This feature originally appeared in the February issue [1] of MReport.
Software developer Jeff Atwood once said of technology, “We have to stop optimizing for programmers and start optimizing for users.”
Where will technology take mortgage next? Will we ever reach a point where buying a home is as easy as buying Christmas gifts on Amazon? Fannie Mae’s latest Mortgage Lender Sentiment Survey reported lenders saying they want to see an improved front-end consumer experience.
The survey noted 44% of lenders polled want to see frontend consumer experience improved and 18% said they feel back-end operational efficiencies are most important. Kimberly Johnson, EVP, COO, Fannie Mae, and the author of the piece, said, “Digitization is rapidly changing how organizations create value and compete.”
For this month’s cover story, leaders from Flagstar Bank, Planet Home Lending, and more recently discussed the future of technology with MReport, including its current impact points and what challenges could arise in the years to come.
The Growth of the iBuyer
A report by Redfin in December 2019 found that iBuyers purchased 3.1% of homes during Q3 2019 across 18 markets—up 1.6% from prior years. Raleigh, North Carolina, was home to the largest share of iBuyer purchases at 6.8%, followed by Phoenix at 5.1%, Atlanta, Georgia’s, 4.4%, and Charlotte, North Carolina’s, 4.3%.
Nima Ghamsari, CEO, Blend, said the housing industry needs to make the homebuying process accessible via digital channels, using technology to optimize paperdrive processes.
“iBuyers are working toward a one-tap consumer experience, all the way from finding a home to financing it to eventually selling it,” Ghamsari said. “This high standard is something the industry should celebrate and embrace, bringing the same simplicity to traditional transactions.”
Echoing those sentiments, Finicity CEO Steve Smith said for the industry to cater to those buyers, it must make the process as simple as it can be—or even making the process so simple the borrower can do it on their phone.
Smith added, “removing friction from the buying and selling process should be a business mantra.” “Consumers have clearly come to expect more from their experiences across all industries and interactions,” Smith said. “So, this may mean doing more on mobile or digitizing processes.”
Rocky Stubbs, SVP Direct Lending, Flagstar Bank, said the industry needs to think carefully about the credibility challenges that technology brings.
Muthu Srinivasan, Chief Technology Officer, Planet Home Lending, said consumers have been buying and selling houses for ages, but the advent of technology can make the process better and seamless.
“As a borrower trying to purchase or refinance my home, there are a number of items that I need to get through—apply for a loan, get my assets and liabilities verified, pay for the closing cost, insurance/title and so on. As a technologist, I think about where technology can come in to make sure the entire process is seamless and smooth for any borrower,” Srinivasan said.
To best keep up with its growing customer base, the mortgage industry needs to better understand tech-savvy buyers, their buying habits, and purchasing channels, said Sudhir Nair, Chief Information and Technology Officer, loanDepot. Nair said, “companies that take the time to do so and can effectively capture this data as knowledge will be able to leverage it in order to better interact with iBuyer customers and reduce time to close on purchase transactions. The focus should be on optimizing the user experience by finding better ways to gain knowledge about them.”
The Amazon Effect
Buying Christmas gifts has never been easier thanks to Amazon. Am I Right?
Forget having to deal with traffic, lines, and goodness forbid the mobs of people the day after Thanksgiving trying to save $100 on a 70-inch television. Statistics published in Forbes back in 2017 found consumers on Amazon spent $1.4 billion on Black Friday, nearly $2 billion on Cyber Monday, and $4.3 billion during the week of Thanksgiving.
Purchases on Amazon accounted for 28.4% of all consumer sales during the week of Thanksgiving back in 2017. Amazon’s immediate, convenient nature is changing how consumers shop.
Ghamsari said the use of Amazon is widespread and has a major influence on how consumers interact with technology.
“Providing customers with anything they need on a simple and seamless service creates a consumer that expects the same from every online shopping experience,” he said. “This means all companies have to match that simple, intuitive experience to meet consumer expectations.”
Speculation has been rampant that Amazon is testing the waters of entering the housing industry since its partnership with Realogy was announced in July 2019. An Amazon spokesperson noted the retail giant is not getting into real estate. The partnership, according to the spokesperson, allows consumer to enjoy benefits of smart-home products. Amazon’s role in the TurnKey program is to fulfill the Move-In Benefit, which includes home services and products after they purchase a home through Realogy. Stubbs said Amazon hasn’t been a player in the housing industry—yet.
He noted that the backed AWS cloud services have empowered “massive transformation” and helped create the Software as a Service space in cloud computing rather than local software sales. Srinivasan said Amazon, and the processes it uses, made consumers realize “anything is possible.” “The home buying process has been around for ages, but how can a company like Amazon come in and show anything is possible to an industry that has the processes, the regulations and all that goes with it. How can we take technology and improve it?”
Srinivasan asked. Srinivasan said he thinks of Amazon as not just a company, but as a lesson that anything is possible.
“And I would like to use that and apply it to my industry and say, ‘How can Planet Home Lending take technology and make the whole home buying process easy and simple for the borrower.’ That’s how I look at it,” he said.
Smith said one of the most important aspects Amazon has shown consumers is how simple the process can be and how much power they have. “One-click purchases for homes won’t happen tomorrow, but the simplicity of having access to the data needed for a customer to make an offer on a home, submit a mortgage application and have it all routed correctly to their preferred lender, title company, etc. in a much simpler process than what it is today isn’t that far away,” Smith said.
He added that the retail giant has already solved how to digitally transform retail, but their impact has been felt in how lenders in the mortgage industry can deliver similar experience when buying and selling a home. “If today’s lenders don’t move, and move fast, then someone like Amazon will come in the market and make it happen,” Smith said.
Digitizing Mortgage Lending
Fannie Mae’s Mortgage Lender Sentiment Survey from November found lenders want to see a focus on improving frontend consumer experiences.
“Digitization is rapidly changing how organizations create value and compete. Through previous studies, we found that lenders have consistently shown a strong interest in leveraging technology to improve both the front-end consumer experience and backend operational efficiency,” said the author of the piece, Kimberly Johnson, EVP, COO, Fannie Mae.
Fannie Mae says 44% want to see improvements of the front-end consumer experience, 18% say they feel back-end operational efficiencies are most important Thirty-six percent said that both are equally as important.
“Today, the majority of lenders have taken a more compartmentalized approach to technology use and tend to focus more on application intake versus truly delivering a great borrower experience with real tech optimized operations. While they have some of the technology solutions available, many lenders do not require that their full teams use the solutions nor do they truly train them to use it in an optimized way and thus they allow a lot of ad-hoc structures and process flow to exist that may go around the technology. By allowing this, it’s hard to measure the real value-add when the technology goes live,” said Jennifer McGuinness, Head of Aggregation & Structured Finance at Mortgage Venture Partners. “And if they were to train more efficiently and require consistent use of these technologies, they would see a more significant uptick in volumes and also operational efficiency.”
McGuinness added that a lot of alleged “borrower experience” front-end technologies are “glorified loan application engines” verses full lifecycle technology solutions which should include everything from without limitation lead intake to loan application, processing, condition clearing, diligence, and service set up. She added without in a more “full-scope solution,” they don’t add much value away from a standard application process that lives in a loan origination system.
Ghamsari said of the idea of technology improving mortgage lending: “We can’t wait until we have a perfect solution to drive change.”
He added that to improve the housing industry, professionals “need to put a stake in the ground” and iterate from there.” “If we can automate loan files that don’t need extra attention, we have more bandwidth to focus human capital on helping special cases reach their goals,” he said.
Stubbs said there are “virtually unlimited” impactful ways to introduce technology to mortgage lending. “The most powerful near-term lever is to reduce burden and complexity for the customer. While there are many things that have to evolve first, there is no fundamental reason that a mortgage approval cannot be completed in one day,” he said.
Nair added that the mortgage industry needs to utilize technology to “re-imagine” the user experience from origination to servicing.
“We need to continue to get smarter about what consumers want and need, and in turn, help educate them about loan products and services,” Nair said. “By being proactive with data we can better influence their buying decisions.”
Smith expanded on this thought, adding lenders can best utilize technology to provide borrowers with “the experience they want.” He added customizable processes are vital—even customizable by channel. Smith, additionally, said borrowers want the process to be as simple and painless as possible.
“They want to spend the least amount of time possible verifying, confirming and providing extra information,” Smith said. He added that one of the best ways to go digital is through digital verifications. These can cut up to two weeks off the time needed to verify assets, income, and employment.
“It is a good first step to utilize technology to make an impact in both the satisfaction with the customer experience and the cost and time savings to the lender and loan officers,” Smith said.
Another item that could improve the consumer experience is the addition of eNotarization. A report by Yahoo Finance from January said that eNotary laws went into effect January 1 in Florida, Idaho, Kentucky, and Oklahoma.
Twelve other states could consider eNotary laws or remote laws in 2020. While there is demand for this service, McGuinness said compliance on eNotarization could get “really tricky” unless for example, video is taken or other validation to confirm that all parties that are supposed to be involved actually are.
“I think that if they don’t do that or they only have a ”one-sided” validation, the industry may be opening itself up to new fraud and this is exactly what technology should be helping us to insulate,” she said.
Too Much of a Good Thing
Technology is present in every facet—almost every minute—of our daily functions.
Nair is not too concerned about the too much of it, but instead, his worries at that there could be too many tools aimed at solving narrow business problems, which has led to poor user experiences.
“It is very important to first understand what the customer wants and needs before determining how best to solve business operation challenges using the right data, technology and tools,” he said. “A major downfall for our industry has been the lack of using an ‘applied technology’ approach to integrate fragmented business processes to gain speed, agility and efficiency.”
Ghamsari said technology needs to be built with core principles of simplicity, transparency, and maintaining high loan standards.
“Pairing this technology with lenders who have real people helping consumers through a daunting process, can only enhance a consumer’s home buying experience,” he said. Stubbs, however, noted that the industry has nothing to fear from a possible thought of too much technology, but said there could be challenges to having too many solutions to the same problem.
Stubbs added, “It’s a natural part of innovation to have periods where there are competing solutions, but natural selection tends to operate on them and the best solutions emerge in time. I don’t think any customer will mind if someday getting a mortgage is similar to getting a Coke from a vending machine.”
Smith there will always come a point where too much of a good thing can be bad, and the hurdles technology need to get over are building trust and comfort with consumers. “Going through a complete digital process isn’t what everyone wants, so loan officers need to have different options available when someone doesn’t want to permission their bank data and would rather email PDFs or deliver paper documents,” Smith said. “As much as lenders need to adopt new technology they can only do it as fast as borrowers are willing to use that new technology.”
Lenders, Smith said, need to educate borrowers on the new and improved experience technology can deliver, and the same can be said for loan officers.
He added that the mortgage process won’t be efficient and automated until loan officers are comfortable with their role and how they can close more loans.
“The biggest risk would be instituting technology that either isn’t used or isn’t a better process, it’s just digital,” Smith said.
McGuinness said one of the largest challenges is integrating new technology with legacy systems that are antiquated. She noted many of the largest servicing systems are “still on black and green screens with hot button wrappers” and that she wouldn’t attempt to update a legacy system unless the tech provider is building their own solution to allow for a true integration of a lenders selected technology partners via API’s or refinements to their core.
“If they’re not moving it into a more technology driven base case, I would actually instead use web or app-based technology and then push and/or pull data out of the older system if the organizations are not able to retire those systems until when or if they can be replaced with something else.
The sad reality is you will find pretty regularly that they cannot be replaced, as a clean transfer to a new system is not possible and thus its lower risk to retain what is already there thus the “wrapper” around these systems will need to remain. but even using this method the lender is delivering a better experience both for users internally as well as their client base,” McGuinness said.
On the Horizon
Ghamsari said every year the industry moves closer to “making every step of the homebuying journey digital.”
“The technology is already available, and we’re starting to see widespread adoption. 2020 is the year where the different technologies developed in the last ten years should begin talking to each other,” he said. “This way consumers have one place to do everything—from understanding what they can afford all the way to digitally closing on their dream home.”
For Stubbs, the technology he is most looking forward to in the coming year is the evolution and adaptation of blockchain technologies.
“So much of the home buying process is in perfecting the lien and chain of title. It’s also one of the most costly and time consuming parts of the transaction,” Stubbs said. “Blockchain holds the possibility to make title search, recording, and insurance completely unnecessary, and reduce costs from thousands of dollars to just pennies.”
Smith said the new technology that will impact housing in 2020 are: Truly digital, automated verification of income and employment and an “incremental move” to open banking.”
“Lenders now have access to a truly digital, automated verification of income and employment (VOIE) solution that triples the success rate of current employment verification solutions. Whether used in conjunction with other services or as the sole VOIE solution,” he said.
Smith added that this process for VOIE uses consumer permissioned data from bank accounts and a digitized paycheck to verify income and employment that can be used to underwrite a loan. Smith said this new technology could “drastically” reduce closing times and that the customer experience is very simple.
Furthermore, Smith said large financial and non-institutional lenders are starting to come around to the idea of a global data-sharing standard that would “lay the foundation for innovation” around consumer-permissioned data.
“When this data is freely available anytime a consumer wants to use it to their benefit, lenders and financial institutions can depend on having access to certain pieces of data that can drastically reduce the time it takes to underwrite a mortgage,” Smith said.
He added that the Financial Data Exchange (FDX) is working to establish a global standard for secure financial data sharing. Many of the largest banks and mortgage lenders are members of FDX and are working to make data access a simpler proposition for everyone.
McGuinness said she is hoping to see lenders focus on technology platforms that metamorphosize the full lifecycle versus just being focused on one small “silo” such as the application process which is a generic user experience upgrade at best.
“I think as we move through 2020, that this will begin to take shape There’s a lot of guys all doing the same thing and I think that you’re going to start to see certain companies that are all focused on the same space go down, devalue or be consolidated” she said.
Nair said the power of data— or the knowledge we gain from it—will help the industry better understand consumer preferences in order to provide them with faster service in an efficient way by the use of AI.
“Consumers are used to one-click shopping for nearly all purchases and their home shopping experience shouldn’t be any different, whether it’s acquiring a home loan (purchase or refi), or making payments, or changing escrow in servicing. “Mass digitization is the future of housing,” Nair said.