Compared to today’s digital-first world, the mortgage process is outdated, fraught with inefficiencies and lacks innovation. With many transactions still relying on paper and tedious processes, the average home-purchase mortgage takes 45 days to complete, according to Ellie Mae.
Homebuyers, sellers, mortgage brokers and lenders all feel these pain points. A digital transformation in the mortgage industry, however, is driving significant improvements throughout this complicated process for everyone involved.
Despite many stakeholders acknowledging that the mortgage process should improve, some have shown hesitation to change and an unwillingness to adapt to new technology that was built to address these common problems. Some lenders are concerned about how the digitization of the industry could affect their jobs or profit margins.
On the other hand, some buyers have varying levels of comfort about involving technology in such a sensitive process. They also are resistant to trust how — or if — new technology can help make their experience more secure. Change can seem overwhelming, and when it’s combined with something as personal and important as your job or potential home, it can be even more unsettling. Digital transformation in the mortgage industry, however, can make an immediate positive impact while creating a faster, more secure and more streamlined experience for all parties involved.
As the demographics of homebuyers evolve, clients expect a new approach for their mortgage experience. An expectation for the experience to be digital is becoming standard across all types of commerce, including the homebuying process.
For example, the U.S. Census Bureau found that about one in three millennials under the age of 35 owned a home by the end of 2018, a share that is expected to increase over the next few years. With each year that passes, however, these clients demand technological evolutions to simplify and organize every aspect of their lives. It behooves the mortgage industry to take notice.
Enter the digital mortgage. Simply put, this involves the implementation of technology solutions to improve the entire mortgage process. For example, technologies like e-signature and digital workspaces for collaboration are helping transform manual processes into seamless and collaborative digital ones — which are not only faster but more transparent for buyers.
These updates to an originator’s process will help finalize agreements faster and lower your costs per loan by removing printing, faxing, scanning and storing paper documents from the process while providing a better user experience. Because each mortgage is unique, there is no one-size-fits-all requirement for a mortgage to be “digital.” Lenders and originators have flexibility to incorporate the right pieces of technology that work best for them and their clients.
This fluidity also means that digital components can be adopted incrementally, allowing organizations to invest in a way that makes sense for their existing systems, timelines and budgets. In turn, this flexibility also allows for a wide range of benefits that span across everyone involved in the mortgage process.
Driving down costs
One of the most notable benefits digital mortgages can offer is time savings. By utilizing electronic features in the process, the parties involved are able to send and approve documents with a few clicks of their mouse. This adds up to distinct efficiencies when you compare this to the time spent printing, scanning or mailing physical papers, multiplied by the immense amount of forms that need to be signed throughout the process. Buyers, sellers and brokers can more quickly and confidently chart their next steps when things happen faster.
Digital mortgage platforms allow for better collaboration by the various parties involved, resulting in a more streamlined experience. By utilizing an online portal that indicates which action is required next, everyone involved benefits from increased visibility. Maintaining a central location for all documents also ensures that every person involved has access to necessary items, meaning there’s no confusion as to which version of a document is the right one to review or sign.
Lenders and originators also experience significant collaboration benefits through digital mortgages. For example, because the mortgage industry is heavily regulated by a mix of federal and state agencies — as well as a mix of federal, state and local laws — it’s critical that all parties are aware of the relevant guidelines and regulations that ensure compliance across jurisdictions.
Digitizing the mortgage process significantly helps organize and streamline the regulatory process by having all aspects tracked to ensure compliance. Additionally, when a regulation changes, digital mortgages can be quickly and easily updated to comply much faster than their paper counterparts.
In recent years, the mortgage industry has continued to be an ultra-competitive industry as nonbanks have become increasingly involved, which has led to thinner per-loan profit margins. Digitizing the mortgage process can be worth the effort to stay competitive.
Digital mortgages can also have a major impact in driving down overhead costs. By utilizing electronic solutions for different pieces of the process, lenders are able to eliminate cost-intensive, historically manual and paper-based pieces of the mortgage process. This allows for lower costs per loan and frees up employees for other projects or even additional clients.
Importantly, digital mortgage platforms also deliver improved security measures by utilizing passwords, permissions and encryption to ensure valuable data is protected. When you’re dealing with sensitive financial information within mortgage paperwork, such as a borrower’s credit history and income status, this added level of trust also brings peace of mind.
Emerging advanced technology will continue to push the industry forward. By tapping into smart contracts (cloud-based contracts that are connected to external tools and data sources for faster integration of key information), an originator can set up a buyer’s unique parameters within a contract. The document will then automatically search, complete and execute a contract when it finds one below a certain interest rate threshold and with the desired terms. With this level of advanced automation, a lot of the manual research is removed from the equation.
The real estate market as a whole has started to make traction when it comes to the adoption of digital technologies to improve consumer experiences. In this next wave of continued improvements, mortgage processes are primed and ready for technology-enabled innovations as well. Emerging technologies are driving never-before-considered improvements, such as tapping into artificial intelligence to help speed up the approval process or using blockchain to make information shared in the mortgage process more attainable and trackable.
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Change can be challenging, but often, it’s worth the long-term investment and effort. Based on the significant changes for every stakeholder involved in the process, digital mortgages truly are the future. The good news is there are numerous steps that originators can take today to improve their current processes and get themselves on the path to a digital future.