Editor's Note: This feature originally appeared in the April issue of MReport.
Digitization came late to mortgages, and while technology is increasingly playing its part in advancing the efficiencies of an industry that has relied mainly on traditional and slower methods of communication, the speed of adapting to these efficiencies is what matters. According to a CB Insights report, fintech in the mortgage realm is only taking off now. “Originating, processing, and underwriting a home loan with a large bank lender still requires faxes and snail mail and takes almost as long as it did 20 years ago,” the report said.
Tech companies sat up and took notice of this gap, and the result was mortgage technology companies that specialize in applying digital processes to almost all aspects of the mortgage and servicing industry. From processing and workflow, analytics, marketplace lending, and mortgage auction to eMortgages and digital mortgage brokers, tech companies have found a foothold in almost every aspect of lending.
Now, as the industry gets more customer focused, lenders are waking up to the advantages of technology that provide increased efficiencies and decreased time in loan processing and servicing for them and the borrower. So what’s shifting in the mortgage industry to bring about this technology revolution?
Movement in Efficiency and Experience
Today, financial services companies are more concerned than ever about the ways tech is enhancing customer service.
“I hear the word speed a lot in relation to technology. Fast processes to reduce time and expense seems to be a constant theme,” said Sean Ryan, CEO, Aspen Grove Solutions. “In fact, technology is helping everyone get closer to the consumer and provide better experience and service.”
Increased efficiencies have become a key driver in an increasingly competitive lending industry, with enhancing consumer experience being perhaps, the main reason that’s driving lenders to innovate. “Technology has helped us in differentiating all our products. It allows us to scale and affords us the opportunity to focus on customer service and experience. It also allows us to offer a better rate than some of our competitors in the market and reduce the operating costs.” said Scott Goldman, Senior Director, Mortgage Servicing at Ally Bank. “For example, through technology, we can offer our customers a price match guarantee on our originations at no additional costs.”
“Many of our customers are returning to us for that next purchase or their refinance. So we are establishing a seamless digital experience for them, all the way from application through the closing. Our customers want us to engage with them on mobile so that we will have a very heavy emphasis on this aspect of technology as well,” said Rocky Stubbs, SVP, Consumer Direct Lending at Flagstar Bank. “Our end goal is to build a technology ecosystem that empowers the loan officers to provide a personalized experience for our customers and keeps relationship and engagement at the center of that experience.”
Apart from empowering organizations to make them agile and nimble, technology is also helping lenders to quickly adapt to industry changes while maximizing efficiencies and reducing risks, as well as enhancing borrower experience, according to Kamel Boulos, CTO, ClosingCorp. “Technology can enhance the borrower experience by providing a unique journey to support their specific situation. This centralizes the collaboration and creates complete transparency between all parties associated with the mortgage transaction including borrowers, real estate agents, lenders, investors and third-party providers,” said Boulos.
However, it will be important for the industry to focus on improving the customer experience while following regulatory compliance. “In today’s industry, we are starting to see mortgage technology solutions shift much more toward improving the client experience as well as educating the borrower. Current innovations are leading to transparency-based, borrower-centric solutions now galvanized by the desire for simplicity, efficiency, and accuracy throughout the process of acquiring a mortgage,” said Justin Vedder, VP of Origination Solutions at Altisource Portfolio Solutions.
Pulling in the Same Direction
While speed and enhanced customer experience might be a big bonus for lenders, they still have the uphill task of implementing new technology. According to a recent survey of lenders on digital initiatives by Fannie Mae, when it comes to technology 34 percent of lenders said that updating their IT systems were a major challenge for them, followed by 32 percent saying that getting key players to follow requirements proved to be a stumbling block when implementing new technology that would enhance their efficiencies. Thirty percent of the lenders said that working with vendors and ensuring data quality are major challenges for them.
These statistics and challenges seem to turn the need for speed and efficiency on its head. Collaboration then is a key factor that can help lenders and technology companies work together to enhance customer experience and overcome these challenges. “Implementing technology that is built to do what a business needs today can become a giant anchor that weighs down the business when the landscape changes. Technology can only cater to changes in financial services when it’s not locked into the way a business operates today and can only become a competitive advantage for dealing with change when it allows for data and rules to evolve and address those changes,” said Jason Roth, CTO, ComplianceEase.
According to Shelley Leonard, Chief Strategy Officer at Black Knight Inc., companies need to stay current with technologies that are changing the way consumers interact and partner with the technology provider who is a right fit for what they want. “Companies should consider partnering with technology providers who have the experience and financial ability to invest in advancing technology. This collaboration is key to keeping up with changes,” she said.
Brian Kneafsy, Head of Client Operations at Blend agrees. “Collaboration between lenders and fintech companies is crucial. Both sides need to invest resources and be fully committed to the mission of creating a better lending environment for lenders and borrowers,” he said.
The Need to Adapt
The first step to adapting technology is to embrace, rather than resist it. “Lenders need to leverage the change and the benefits that technology offers. It means changing how you think about tech– turning it into a partner instead of an adversary. New technology can make a huge difference to managing data and maintain compliance within the mortgage space,” said Michael Kolbrener, CTO, PromonTech, the technology arm of Promontory Mortgage Path.
Goldman points to an obvious problem that faces the industry today. How can technology help it to adapt to a changing regulatory landscape? “It is essential for technology to fit the strategic vision of the company,” he said. “The second most important factor is knowing you maintain a viable business model and how the business is structured to adapt for both your service providers and the technology. Technology needs to be a platform that you can move and change knowing tomorrow the regulators are going to look different, and they’re going to have new forms out there.” Being aware of the technology solutions out there is probably the first step to adapting to a changing landscape.
“Technology tends to be a confusing and almost intimidating space for business leaders, especially in a business that has been historically very slow moving. The first thing that I would tell lenders is to be very purposeful about becoming aware of the tech solutions that are becoming available,” said Stubbs.
Leonard agrees, “Companies need to stay current on the technologies that are changing the way consumers interact. They need to be willing to look at their processes differently than they have in the past and be willing to invest in new ideas.” Today, lenders can choose from a range of specialized products that perform a variety of tasks and even connect different services. “With the type of application programming interfaces (APIs) available today, a lender can connect systems to Google or Microsoft to manage logins and user authentication. As security technology changes, a company inherits the benefits of the work these larger companies do to adapt to those changes. The smaller the service, the easier it is to change when needed,” said Roth.
According to Vedder, it is crucial for lenders to pay close attention to successful innovations in other industries as well. “Lenders should be aware of how other technologies may be adapted or applied to the mortgage sector and should anticipate market trends as well as take steps toward building competitive advantages,” he said. “Lenders should gather customer feedback on the technology through surveys and active communication because it is essential to maintain focus on improving supporting technologies and the customer experience.”
Forming New Technologies
Using technology boils down to finding answers to the questions of how it can enhance data accuracy and consistency, enhance borrower experience, and reduce risks associated with the security of data.
“Current technology solutions haven’t solved the core problem of getting verified data from the consumer at the front end of the process,” said Kneafsy. “The cost of originating a loan continues to rise due to paper-based, manual processes and increasing demands from regulators. Using intelligent data-driven services, lenders can reduce the time to fund a loan and lower costs in an efficient and compliant manner.”
“If you look at our business, even with all that convenience and experience tools, the average closing time is still more than 30 days in our industry,” said Stubbs. “The next wave of disruption that we’re thinking earnestly about is actually in removing full process steps so that we can push that back. One example would be automated valuation modeling data that makes it possible for us to see a world where physical appraisals become completely obsolete and significantly reduce the speed to closing.”
“Most of the existing mortgage software applications are focused on data collection and have limited usability. As a result, users are forced to work in multiple applications and to do calculations in spreadsheets and on paper and document their work in multiple places. The next generation of software emphasizes agile development and ‘Design Thinking’ to put users first,” predicts Kolbrener.
According to Leonard, “Technology will help drive efficiencies and enhance customer satisfaction in the financial services industry.” She gives some examples, “Integration will extend technology through API enablement and provide a single access point for all business services, both internally and externally; the move toward digital will deliver highly secure, cloud-enabled applications with responsive design, deployed with touch enablement; and automation will allow financial services participants to deploy client-configurable and rules-based products, with extensive inherent workflow and process automation capabilities.”
“We have seen significant investment in origination software and digital platforms for the delivery of services. We have also seen the growth of API integration capabilities that encourage technology companies to provide services from many providers,” said Ryan. “Technology is helping everyone get closer to the consumer and provide better experience and service. Costs and risk must continue to be driven out of the supply chain and improve quality. This will happen through technology solutions and shape the future in property servicing.”
However, the industry must start moving towards maintaining information in a format that can be processed, analyzed, and reported on by technology. “Systems must track all changes to loan terms, consumer disclosures, redisclosures, and final terms at loan closing. Images of documents are not sufficient. There must be data that is versioned and tracked throughout the life of every loan,” said Roth. “Emerging technologies such as machine learning and artificial intelligence will not provide benefits to the industry without access to that reliable and actionable data.” The industry is also taking note of blockchain, which offers solutions for documenting that could make title searches and the need for title insurance obsolete as lenders quickly adapt to technology-enabled mortgage origination products, services, and solutions. “Technology offers the ability to create new products, automate, create efficiency, improve integrations, and so much more,” said Vedder.
“We continue to see an increased adaptation of the ‘sprint’ type methodology during IT implementation and builds. By allowing customer-driven changes during smaller, pre-staged rollouts, lenders can adjust requirements throughout the implementation process to reflect valuable input gained from their customer-base during quality control.”
While third-party providers can offer the technology, it is important for lenders to foster a culture of innovation within the company to help answer and understand the changing needs of technology.
“It’s important for lenders to hire talent with the skill sets to support today, as well as, tomorrow’s technology needs,” said Boulos. “To keep great talent and understand how technology changes can impact your organization, set up innovation centers that allow your teams to become familiar with new and evolving technologies.” The culture of innovation is also needed to drive lenders to retain and manage data through the life of a loan.
“It continues to be a challenge for lenders and the broader mortgage ecosystem to retain organized and actionable data about loans and disclosures during and after origination. For decades, the industry focused on paper. That legacy continues to restrict innovation,” said Roth. “Technology can only cater to changes in financial services when it’s not locked into the way a business operates today. Financial services technology only becomes a competitive advantage for dealing with change when it allows for data and rules to evolve to address those changes.”
For Goldman, Ally Bank was created to answer the need for innovation in lending. “Our bank was created during the financial crisis out of customers’ need to want a better bank, not another bank. It is something we live and breath every day and this is the reason why we have used technology so extensively since the creation of our bank,” he said. “All our products afford us to use technology to pass on the real value of using it to our customers.”
And lenders hear these voices as they look at innovative and disruptive technologies to enhance their operations and customer service. “When you add together these types of disruptions, along with technology like the GSEs’ day one certainty technology, it’s really for the first time that we see a possibility of the one-day mortgage come over the horizon and within sight,” said Stubbs.