How Technology is Empowering the Mortgage Sector
In recent times, modern technology has gone from a mere facilitator of business to a revolutionary force in virtually all sectors of the global economy. Thanks to groundbreaking innovations like online user platforms, portable smart devices, and artificial intelligence, businesses are finding new ways to refine customer experience and utilize resources more efficiently.
Among the industries that are experiencing dramatic change as a consequence of the current wave of digitization is the mortgage sector. Although the housing market is yet to fully recover from the damaging effects of the 2008 financial crisis, statistics show that home prices and loan origination volumes have been on an upward trend for the past several years. Those numbers, along with the challenges that mortgage lenders have been facing, most significantly in time management and borrower satisfaction, all point to the fact that the industry is more than ready for the disruptive effects of new technologies.
To that end, players in the mortgage sector are gradually embracing technology to increase throughput, promote accuracy, improve processing speeds and reduce overhead costs. Additionally, tech developers are consistently introducing new solutions, with the intention to digitize the origination process from start to finish.
So, have you been asking yourself what the ongoing tech boom means for the mortgage industry? Here are five ways digitization is reinventing the game for both lenders and borrowers.
1. Better Customer Experience
Extensive documentation is a typical characteristic of the mortgage industry. When applying for housing plans, prospective homeowners usually have to take the time to fetch their financial records and fill out dozens of forms at the behest of their lenders. It’s not uncommon for borrowers to get requests for documents they have already provided, or for new information that is suddenly needed in the eleventh hour. Mortgage processing often takes days, if not weeks, as borrowers are subjected to lengthy waiting times and constant back-and-forth.
With digitization, however, the mortgage sector seemingly has a chance to kick things up a notch. Blockchain technology, for instance, is enabling lending institutions to collect and consolidate information like bank account activity, credit history, tax returns and pay stubs into one automated system for faster and more accurate borrower verification. By recording such data on the immutable, self-managing blockchain ledger, lenders can deploy smart contracts to review mortgage applications quickly and accurately.
Even more captivating is the emergence of mobile-centric experiences in the industry, which are currently being driven by new, tech-savvy financial institutions. Apps and mobile-friendly websites are giving borrowers more control of the process by allowing them to fill, review, e-sign and submit forms with just a few clicks or taps. This accessibility also empowers clients to stay connected with their lenders before, during and after the loan processing period, significantly increasing satisfaction and improving borrower experience. It’s no surprise that “FinTech” lenders are taking over the mortgage market.
2. Transparency
Borrowers hardly ever get access to information about their loan application and status, and that means their only choice is to trust their mortgage providers blindly. Unsurprisingly, this hazy way of doing business means that loan officers spend a lot of their time reassuring anxious customers.
Thanks to new technologies, prospective homebuyers are gaining more access into the process, and that is allowing them to keep track of their loan status in real time. Mortgage providers are now coming to terms with the power of mobile and web apps as a way to keep borrowers close and promote collaboration. This form of transparency helps to ease the minds of nervous clients, and for lenders, it alleviates the pressure of proactively sharing updates.
Even more transformative are blockchain-powered solutions from companies like MorLabs, which decentralize the storage of data so that transactions are immediately visible to all lenders and borrowers on the network. The immutability of the blockchain ledger also makes it impossible for either party to manipulate information or engage in shadowy practices. Such levels of trust and accountability significantly reduce friction in the mortgage process.
3. Accurate Decision Making
Ask anyone that has ever bought a house with a mortgage arrangement, and they’ll tell you that the process is far from straightforward. Even the borrowers with the most stable financial footings go through the lengthy, inconvenient task of proving to their lenders that they’re worthy customers.
Recently, however, financial institutions have been investing in technologies that could make it easier to decide whether to approve or reject an application, based on a borrower’s risk assessment. Risk departments in lending companies are replacing old, primitive models with comprehensive strategies that offer more data and a faster way to make use of it. By incorporating a myriad of data types, including credit history, employment stability, spending habits, and previous re-location records, big data analytics helps lenders to achieve more accurate descriptions of a customer’s risk level. Therefore, rather than turning prospective borrowers away because of one or two red flags, mortgage providers can look below the surface to find more convincing reasons to approve applications.
4. Full Compliance with Lending Policies
New regulations implemented after the last decade’s mortgage crisis changed the playing field extensively. Today, the law requires that mortgage providers practice responsible lending and provide borrowers with as much disclosure as possible early in the loan process. With pressure to adhere to new rules at an all-time high, lenders are turning to technology for solutions that empower them to play by the book without negatively impacting the customer experience.
Automated workflow and artificial intelligence are both proving instrumental in enabling mortgage companies to ensure full compliance. To adhere to the “Know Before You Owe” rule, for example, lenders can now trigger the generation and delivery of electronic disclosures automatically after receiving applications, so that customers are kept fully aware of their loan options. This modern, streamlined strategy is far more efficient than the manual, paper-based process of the past, which was prone to costly errors. Moreover, borrowers can now read and sign off on disclosures anytime and with any device, eliminating friction and delays.
Technology has also made it possible for lending institutions to create reliable audit trails and keep track of processes more effectively. Various digital solutions, for instance, have become invaluable for lenders because they provide accurate chronological records for every stage of the loan origination process. Critical steps like application start date, e-consent opt-in, and review of loan disclosures are all captured and recorded seamlessly, incentivizing accountability, and allowing lenders to monitor compliance so that they can respond to problems before they turn systemic. With such forms of automation, mortgage companies can avoid the regulatory fines and reputational damages that come with non-compliance.
5. Cheaper Mortgages
According to the Mortgage Bankers Association, a lender spends an average of $8,000 processing one mortgage. A substantial amount of that money goes towards paying employees for manual, repetitive tasks like tracking missing information on paper forms and sending documents via emails. And although the lender bears the immediate cost of processing loans, that weight is eventually passed on to borrowers as high fees and inflated premiums.
Using modern technology to automate manual tasks is helping lenders to reduce operational costs. Firms that have implemented digital solutions are reaping the benefits of faster loan origination, minimal errors, and less reliance on human resources. While technology cannot entirely replace experts, it can allow them to dedicate more of their time to higher value activities that drive revenue growth and promote customer satisfaction. The savings that stem from digitization also result in cheaper, more accessible mortgages for borrowers.
Technology and the Future of Mortgage
The mortgage industry wasn’t among the first to join the new-age tech bandwagon but going by current events, it seems to have finally embraced change. Innovations like artificial intelligence, blockchain technology, and big data are transforming the process by powering faster and more straightforward lending interactions and fostering transparency, trust, and accountability.
While it’s not possible to see into the future, it’s clear that digitization will continue improving the mortgage experience. Getting a mortgage might never be as easy as shopping on Amazon or sending money via PayPal, but it will undoubtedly get better down the road.
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