This piece originally appeared in the February 2023 edition of MReport magazine, online now [1].
One positive byproduct of the pandemic was a boost in the nation’s housing market, along with the development of a slew of new digital products and programs in the tech space. As companies pivoted to navigate the government’s actions designed to keep Americans in their homes in a time of dire need, the industry’s tech providers responded with a new wave of quality-control tools to help navigate regulatory changes and the emerging more-digital landscape.
Nationwide, record-low rates were embraced by consumers, whether it was for home upgrades, refinances, or the purchase of a second home due to the proliferation of work-from-home opportunities. This influx of consumer demand challenged the industry as it navigated high volumes. But through lessons learned from past market booms, the industry and its technological partners worked together to find the best way forward.
Appraisers adopted new methods to conduct their vital role in the homebuying process via curbside valuations and the uploading of geocoded photos. New methods of communication via Zoom calls and virtual meetings were instituted and have become commonplace in a post-pandemic world.
As the era of COVID-19 moves increasingly into the rearview mirror, what becomes of these tech breakthroughs and new ways of conducting business? Will they be cast aside and held in reserve specifically for times of crisis? What techniques learned and developed over the past two-plus years will be carried onward and fostered in today’s marketplace where mortgage activity has retreated amid recessionary conditions?
The Computing Technology Industry Association reports that the nation’s tech industry overall employs nearly nine million, a segment that collectively adds an estimated $1.8 trillion to the American economy. At the outset of the pandemic, companies such as Amazon and Facebook more than doubled their workforce, as new demand by a stay-at-home public called for immediate expansion.
And while explosive growth in the tech world has been standard in the last decade-plus, the industry has contracted immensely over the past 12 months, as tech job tracker site Layoffs.fyi has reported that more than 200,000 jobs in the tech sector have been lost since the start of 2022.
As mass layoffs in the tech space plastered the headlines of late, NPR reports that Facebook parent company Meta, Amazon, Microsoft, and Google have collectively eliminated nearly 51,000 jobs in recent weeks. Salesforce recently announced plans to lay off nearly 7,000 of its employees, as Co-CEO Marc Benioff claims the company hired “too many employees” during the pandemic, and in mid-January, Microsoft confirmed that it would lay off approximately 10,000 over the next few months. Intel recently laid off 544 employees, part of the company’s “right-sizing” plan laid out in October to cut $3 billion in 2023, and as much as $10 billion in costs by 2025.
What does this colossal contraction mean for the tech space? Has the segment reached a point of no return? Do consumers have all the digital tools needed in place to make it in today’s world? Is “enough” enough in terms of the expansion of technology?
This month, MReport examines the state of the mortgage tech space, asking if we are any closer to an all-digital process, examining what tools are vital to today’s homebuyers; discussing the advances in artificial intelligence (AI) and machine learning that lie on the horizon; and reviewing the measures that have been taken to combat the rash of cybercrimes.
Executives from a cross-section of lenders, service providers, technology and software firms, and others shared their perspective with MReport as they face the market as it currently stands in 2023, and what lies beyond for the tech space.
What can the tech space do in terms of welcoming consumers to better embrace technology in the homebuying process?
Joe Camerieri EVP, Sales & Strategy, Mortgage Cadence: In terms of adopting technology, there is not a lot we have to do. Consumers have embraced technology, and it’s now in use in every part of our lives. Most of the homebuyers who come to lenders for financing have already been using a range of technologies offered by our partners on the real estate sales side. What we need to do now has not changed over the past few years, which is to continue to reduce the friction to provide a more satisfying experience for the borrowers we serve.
Ben Miller, CEO, SimpleNexus, an nCino company: Mortgage technology companies can deepen people’s engagement in the homebuying process by offering intuitive digital experiences that are on par with the apps we use day-to-day. While financing a home is vastly more complicated than ordering a coffee or buying a car, consumers don’t want that to be their problem.
From their perspective, they are paying good money for lenders to shoulder that complexity for them. As technologists, we have a responsibility to be empathetic to consumers. Providing an elegant, single-sign-on home financing experience allows consumers to focus on aspects of homebuying that are relevant to them and makes the value of lenders’ services immediately ascertainable.
Rob Nunziata, Co-Founder & CEO, ActiveComply: I think, ultimately, consumers always want the ability to speak with a human, preferably local to their area and knowledgeable about the mortgage process. The tech piece can help by speeding up the decision-making process. So, you speak to someone, and instead of waiting weeks for an answer, the tech behind the scenes allows for answers in hours or days. That is greatly appreciated by customers, allows the human touch, and provides real benefits.
Josh Reicher, Chief Digital Officer, Cenlar: The important part of a digital experience is to remember that it is the customer’s experience. That means meeting the customer on their terms. Digital adoption ensures that processes are consistent, streamlined, and cost-effective. However, maintaining the human element is key to building trust-based relationships with tech-weary consumers. In the end, welcoming consumers means being able to demonstrate flexibility and empathy for their needs—whether automated or with a bit of the “human touch.”
Louis Zitting, Founder & CEO, MonitorBase: As technology providers, we should all be focused on making homebuying easier and removing any unnecessary steps for consumers in their homebuying journey. Great technologies—whether they are consumer-facing or lender-facing—don’t require more attention from consumers. They remove steps in the journey so that consumers get what they want.
Are there any trends you see in the tech space that will impact the mortgage side of technology?
Dominic Iannitti, President & CEO, DocMagic Inc.: Consumers continue to gain familiarity with and trust in handling large financial transactions over mobile devices. Lenders will need to evolve their technology platforms to provide increasingly more components of the mortgage process over mobile devices—and not just eSignatures.
In addition, increased industry oversight will continue to drive lender investments toward digital technology solutions that increase efficiency and improve accuracy.
Jane Mason, CEO & Founder, Clarifire: One trend proliferating throughout every industry is self-service aided by technology, where a customer enters a request and receives a response immediately. We’re certainly seeing this trend in mortgage origination with new loan products and in servicing and loss mitigation. In the mortgage business, self-service consists of automated workflows that reduce cycle times, and increase responsiveness and results.
AI and machine learning tools have become an important part of this trend as well, fueling everything from automated document generation to extracting and capturing data from images, to reusing data and creating seamless workflows that drive process and controls. By automating complex processes, these technological advances will continue to eliminate friction and manual work. In particular, integration with smart document technology and workflow will be key to the industry’s future.
Nunziata: The biggest trend we are seeing is the use of tech to help with underwriting and compliance. The technological advances in these spaces typically save companies money, speeds up old processes, and are generally far more accurate.
What tech processes have become vital to the mortgage process?
Iannitti: eVault technology is now a key facet of the digital mortgage ecosystem. From a strategic perspective, eVault technology allows lenders to generate and safely hold eNotes, while supporting the synergy between other e-participants, allowing for the secure transfer and storage of eNotes. eNote usage can reduce cycle times, increase process efficiencies, and ensure data and document integrity as well as compliance for all electronically signed documents throughout the mortgage process. Leveraging all the elements of an eClosing can save originators hundreds of dollars per loan, which can be vital given the current state of the industry.
Reicher: A few of my favorites are robotic process automation (RPA), virtual agents, and speech recognition. RPA continues to accelerate transformation by improving effectiveness and accuracy, reducing operational risk, boosting productivity, improving compliance, and most importantly, creating value for employees by allowing them to focus on more strategic work.
RPA has a rapid implementation model and a relatively low upfront investment to get started. Virtual agents are proving not only highly effective but are critical to the customer digital experience. With the increase in the digital adoption of mortgages, customers expect immediate response times and 24/7 availability. Virtual agents can be used to address frequently asked questions and common interactions, allowing their human counterparts to focus on exceptions and escalations. Add to that sentiment analysis and a well-designed, warm hand-off between the two, and you’ve fully maximized the digital experience.
Speech recognition is quickly becoming a staple technology in the digital mortgage space. By analyzing speech in real-time, call center representatives can more effectively and efficiently respond to customer inquiries and requests. Leveraging automation on top of speech recognition can supplement and expand the representative’s knowledge of the customer. In addition, speech recognition allows for 100% quality control, ensuring compliance with the rules and regulations required from regulators and the government-sponsored enterprises (GSEs).
James Vinci, CTO, Selene Finance: Several technologies have become vital to the mortgage process. Many of these are centered on streamlining borrower interactions, including digital mortgage platforms for real-time submission and updates, eSignatures, eClosings, and mobile notary/remote online notarization (RON).
Behind the scenes, there has been widescale adoption of business rules engines to facilitate exception and compliance management, robotic process automation to streamline frontline and back-end processes, and data analytics and predictive analysis to help with underwriting, impact analysis and quality control processes.
Additionally, the advancements in information security, especially around endpoint detection and response, FIDO2, zero trust and phish-resistant multifactor authentication, are helping to ensure we keep our customers’ data safe with minimal burden to the end user.
Do you feel the mortgage tech space is growing or constricting in this current environment?
Camerieri: In terms of the solutions we offer and the impact we’re having on the lending business, I think we’re expanding at a very rapid pace.
New software architectures and cloud-based infrastructures have finally allowed lenders to choose their process and then select the technology to empower it instead of the old way of choosing technology and then selecting the partners and workflows it enables. Volumes are down and the current estimates say this year will be slower than we’re used to, but that is having little, if any, impact on the innovation taking place on the tech side.
Graham: In a revenue basis, it is absolutely contracting because many of the systems receive a fee per funded loan, and the units are down so much. In 2021, we had more than 13 million units, and this year, we are projected to be less than five million. That is a huge drop in revenue for the total vendor space.
In a down market, is it a wise move to invest in tech or wait out the market downturn?
Graham: Tech spend is down, mostly because the units are down, and thus the per-funded fees are down. As a total percentage of expense, tech is still a low number. In fact, it’s roughly 5%-10% of the total spend for most lenders. Most of the expense of originating a loan is people, so you can make an argument that we spend too little on tech as an industry. The key is spending on the right solutions that lower the expense per loan, drive revenue, or drive more deals.
Nate Levin, Managing Director, Parker89: Down markets, where volume is lower and lenders are competing more fiercely for business, are always a time for lenders to reevaluate their technology stacks. Implementations will be quicker and easier due to the need to implement them across fewer personnel with fewer transactions, and the efficiencies from utilizing more modern technologies will help improve gain-onsale during a period of margin compression.
Mason: Definitely don’t wait. If your organization has not already invested in technology that calibrates with the ups and downs of market-related processes and regulatory demands, the time to start is now. If you implement the right technology, the efficiency gains become more and more rapid over time. Your investment will lay the foundation for dealing with the present downturn, while reducing the costs of future “business as usual” volume. Ultimately, it puts your organization in the perfect offensive position to handle anything that the industry unexpectedly serves up.
Souren Sarkar, CMB, President & Co-Founder, Nexval: For the past two fiscal years, it has been difficult to obtain good return-on-investment (ROI) figures on technology because the market has evolved so quickly. However, now is the perfect time to invest in technology, especially since the market may improve after this year’s third quarter. At a time when many companies are cutting costs and putting off spending on technology, making a sound investment in technology today can be advantageous in the years to come.
Are there any pain points you are working through right now as a tech provider in the mortgage space
Frank Danna, Co-Founder & CEO of Appraisal Logistic Solutions Inc.: Our work is focused on the collateral valuation function and our technology is specifically designed to support the lender’s appraisal department. This means our work is all about putting tools into the hands of these professionals that will make it easier for them to perform their function in a manner that reduces lender risk and overhead, while increasing agent and borrower satisfaction. The friction, as is so often the case, is hiding in the human touchpoints. Better information provided earlier in the process in a transparent manner will reduce it, so that’s what we’re working on now.
Graham: STRATMOR works with a lot of lenders on a range of technology spends, but one that we are focused on for 2023 is actually helping lenders quantify how their people, process, and technology impact the consumer, and what really drives satisfaction and referrals. Lenders must steal share to thrive in this market, and having a great customer experience is one key way to do that. Lenders need direct consumer feedback to quantify that process.
Iannitti: Now more than ever, lenders are seeking to leverage mortgage technology to streamline the overall loan process. The good news is that because we have completed this process so many times, a best-practice approach has emerged, and a robust eClosing service layer has evolved that offers the flexibility to deploy solutions that meet and exceed the unique objectives of an intensifying client base.
Matt Lehnen, CTO, Deephaven Mortgage: Readily available data sources contain a lot of information—the hard data points regarding a property, income documentation, title records, employment, assets, etc. The missing elements are the soft data points that tell a borrower’s complete story. For example, non-QM underwriters could be reviewing 12 months of bank statements from two self-employed borrowers who look similar on the surface.
However, those two borrowers could come from different industries whose cycles and ways of operating couldn’t be more dissimilar. Trained underwriters understand that two borrowers may appear the same on the surface, but that each borrower can have a unique story.
In sum, even when consumers embrace a digital experience, a cold machine on the other end won’t advance that goal. Machine and human elements need to be balanced, transparent, and aligned.
Mason: One pain point is helping companies determine which technology they should trust. There are a good number of new players offering technology that has not yet been proven. Often, lenders and servicers that select these providers have to help build out the software. There are some new, visionary products, especially in the AI/machine learning arena, but they need to be evaluated and proven through proofs of concept and real-life mortgage scenarios.
We continue to invest in our product and its features to ensure it stays modern and nimble and aligns with current and future demands. Providing the industry with digital methods to scale, flatten market curves, and accelerate adoption requires the vision and drive to try new and better ways of doing business.
Miller: As a tech provider, our job is never finished. We are constantly fine-tuning our products and services to meet evolving market needs. Currently, the lion’s share of our development efforts revolve around continuing to reduce friction for borrowers and expanding the availability of loan officer features like dual AUS submission. Another major initiative is bringing the utility and user experience that SimpleNexus is known for to our parent company nCino’s banking platform.
Mark Walser, President, Incenter Appraisal Management: Yes, as a provider of remote appraisal technology and the new Property Data Reports for the GSEs, we are working on reducing the time and cost of data collection by applying increasing levels of AI to capture data points and types of materials, assign condition ratings, and populate what items are present during a virtual or physical inspection. For the Desktop Appraisal, we are enhancing our 3D Scan capability and AI to generate the appraiser-grade floor plan elements automatically to make the process happen in just minutes.
What measures have you taken to step up cybersecurity in a time when cybercrime is running rampant
Camerieri: Protecting our lender client’s data from the ever-present danger of cybercrime is a major component of everything we develop. This danger is no longer novel. We understand how these criminals operate and are constantly vigilant in the defense of our clients’ networks and data. There is no single solution to this problem. It’s all about constant vigilance.
Miller: SimpleNexus is proud of our performance on SOC-2 audits and the security measures we have developed. Now that SimpleNexus has joined nCino, we are able to benefit from its legacy experience working with depository institutions, which traditionally have more rigorous cybersecurity than independent mortgage banks.
Sarkar: There are many cybersecurity issues that extend beyond the breach of your company’s systems and financial data. Cybercrime has grown and the mortgage industry is exposed to new cybersecurity risks every year. For us, undertaking continuous risk assessments and strengthening precautionary measures at regular intervals are the keys to securing our clients’ data and their businesses from existing threat vectors. We’ve also deployed military-grade cybersecurity tools and technology to guard against the variety of assaults that mortgage lenders are vulnerable to.
While implementing technology such as automation, AI, and other data-intensive systems is inevitable in the mortgage sector, many blame these efforts as a reason why the industry is vulnerable to cyberattacks. However, relying on a proven, certified technology partner with rich experience identifying and addressing vulnerabilities that can arise on your growth journey will help mitigate your cybersecurity risks, while also meeting all compliance requirements.