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Push Button Refis: Fantasy or Future Reality?

This piece originally appeared in the February 2023 edition of MReport magazine, online now.

With home sales slowing and a possible U.S. recession creeping into view, many in the mortgage industry have grown nostalgic for the “good old days,” even if the good old days were only last year.

Back then, rates were near historic lows and Americans couldn’t seem to refinance their mortgages fast enough. The problem with the good old days, however, is that they are rarely as good as we remember.

In fact, there’s an actual name for this phenomenon called “rosy retrospection,” which refers to the cognitive bias that leads some people to think more positively about the past than the present.

Indeed, lenders made a lot of money during the historic, multiyear refi boom that finally ground to a halt last year. But the reality is that most lenders had great difficulty keeping up with volume, precisely because refis are not as simple or as easy as anyone would like them to be.

Starting today, our industry has a great opportunity to correct this picture. Even while refis have faded—perhaps for some time—eventually they will come back. And when they do, it’s possible that borrowers will be able to go online, push a button, and refinance their mortgages in a matter of minutes, without any human involvement.

Why Refis Should be Easy
For an industry that spends weeks to a month or more to fund a loan, the idea of boiling down any mortgage transaction into a single button click may sound far-fetched. Yet most people don’t need to go into their bank branch to open a savings account, nor do they have to call their stockbroker to buy and sell investments.

They can do both of these things online by themselves. So, why can’t refis be just as simple?

Think about it—if you want to refinance your home with your current lender or servicer, your lender should already know almost everything they need to know about you and your property to approve your loan.

Assuming you have more than enough equity, good credit, and meet all other required parameters, a standard mortgage refinance, in which the goal is simply to lower your monthly payment, should be relatively straightforward.

From a technological standpoint, all the tools lenders and investors need to make push-button refis happen already exist in some form or another. However, these tools are not usually found in most legacy software products, which aren’t easily integrated with each other. As a result, most lenders lack the proper systems to accommodate push-button refis and fully automate a loan refinance.

That includes a pricing engine that can automatically identify and retrieve loan products as well as technology that “triages” loans and greenlights “easy” refi toward a fast-tracked underwriting process.

What Push-Button Refis Will Look Like
Before push-button refis become reality, lenders will need technology that can automatically place loans into different buckets based on their level of complexity. For example, a certain segment of refi applications can be automatically determined to be “easy” because there is plenty of room within all the qualifying factors for the loan to be approved.

Perhaps the borrower has relatively clean credit, easy-to-understand income, and sufficient equity, so the appraisal is not an issue. These loans can be placed in a “green” bucket because it meets the criteria for a fast-tracked underwriting process—and hence a push-button refi opportunity.

The same system should be able to place loans into other buckets based on the particular loan program or level of risk and complexity. For instance, suppose a borrower is applying for a loan program and the borrower meets all the requirements, but there are questions about the borrower’s income. The lender’s system should be able to note the potential discrepancies and place the loan in a “gray” bucket, indicating the loan requires some human intervention before the loan can be approved.

The same system could also make similar determinations based on whether the borrower has a credit issue or a complex tax return file. When underwriting and other departments receive the file, it will be fully marked by the system with items that need attention, thus improving efficiencies even on loans that require human assistance. Once the items are investigated and it is determined the borrower does in fact qualify, the file can be sent back to the green bucket and the lender can get it done.

Why Smarter Systems Are Needed
Ultimately, a lender’s system should leverage artificial intelligence that allows it to learn which bucket to place a loan based on decisions made on previous loans. As a result, a lender’s “green” bucket of refi-ready files may start off small but will expand over time as the AI “learns” which loans will not require human intervention. In the meantime, a lender’s staff will be able to focus on more sophisticated problems, so the lender can better optimize its staff resources.

Over time, both the system and the lender’s staff learn to operate more efficiently.

For example, suppose someone is buying a home through a trust. Perhaps the system has not been programmed to deal with trusts, but it could place the loan in a bucket designated for a specific underwriter who has experience working with trusts. The same could be applied for borrowers of FHA loans or a borrower who owns multiple properties and has extensive documentation. The system will not only triage these loans and put them in the right spots but can eventually learn to make its own decisions automatically without involving anybody.

Ultimately, a lender’s pricing engine should also be able to identify the moment when a current homeowner qualifies for a refinance and preapprove the borrower before they have even thought about refinancing. The lender can then offer the borrower a “mortgage health check” and demonstrate how much they could reduce their payment, then provide a link that allows the borrower to move forward.

Can’t Sleep on Innovation
When the housing market contracts as it has today, most lenders respond by cutting costs, typically by letting people go. Rarely do lenders respond by investing in new technology unless there’s an immediate benefit to be realized. But this is exactly what they should be doing—in fact, they should be doing it all the time, whether push-button refis are their ultimate goal or not.

That doesn’t necessarily mean lenders need to build their own technology. But they should be constantly assessing and reassessing their needs as well as the availability of new technologies to ensure they are optimizing their operations for the current and future market.

One rule of thumb for choosing technology: don’t pick the product—pick the company. Most technology vendors will claim their products can be easily integrated with a lender’s other systems and be customized for how they do business. And yet, not all vendors will deliver and very few are in the business of building new, cloud-based technologies.

In fact, this is precisely why so many lenders are still dependent on legacy software and technology vendors that not only fail to help them control costs but typically create additional expenses.

For this reason, it may be wise to look beyond the handful of off-the-shelf products that have dominated the mortgage technology landscape for the past decade and find a vendor with in-depth experience building new technology and the ability to customize anything they have already built to fit your needs.

Today’s market may not be conducive to refis, but it’s a perfect time to innovate better ways of originating them. While the ability to fund loans without any human involvement may sound like a stretch, it’s probably going to happen one day. In fact, in the back of every innovator’s mind is the idea: “If we don’t do it, someone else is going to.” Speaking for my own team, at least, every line of code is written with this idea in mind.

The bottom line is lenders can choose to feel nostalgic for the good old days or they can put in the work now to make the next refi market even better. As the late Hubert Humphrey once remarked, “The good old days were never that good, believe me. The good new days are today, and better days are coming tomorrow. Our greatest songs are still unsung.”

About Author: Carlos Sa

Carlos Sa is the CEO of MILOS, an IT consulting firm serving the mortgage industry. He has more than 25 years of IT experience and an extensive track record of designing, building, and implementing mortgage technologies. Prior to founding MILOS, Sa served as Head of Information Technology for Mortgage Network, where he and his team built the company’s entire IT infrastructure, including its accounting systems, loan origination system, pricing engine, online rate lock, and online borrower portal. He can be reached at [email protected]

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