With the California MBA Innovators Conference coming up next week, the topic of technology is on everyone’s mind. Whether it’s on the back-end or consumer-facing, financial technology (fintech) promises to revolutionize and reshape the mortgage industry. But despite the huge benefits, it can be complicated to navigate the options, implement, deal with compliance and integrate it into current systems.
There’s no doubt that even the smallest steps to integrate fintech into existing (and often some-what archaic) processes has made a huge difference.
That’s because getting a mortgage is the longest and most frustrating financial transaction that consumers do today. Consumers can get a car loan or lease, a credit card, perform ATM transactions, buy or return things, and get most types of insurance, all in under a day and often in near real-time.
But a mortgage typically takes 40 days and is costly due to the work and time the provider endures to produce the mortgage. As a result, most consumers see obtaining mortgages as a rare event in their lives – in fact, one to be avoided.
Fintech has the potential to make the turnaround for a mortgage transaction nearly as fast as these other everyday consumer transactions, which would change how getting a mortgage is viewed. The economics would change, such that moving in an out of mortgages for better rates and better terms may become as simple as moving in and out of car loans/leases and credit cards today. With low costs and fast turnarounds, tech-prepared banks and mortgage companies will figure out how to make far more money due to far more transactions taking place.
According to Stephen Butler, Founder and President, AI Foundry, robotic process automation (RPA) has made the biggest impact thus far in the mortgage processing back office. Tasks such as initiating communication based on events, getting external agency data (like credit reports and title), and repetitive filling out forms, are all able to be automated with RPAs today, saving substantial cost and time in the back office, he said.
Bill Dallas, President, Finance of America, concurs about the time and cost savings. He also noted that the solution his company has successfully created “is having a massive impact on mortgage origination and operation,” because the Digital Intelligent Mortgage Platform (IMP) enables companies to lift their loan officers out of cumbersome Loan Operating Systems (LOSs) and do the loan themselves.
This also creates a better customer experience by enabling applicants to do their own loan if they choose, but then opt for help from a mortgage professional.
Given the choice, a majority of borrowers now prefer a mobile-driven mortgage loan application process. Mobile applications accounted for more than 50% of the 37,157 mortgage applications submitted through the SimpleNexus platform in the month of May, according to SimpleNexus, which develops a digital mortgage platform for loan officers, borrowers and real estate agents.
Much of fintech is about using modern technology to solve today’s lending challenges more effectively. What most people associate with fintech are consumer-facing tools that let borrowers apply for loans, sign disclosures and drive much of the process of getting a mortgage themselves. Most early fintech adopters are creating their own platforms to effectively automate that process.
“But too often, fintech solutions are only a dressing up of what borrowers see online — they don’t have any meat behind them because nothing has improved behind the scenes. It’s like a Corvette with a lawnmower engine inside,” said Joe Langner, CEO of Blue Sage Solutions.
He noted that the biggest impact has been from cloud-built technologies, open-API architectures and workflow automation.
“The result is a much faster, more streamlined mortgage production process that saves lenders time and money. It also saves lenders from making the significant investment into building their own technology, either from scratch or by patching different solutions together,” Langner said.
Most lenders have limited resources available to adopt fintech solutions because of the myriad challenges that are involved, Langner said. Beyond understanding the types of fintech solutions they need most, it involves identifying service providers, system testing, and incorporating technologies that conform to their own unique processes and the needs of their partners and investors.
Larger lenders typically bring in third parties to help with these challenges, while smaller lenders typically do not include this type of support in their budget planning, Langner added.
Fintech adoption can be small (like automating existing workflows) or large (such as a complete overhaul of core business processes). It’s crucial to fully understand the end-to-end business processes and to get consensus and buy-in from key stakeholders.
“Once you have this baseline, the second challenge is to choose fintech adoption that delivers quick wins to the organization,” Butler said.
Hassan Rashid, Chief Revenue Officer, Tavant, added that to be successful, it is imperative to mobilize teams skilled in both lending domain and technology innovation. “Lenders that overlook this critical step are likely to fall victim to the classic problem of buying a shiny object that does not deliver any real business value,” he said.
Regardless of the benefits of fintech, most industry executives agree that overall – change is always difficult.
“Change is hard, especially for banks and mortgage companies that necessarily lean conservative when it comes to adopting new technology,” Butler noted.
Dallas agreed. “Stay resolute and understand that it takes time.”
He also emphasized that education and training is a necessity. “Because retail and mortgage brokering is distributed into thousands of small branch offices, it is even harder,” he said. “You have to have a travel team, webinars, use digital/video training and you have to retrain. They never get it the first time.”
Filling in the Gaps
Although fintech is solving a lot of problems, there are still gaps in terms of offering complete and specific solutions for the mortgage industry.
Documents are among the biggest issue. Whether it’s signing documents or document management – all parts of this process are subject to various compliance regulations. Selling even a basic financial product (loan, security, insurance, etc) can require dozens of documents from the consumer, third parties, and internal sources. For example, the mortgage process requires more than a 100 unique documents and more than a 1,000 data extractions to prove and meet quality and compliance standards.
“Current fintech does a poor job handling this level of document complexity, leaving the job to a massive labor pool to index and extract from documents,” Butler said. “In our business of mortgage processing, the ability to automated the classification and extraction of mortgage documents would dramatically lower costs while also improving customer experience and boosting revenues.”
And according to Dallas, data management, marketing, and the ability to interact with a single consumer at multiple touchpoints (starts on mobile, moves to the web and then transacts in person or on the phone) are additional pain points where a gap remains with fintech.
Additionally, there are basic integration gaps that cause inefficiencies and exacerbate the problem between borrowers and loan officers, who are often using two different systems.
“The only way to fix this gap is to have a single system used by everyone—borrowers, loan officers, loan processors and lenders,” Langner said.
But there are developments on the horizon that have the industry opened to the “art of the possible,” according to Rashid.
He added, “We now have folks who have been entrenched in our industry for 20/30 years thinking about how blockchain, AI/ML,(artificial intelligence, Machine learning), Natural Language Processing, data wrangling and automation can be leveraged in the industry. More and more industry veterans within their own areas of expertise – sales, ops, secondary, servicing, capital markets are frantically researching how technology can be applied to radically change their domains. Not evolution but revolutionizing the industry.”
AI tops the list for many. “The most exciting capability that I see is robots that are far more intelligent and that have computer vision in place to automatically classify and extract and run business rules including the ability to make decisions,” Butler said. “This will enable a zero-human back office for mortgage processing and the processing of other financial services products being sold. We will go from the situation today of a massive labor pool to zero humans in the process. We will get to this point in just two years.”
Dallas predicts that retention and loyalty software will also be big in the coming years, while Langner is most excited by the promise of more open systems, stronger and more completed application protocol interfaces (APIs), and a greater number of true web-based solutions that support multiple end-users and devices.
Shaping the Future
Looking two years down the road, expect to see service providers that offer pure cloud solutions with open APIs, true automated workflows. There will also be the continued growth of consumer-direct tools, fully integrated front- and back-office systems and processes, and an increase in the number of true end-to-end digital mortgages. As the level of technology improves, there should be an improvement in cycle times, customer satisfaction levels and lower costs to originate. The ultimate result is that lenders will likely be able to reverse the continuing trend of rising production costs.
“We are on the precipice of another information revolution within lending,” Rashid said. “I believe we will see a collaborative process between home shopping, home finance and home management. A true integrated process that allows consumers to find their ideal home, click to finance it, and get support from a collaboration of resources to help them manage their home while leveraging tools like Alexa, IOT )Internet of Things).”
“The mortgage industry has always been about survival of the fittest, and the most ‘fit’ lenders and service providers will be ahead of the curve,” said Langner.