The Time for a Digital Mortgage? Now

Two new reports show that in the 10 years since the 2008 housing crisis, digital mortgages have notably improved the mortgage loan process, but lenders still have a long way to go to optimize the digital lending experience for customers.

The good news comes from Ellie Mae, Pleasanton, Calif., released its Connecting with Borrowers Online study (https://www.elliemae.com/engage/consumer-engagement-suite-ebook). The bottom line: online activity has become common in every phase of the mortgage process, from research and discovery to application, qualification and approval.

Ellie Mae said in the past year, 92 percent of borrowers did online research prior to reaching out to lenders, compared to only 57 percent of borrowers who took out mortgage loans between five and 10 years ago. Borrowers are conducting online research to find out where they can get the best rate (72 percent), how much they qualify for (59 percent), and where to find a lender they can trust (48 percent). Purchase borrowers were twice as likely to spend more than 10 hours in online research than re-fi borrowers.

The survey also found that borrowers are increasingly going online to initiate contact with a lender. Among all borrowers, the most common means of first contact was online (34 percent), followed by phone (30 percent), and in-person (18 percent). Online first contact is trending upward (46 percent within the last year vs. only 20 percent between five and 10 years ago). Refinancers were 21 percent more likely to reach out to a lender online than purchase borrowers.

The survey also found generational differences in how borrowers research and interact with lenders. Across generations, borrowers went online to complete nearly every phase of the loan process from comparing options to application and qualification. However, Millennials were twice as likely as Boomers to make initial contact with lenders online (43 percent vs. 24 percent). Boomers, on the other hand, preferred more in-person interactions with their lenders. One-third (35 percent) of Gen Xers first reached out to their lender online, falling in between Millennials and Boomers.

Ellie Mae said the preference for online tools to communicate with a lender cuts across all generations. Web self-service was the preferred means of research and discovery (34 percent), as well as the most common way borrowers interacted with their lenders. The phone (20 percent) and email (18 percent) were the second and third most preferred channels during the research and discovery stage, respectively. The human element remained important across age groups; all generations of borrowers indicated at least some desire to speak with a loan officer in person, especially during the application phase.

The survey noted 71 percent of borrowers worked with lenders who provided an online portal for sharing documents, of which 33 percent of borrowers shared they liked the online portal and 49 percent loved it. Borrowers who were provided an online portal were two-times more likely to say technology improved the loan process. They were also 41 percent more likely to rate their overall loan experience excellent or above average, and 18 percent more likely to say they would turn to the same loan officer for another loan.

“The digital mortgage is an idea whose time has come,” said Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae. “Borrowers today expect a simple online application that guides them step-by-step through the loan process. But high-tech and human-touch are equally important. Borrowers still want to speak with someone knowledgeable when they have questions or concerns.”

The not-so-happy but still hopeful news comes from Fannie Mae, Washington, D.C., which said its study of homebuyers show continuing challenges and opportunities with enabling the digital mortgage process.

Among key findings:

–Gathering the necessary financial information to apply and get approval for a loan was cited as the most difficult part of the mortgage process and the area in which borrowers believe digitization would add the most value.

–A strong majority of homebuyers prefer digital channels when it comes to filling out applications, submitting documents and seeking mortgage pre-qualification or pre-approval.

–A majority of homebuyers prefer that a person be available to help explain mortgage terms and options, and to assist in the final review and signing of those documents.

–Nearly two-thirds of homebuyers are interested in a fully digital mortgage process.

“As the Amazons and Ubers of the world continue to raise the bar for ‘consumer-grade’ experiences, homebuyers have made it clear that it’s also time for the home purchasing and mortgage processes to change,” said Henry Cason, Fannie Mae Senior Vice President of Digital Products and author of the study. “Although the mortgage process is extremely complex and heavily regulated, digital experiences in other businesses have increased the demand for digital resources to speed up the onerous mortgage process.”

Above all, the study said, borrowers want less paperwork. Gathering the necessary financial information to apply and get approved for a loan was cited as the most difficult part of process by far. This is especially true for those over the age of 45 or those who have purchased more than one home in their lifetime.

“Ideally, these homebuyers would like to see the application and pre-approval processes digitized as well,” the study said. When asked what they thought of a fully digital mortgage process, where all steps could be completed online, most said they would be “somewhat” or “very” interested.

“The majority of homebuyers said they’d like to see the mortgage process, from application to close, completed in one month,” Cason said. “That’s five days less than the current median process, which takes about 35 days.”

The study noted while younger and higher-income borrowers tend to prefer digitization more frequently than others, they still prefer interpersonal interaction for the more complex or critical steps of the process, such as reviewing final loan documents and understanding mortgage terms and options, as much as everyone else does.

“Change in the mortgage industry is accelerating, opening the door for potentially significant impact and value creation for lenders and homebuyers alike,” Cason said. “There is good reason to be optimistic about the future.”