[PULSE] Mortgage lending in a post-COVID, digital world
We are living in fast-changing times, and lenders that don’t embrace those changes will not compete well for business in a post-COVID-19 world. In fact, the changes we’ve seen since the advent of the global pandemic are significant enough to serve as a catalyst that will drive all lending digital. But are all lenders equipped to make that transition?
The trends and lending requirements I’ve highlighted below became important long before the coronavirus made it to the U.S. This pandemic has made them impossible to ignore. The result has been a number of new consumer demands that together are changing the way lenders interact with borrowers. But our industry is not reacting to these new demands nearly as quickly as others, and that could be a problem.
Peering into the future of lending
Nils Bohr, a Nobel laureate in physics, once said, “Prediction is very difficult, especially if it’s about the future.” Anyone who hopes to paint a picture of life after the coronavirus should bear this in mind.
We can’t know all of the ways this crisis will impact our business going forward. We have already seen evidence that mortgage servicing is forever changed and purchase money lending will suffer, at least in the short term. Low interest rates have kept refinance loan volumes robust, but no one knows for how long.
What we do know is that COVID-19 has driven virtually all commerce online. The tech giants have done a fantastic job of keeping consumers buying, even for some very complex products and services. Zillow, for instance, is still enticing new home buyers to transact and Carvana makes it possible to buy a new or used car from the comfort of home.
The mortgage industry, in general, has lagged behind other industries in terms of maximizing the benefits of new technologies. While other industries have learned to deliver high levels of customer engagement and satisfaction to online consumers, too many lenders are still originating loans much as they were 20 years ago.
COVID-19 has put an end to that. It’s time for lenders to finally prepare themselves for mortgage lending in a fully digital world. Lenders that fail to meet the changing demands of their borrowers in this regard will find it difficult or impossible to win their business in the future.
Setting the mortgage industry up for success
As a mortgage technology executive, it would be my great pleasure to report that all a lender needs is great technology. Sadly, that’s not true. Lenders must avail themselves of the best possible tools, but that’s only part of the solution. In addition, they must change their entire approach to the business because borrowers have changed their expectations of the home finance industry.
To succeed, lenders must truly understand their businesses and the impacts technology can have on their borrowers’ experiences.
One of the most significant impacts of the rush to online commerce is that the mortgage industry no longer has the luxury of defining a “good borrower experience.” That work has already been done for us by the world’s tech giants — and the bar has been set very high. Consumers have enjoyed near instantaneous online experiences with overnight — and in some cases same day — delivery.
In our experience, borrowers are looking for the right mix of new technology and processes that together give them the loan origination experience they crave. Some of these requirements include:
A customized experience on any device. Consumers want the freedom to transact on any device and receive a personalized experience. There is no one-size-fits-all approach to the new mortgage lending business.
Easy online pricing and shopping. Mortgage borrowers are beginning their journey online. If they don’t find a lender’s offerings there, they will simply seek out another lender. This is how today’s consumers shop.
Scenario building and comparison capability. Today’s borrowers don’t just want to find products. They want to understand how their various options stack up against each other. It falls to the lender to make this clear to them.
An easy and intuitive online application. We know from experience that if we don’t make the application simple, we won’t get prospective borrowers to apply. Once we get the information required to issue a Loan Estimate, the clock starts ticking.
Interactive workflows. Our process must be customized on the fly for different borrowers and products. Do we already know the borrower? Is this a low-risk, low-LTV loan? How can we most efficiently collect the information we need to complete the file, working in parallel if possible, to underwrite the loan and push it on to close? In what cases can we close the loan fully electronically?
Maintain constant communication. Throughout all of this, the lender must remain in contact with the borrower, just like the Amazons and Apples of the world have done.
Redesigning the mortgage shopping process
If lenders are going to rethink their business, they should start at the beginning.
The standard process borrowers have followed to find a new mortgage lender hasn’t changed much over the last decade or two. Consumers go online and shop for rates or contact the lender their real estate agent has suggested. After that, it tends to get messy.
Lenders must constantly weigh the consumer’s experience against the compliance requirements handed down by regulators and investors. Our response has been to flood the transaction with paper documents, request the same information multiple times and keep the consumer guessing about where their loan is in our process.
That won’t work in a post-COVID world. Lenders that win business in the future will have excellent answers to some tough questions, and those answers will become their “secret sauce” for attracting and winning new business.
Here are the questions lenders need to be asking now:
1. How much of our process can the borrower complete digitally?
There is plenty of research that indicates the vast majority of mortgage loan borrowers are not ready to self-originate. They want a hand to hold during the process. But when should the lender inject the loan officer or consultant into the process?
2. Can the borrower shop for a loan anonymously?
Consumers have pushed back against companies that ask for too much personal information before demonstrating their value to the borrower. But without enough information about the borrower, the lender will struggle to provide a pre-approval. How early in the process must the borrower be identified?
3. How soon should we ask to use data we already own about the borrower?
Banks and credit unions have existing relationships that provide consumer data they can use to process the loan. Asking to use that information too early can put borrowers off. Not using it and acting as if the borrower is a stranger is just as bad. Deciding when to ask the borrower to access this data must be a strategic consideration.
4. How early in the process can we order critical decisioning data?
Having a credit report upfront makes the work of underwriting the borrower much easier – and product and pricing more accurate. This leads to higher pull-through rates and lower overall cost-to-close. But asking too early can damage the lender-borrower relationship. When should this process occur?
Delivering on the new mortgage promise
Many of the elements I’ve just described are available to mortgage lenders today, but few if any have combined all of this into a seamless offering for borrowers.
To do that will require a great deal of thought, strategic planning, and a high degree of automation that goes well beyond simple business rules loaded into a decisioning engine. It will also require a technology platform that will allow borrowers to find their way into the lender’s customer relationship management (CRM) system, on to the mortgage point of sale (POS) and then into the loan origination system (LOS), with only the human interaction required to meet their specific needs.
One key to success will involve deploying technology that is advanced enough to know when a deal requires human attention. Exception-based processing will make it possible to scale the type of loan origination experience that today’s borrowers demand.
Online retailers have taken advantage of the COVID crisis to hone and fine-tune their online experiences. Now, consumers are looking to our industry and expecting similar results. Lenders must provide the kinds of experiences that today’s home loan borrowers are expecting. Can we deliver them?
Of course we can, but only if lenders embrace the right tools and techniques now. Those that do will be better able to separate themselves from the pack in a post-COVID world. There is still time to join them.
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