Editor’s note: This feature originally appeared in the March issue of MReport, out now.
The mortgage industry is undergoing a time of dramatic change. In an industry that has for years been characterized by cumbersome, time-intensive processes, lenders are now responding to market demand and transitioning to digital services and automation. Even the U.S. Treasury and other regulators are actively urging mortgage professionals to embrace technology to remain relevant in today’s digital economy.
However, leveraging technology to streamline processes in a vacuum (i.e., adopting technology for technology’s sake) is not likely to help lenders succeed because there is still a significant segment of borrowers that want a face-to-face, person-to-person relationship with their mortgage lender. Lenders offering “mobile mortgages,” or similar programs, may have some success within their niche market, but will be unable to build meaningful long-term relationships with borrowers—a critical element of the overall lending process and the only way to ensure every family served is positioned for longer-term financial peace, not just a quick and immediate transaction.
There’s no question, technology is and will continue to play a role in enhancing the mortgage process for borrowers and lenders alike. Lenders should be prepared to embrace technology to stay ahead of the competition and customer needs, but the key to success will be in the proper use of technology to truly reduce expenses and foster a more convenient relationship-based mortgage experience for borrowers, not one that works to eliminate human-to-human connections.
Technology as a Mortgage Enhancer
According to Liberty Street Economics, automated underwriting processes reduce the time required to close a loan by nearly 20 percent. Considering it typically takes anywhere from a few days to weeks for lenders to underwrite a mortgage, such a reduction is meaningful and would certainly help lenders improve their relationships with borrowers. After all, a key source of borrower stress is the time they spend waiting for news of whether their loan has been approved or not.
A digital or online mortgage can also provide borrowers with a significant degree of convenience, allowing them to apply for a loan from virtually anywhere. Of course, lenders understand that many of the manual, ‘behind-the-scenes’ processes remain largely intact, but to borrowers, it can seem an entirely new experience. Some lenders have even taken this as an opportunity to leverage AI and machine learning to more easily identify, document, store, and report borrower information within their various departments.
Even considering the operational benefits of new technology, however, Fannie Mae conducted a study that found that the most influential source of mortgage information is still mortgage lenders themselves. Regardless of the quality of the technology or information provided, borrowers still regard lenders are generally more credible and trustworthy than merely going through a digital process. While borrowers may turn to digital and online technologies to support the process, recognizing that borrowers still want in-person guidance and education is the foundation of any lender’s value proposition.
Likewise, it’s the lender’s experience and expertise that allows the borrower to fully conceptualize their mortgage as a fundamental part of their future life. Lenders, for example, can provide borrowers with in-depth loan analysis tools that outline multiple scenarios and breakdowns of costs, interest rates, and potential monthly payments. Without the lender to provide context around such information, however, the value of these tools is easily lost and can frequently overwhelm the customer with more information than they can or want to understand on their own. As borrowers seek out lenders who bring more to the table than a low-interest rate or automated workflow, they will look to those who not only leverage convenient, resourceful, and educational technologies but also guide them throughout the mortgage process and serve as mentors to them.
Technology & Relationships
To create the most efficient and beneficial lending process, mortgage lenders should focus on utilizing technology to enhance the critical steps of the process that are most meaningful to their relationships with borrowers. Even though technology is improving every day, it does not negate the value of a significant, personal relationship between borrowers and lenders.
Consider borrower-lender communications as an example. Open and honest dialogue between lender and borrower is crucial to the speed and efficacy of the mortgage process. Lenders cannot qualify a borrower (much less understand their unique needs and financial situation) without honest insight into their finances and future goals, and borrowers cannot trust a lender who does not provide frank and up-front answers to their questions. It’s a two-way street. Great questions are often better than great answers, and generally, lead both lenders and their customers to better decisions.
While fully digital mortgages can accelerate the overall process, they can also create a barrier to open communication that minimizes or negates its positive benefits. Many borrowers have an aversion to submitting personal information in a digital form online or chat desk, but if the initial engagement is built upon a video call, for example, the lender can establish that face-to-face connection with borrowers from anywhere at any time. At that point, the lender can engage with the borrower through their medium of choice and have a clear connection between the two. Keep in mind, financing a home is much different from purchasing a book online, and is a decision people and families live with for years, if not decades. Technology can assist in the process, but will never replace insightful guidance and advice.
The intelligent use of technology should not only be applied to the origination process but to support borrowers in their home search as well. And, it’s here, where there is a unique opportunity for lenders to set themselves apart from the competition by providing access to mobile apps that feature the latest real-time MLS listings, same-day pricing updates, home value comparisons, and quick and easy access to local agents and loan specialists. Consumers need to be careful here, however, as most online home search technologies function more as marketing magnets than real estate advisors. Lenders will have to be cautious in their investment decisions and identify those home search tools that truly equip consumers to shop for a home with respect for consumer privacy and accurate data.
Also, there is an opportunity for lenders to use technology to better identify, target, and engage with borrowers at just the right time. Often, borrowers will approach lenders without understanding the critical role their current finances play in purchasing a home, not to mention their credit score. Technology can help lenders track these borrowers throughout their lifetime by providing periodic updates on their current financial situation or credit rating.
This helps the lender identify the best time to approach a borrower. Rather than sending out mass email blasts that may turn borrowers off, lenders can see when a potential borrower has reached the appropriate credit score and turn that into an opportunity to engage them and discuss long-term goals for the future.
Technology to Enhance Borrower Education
In addition to home search tools, borrowers benefit from technology that enhances their financial knowledge and wellness as well. Taking out a mortgage is no small endeavor, and making uneducated decisions can lead to significant complications down the road, or worse, a regretful purchase on the borrower’s part. To avoid such pitfalls, lenders can creatively leverage technology to help their borrowers make smarter mortgage decisions.
While webinars, ebooks, digital white papers, and workshops are by no means new, they do offer lenders a modern way of engaging with borrowers and educating them on the mortgage process. This is particularly true as borrowers want to learn and research such materials in a way that is convenient for them (i.e., quickly, in a mobile or digital format, from anywhere, at any time). And, as referenced earlier, borrowers still view mortgage lenders as more trustworthy than online sources. Those lenders who neglect to take advantage of similar tools run the risk of seeing borrower engagement decline as they seek out competitive lenders who do a better job of educating and informing them about the mortgage process and its impact on their long-term financial wellness.
Ultimately, lenders should be working to establish themselves as trusted advisors to borrowers and their families, in addition to helping them feel more comfortable with the overall process. This will often require more personalized solutions. This plays a critical role in borrower education as the needs of one borrower differ from the next. Such details must be accounted for in the borrower education process, and thanks to modern data analysis tools, lenders can better tailor specific resources to meet the needs of various types of borrowers.
Digital technology is a powerful tool for the mortgage industry. Not only do customers expect lenders to engage with them within channels they are familiar with, but once time-consuming processes are automated or streamlined, lenders can focus their efforts on borrower engagement and satisfaction. Shifting to a fully automated lending process will not appease all borrowers, however, and could equate to some lenders losing touch with their customers.
As lenders look forward to the remainder of 2019 and beyond, they must determine how technology, and all its complexities, fit into their strategic vision. The goal is not to chase the latest and greatest technologies with little to no return on investment, but to selectively—and strategically— invest in products, services, and resources that drive engagement and enhance the borrower experience in a meaningful way.