You’ve seen their ads and heard the sound bites. Three-minute loan approvals. Twenty-four hour underwriting. Ten-day closings. Although fintech lenders may not yet dominate the mortgage landscape, their claims are hard to ignore — especially if these companies are your competition.
For many mortgage companies, it may be concerning that a new breed of lenders has built market share primarily by making mortgages seem less complicated than they really are. On the whole, these companies have successfully reimagined the entire front end of the mortgage process and broken it down into a very simple, concise digital interview that is almost pleasurable for borrowers to complete.
And yet mortgage fintechs have not cornered the market on delivering a simpler lending process. With the right technology, this opportunity is ripe for the picking by any lender and the originators who work with them.
Today, many fintech lenders are making the mortgage process easier and, in some cases, faster. They combine a simple, streamlined front-end experience with automated tools that collect and verify the borrower’s credit, income and assets without the borrower having to rummage through a file cabinet or collecting PDFs of bank statements. The issue is what happens after this initial qualifying stage.
While fintech lenders have cleaned up and simplified the application process, many haven’t done a lot to streamline the back end of loan production. Fintech lenders typically promise shorter closing times, but it’s a promise they often fail to keep.
Last year, in fact, an Urban Institute report found that mortgage fintech innovation is limited and that the end-to-end process is not as automated as applying for a credit card or an auto loan. The report also found that most mortgage applications that are completed online by borrowers are ultimately sent to and reviewed by originators.
To overcome this hurdle, fintechs have looked to tech-savvy loan origination system (LOS) providers to leverage next-generation system architecture that ensures full back-and-forth communication between the LOS and point-of-sale (POS) software. This can’t be accomplished using antiquated LOS technology.
Creating a better borrower experience is not only about letting borrowers fill out stuff online. You need to speed up the loan approval and closing processes.
Many traditional lenders believe all they need to compete with fintech lenders is consumer-facing software, but they don’t realize how difficult it is to integrate these solutions with their legacy systems. Creating a better borrower experience is not only about letting borrowers fill out stuff online. You need to speed up the loan approval and closing processes.
The problem is that many existing point-of-sale and consumer-facing software systems aren’t helping lenders accomplish either goal. It’s wonderful for the borrower to be able to submit an application online and have their bank statements, income and credit scores pulled automatically by third parties. But if they still have to wait 35 days for their loan to close, where’s the huge improvement in efficiency?
In fact, much of the existing POS technology and consumer-facing software isn’t even creating efficiency on the front end. Many lenders that have adopted borrower-facing applications still have loan processors manually typing information into their LOS after a borrower submitted the data online. Not only is this exercise prone to errors, it also typically results in asking borrowers for information more than once. In other words, it makes the borrower’s job harder, not easier.
This is a costly error. Stratmor Group’s 2018 MortgageSAT survey found that the average lender is losing $243,000 each year by repeatedly asking borrowers for the same documents. Stratmor also discovered that asking for the same document multiple times instead of once can lower a lender’s net promoter score (a measurement of client experience and a predictor of business growth) by a whopping 49 points.
So, how can traditional lenders successfully compete with fintechs and make the mortgage experience easier for consumers? The answer is not to rely on a conglomerate of systems and software but to automate the core of their business with a single system that doesn’t require plug-ins or add-ons. The only true way to do that is to have both the point-of-sale technology and loan origination technology as part of the same system of record.
For example, most LOS software uses a single list of documents that most borrowers need to submit in order to receive a loan approval. Yet every borrower scenario is different, making documentation requirements different for some borrowers. This is why many self-employed borrowers and others with unique circumstances run into trouble when trying to get a mortgage online.
Most POS software is not set up to handle these idiosyncrasies because it isn’t part of the same technology used to actually originate loans. Having the same system of record for the POS system and LOS will allow dynamic tasking between the two platforms, ensuring that borrower tasks are only requested one time.
With modern loan production technology in which POS and LOS tools are part of the same system of record, this is not a problem. Based on a highly detailed series of questions, borrowers can be guided to the right loan option online without human intervention. For example, if the borrower is self-employed, the system is not going to ask the borrower for their W-2 forms, but instead for their 1099-MISC statements for miscellaneous income. This is a powerful combination that effectively removes age-old pain points in the process.
These benefits can be magnified when merged with artificial-intelligence (AI) and machine-learning tools, which are available in newer mortgage platforms but not in legacy systems. When combined with optical character recognition and automated document recognition technologies to help with data extraction, these tools can be leveraged to accelerate the loan application process and the collection of borrower information by transforming documents into actionable data.
AI and machine-learning tools are just beginning to have an impact on the mortgage process. But as lenders accumulate more data, these tools can steer borrowers toward financing options that best work for them, without a loan officer’s assistance. By doing so, they are able to take an enormous amount of work off the mortgage originator’s plate — work that should never have been there to begin with.
The less originators are involved in the processing of loan documents, the better. Removing originators from the loan production process doesn’t necessarily mean they are out of the loop, however.
Imagine going to a car dealership and having a salesperson point out all the features of a new car, close the sale, and then run behind the dealership and build your car for you. Asking originators to be involved in loan production makes about as much sense, especially when technology can do most of the work. In fact, the less originators are involved in the processing of loan documents, the better.
Removing originators from the loan production process doesn’t necessarily mean they are out of the loop, however. For example, new mortgage platforms come with sales portals that are specifically designed for loan officers. Because they are built off the same system of record, sales portals allow originators to see and receive updates on the status of loans in the pipeline while freeing their time to develop client relationships and grow their business.
Newer platforms also can help originators enhance the relationships they have with their referral partners. A real estate agent, for instance, does not need to know every detail involved with their client’s loan. But they should receive an alert when a loan has been approved or funded, so they feel as though they are part of the process. This is easily accomplished by modern end-to-end mortgage platforms that provide all parties access to the transaction with real-time loan status updates, allowing for the tracking of the process from cradle to closing.
At the end of the day, any mortgage lender is entirely capable of competing successfully with fintech lenders by providing a greatly improved mortgage experience. But getting there requires rethinking one’s approach to technology and paying attention to new solutions built for today’s environment.
To be sure, there will be more fintech lenders on the way. You can count on them trying to create a better consumer experience as a means of gaining market share — and so should you. ●