Note: This story originally appeared in the August edition  of MReport.
Making the move requires an understanding of how automation can make the work more meaningful and valuable.
From outside of the mortgage industry looking in, it would seem lenders have plenty to be thankful for. Despite a global pandemic that has added millions to the unemployment rolls, the housing market continues to plow ahead, and low interest rates are keeping refinancing pipelines full.
Underneath the surface, though, the scene isn’t so pretty. Most lenders weren’t prepared to shift quickly to a remote workforce, which has brought increased risk and volatility to every aspect of the mortgage process. Lenders were also not ready to deal with the enormous spikes in refinancing and forbearance requests that lead to staff burnout and potential errors.
So, if there is ever a time for lenders to embrace digital labor, it is now. There really is no other choice. But making the move to a digital workforce requires a deep understanding of how automation and new technologies can make the work humans do more meaningful and valuable—and then a plan to make it happen.
Why Everything Has Changed
If the pandemic has taught us anything, it’s that our industry, while better equipped than we thought to work remotely, has had to reevaluate the lending process end to end. It has really been a confluence of factors that have made mortgage lending so challenging over the past several months.
Since March, credit guidelines have been adjusted across investors and lenders to address the evolving situation. With massive layoffs came increased borrower exposure, which has led to the need for extra verifications on every applicant’s income and assets. Pipelines have been exposed as well, with risks appearing across the spectrum of FICO scores, loan-to-value ratios, and liquidity.
Complicating matters further, lenders continue to experience a steady demand in refinance busi- ness driven by low rates while simultaneously fielding massive volume in forbearance requests. And they haven’t gotten a lot of help. Many offshore vendors that lenders relied on for production help have had to shut down their operations, requiring lenders to bring back operations in-house. That’s led to overworked staff, as many loan processors and under- writers are being asked to take care of tasks that they feel are beneath them. These challenges have only been made worse by everyone having to work from home for months and dealing with all the distractions that come with this shift.
Most organizations can get by working remotely for short periods of time, and they prepare for these scenarios. They have disaster recovery and business continuity plans that are designed to handle the typical, 24-hour emergency created by a natural disaster. But no lender was ready for a four-month (and likely longer) pandemic and the impacts it would have on their processes and staffing. Nor were they ready for the risks, which included data security issues as employees began to access their company’s systems over unsecured networks.
A contributing factor to all of these challenges has been the recent sea change in borrower behaviors. As tech-savvy millen- nials have taken command of the housing market, some lenders have struggled at implementing origination technologies that pro- vide these younger consumers the fast, simple, and convenient bor- rowing experience they expect. Even those lenders who have made proactive moves toward digital mortgages have taken a step backwards in the current en- vironment due to other priorities and interruptions.
It's no secret that every lender wants to accelerate mortgage production, but speed is usually the enemy of accuracy and quality. This is especially true now, when lenders are trying to fast-forward loans that are in progress and wrap them up before guidelines change and they have to rework the loan.
Indeed, lenders have been receiving notifications of loan guideline changes and shifting credit boxes, as well as making changes to their own guidelines, to adjust to the current envi- ronment. The impact is felt by borrowers who are told one thing and then a few days later told something different regarding their eligibility for a loan. Trying to keep your customers satisfied in such a chaotic environment can feel like an exercise in futility. But there are ways to do better.
While the challenges of today’s market may feel abrupt, they have been building for some time. For years, and to their own detriment, lenders have been overly reliant on manual processes as well as Post-it notes, checklists, and labor arbitrage. Most have also known for some time that automation is the only way out of this quagmire. But they have been reluctant to leave behind their legacy technologies and paper-based documentation.
It’s not that most lenders don’t want new technology. Many lenders have whiteboards in their conference rooms that are filled with strategies, diagrams, and workflows. Yet these visions of transformation are slow to come to fruition.
The hard truth is that they no longer have a choice. As much as they would love to rewind the clock, there is no going back to all the same practices and proce- dures lenders had in January. The world has changed, and if you’re not changing your business along with it, your exposure is un- known. Even if you’re drowning in volume, there must a point at which you stop and sharpen the ax instead of continually chopping with an increasingly dull blade.
Fortunately, all of the challenges tied to the current pandemic, as well as those that existed before, can be solved by more effectively leveraging existing technology and investing in new technologies to create a digital labor force. By leveraging digital labor, lenders can automate the time-consuming, tedious tasks that are currently being performed by humans. As an example, they can create more frequent, automated pre-close checks of their swelling pipelines to catch systemic issues before they turn into major problems and use new reporting tools to mine post-close reviews for process and productivity improvement opportunities.
Another very useful example of leveraging digital labor can be found in the origination process when borrowers are submitting the documents they need to qualify for a loan. New digital technology allows lenders to import PDF documents from the borrower and automatically clas- sify and extract data in seconds. Such technology can bring speed, accuracy, and nimbleness to the lending process, which will not only lower processing costs and benefit profit margins but also help lenders compete more successfully for business because of more predictable time to close.
These technologies require little setup and configuration and can be accessed on demand.
The key to loan quality in the midst of the pandemic and beyond is leveraging sophisticated rules and algorithms, in addition to machine learning and artificial intelligence, to accelerate loan production through automation. Fueled by substantially large enough sets of data, these tools can be trained to do the same work traditionally handled by loan processors, underwriters, and audit staff, only with far greater accuracy, consistency, and speed.
The beauty of this type of technology is that it can do the lion’s share of work normally left to human staff, enabling them to oversee only exceptions and freeing them up to handle other higher value tasks. With automation taking on most of the work, the exception management work that requires human expertise can then be distributed to available staff working from anywhere with much less pressure.
How to Move Forward from Here
While digital labor is already commonplace in most other industries, it is still somewhat new in the mortgage industry. That’s about to change—but how should lenders get started?
The first step is to make a total commitment to implement- ing a digital workforce, one that improves the entire business and everyone’s role within it. Lenders must also be transparent with their staffs about the purpose of moving to a digital workforce and be willing to redeploy and train staff into new roles once the changes are implemented.
From a technological standpoint, lenders should also collaborate with their technology partners to integrate their IT systems where appropriate through application programming interfaces, or APIs. To prepare, lenders need to identify the technologies and data integrations they will require to move data between systems, as well as the file formats, with an eye on managing sensitive data securely.
While it is not something that most lenders think about, there are also good reasons to consider the architecture of any new applica- tions. For example, understanding the differences between cloud-en- abled and cloud native technology is important. Unlike cloud-enabled software, which is hosted in the cloud and delivered through web browsers, cloud native applications are built entirely in the cloud using tools provided by cloud service providers like Google, Amazon, and Microsoft.
For software providers, cloud native technologies eliminate the expense of performing maintenance and upgrades on all aspects of functionality tied to their operating system, such as computing power, devices, security, and performance, which tends to add weeks or months to the typical software development cycle. They also allow developers to build and release code quicker and less expensively, while being able to scale their application to meet volume demands. This means lenders don’t have to worry about application performance or avail- ability—plus they can get access to new software tools and capabilities more frequently with rapid release cycles.
Moving forward, lenders should always be looking for new ways to apply digital labor toward automating as many components of the mortgage production process as possible. I used the example of automating document classification and data extraction earlier because most lenders spend ungodly amounts on physical labor for the sole purpose of reviewing loan documents by hand and keying in data to their origination software. There is no reason to still be doing this in the year 2020. Similarly, automation can be implemented for secondary market transactions as well as within loan servicing and loss mitigation processes where there are heavy document processing requirements.
Our industry will likely be feeling the impact of the COVID-19 pandemic for years to come. As the dust clears, the last thing lenders should do is pretend that they can go right back to business as usual. That’s nothing but a dead end. But by embracing digital labor, the road ahead is wide open.