Premier Member Editorial: How to Improve the Mortgage Lending Process
Dan Farrell is Director of Expansion at Pragma, Miami.
Buying a home should be a cause for celebration for any American. But for many, the process of obtaining a mortgage has become a source of anxiety. The experience of acquiring a home, which should be exciting, ends up being inherently negative.
The problem is not a lack of willingness, but a fragmented system that resists evolution. What we constantly see are financial institutions and lenders caught in a web of obsolete technology, manual processes, and regulatory pressure that punishes the slightest error.
In the end, both the customer and the business pay the price for this inefficiency, and unfortunately, some Americans see their goal of homeownership as an unachievable dream.
Why has the mortgage lending process in the United States become so complicated?
When analyzing the reasons for this situation, the causes point to a deep disconnection between tools, processes, and people.
Here are some of them:
1. A puzzle of obsolete technology
If you asked me to illustrate how the country’s mortgage sector works today, I would ask you to imagine trying to build a modern car with parts from different eras. To close a single loan, an entity can use up to 25 different applications. The result is a fragmented data supply chain and digital experience.
For example, loan origination systems (LOS) are often old and exhausted platforms, some even with the old green screens from the 70s that slow down productivity. Added to this are improvised solutions, hastily assembled systems that are not capable of integrating with each other and make it almost impossible to consolidate information. A total disaster.
2. The high cost of manual inefficiency
This technological fragmentation forces people to fill the gaps. Basic tasks like manual data entry, which could be automated, consume an enormous amount of resources. For example, I came across a company in the sector that spent at least $500,000 a year just on personnel dedicated to this work.
This scenario alone results in an incredibly low loan closing rate, barely 60-61%. That is, almost half of the applications that enter the system consume time and effort, even though they should never have reached an underwriter. This not only raises operational costs but also generates widespread frustration for both employees and customers.
Trapped in the past: Two reasons to understand why this scenario is so difficult to change
If the problem is so evident, why don’t organizations fix it? Let’s be honest: the answer lies in the often-invisible barriers that prevent true transformation.
1. The high walls of ‘Vendor Lock-in’
Replacing a financial institution’s core system is a titanic and risky task. These platforms are deeply integrated with accounting, customer service, and reporting systems, making the idea of changing them akin to open-heart surgery.
As a result, many companies are trapped with their current providers; they are forced to “bastardize” SaaS software to adapt it, which drives them to accumulate a ton of technical debt that makes any future changes even more complex and costly. A true snowball effect.
2. A vicious cycle of non-investment
The U.S. mortgage sector seems to live in a paradox. When the market is down, there is no money to invest in technology. However, when it’s up, there’s no time because everyone is busy processing applications.
This cycle leads to technological stagnation where no one dares to take the first step, and proactivity ceases, limiting the scope of action and impoverishing strategies to achieve optimal business sustainability in times of decline.
The Domino Effect: From frustrated employee to unhappy customer
The impact of this broken system goes beyond financial statements. It directly affects people’s lives, creating a spiral of negative experiences, pessimism, decline, and loss of competitiveness.
For the borrower, for example, the process is full of confusion, delays, and a total lack of visibility into the status of their application. On the other hand, employees struggle daily with archaic systems that generate stress and prevent them from focusing on tasks that truly add value. It would not be unusual to encounter a high staff turnover rate in this scenario.
Furthermore, the lack of a standardized process for receiving documents from brokers results in inconsistent and often incomplete information, adding more friction and frustration to an already tense experience. The dream of homeownership seems increasingly distant.
Let’s not forget the regulatory “noose” that is tightening
As if that weren’t enough, the lack of standardization and control exposes entities to significant regulatory risks. A deficient process can lead to multimillion-dollar fines.
The case of the financial sector company I mentioned earlier is a clear example: they had to pay $5 million to Ernst & Young in a single year to audit and correct their books, while the U.S. government put them under almost surgical analysis.
To operate, institutions must comply with certifications such as SOC 1, SOC 2, and ISO, in addition to the strict Qualified Mortgage (QM) standards of Fannie Mae and Freddie Mac. In this context, inefficiency is not only bad business but also a latent legal risk that many would rather not even think about.
It’s time to redesign the path and turn the industry into a driver of growth and trust!
The mortgage lending process doesn’t have to be a source of pain. The frictions that seem insurmountable today are, in reality, an opportunity to rethink the system from scratch and position it as a benchmark for innovation, trust, and national pride.
At Pragma, we understand that the solution is not to add another application to the puzzle, but rather design a cohesive technological solution that focuses on efficiency and human experience.
We have accompanied various financial entities on their journey to break the cycle of technical debt and stagnation, complying with market regulations and adding value to their respective companies.
Transforming this scenario is not a matter of simple operational optimization; it is about restoring to people the excitement and certainty they deserve when taking one of the most important steps in their lives.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
