Nadim Homsany: How IMBs Can Digitize Mortgage Coupons to Lower Costs and Risks
Nadim Homsany is Co-Founder and CEO of EarnUp, San Francisco, a financial technology company committed to helping people pay off debt faster and maximize home ownership possibilities.
Independent mortgage banks operate in a market crowded that includes large banks and digital-first lenders. The reliance of many IMBs on paper-driven processes can make it difficult to compete or prosper. Digitizing traditional paper coupons are one easy way for IMBs to increase efficiency, boost customer satisfaction and decrease the risk of payment delinquency, all while jumpstarting the move to low-risk, low-cost digitally automated processes.
Time-Intensive, High-Risk Paper Coupons
Mortgage lenders use mortgage coupons to facilitate initial consumer loan payments and ensure timely loan performance prior to selling a loan on the secondary market. By using traditional paper coupons, IMBs are relying on an inefficient process that elevates business risk because it is time consuming for everyone involved, expensive to operate, prone to error and not easily scalable.
When processing coupons manually, lenders store initial loan payment checks in a lockbox repository until they are ready to reconcile them to borrower accounts. This process is time-consuming and error prone. For example, when staff manage large volumes of paper checks they can easily transpose numbers. Even if a lender has invested in OCR scanning to reduce paper processing time, it must still track and report progress manually.
We’ve even seen one instance where a senior employee making over $100,000 per year had to step in personally to manually process first-payment checks and set up the transition process to servicers. Not only did this manual work pull the executive away from her other priorities, but the cost of paper processing increased dramatically. Talk about overpaying for a job.
Servicer Transitions Add Complexity
A lender that repackages and sells loans on the secondary market adds more steps to the process that can cause friction in the customer experience and increase risk of non-payment. Borrowers are now sent yet another coupon book and have to update the payee and address for their loan payments themselves.
Transition letters can get lost in the mail or borrowers may not recognize the name of their new lender or loan servicing company and ignore payment notices. Of course, this assumes the lender has created a clean loan package for each borrower and all of the correct loan documents are in the file.
Just one small mistake along the chain will delay payments and cause some borrowers to appear delinquent. And missing the first payment to the investor or servicer creates a poor experience for everyone involved — borrowers are unhappy and investors may worry that they’ve just purchased low quality loans.
Ceding Ground To Competitors
All told, lenders typically spend approximately $4 to manually process the first borrower payment, prior to selling the loan. As a lender attracts more borrowers and builds more servicer relationships, the time and cost of paper coupon processing increase exponentially. As the cost to manufacture loans continues to rise, every penny counts for businesses already operating with a tight margin.
In addition to monetary costs, relying on payment coupons also means IMBs fall further behind competitors in terms of customer experience. Large lenders have already moved away from paper-driven coupons by creating customized digital payment solutions. This is the experience borrowers have come to expect. To compete at scale, digital transformation is a must.
Digitizing for a Win-Win Scenario
Digitizing payment coupons streamlines the payment process for borrowers, lenders, and servicers, ensuring business continuity through an uninterrupted connection from loan origination through to its being sold to a new investor or servicer. And the larger industry shift to banking as a service means that IMBs can digitize the entire process using outsourced partners via a simple API without any requirement to integrate to the loan origination system (LOS) or point of sale (POS).
Borrowers can be introduced to the digital payment platform during the closing of the loan, with their enrollment even being pre-filled using borrower data. Beginning with their first payment, all obligations are fulfilled on this digitized platform using automated debits or payment remittances. The platform can track transactions, provide digital notifications, and seamlessly shift servicers to create complete, real-time transparency for everyone involved.
Putting the borrower in control of the payment experience provides a unique opportunity to match payments to paydays or change their schedule to match their budget needs month over month while still ensuring their payment is made on time. The end result is a borrower base with lower delinquency rates, higher credit scores, and stronger overall financial health.
Switching to a digital coupon process is a win-win for everyone involved. This simple, low-cost step is also an easy way to begin a larger digital transformation strategy that will help IMBs better compete with large banks and digital-first lenders.
(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.)
