Increasing efficiency while decreasing costs is an ancient mortgage industry topic. We dealt with it at the turn of the century and made substantial gains only to watch them all roll back under the twin tides of the housing crisis and the regulatory onslaught. Operating costs are reaching the highest levels in history, challenging us to do again what we did more than ten years ago.
This time around we have better tools as well as new strategies for tackling tough profitability problems. While there are a number of ways lenders will drive costs lower towards pre-recession levels, at least two have not been leveraged to the extent they should. The first is linking all third parties in the origination cycle for easy, efficient flow and use of information and data. The second is paying close attention to lead generation and management.
Linking All Third Parties “On-Platform”
Linking — historically recognized as integrating — lenders and service providers is also an ancient topic, though it is well established that lenders need vendor service integrations in a single platform to help re-achieve previous efficiencies. Linking is not ‘integration’ as we know it. It means housing every connection necessary throughout the mortgage process in a single platform, or, as we characterize it, ‘on-platform.’ The old integration paradigm of separate login points, manually transcribing data and/or manually importing/exporting files represents a significant loss of efficiency at best and increased risk due to human error at worst. ‘On-platform’ is not the option it once was. More to the point, it will be an important component of competitive lending strategies.
The definition of on-platform is evolving rapidly towards a more complete integration with full functionality between all mortgage origination parties. Lenders need to operate in one system that truly acts like a single system regardless of the origin of the underlying functionality. High cost loan testing, an integral component of the Qualified Mortgage (QM) Rules, is a pertinent and timely example. For efficiency and accuracy sake, third-party vendor services that support the test should be integrated with the lender’s LOS with single sign on, bi-directional data transfer and document reports that include data usage. A more advanced definition that goes above and beyond the basics would include automating service orders through a rules-based approach using any and all loan criteria. The order is then returned, also in a rules-based manner, interrogating the data in such a way that eliminates the need for staff intervention. Real automation happens when special workflows are initiated only for exception cases — or when hard stops only occur as needed. Turn times improve, and the need to increase staffing for volume spikes diminishes. Looking across other vendor service connections like flood, appraisal, credit, fraud, etc., there are similar examples of how automation can be put in place to decrease the number of touches on a “happy path” loan, reserving staff time for exceptions. This requires close coordination between your platform provider and third party vendors in terms of best practices workflow vis-a-vis each and every service.
Imaging and disclosures provide another example. Step one, having imaging and document preparation on-platform, is well established. Step two, however, hasn’t been as clear until recently. No-error imaging systems that automatically recognize 100% of documents created by the disclosure system is important now and will become essential with Know Before you Owe (KBYO). When one part of the platform creates a document, all other parts of the platform must recognize the document and have access to the data used to create it.
A third, and very timely example of linking, is the borrower self-service portal. Today’s purchase borrowers have great ‘digital’ expectations. They are demanding, fickle and better educated than their pre-recession counterparts. They want self-service options. They expect a high level of transparency in the form of regular, online updates throughout the process on whatever device they have on hand. This is true both for the application itself and also for what happens after, continuing throughout the process until the loan is closed. A notable borrower experience requires deep integration and is defined as being able to provide a pre-underwriting decision at 2 am without staff assistance; credit, fee collection, AUS and initial disclosures all which happen automatically. After the application is submitted, the borrower should be able to check loan status, securely message with lending staff, receive and upload additional imaged documentation, and electronically sign documents.
Here’s a short, though important, list of capabilities. Once deeply integrated, they will help increase efficiencies as well as decrease costs:
- Borrower-facing self-service application portal
- Disclosure platform
- Vendor service integrations (credit, flood, appraisal, compliance, fraud, title, etc.)
- Imaging platform
- Product Pricing & Eligibility (PP&E) Engine
- Customer Relationship Management (CRM) system
- Automated Marketing Solution
That’s just for starters. As borrowers become savvier and as the purchase market evolves, the interconnectivity of all mortgage industry players will increase. Your LOS is one of those players.
New Demands on Vendors
Assembling these capabilities into a single product portfolio, investing in real integration between them while also investing significantly in integrations with third parties, requires substantial resources. Making this more challenging is the investment required to support the ongoing stream of requirements for regulatory compliance.
This is one reason for recent consolidation among LOS vendors. The bar to keep a seat at the table rises continually. Vendors must have a roadmap that includes not just meeting or exceeding compliance requirements but also moving their platform toward deep all-capability integration as well as the resources to actually accomplish it.
A technology vendor becomes a true solution vendor when they merge disparate systems and make buying and using them simple and efficient. Vendors that push the envelope even further will be able to offer different systems as your business evolves as well as different solution delivery paradigms such as licensing vs. software as a service vs. business process outsourcing.
Friction is rampant throughout the mortgage origination cycle. At no point is the process smooth. Generating applications, closing as many as possible, then delivering loans to either the balance sheet or investors is a rocky road rather than a smooth highway. This has to change because as much as it impacts lenders, borrowers may notice it even more.
Generating and nurturing leads wasn’t much of an issue during the last five years. Refinance borrowers show up, application taken, loan processed, loan closed, loan delivered. Inefficient processes did result in longer than necessary process times. They also resulted in greater than acceptable fall-out. Now that the industry is transforming to purchase lending, ignoring fall-out is not an option. Lead generation, and its counterpart, lead nurturing, are two new success strategies. Purchase borrowers have options, and they can be mercurial. Identifying them as early as possible in their homeownership quest, educating them and making them feel comfortable and regularly informed will separate winning lenders from all others. It won’t be enough, however. Once their application is in hand, everything possible must be done to close their loan. Fall-out was the elephant in the room during the refinance binge. All lenders knew it was a problem; few wanted to talk about it — let alone address it. It is not as if nurturing leads hasn’t been important; it has, though now more so than ever as loan application numbers retreat to volumes not seen since the mid-1980s.
Loan delivery is another source of friction regardless of lending channel. The time it takes to move a loan from closing to portfolio or investor can likely be shortened, and should be, for profitability’s sake. The vendor consolidation mentioned above is leading to an extremely promising side benefit. More often one technology vendor serves both the seller and the buyer of a loan. In other words, the seller’s LOS is the same as the buyer’s LOS. Why does this matter? It blows wide open the paradigm of how mortgages are bought and sold. Data and documents can be transferred real-time both for due diligence (with appropriate security controls) and settlement. Workflows, including both manual and automated steps, can be facilitated by the platform that include buyer, seller, then seller again and so on with similar efficiency to purely internal workflows.
Like water finding the path of least resistance, these types of efficiency gains between organizations are likely to create measurable impacts on where loan volume flows in the industry as cost per loan decreases. Risk decreases, too, since the transaction is highly transparent.
So what does all this mean for lenders making technology decisions to support business viability and growth? It means concurrently considering existing needs while looking to the requirements of the market ahead. To best position your business for success, choose a technology partner who:
- demonstrates a product roadmap of deeply integrating a wide range of on-platform capabilities;
- invests strategically and consistently in their products while meeting or exceeding the continuing wave of compliance requirements; and
- helps reduce the friction at your front and back doors through borrower experience (think CRM/AMS) and a credible roadmap for integrating institutional buyers and sellers.
It’s clear. Technology, and the right technology partner, are success strategies for today and tomorrow’s thriving mortgage lenders. Self-service at the point of sale, deep on-platform integration and diligent lead generation and nurturing are no longer optional. The result? Happy borrowers and efficient, profitable lenders.
About The Author
Paul Wetzel has led Product Development and Product Management activities through most of his 20-year enterprise software career – over the last 10 serving the Financial Services industry. In his current role, Paul manages both customer and industry requirements to drive product enhancements while also ensuring Mortgage Cadence leads the way in innovative loan origination technology. Paul began his career with Accenture in software development where he rose to the level of Director, Business Development for an Accenture subsidiary. Before joining Mortgage Cadence in 2009, Paul spent several years with FICO in product marketing and corporate strategy roles.