idea of how valuable cloud-based technologies are that enable their teams to work from home as well as enable borrowers to handle much of the mortgage process themselves— through online applications, eSignatures, and hybrid or full eClosings. Because the need for
these technologies won’t go away when life returns to some sense of normalcy.

A Permanent Digital Shift
Whether some lenders return to the same brick-and-mortar strategies of the pre-pandemic era remains to be seen. But what is clear is that consumer behaviors have likely been permanently changed as a result of COVID-19. To some degree or another, every U.S. consumer is relying on technology and self-sufficiency in their daily lives more than they ever had before. This has affected many industries, not just the mortgage business. For instance, few consumers used delivery services such as DoorDash and Instacart prior to the pandemic.

Now it feels like everyone is using them. While the end of the pandemic may cause many consumers to revert back to in-person dining and shopping, these new digital businesses were already growing before the pandemic, and it’s hard to see that growth slowing down. Most lenders have now realized they will be significantly more dependent on digital technology in 2021 and beyond. Even without a pandemic, providing borrowers with automated, self-service options has become increasingly important for mortgage lenders.

These options will become even more vital in 2021as more millennials and even Gen-Z consumers
enter the housing market. Lenders that had the foresight to prioritize digital technology and borrower self-service as a long-term strategy two or three years ago were in a better position to handle the extreme loan
volumes that tripped up so many competitors. Their fortunes have resonated with the rest of the industry—in fact, we are seeing more lenders looking at replacing their legacy mortgage software with digital technology than ever before, having experienced firsthand the flip side of not adopting them earlier.

The challenge, however, is understanding what technology strategy is best. To answer this question, it’s useful to look at industry trends emerging and the specific tools lenders will need to address them in the coming year.

For example, our own industry is likely to see more companies getting into the space that are online only and use completely digital processes. We may also see more traditional banks and lenders take a more careful look at the rents they’ve been paying during the pandemic, when nobody was using their facilities, and begin looking at a more remote model that will help with their profitability. For most lenders, it’s going to be crucial to leverage mobile technology that provides loan officers with automated tasking, notifications about when things are due, proactive lists of needs, and alerts about when they need to follow up with borrowers. This way, a lender’s sales team will be able to build relationships with their customers no matter where they
are and streamline the application process.

Borrower self-service technology that enables consumers to shop and apply for mortgages, eSign disclosures, submit loan documentation online, and participate in hybrid or full eClosings will be increasingly important
as well. During the past nine months, more and more people have become comfortable with online closing procedures as well as remote online notarizations, which will eventually become the way of the future.

However, when we return to a normal work environment, most lenders will still need to have that on-the-ground sales network. We tell our own clients this because even though we’re a technology company, it’s incumbent to look at mortgages as a 360-degree experience. Some borrowers want their hands held through the process, while others want to do the work themselves, and that will always be the case. There’s no turning back from providing a digital experience, but it’s also important not to lose sight of the personal touch.

Prior to the pandemic, artificial intelligence (AI) and machine learning were getting a lot of attention, and it’s inevitable that both technologies will continue to grow in use. But lenders need to realize that effectively using
these tools begins with having the right data. You’re not going to get effective AI and machine learning results unless you have a large enough data set to allow for valid, predicted results. In many cases, lenders are sitting on 20 or 30 years of data. They’re only now beginning to see the value of data and the ability to use analytics and data modeling to predict things like borrower fallout and early payment default risk.

What’s Coming in 2021
While the ultimate impact of the pandemic remains to be seen, surely the big story
next year will be how it affected mortgage volumes and the overall economy. Hopefully, it will improve our industry’s ability to prepare for future disasters or disruptions and lead to more time spent on risk analysis and
risk assessment as part of internal strategy sessions.

The other big story is going to be what happens with interest rates and how lenders deal with an eventual shift in the rate environment. That discussion will involve how to mine leads and how to build better and longer-
lasting relationships with borrowers, Realtors, builders, and other partners. I think we’ll also be talking about what additional regulatory changes were made with the new presidential administration and how the Consumer Financial Protection Bureau’s role will change as well as what it will look like.

A year from now, lenders will also be looking at what impact the new Uniform Residential Loan Application (URLA) form had on their overall profitability.

Did the new form really help borrowers or lead to greater customer satisfaction? Greater employee satisfaction? I think we’ll learn that, ultimately, the new form itself will not have much of an impact, but how well lenders implemented the form to create more digital
processes definitely will.

The bottom line is that 2020 will go down as a watershed year for mortgage lenders. Whether the events of the past 12 months will prove effective at inspiring longterm—and long-needed—change remains to be seen. Hopefully it will, and hopefully we’ll never face another crisis like COVID19. But if lenders once wondered
whether digital technologies truly make a difference in their businesses, I doubt they are wondering anymore.

About Author: Joey McDuffee

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MCDUFFEE is a VP at Blue Sage, a provider of innovative, cloud-based digital lending technology for retail, wholesale, and correspondent lenders that delivers a superior lending experience for all users throughout the loan process. McDuffee has more than 25 years’ mortgage technology experience. He can be reached at jmcduffee@ bluesageusa.com.
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