Jim Paolino of Lodestar: Perfect Storm of Market Trends May Finally Drive Automation Focus to CX
Jim Paolino manages day-to-day operations, oversees business development and long-term strategic direction of LodeStar Software Solutions, New York, which develops a range of compliance-driven products for the mortgage lending and title insurance industry. He has more than a decade of experience developing software solutions specifically for the mortgage and title insurance space. He speaks frequently on technology trends as they relate to compliance, operational efficiency and sales growth. He can be reached at email@example.com.
Have you heard there’s a purchase market coming?
Of course you have. In fact, for many, it’s been here a while now. To be candid, the mortgage industry hasn’t had to deal with a predominantly purchase-driven market in quite some time. But with the MBA forecasting a record $1.73 trillion in purchase mortgage originations in 2022, we’ll all need to brush up on our purchase origination strategies in order to succeed.
An Unusual Convergence of Factors Impacting Lending
The numbers are coming into focus. Black Knight recently estimated that the final overall mortgage volume for 2021 may have been the third highest in history at $4.4 trillion. MBA is forecasting that 2022 will be strong as well, but not as strong overall. In contrast to the organization’s forecast for record improvement on the purchase side is its forecast for significant decline on the refinance side at $880 billion. Among other things, that means lenders won’t have much of a choice in 2022. It will be a matter of capturing share in the purchase market to succeed.
Now, let’s have a look at the state of the industry. Traditionally, when a dip in volume is forecast, many businesses tend to trim expenses, which includes downsizing. It appears that has already started to happen. But at the same time, for a number of reasons, it’s a given that originating a purchase transaction requires higher service levels than originating a refinance transaction. While the professionals needed to provide that additional service may or may not be the same professionals being trimmed from the budget because of the forecast, the fact remains that the industry is likely to shed professionals when it needs them most. Even those that don’t will likely need to invest time and resources into training the service staff coming on.
It’s a Catch-22 for the mortgage industry, but it would seem that we have a nearly perfect storm coming together. There’s opportunity available for lenders, but they may have to do some things differently to capture business. It’s already pretty clear that the vast majority of mortgage lenders have made a priority of “automating anything automatable.” That’s been underway for a few years now. Certainly, more than a few mortgage lenders will fail to escape the jaws of margin compression as they pivot to the purchase operation. But simply automating the origination or point of sale process won’t be enough.
A Coming Shift in Focus on Digitalization
Until now, most mortgage automation has been focused on the point of sale and origination. But while it’s admittedly up for debate how much of an impact the consumer’s experience at closing impacts brand, reputation, referral or even return business, automating the production process at the “back end” of the transaction, with a customer experience (CX) in mind, brings more benefits than simply making the borrower (or seller) happy. That’s why, as the year continues and into 2023, you’ll likely see many of the most successful lenders putting increased focus, not just on automating, but on automating the most repetitive and time-consuming tasks impacting the closing, freeing up their professionals to put more focus on selling and supporting customers.
Digitalizing the “back end” doesn’t stop with the eClosing or the widespread adoption of remote online notarization (RON). If anything, the processes that have remained painfully manual as the origination process has advanced have been the multitude of functions designed to push the transaction from sales agreement and loan approval to closing and post-closing. Far too often, we have LOs and other sales professionals manually keying and rekeying data or doing basic research just to get a file closed. This leads to slower closing times or errors leading to curative penalties, as well as frustrated borrowers and real estate agents.
For lenders shifting the focus of their digitalization process to supporting the back end functions, it’s not just a matter of necessity or lack of alternatives. There are multiple benefits that can ease the transition that comes with a significant shift of market and product type. To begin, an industry that has long bemoaned its fifty-something day time-to-close average could benefit from automation throughout the entire process. We’ve already seen great results from the wide scale digitalization of the origination element. Yet, far too many lenders are still relying on manual processes from the underwriting process through close. Specialists are still chasing missing information by phone and email. Loan officer assistants are still building manual templates or perusing Google just to guestimate closing fees for the LE and CD. That adds up to minutes, hours and days. Repeatedly.
Going digital on the closing side of the transaction also directly addresses a factor which will become increasingly, if not exponentially, important as time goes on. The Great Resignation is not temporary. Employee retention—even if to save disruption and the cost of hiring and training over and over again—will soon be at the top of the agenda in almost every board room and owner’s office. Engagement and empowerment are long-established keys to retention. So taking manual, assembly-line style processes away from employees in order to redirect their focus on more complex (and rewarding) tasks is a win-win on more than one front.
Finally, taking the entire mortgage process digital allows the industry to possibly re-shape the role of the front line originator and L.O. In times of high volume, many originators have simply been order-takers, tasked simply with qualifying or disqualifying potential customers. But, given the time, how many good L.O.s could reduce fall out rate or increase conversion rate simply by asking a few more questions of an applicant to determine the best product fit? Wouldn’t an improved fall out rate or increase in secondary products help a lender battling for market share in a hotly-contested purchase market?
We’ve tended to resist automating several parts of the mortgage production process outside of the POS for any number of reasons. However, a shrinking labor pool in combination with the need to be competitive on service levels as well as margins in this emerging purchase market are not lost on the most successful mortgage lenders. The results will not be immediately evident, as many of the technologies or systems being put in place aren’t usually considered “game-changes” in and of themselves. But it will very likely be those lenders that build efficient and effective tech stacks that take the entire transaction—especially the simple yet manual processes behind the scenes on the back end of the mortgage—who find themselves in the best position as the year goes on.
(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 firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)