Every mortgage publication these days either has an article about, a quote mentioning, or an advertisement declaiming the virtues of digital mortgage lending. For the moment, abandon all logic and surrender to the hype. This might have you believe offering digital mortgages will make you younger, leaner and more attractive to today’s borrower.
While some of this coverage is certainly hype, it is a reality that today’s borrowers want the true digital mortgage. This was confirmed in a recent study of actual borrowers commissioned by Mortgage Cadence and conducted by Accenture Research. The study found that the old-fashioned analog mortgage is too inconvenient and too cumbersome for borrowers’ busy lives.
This is especially true if the future homeowner already has a relationship with you. As they see it, you know everything about them already, so why the constant requests for information about this asset or that particular liability? In the borrower’s view, you should know that, or, at the very least, be able to figure it out.
While some of the coverage is certainly hype, it is a reality that today’s borrowers want the true digital mortgage.
The truth is, borrowers really don’t understand, nor do they want to understand, why getting a mortgage loan is any harder than a $20 withdrawal from their nearest ATM.
Borrowers live in a digital, connected world. They want their lender to move into their neighborhood, so to speak. While we all know the digital mortgage is important, do we really know what the digital mortgage really is — and should be?
The Digital Mortgage: a Mythical Creature
Choose your favorite mythical creature. The unicorn? That works. Abominable snowman? OK. Loch Ness Monster? Sure, why not. The digital mortgage is almost as elusive precisely because there’s no actual Oxford English Dictionary definition. Sure, there are many concepts and ideas the industry holds, though there’s no authoritative definition.. A first step in dealing with the digital mortgage is to reach agreement on what it really is.
The true digital mortgage exists nowhere physically. It lives entirely in the ether. A collection of electrons that come together at exactly the right time to form a complete mortgage that, on screen, looks exactly like its paper-file counterpart. The difference between it and a traditional mortgage is that the digital mortgage will never take up actual space, nor will an old-fashioned pen ever be used to sign it. No courier ever move it from one place to another and back again: It is digital from start to finish.
In a true digital mortgage, borrowers begin the process by submitting their application online. Their lender picks up the digital application, ideally after their system has performed tasks appropriate to the borrowers’ situation, quickly taking actions that move the mortgage as close as possible to closing. Closing takes place in a virtual signing room using an eNotary. Delivery of the loan file to investors, or back to the lender, takes place through the wonders of the Internet. Voila! A true digital mortgage is now complete and has moved electronically into its home in the servicing system where it will live out its life, hopefully peacefully.
More like an ATM Transaction, Less Like the DMV
The truth is, borrowers really don’t understand, nor do they want to understand, why getting a mortgage loan is any harder than a $20 withdrawal from their nearest ATM. Their lives are busy, working and getting kids from school to sports, to dinner, to homework, then back again, day in and day out. The mortgage represents a long list of things to do – things that get in the way of the more important things they have to do every day.
A true digital mortgage is more than an app or applet that collects some (although not enough) borrower information to act upon.
For many borrowers, the traditional mortgage process feels like a trip to the DMV, only longer. But this does not have to be the case.
To most borrowers, getting through the mortgage process feels a lot like getting a new driver’s license in a new state. Think about the average homeowner aged 18 – 54: he or she has been driving for a number of years and may have a ticket or two, though generally the individual’s record is more than acceptable. This person moves to a new state and needs a new driver’s license, so he or she heads to the department of motor vehicles (DMV). There, the newcomer takes a number — usually 1,291 when the digital ‘now serving’ sign (the only digital device in the place) has been aggravatingly sitting on 47 for about 37.5 minutes. It’s going to be a long day.
This painful analogy is actually quite appropriate to the mortgage experience. Driving records are, or should be, available state-to-state electronically. Why would a state want to torture a new resident with a byzantine process to get a new version of what they already have? This is unnecessary in an increasingly online and on-demand world.
For many borrowers, the traditional mortgage process feels like a trip to the DMV, only longer. But this does not have to be the case. The true digital mortgage, unlike the Abominable Snowman, can be made real and is within our grasp, using technology that exists today. All lenders have to do is make the big commitment: No more paper. No more paper in the mortgage process, anywhere, any time.
The Digital Mortgage Incentive
Keep this in mind: The absence of paper is its own reward.
We have been in the digital mortgage business for more than seventeen years, spanning three decades of mortgage lending. Digital, in fact, is the reason we are in business at all. We could see, in 1999, the challenges both lenders and borrowers faced on a daily basis. We could also see the promise of the Internet, and, through a somewhat cloudy crystal ball, the coming technologies that could and would change this industry for the better.
In 2008, we closed the first true digital mortgage using those technologies. The process started with a simple yet bold commitment to entirely banishing paper –including physical loan files in all their forms — from the mortgage process once and for all. It was a bold step and more than a little scary for everyone involved. Almost ten years later it turns out that the only thing we had to fear was fear itself.
The absence of paper is indeed its own reward. Think about it: ten years of no physical loan files. For most of us in mortgage production it would be an easy thing to forget about loan files past. Our CFOs don’t forget, however, as storing files is expensive, and the cost mounts with each closed loan and every passing year. Our information security officers think about them, too. Early in the evolution of the digital mortgage everyone worried about borrower information flowing electronically on the internet. Then a funny thing happened as eCommerce took over. Now everyone conducts business online, and, as this was happening, eSecurity became better and better. Now we take it for granted. E-security is a lot of work, but it is more reliable than actual security guards who can’t possibly keep an eye on every loan file in every warehouse. In this case, paper and physical files represent risk and impose a penalty upon those who use them.
The excuse that digital mortgage lending is expensive is just that, an excuse. Traditional, paper mortgage lending is very expensive, and the cost grows year over year, as relying on outmoded processes and human beings to follow increasingly complex lending rules takes more and more time, and more and more people.
If you need proof, simply look at the trend in the costs of mortgage production, published quarterly and annually by the Mortgage Bankers Association. It cost $7,120 to close a loan in the second quarter of 2016, which is significantly up from less than $3,600 when the first digital mortgage closed in 2008. On average, more than 50% of the cost to close is labor. As productivity drops, the cost to close a loan rises. The cost of technology, on the other hand, has held steady between 5% and 10% of the cost to close. The cost of that technology is the same technology that will close a true digital mortgage. Technology is the lender’s great financial ally in this equation. When used as intended, technology increases productivity and drives down the cost to close. It is also the gateway to the mortgage experience that borrowers have told us they want from their lender.
Eliminating paper, investing in technology, and embracing the process revolution is the path to realizing a true digital mortgage in your lending practice. When you get away from paper, your lending solutions can be data-centric, and from there you can support your staff with workflow, validations, logic, and integrations. Your lending practices and portfolios can then be transparent, your compliance streamlined, and your overall cost of doing business reduced. Let the technology do the hard work and empower your people to lend.
You Will Never See a Unicorn
In all likelihood, you will never see a unicorn, or a yeti. But some have seen a true digital mortgage using our technologies, one that begins its life online with a borrower self-originating, gets electronically handed off to the processor, underwriter, closer, funder, investor and servicer, and spends the rest of its life as a collection of electrons in a digital vault with a bunch of other mortgages.
A true digital mortgage is more than an app or applet that collects some (although not enough) borrower information to act upon. Nor is it a hand-off to another system. That is so early 2000s. Today’s true digital mortgage gives borrowers pretty much what they want and need: an ATM transaction-like gateway to their new home, without a lot of their precious time or energy invested in the lender’s processes. These are processes, which we, as an industry, can and should abandon – just like we should abandon paper.