Yesterday’s Automation Won’t Help Cut Loan Costs
Over the past several years, the idea that many American workers will someday be replaced by robotics has gone from science fiction to, well, actual science. Last year, a McKinsey Global Institute looked at 800 occupations around the globe and determined that 800 million workers—roughly one-fifth of the world’s workforce—will be replaced by automation by the year 2030. In fact, automation is already transforming the retail supply chain through automated material and inventory management, while robotics are being used for prefabricated construction and 3D printing.
That the mortgage industry could ever be entirely run by robots seems a bit unlikely. But something that is not science fiction is how expensive it has become to originate loans. The costs for manufacturing mortgage loans is at a record high – topping $8,900 for every purchase loan, according to the latest numbers from the Mortgage Bankers Association.Over the past two decades, we have plenty of evidence that technology is really the only defense for lenders who are trying to make a dent into higher costs. The key isn’t building robots, however. The answer lies in process automation, which entails automating every possible process that does not absolutely require or truly benefit from human involvement. Achieving process automation will entail trading in complex legacy systems and redundant tasks in favor of higher efficiency. And ultimately, it means changing everything about how consumers get mortgages and how loan officers sell them.
Why Today’s Technology Isn’t Saving Lenders Money
With all the technological advancements happening in our industry, one might think that the mortgage process is already rife with automated processes. Certainly, the potential for massive process automation exists. But a closer examination of how technology is actually being implemented throughout the mortgage process reveals a host of missed opportunities and extra costs that lenders never anticipated.
For example, most loan origination systems (LOSs) lenders are using today are founded on technologies that were built decades ago, before cloud computing and online applications became commonplace. To provide a better consumer experience by letting borrowers apply for loans online, a lender that relies on one of these older platforms has the option of bolting on a third party’s consumer-facing online loan application. Problem solved, right?
Wrong. Unfortunately, most online application software products typically enable only a one-way data flow to the lender’s origination platform. This means that if the borrower runs into trouble with the application or makes a mistake while filling in data, there’s no way for the lender or the loan officer to know. This is why we hear so many accounts of how borrowers try to apply for mortgages online only to end up on the phone with a loan officer when things don’t go right. It’s also why borrowers so frequently submit the financial documents their lenders require online, only to find out later that the documents never made it into the loan file.
Because of this situation, most lenders that think they are saving money by introducing new technologies are actually spending more money. Those costs come from either having to re-enter data manually, or collecting the borrower’s information by phone or email, or paying large sums for third-party integration “experts” to patch together technologies that were never originally meant to work together in the first place.
True process automation can never be attained by continuing to rely on the same technologies that created this situation. The only way it can be achieved is by having lenders and borrowers use the same system—one that was built from the ground up to be operated by both loan officers and borrowers, and that takes all the heavy lifting out of the process for both parties.
Redefining the Borrower’s Experience
The key to establishing process automation in the mortgage process is to transform the LOS into a free-flowing, fully digital customer-centric—not a lender-centric—experience. It’s important to keep in mind that today’s borrower knows more about their own financial profiles than they ever did before. Most have already done some research about the mortgage process before ever contacting a lender, and if they don’t know exactly how much house they can afford, they certainly know what rates are available and the basic information they need to fill out an application.
In other words, they have very high expectations. They know their financial information exists online in digital form, and they have fairly easy access to it. That includes their credit scores, their incomes, assets and debts. They don’t see any reason why the lender will have any trouble obtaining it, either. The more tech-savvy borrowers wonder what possible good a phone call with a loan officer will do when the problem is simply getting this information into the loan file.
On the other hand, if the platform exists in the cloud and both borrower and loan officer have access to it, the problem is solved, and process automation can flourish. This enables both parties to access a multitude of web-based systems to enable a smoother collection of information and third-party services. This lets the borrower shop, price and apply for loans on their own, while the platform automatically orders the borrower’s credit, calculates loan fees and assigns conditions for underwriting.
From here, process automation enables more efficient back-end processes, including underwriting, running compliance checks and delivering initial disclosures that are ready for the borrower’s digital signature—all without ever having to talk to a loan officer. All of this can happen quite literally within minutes of the borrower submitting an application.
Of course, some borrowers may not be ready for this much automation. But there is nothing lost and everything to gain by providing them this capability. That’s especially true considering that young homebuyers that are driving into today’s market do not remember what life was like before the Internet – in fact, they spend most if not all of their waking hours online and are more comfortable interacting with technology than talking to a loan officer on the phone. And if they have to wait for a loan officer to call them back, forget it.
The Loan Officer’s Evolving Role
So what does this mean for the loan officer? Do borrowers really prefer working with a robotic version of a mortgage expert? Not at all—but it does mean loan officers will have to make adjustments. In fact, when process automation is highly leveraged, loan officers have the most to gain.
In a mortgage environment driven by process automation, the loan officer is able to get a much clearer picture of customers they are working with and how to best serve the customer’s needs. All the paper shuffling and data gathering problems are essentially solved, so instead of wasting time collecting paper, the loan officer can refocus their energies on making sure the borrower gets the best possible financing and has everything in place to ensure a smooth, efficient closing.
Even when process automation is leveraged, most borrowers are grateful to have a human expert along for the ride to make sure they choose the right product and to answer any questions they may have about the process. The key for loan officers is to be able to help borrowers in the way that each borrower chooses. By leveraging a mortgage platform that is built in the cloud, the loan officer can more easily engage and serve borrowers through any platform or device the borrower chooses, including smartphones.
Even in a heavily automated environment, there’s still a chance a borrower could make a mistake, such as filling out the incorrect field or clicking on the wrong button or icon. In most current systems, if something goes wrong the borrower either doesn’t know it or becomes frustrated with the whole process. But when both loan officers and borrowers are using the same system, the loan officer is often able to spot such missteps immediately, often before the borrower realizes it, and can step in to correct the situation immediately.
Where the Savings Takes Place
With all the technological advancements we’ve been reading about in the mortgage industry, one might get the idea that lenders are already process automation experts. But as long as they continue to rely on technology that was originally built more than 15-20+ years ago, they simply cannot provide a truly end-to-end digital mortgage experience that today’s borrowers are clamoring for—nor will they ever truly be able to get a handle on rising costs.
In spite of our industry’s technology advancements, lenders have not achieved cycle time improvements, which is the real key to lowering costs. According to the MBA’s estimates, most underwriters are reviewing between 30 to 35 loan files every month, which is roughly the same amount that they did five years ago. Because process automation enables a cleaner, more efficient collection of data, giving borrowers access to the same platform loan officers use, it could easily double the amount of loan files an underwriter reviews in a month.
If lenders truly want to cut costs – and we all know they do – the only way is to rethink the way they produce loans and to use the right technology. In this case, the right technology is a platform in which everyone involved in creating a mortgage – lender, loan officer, underwriter, and consumer – is able to use. In other words, the technology lenders use to manufacture loans needs to be same technology consumers use to start the mortgage process, as well as the same technology that the loan officer uses to connect with and serve the consumer.
The bottom line is that process automation is not a matter of leaving the mortgage experience up to robots. It’s simply a matter of common sense and focusing on the entire customer experience. I think that’s the kind of future we can all get behind.