Editor's note: This piece originally appeared in the March 2021 edition of MReport.
This year is expected to see a continued streak of the historic low rates that became a highlight of last year. The 30-year mortgage rate is expected to average 3.075% this year, down from 3.125% in 2020, according to an average of forecasts from Fannie Mae, Freddie Mac, the National Association of Realtors, and the Mortgage Bankers Association.
The mortgage industry is expected to experience some dramatic swings throughout the year. It will be a volatile year for mortgage rates, with fixed rates falling even lower early in 2021 on economic concerns but rebounding in the second half of the year as widespread vaccinations will potentially lead to a strong surge of economic activity. The Biden administration will likely pull out all stops to ensure the economic engine of the United States does not sputter.
The overall forecasts mean that mortgage lenders whose business has seen huge highs through 2020 will continue to flourish even in 2021. However, they must find ways and means to tackle origination costs and closing times, so they are better equipped to deal with the high volumes.
Here are some aspects that lenders can take into consideration.
Avoiding High Closing Times and Origination Costs
While 2020 taught the whole world so many new ways of living life, it also taught a few key aspects to the mortgage industry. One of them was that overall borrower experience can suffer because of delays in paperwork and due to lack of technology utilization.
The mortgage process is complex, requiring borrowers to furnish tons of paperwork. But more paperwork also means delays that lead to bottlenecks in the workflow, killing productivity, impacting ROI, driving up overhead, and ultimately losing customers. Additionally, loan origination fees are one of the largest costs that customers must pay upfront. For a smooth transition from the seller to the buyer, the closing documents must be collated properly and should be duly signed by both parties. Failing to comply with the regulatory guidelines laid down in this process can attract penalties, which means lenders will have to be diligent throughout the mortgage closing process.
To reduce closing time as well as originations costs, lenders can partner with service providers who have the expertise to identify inconsistencies in closing documents and any impending compliance issues before they happen.
Engaging With the Right Vendors
In the mortgage sector where time is a primary concern, lenders need services that deliver ROI from day one. It helps to engage with vendors who can offer flexible “pay only for funded loans” models to reduce risk in case of non-funding. This means that lenders do not require dedicated internal infrastructure and can convert from a fixed price and capital-intensive model to a variable price and more capital-efficient pricing version. Lenders will only have to spend on the loans funded instead of having to incur losses on non-funded loans.
Improving Closing Ratio by Engaging With Borrowers
With larger loan applications come stricter deadlines, more documentation, and more rigid compliance regulations.
Through this, it is important to comprehensively communicate with borrowers and take them into confidence so that the process remains smooth and easy.
It helps to have a partner who can conduct the process of reviewing a loan file before sending it ahead to identify anomalies early on. Such partners handle the verification of all information supplied by borrowers in vital loan documents by engaging effectively with them. They are the ones who coordinate with the borrower and follow up with them in case documents are missing. They provide pre underwriting support services which are vital to establish the accuracy and speed needed to expedite the loan underwriting process.
Relying on AI/ML-Powered Automation
In today’s competitive mortgage landscape, lenders can benefit immensely by embracing digital technologies such as machine learning (ML), artificial intelligence (AI), robotic process automation (RPA), chatbots, and other tools to gain an edge. AI-powered RPA can help lenders solve specific processing problems and increase productivity by as much as 20%. These technologies are proving to be driving forces in helping improve on closing times, quality, compliance, tackling origination costs, and reducing dependency on manual elements.
Tech-enabled solutions can ensure that the data is more accurate and can improve turnaround time and lower origination costs. This can be achieved by automating repetitive and time-consuming manual tasks. It helps to join hands with a partner who has robust digital footprint who can help in reducing delays and operational costs and improving overall loan performance.
Partnering With Service Partners Who Offer Domain Knowledge and Industry Expertise
In this year, it will be important for lenders to join hands with the right kind of partners to deal with high purchase volumes as well as manage time-consuming mortgage processing tasks. These partners should be niche players who have strong domain knowledge as well as industry expertise to offer tailor-made technology and infrastructure solutions. Service partners should be capable of providing the most competent support and scalable services tuned to the exact requirements of lenders. In a sector like BFSI, where time is extremely important, service partners should be adept at offering flexible services as well as quick onboarding procedures to immediately kickstart operations. With 2021 likely to see high origination volumes, mortgage lenders will have to be prepared to handle them without sacrificing customer experience.