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As an industry consultant and a long-time resident of Silicon Valley, I spend a lot of time working with, observing and, at times, socializing with fintech companies and their founders. (Full disclosure: I have a lot of clients and friends in the traditional mortgage space as well.)
Recently, I attended the LendIt conference in NYC where the focus was on new customer acquisition technologies and reimagining the consumer experience from the home search and the pre-application process to online conditional approval and virtual closing. The new solutions were, for lack of a better word, “slick,” focused on obvious customer pain points, and were heralded as “disruptive.” Flying back to California from the conference, however, I began to wonder if this is really all that is next for the mortgage industry.
Certainly, the ongoing transformation of customer acquisition, the consumer experience and user interfaces will be a big part of what’s next. This is the area where fintech firms are literally giving the front end of the mortgage process a much needed “makeover.” They have creatively focused on choke points, like consumer-dependent information (bank statements, tax returns, etc.) that are nuisances for consumers, slow down the application and underwriting processes, and make it harder to leverage consumer-facing technology.
Another benefit that our industry will realize over time is that receiving data — not forms, not faxes — directly from institutions not only makes it easier to integrate this data into the origination process, but will also reduce the potential for fraud.
However, there is more to the origination experience than just completing the pre-qual and application components. Don’t get me wrong: this is a good start and long overdue, but it is not the end-to-end solution that is needed.
The time has come for internal workflows to be reimagined or all we’ll end up with is a shiny new chassis with a traditional, manual, cobbled-together process under the hood. I’m talking about the elements that make or break a mortgage transaction, such as valuations, investor requirements and reviews, compliance, surprises at the closing table, paper-based payment systems, onboarding, and the list goes on and on.
We are beginning to see traditional lenders and servicers acknowledge that workflows can and, in fact, must receive the same kind of makeover. Automating the back-end starts with a commitment by originators and servicers to create trusted vendor relationships to help them bring expertise and technology to bear on all of the components that go into originating, acquiring, and servicing a mortgage today. The payoff is pretty evident — cost and error reduction, solving compliance with less human interaction, standardizing workflows, and shortening cycle times.
In taking time and cost out of the process, we need to look at other elements that can slow the ultimate decision. For example, appraisals. In some hot markets, the turn time for appraisals is stretching to months not weeks, and many observers expect this to get worse as more and more appraisers age out of the business.
Clayton, and our parent Radian, have invested in best-of-breed component companies, like ValuAmerica and Red Bell, to begin to address these issues. But the solutions will require new thinking about recruiting and training appraisers, and leveraging sophisticated valuation models to address capacity issues.
Applying technology to non-customer facing aspects of the origination process, such as loan purchases, QC, and compliance reviews, will also impact the cost of lending and lender profitability. It will also provide a more streamlined integration with fintech lenders who usually need an investor takeout.
Technology and digitalization will certainly drive change and potentially be disruptive to the industry, but there is still hard work to be done on critical issues and unexciting functions before true transformation can occur.
