Purchasing a home is an integral part of the American dream, and a mortgage is often what makes that dream a reality. Mortgage lending is vital to the majority of financial institutions, enabling them to operate profitably while meeting the needs of consumers.
With changes in today’s lending environment, there are an abundance of reasons for financial institutions to assess their lending programs to maximize new opportunities.
While millennials may have been slower than earlier generations to enter the market, they now account for 36 percent of homebuyers, according to the National Association of Realtors. The fact that the largest American generation has entered peak home buying years is welcome news for lenders.
On the other hand, rising interest rates and factors such as a lack of affordable housing could create future headwinds for the mortgage market. Navigating these ins and outs will require flexibility and patience from borrowers and lenders. Fortunately, key developments in mortgage technology and processes will help smooth the way.
Automation and Digitization in the Mortgage Process
The industry is edging closer to a completely electronic mortgage experience, from origination to close. This evolution holds the promise of improved service levels, reduced costs and higher levels of regulatory compliance.
For example, using an automated workflow and integrating Optical Character Recognition (OCR) solutions can transform lender processes by reducing clerical tasks. Loan files often contain as many as 700 pages, which must exactly match existing loan data and terms. Validating the accuracy of those documents via an automated process can decrease origination costs, speed time to close and help remove the chance for human error. Staff also have more time to build relationships with borrowers and focus on complex file exceptions.
Because a home equity line of credit (HELOC) is not as complex as first mortgages, they are fertile ground for the benefits of automation. As the equity market heats up, automating processes and approvals will help financial institutions take maximum advantage of the opportunity in this area.
A Multichannel Borrower Experience
According to the Mortgage Lender Sentiment Survey conducted by Fannie Mae, one third of lenders see loan origination as their top investment priority, making it the largest single priority, and 53 percent of those say the ultimate goal is to improve the consumer borrower experience.
However, lenders must navigate substantial complexities to establish a highly functional customer experience. Borrowers' preferences may include completing an online application, walking into a branch, reaching out to a call center or using a chatbot. And as they move through the process, they may switch from one channel to the next.
Borrowers won't get up in the middle of a sentence and walk out of a branch, but they will abandon a digital transaction or interaction that isn't intuitive or valuable. Lenders must deliver a rich, digital experience that allows applicants to apply, sign disclosures, check status and submit loan conditions to lessen this chance of application abandonment.
An Enhanced Focus on Data
Starting with a borrower's first entry into the process – the application – information can now be secured from a data source rather than documents. Financial records from banking accounts can replace statements, pay stubs, W-2 forms and tax returns, and lenders can automate more of the underwriting process.
Lenders have always used data points to help them make decisions, but technology now enables an enterprise-wide, 360-degree view of borrowers and the lending operation, allowing lenders to make quicker, better decisions and take advantage of previously unrealized opportunities.
A large, robust and accurate data set is also the precursor to artificial intelligence (AI) and machine learning. Creating a clear data strategy, assigning dedicated resources to manage data initiatives and partnering with data-focused technology providers lays the foundation for coming innovations. Those could include digital assistants and voice banking skills that enable digital banking and payments.
A Compelling Value
Most mortgage lending in the U.S. has moved to nonbank providers and aggregators, which do not face many of the regulatory requirements placed on banks and credit unions. To compete, financial institutions will need to consider fully digitizing the loan lifecycle to achieve greater transparency and cost effectiveness.
Traditional financial institutions can also maximize their advantages, including a lower cost of capital and a built-in customer base. When choosing a lender, borrowers often go with who they know. Expectations & Experiences consumer trends research from Fiserv showed that among consumers who recently applied for a mortgage or a HELOC, 30 percent said prior experience with a lender was an important factor in their choice of lenders, and 26 percent said it was important to choose their primary financial institution.
No matter what the future holds for the economy and the housing market, financial institutions can position themselves to provide a compelling value proposition for homebuyers.
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