Forecasting the Future Mortgage Lender

The TILA-RESPA Integrated Disclosure (TRID) rule has been shaking up the mortgage industry since October 3, 2015, and in turn, causing lenders everywhere to completely alter their loan origination procedures.

Last month, Moodys Investors Services had everyone questioning if TRID violations were an epidemic in the industry. The Moody’s report found TRID compliance violations in over 90 percent of recent residential mortgage loans.

Joey McDuffee, Head of Sales and Marketing at Wipro Gallagher Solutions sat down with MReport in an interview to discuss the implications among lenders stemming from the TRID rules and what the picture is expected to look like moving forward.

MReport: Now that TRID is up and running, what can lenders expect moving forward in the housing industry?

McDuffee: Following TRID implementation, we are coming up for a little bit of a breather now. I think going forward we still see an increase in regulatory scrutiny that the CFPB and others will have on the industry. I tend to refer to the velocity of regulatory changes being introduced as the “regulatory issue of the month club,” similar to the old “CD of the month club.” I think this is what we’ve all felt like, even going back to the RESPA and TILA changes back in 2010 and the QM/ATR changes from a couple of years ago. I don’t think this will ever go away. The costs associated with regulation likely deter new entrants from entering the mortgage industry, unless they have the dollars and the wherewithal to back it up. I don’t anticipate that many new mom and pop shops will make their way into the mortgage business because of the cost of entry with all of the compliance costs involved.

Lender innovation has suffered at the hand of compliance over the last couple of years.  However, in the post-TRID world, we might see regulatory activity serve as an innovation catalyst. Regulation has really generated a healthy restlessness amongst lenders and technology partners. Lenders will need to look at partners like technology players or other compliance specialists in the market to assist them in ensuring that their processes are compliant but perhaps even taking compliance one step further. Industry participants are incentivized to leverage technology-driven processes and digital capabilities that will reduce cost per loan and increase margins. Additionally, lenders are always on the lookout for an overall reduction in time to close and time to fund. These performance metrics aren’t just indicators of operational performance, but have significant implications on the customer’s experience and customer experience is really the leading focus for many lenders leading into 2016.

As lenders shift from a transaction-based approach to an experience-based approach, we can expect to see lenders dedicate more time on developing self-service, digital, and social media channels.  Naturally, a greater focus around omnichannel LOS technology will result. As channel strategy evolves and per loan costs remain high lenders simply can’t afford to manage each new channel on a different system or infrastructure. It is not practical.

MReport: No one really talks about social media in the mortgage industry. Do you think this is going to be a more prevalent medium in the future for lenders?

McDuffee: Yes, I think that social media itself has not changed much, it has just gotten a lot faster, quicker, and more prevalent in the housing industry. The way in which lenders interact with digitally-driven or tech-savvy borrower is evolving.  Digital touchpoints like Facebook, YouTube, Instagram, and Twitter will require lenders to build an aggressive social media strategy that includes outreach, monitoring, and management.  Social media can be a best friend or a frenemy; you can just as quickly gain more customers through social media endorsements as you can public criticisms. With a well-defined social media strategy, lenders have a huge opportunity to build their brand, improve the customer experience, and drive engagement with the younger generation borrower.

Furthermore, social media transactions provide valuable data. Lenders can analyze this data to provide a seamless, automated customer experience geared toward specific customer needs. So if I am a first-time home buyer, I may receive different products or suggestions compared to somebody looking to purchase an investment home for their family that is more established. I think using what I like to call “just in time data” to drive the right products and solutions to borrowers that data-supply chain will enable highly targeted customer segmentation.

MReport: What are some tech "must-haves" for lenders?  

McDuffee: As more borrowers prioritize the experience of buying a product over the product itself, more lenders will refocus their technology investments toward digital and online innovations that will help drive that experience. That said, lenders who incorporate digital channels into their strategy should ensure that they have a robust omnichannel-enabled loan origination system that will support any type of product, and channel.  An omnichannel-enabled origination system will not only eliminate the need to manage multiple technologies for different channels, but it will allow lenders to drive a consistent customer experience across all channels and throughout the course of the loan. It will also allow lenders to achieve a single view of the customer which is incredibly valuable when trying to analyze borrower behavior or cross sell other products.

As the industry makes this shift to a customer-centric approach, mapping the customer journey will become a priority as it will allow lenders to define and automate customer-driven workflow based on the customer’s personal journey through the mortgage process. Automation is a must have whether we are talking about “straight-through” processing (automatically moving a loan from one person to another) or streamlining income or tax verifications.

Finally, lenders need to be looking at eMortages, eClosings and borrower self-service tools. While the term “electronic” delivery still feels very 1980’s, it is a huge advancement that delivers significant improvements to the lending and borrowing experience. The days of six-hour closings may be coming to end. These capabilities offer significant productivity gains, cost savings, reduced carbon footprint and expedite timelines for the eager borrower.

MReport: So how much in-person contact from lenders is really necessary in today’s market? At what point does tech become too much, if it ever does?

McDuffee: Lenders really cover all segments of their target market and branch channels and in-person communication are still an important part of the mortgage business. One of the common myths is that the millennial does not value personal connections; however the millennial’s demand for a high-tech experience does not necessarily mean that they have devalued face-to-face experiences.  According to a Boston Consulting Group (BCG) study on millennials, “More than other generations, Millennials desire opportunities to interact with brands, to be listened to anywhere and anytime, and to have personal, timely, and straightforward communication about their concerns and experiences.”  Surprised to hear that millennials are human and have emotions? Too often people pigeonhole this population and make assumptions.

Combining digital technologies with human-centered experiences is really the ideal situation.  With accessible, easy-to-use technology, more borrowers want to do more for themselves and they want to do things at whatever time is convenient.  With self-service mortgage tools, borrowers can check loan status, get updates on next steps, and speed the transaction using eClosing and eSignature capabilities. On the other hand, the mortgage experience is still overwhelming and a little face to face interaction can provide an extra layer of confidence and calm.   Some banks are promoting lifestyle aspects of their brand to appeal to these groups that prefer to do things at their own pace and on their own time. Borrowers can actually sit down, have a cup of coffee, and learn about mortgages and other products and services that lenders have to offer. Lenders that provide a personal experience and augment that with technology enablement with help lenders grow their business.

MReport: As the millennial generation continues to rise in the housing market how can lenders effectively and efficiently reach this generation and get more of them into homes in the near future?

McDuffee: Attracting the millennial population is a hot topic right now and it is difficult to pin down the right formula, however there are some noteworthy discussion that are circulating amongst mortgage lenders today and those include:

• Millennials are not robots. While this population is more inclined to use technology, assigning the “digital native” stigma to millennials may lead lenders to neglect some traditional mortgage marketing strategies that are still effective. It is important that lenders continue to challenge assumptions made on this group as they are considered to be one of the most diverse populations in the history of the US (according to PWC).
• Invest in understanding the millennial borrower and develop messaging based on your findings. Is “fear of missing out” or “FOMO” really preventing millennials from home buying? By understanding the how millennials perceive homeownership as well as their ability and will to buy a home, lenders will be able to build and deliver a more effective message.  Keep in mind that this diverse population is known to value authenticity. Keep it real.
• Boost your marketing programs. Design a sophisticated multichannel marketing strategy that includes content marketing, social media, texting, mobile advertising, word of mouth, real estate networks, and ad retargeting to ensure that lenders are reaching their customers. Test and track what is working and repeat effective marketing programs.
• Self-service: Millennials demand a, simplified, tech-enabled, consistent and convenient experience. But who doesn’t want that? While a one click mortgage is not in the foreseeable future, there are ways to make the borrowing experience easier and more enjoyable for any borrower. Giving borrowers the opportunity to do things on their own time using self-service tools represents a huge opportunity in elevating the experience for millennials and non-millennials alike.
• Education: Even with self-service tools, the mortgage process is still cumbersome. Education presents lenders with an opportunity to build trust with the millennial borrower. Take the time to educate the borrower and show that you have their best interests at heart.
• Right Product and Program: There are many, many products and programs that cater to millennial borrowers whether that low insurance premiums or the 3 percent conventional loans offered by GSEs. Make sure that these opportunities are getting in front of millennials and remind them that the interest rates are still pretty low in the context of mortgage lending history.

MReport: So what does the future outlook look like for lenders overall in terms of regulation, originations, technology, and profitability in a competitive market?

McDuffee: To recap some of what we already discussed, the customer experience will trump all other trends in 2016 and beyond. Mortgage lenders will need to accept that transformation and it would be best if they did so proactively. Other Fintech firms, crowdfunders and non-traditional entrants that have access to credit will be a big force to reckon with in the future. Therefore, lenders will need to focus on getting a return on experience and using technology tools and customer engagement strategies to help deliver that experience in a way that also improves efficiencies, lowers per loan costs, and drives productivity.

Regulation will continue to create challenges around cost per loan which may actually drive more innovation around automation, digital tools and self-service as these technologies may improve efficiencies, productivity, and drive more business.  In terms of originations, we are seeing a lot of activity in the home equity (HELOC) market again. If this uptick continues, more lenders will need to quickly adapt their processes and technology to support these and other non-agency loan types.

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