The volume of the amount of loans originated through the Department of Veterans Affairs came to 119,048 loans for $31.9 billion during the first three months of 2019, with the average VA loan coming in at $268,213.
The Department of Veterans Affairs reported the overall loan volume for Q2 2019 (fiscal-year Q3) jumped to 155,685 loans for $44.1 billion.
Leading the way in the recent surge of VA loans have been Fintechs, which have four of the top-10 originators for VA loans: Veterans United Home Loans, Quicken Loans Inc., LoanDepot, and NewDay USA.
What has helped put Fintechs head and shoulders above the competition?
Michael Oursler, Chief Credit Officer for NewDay USA, spoke to MReport about why Fintechs are leading the charge, what differentiates a VA loan from a standard loan, and what traditional mortgage lenders can do to close the gap.
Why do you feel Fintechs are leading the way for VA loans?
The military population is much more likely to relocate and have to move multiple times, just by definition of their commitment. And, with each move, comes a level of responsibility to meet contract dates. As we see more and more impressive technology, I think Fintechs help to ensure that veterans and active service people can meet those contract dates. It allows quicker closing times and a smoother transaction. Not that hitting a contract date for a civilian is not important, it's just a little bit higher stakes in the military space, so being able to leverage technology to improve service is important.
What kind of technology are Fintechs using in particular to get these mortgages closed quicker?
Automation in general, I would say. You've already seen some of these companies coming out that help collect documents and databases that have a lot of the information so lenders can limit the amount of work that a borrower has to do. Then, obviously, digital mortgages and eNotes have been a hot topic this decade, and I think going into 2020 and beyond you'll see that get more and more steam. I think that's probably the next wave, and definitely provides a lot of value for the customers, especially in the military space.
How has data changed over the past ten years or so, and how has technology has evolved?
I think it’s changed leaps and bounds, honestly, and I think there's still a long way to go. Last year and this year is really the first couple of years that you've seen real conversation about eNotes and digital mortgages. Ten years ago that wasn't anywhere close to being on the radar.
There were still a lot of manual processes in mortgage lending. There's still some of that, but there's been a lot of elimination of the manual work and I would just expect that trend to continue.
I think you'll see a lot more innovation over the next few years too.
How are VA loans different than conventional loans?
I'll start with the most obvious: no down payment is the biggest difference, and it's something that, at NewDay, we are championing in what we call Operation Home. The no down payment alone is a huge benefit to somebody that's served, but the really unique thing that you can leverage is if you are able to structure the contract in the right way, you can actually get them into a home with no money out of pocket. That's a huge benefit.
Unfortunately, what's happened in government lending, you've seen a lot of the big banks step out of the FHA and VA space. FHA has gotten a lot of press in terms of the False Claims Act and then VA is just such a unique product that it almost isn't worth the time to spend on it, unless you're an expert. So, unfortunately, a lot of times veterans will get steered out of the VA product even though it's a really good product for them.
From a processing standpoint, the VA has what they call entitlement. Essentially, their service earns entitlement, and as long as they perform well on their mortgage history, they can then continue to reuse that entitlement for future VA loans. There's no minimum credit score on a VA loan, so the VA gives lenders a lot of flexibility in making good credit decisions, which is good and bad. For the big lenders that have a very defined process, and like to get as many widgets through the factory as possible, it probably isn't a good fit. But for a company that focuses on veterans like NewDay, it's something that we really enjoy doing to get in, understand the story, and find a way to say yes. If we feel it's a good, low-credit risk loan, we approve those types of loans all the time.
What trends are you seeing in technology that could be utilized in the Fintech process moving forward?
Well I'll start with the VA themselves. They've done a great job over the last 10 years, automating a lot of their processes. I mentioned VA entitlement; the VA issues a Certificate of Eligibility on every VA loan, which used to take anywhere from 24 hours to two weeks. Nowadays, about 80% of those come back automatically, just by ordering online with some personal information about the veteran’s time served.
That's been a huge boost in the ability to close VA loans quickly. And I know the VA is working on some other automation processes when it comes to servicing.
How can more traditional mortgage lenders keep up, or catch up, to Fintechs?
One, I would say it's going to be tough. I think some of the lenders that are not willing to adapt and make changes may struggle, because they may be at a competitive disadvantage. Whether it’s learning from them, partnering with them, using them as a vendor, I think everyone needs to adapt to the times. With that being said, I do think there is a level of customer service and personal touch that is sacrificed any time you automate something, so if you are going to compete against Fintech and streamlined processes, you have to make up for it with customer services and a personalized borrower experience.
And that's definitely something that we take very seriously. We spent a lot of time with our veteran customers making sure we're getting to know them.