Lenders Can Drive Home their Expertise with Digital Transformation
Nicole Valentin-Smith is Director of Client Management, Digital Lending and Origination with Fiserv Inc. (NASDAQ: FISV), Brookfield, Wis., a global provider of financial services technology services. She can be reached at Nicole.valentinsmith@fiserv.com.
Mortgage lenders are adjusting to operating in a fast-changing landscape that is more complex than ever. Technological advances, rising borrower expectations and the transformation of operations and compliance controls dominate the mortgage lending environment.
Borrowers increasingly want empowerment; they have come to expect a smooth process delivered in a single experience accessed whenever and wherever suits them. An intuitive digital interface, as they have grown accustomed to in so many other facets of their lives, is important–but they still value expert support while being in control.
Lenders who leverage new technologies to improve service, streamline operations and reduce costs are better equipped to respond as change continues. By creating a holistic ecosystem around the borrowing experience, lenders have the opportunity to improve data quality and security and cultivate a first-rate lending experience. Here, we examine the various steps lenders can take to remain competitive in a turbulent mortgage climate.
Transitioning to a digital mortgage process is desirable for a number of stakeholders. Regulators and investors want the industry to embrace digital–the Consumer Financial Protection Bureau’s eClosing pilot program, Fannie Mae’s Day 1 Certainty and Freddie Mac’s AIM programs are examples of key players signaling that the time for digital is now. In addition, the recent appetite of the government-sponsored enterprises for e-mortgages should encourage all lenders to establish digital lending as soon as possible.
Benefits for the lender include a streamlined mortgage origination process resulting in higher data quality, lower loan origination costs, and seamless integration with third-party data providers.
As for the borrower, recent research from Fiserv (https://www.fiserv.com/en/about-fiserv/resource-center/consumer-research/expectations-experiences-borrowing-and-wealth-management-fall-2019.html) reveals evolving preferences and attitudes regarding the borrowing process. Many people are now comfortable with completing digital mortgage loan applications, and comfort with mobile applications has increased drastically. A large majority (71%) of consumers are “somewhat comfortable” or “very comfortable” completing loan applications online via desktop or laptop, while 41% are comfortable doing so via mobile or tablet (a 12-point increase from 2018).
Three Steps to Improve the Lending Process
To guide the digital transformation journey, lenders need a roadmap that includes system integration, borrower empowerment and process refinement.
System integration: When lenders partner with third-party providers to complete the loan origination process, the data moving through third-party systems must flow into the lender’s loan origination system. These system integrations can be difficult, expensive and time-consuming to implement and maintain. Disparate systems are often poorly connected, negatively impacting data quality and increasing the risk of security breaches.
In many cases, the connections only provide for the automated placement of orders, leaving loan processors to manually key input data and increasing the risk of errors that are one of the leading causes of poor loan quality. Errors can result in loans disclosed incorrectly, creating post-closing audit issues or prohibiting delivery to a third-party investor.
Borrower empowerment: Borrower satisfaction has never been more essential. The Fiserv research found that the leading reasons consumers are dissatisfied with the home loan application process are that the process took too long (54%, a 17-point increase over 2018) and there is too much paperwork. Poor communication from the lender and having to submit the same documents multiple times were also cited.
Disparate systems frequently prevent applicants from quickly and easily obtaining accurate real-time loan status information. When loan status automation is lacking, staff may be unable to confirm precisely where the loan is in the process when a borrower contacts the lender directly.
Process refinement: A serious concern lenders face when implementing technology is that while it might speed up a flawed process, it does not remedy it. The people working in lending operations today are experts, and they will stick with tools that are familiar and comfortable to them before moving to technologies that promise marked improvements unless there is evidence of such improvements.
However, revamping technologies can position lenders to meet a variety of expectations in today’s environment–regulators encourage it, borrowers demand it and competitors are already doing it. The most successful lenders are willing to invest the time and resources to update their processes in order to retain–or increase–market share.
Defining a Roadmap for Success
The elements of a new, holistic approach to the digital loan process are:
–Rules-based workflow
–Robust APIs and data access
–Borrower-focused, web-based experiences
–Optical character recognition (OCR) and intelligent character recognition (ICR)
–Digital compliance analysis; and
–E-Lending.
Rules based workflow: A holistic platform is capable of automatically comparing loan data supplied by a vendor to data already within the LOS and flagging discrepancies. It also has the ability to move the loan to the next step or auto assign staff in the process, based on validated data and a lender-defined ruleset.
Automation replaces the “stare and compare” file review, with any manual processing now exception-based, and user activities continuously analyzed to identify additional automation opportunities. These systems present the right information to the right user at the right time. Automation can also make workflows more efficient, recognizing which areas loan processors work in most regularly.
Robust APIs and data access: APIs support a lender’s needs for a system that is flexible and maintainable for future scope and/or process changes. An API-based architecture enables lenders to automatically obtain data for the borrower, property and loan by querying data providers and analyzing, validating and presenting the results they return. This allows lenders to close loans faster by automating routine activities and focusing staff time on valuable face-to-face interaction with the borrower so that when they do need help, they have access to an expert immediately.
Web-based experiences: A holistic lending ecosystem allows borrowers to self-serve while remaining connected in real time to the loan officer, the loan processing department and closing personnel. By providing the option of getting help at a moment’s notice on any device, borrowers can be supported while also being in complete control. Communication methods are subscribed to and automated to ensure applicants are continually updated with the appropriate information sent to the right platform.
OCR and ICR: OCR and ICR are common deployments of artificial intelligence in the lending process. Efficient platforms are capable of electronically obtaining necessary information from documents to support the process of aligning file documentation with the LOS record. In addition, the platform must offer automated document classification and validation as well as fulfillment options for those loans that cannot be classified by trained systems and/or AI.
Digital compliance analysis: The use of automation to facilitate adherence to compliance rules is an important component of a digital lending ecosystem. An ideal system can automatically generate reports, audit trails and trending data to streamline processes and help identify potential flaws. Due to the potential for increased scrutiny, forward-thinking processes will need to be implemented to support more challenging objectives such as Fair Lending requirements. Specifically, new HMDA reporting data will allow regulators to analyze rate, fee and file decisioning activities against protected classes.
E-lending: Competitive lenders will embrace a holistic approach that drives every digital process, eliminating paper whenever possible through e-signing and automated document routing systems that ensure accurate data flow to end investors and servicing platforms. Such an approach can speed up the loan origination process and reduce costs and errors by providing electronic document processing and electronic signatures from end to end, completely avoiding the manual processing of paper forms. This complete e-lending process will also require support for notary, recording, investor delivery and e-vaulting.
Three Reasons to Act Quickly
There are three key reasons why lending leaders should take action now on the digital mortgage process–regulators and investors want the industry to embrace a digital mindset, borrowers are demanding a better and more consistent experience, and savvy lenders welcome positive change in order to compete today and into the next decade.
While not completely new, the digital mortgage is evolving. The opportunity exists to provide a simpler, more efficient mortgage transaction, using digital technology and automation to reduce the cost of a loan throughout the life of a loan. An intelligent holistic process considers the full ecosystem and all the players involved, and can deliver a dramatically improved consumer borrowing experience.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)
