Digital Mortgages: How Mainframes Can Help You Get There

Many players in the mortgage marketplace are leaving money on the table. 

Today’s borrowing consumers are moving quickly towards digital lending. Research shows that by 2020, non-bank, digital lending is estimated to account for more than 10 percent of the U.S. market. FinTechs such as Rocket Mortgage and Lenda are disrupting the status quo and leading the charge towards online lending, routinely besting traditional banks and credit unions in the race to go digital. These millennial-friendly competitors are filling the lending gap with student loans, mortgages, home improvement loans, and small-to-medium enterprise loans – all without leaving the comfort of your own home. And it’s not just millennials. Who doesn’t want a seamless process and instant approval?


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So, what are traditional lending institutions to do? For many, the desire to offer more in the digital arena is there, but they often feel that their legacy technology is an obstacle to innovation. They maintain that mainframes aren’t equipped for the job and that entirely new platforms are needed to drive this shift and be competitive.

But this couldn’t be further from the truth. 

Mainframes have been the backbone of lending institutions for decades and are still serving as essential infrastructure in the industry today, especially in securely maintaining critical customer information, and ensuring compliance to government regulation and corporate policy. But in the age of the cloud, these tried-and-true technologies have gotten a bad reputation as being antiquated and inefficient. However, savvy lenders are realizing the benefits that the mainframe has in driving innovation – choosing instead to make the mainframe the new cornerstone of the hybrid cloud and investing in innovative capabilities built on top of its rock-solid mainframe infrastructure.


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Here’s how you get there.

It’s about the Applications

One common misconception is that that mainframe integration is about data access.  If this were true, “rip and replace” would be easy, perhaps even trivial.  It’s about the applications. 

For a large percentage of traditional lending institutions, origination begins and ends with their mainframe. They have invested countless resources into the development and maintenance of these solutions for a reason: these legacy applications are custom built for their business.


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The idea of simply scrapping it, is fraught with the potential for catastrophic failure and a black hole of expense. And rightfully so. As one developer told me, “You can’t replace fifty years of code in five years.” Mainframe technology remains a highly secure tool for managing important applications and customer data, allowing lending institutions to securely access and maintain databases built up over years of service. And from the ever-looming compliance position, housing legacy data on mainframes continues to be secure. 

By looking at the mainframe as the backbone as opposed to an outdated tool, lenders can drive modern innovation without the costly and laborious process of completely revamping operations. Traditional institutions can leverage their existing infrastructure as the foundation upon which modern development tools can be built. This integration brings the best of both worlds together, maximizing the benefits of the mainframe while allowing for rapid digital transformation that is more easily facilitated by the modern IT professional. 

When trusted mainframes become part of the solution, lenders can accelerate their transformation towards digital offerings. By building upon their current infrastructure, the course to quickly developing applications and customer interfaces becomes less rather than more expensive. Suddenly, the modernization required to be competitive in the online space seems far more attainable. 


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How mainframes enable digital lending

While you may agree that the mainframe is more secure, an important question remains: will it actually make beginning or expanding consumer digital lending feasible for my institution?

The answer is yes. 

According to a 2018 ABA study, 72 percent of banks felt that they could not efficiently offer profitable consumer lending, citing cost and staffing as two major hurdles to facilitating consumer offerings – both in-bank and online. This is a huge amount of business simply turned away at the door, driving them further into the arms of a quick and simple FinTech lending solution. 

Top areas that banks and credit unions can benefit from digitizing the lending process are information collection, flow and access to information, analytics and intelligence. For lenders, uniform calculations and analytics across the entire process for each loan allows for more reliable decisions and reporting. Abrigo found that once this key digital lending data has been captured, traditional lending institutions can better understand portfolio risk for improved strategic decision making.

From the borrower standpoint, customers can easily understand what’s required of them with all information centralized into one location, reducing timeline frustration. Thanks to minimized human error on the back-end, electronic applications curb decision-making delays that are a leading customer pain point as well. According to McKinsey and Co., the average timeline for decision-making for small business and corporate lending is between three to five weeks, while digital lending can bring this down to just five minutes. 

Mainframes can give lenders the opportunity to simplify lending operations when integrated properly. The entire process takes just days but allows IT teams to streamline automation and digital services while remaining supported by reliable architecture. By implementing a technology to marry your mainframe with an easy-to-use interface, like cloud or web-based solutions, banks and credit unions can utilize application development to increase verification and approval efficiency while reducing costs and expanding margins. In fact, a 2017 IDC study found that implementing a connected mainframe into the IT environment resulted in roughly $200 million in additional revenue per year. 

In short, mainframes facilitate easily automatable processes rooted in existing applications, customer data and compliance operations. Lenders can more efficiently offer e-mortgages and loan modifications, drive online access to mortgage rates and approval statuses, and streamline closing and loss mitigation processes. Integrating the mainframe creates an end-user experience that more closely aligns to customer expectations for the borrower’s experience.

Getting started

With all the possibilities for modern lending available through back-room technology, the journey towards making the technological leap to digital lending begins with your first step. Though it can be tough to figure out exactly where square one is for your institution, here are my initial best practices to get you started:

As a boardroom leader or IT professional, take a deep dive into what makes up your current set up – what mainframe technology are you operating on? What data is stored there? Which modern cloud or web-based solution makes sense for your institution? All of these questions and more will be important to ask throughout the process, but one question is the most vital: what exactly do we need to meet our borrowers’ demands?

The next step is to explore solutions that can bring modern mainframe development tools to existing infrastructure systems, focusing on application programming interface, or API, development that brings speed and efficiency to existing mortgage processes. By linking mainframe to modern development platforms, the data housed in the back room will become the building blocks for the forward-thinking online experience that you’re envisioning for your institution. 

Finally, ask yourself: What would FinTechs do? As a start, follow Europe’s lead. Open banking regulations in the UK and Europe require banks to open their systems to outside Fintechs.  Savvy technology leaders view this as an opportunity rather than a threat. They embrace these partnership opportunities to get an inside look at how non-bank digital lenders are disrupting the industry and draw inspiration for how you can improve your operations. In 2016, FinTechs comprised nearly 30 percent of all personal loan balances according to a TransUnion report, growing from only one percent six years prior. And in 2018, Quicken Loans overtook Wells Fargo to become the leading direct-to-consumer mortgage lender in the country. Rolled out correctly, it’s clear that integration of digital processes has the potential for significant growth within the mortgage and lending space.

When you’ve culled down everything you need to get started, be sure that you choose the right integration partner that will quickly bring your digital transformation to life. If you’re still wondering whether mainframe integration is the right choice for you, visit this online tool to evaluate your company’s return-on-investment. 

Conclusion

As you’ve likely experienced at your lending institutions, leaders know that they need to become more digital to remain competitive in an industry landscape that continues to barrel towards the digital age. While current infrastructures like mainframes may seem like an obsolete obstacle in the way of digital transformation, they’re actually a foundational cornerstone that’s waiting to be unlocked for online offerings. By positioning the mainframe as the foundation for digitally driven platforms, lending institutions can create a true hybrid cloud and accelerate innovation. 

The move to digital lending can streamline processes for your institution by improving information collection, flow and access to information, and analytics and intelligence. This both enriches the borrower experience and allows lenders to be more strategic with their offerings. Best of all, this transformation can be accomplished by utilizing technology already running in the back room. 

In order to kick-off your foray into digitalization, take an in-depth look into your current technology set-up, research solutions that can modernize existing set-ups with development tools, and take a note from what FinTechs are currently doing successfully in the industry. Chances are your borrowers will thank you for it.  

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