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Why Can’t Mortgages Be More Like College Admissions?

APR 24, 2014 2:12pm ET
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WE'RE HEARING…my daughter recently went through the college selection process and I would happily say that this experience is even more emotionally charged than going through a mortgage loan process and took a lot longer. So, maybe we’re not the worst place to do business. On the other hand, we can learn a lot from the college application process.

Let me start this story by telling you that my daughter is perfect. You should keep this in mind. She is the greatest kid in the history of the world and I have no idea why every single college she applied to didn’t fully understand that.

I suspect it’s very similar to how borrowers feel when they’ve worked very hard, saved money for a downpayment and kept their FICO score in the 700s and still not every single lender is able to give them an instant answer and accept the fact that they’re the greatest. Of course, we know not all borrowers are perfect, while my daughter is.

My daughter applied to more than 20 good colleges and was accepted by a lot of them. Now you may think that 20 seems like a very high number of schools to make application to, and back in our day it was.

Back in the last millennium when we all went to college, we sat down and wrote out by hand or pecked out on a typewriter (with a ready can of white out) each application—one by one. So, time constraints kept us to applying to only a few schools and there was certainly no college blogs or websites that tried to guide us.

Most of us picked a few we knew we could get into, and then a few that were maybe stretch schools. And that’s how we ended up at the school of our choice, to spend four years not studying mortgage banking (I mention that last part because I have never met someone who studied mortgage banking in college and apparently they still don’t offer it today). However, some things are different today.

Today, college applicants have something called the “Common App.” As any parent who’s gone through this knows, the common app allows you to put all of your pertinent information, your rough GPA, your class rank, extracurricular activities and then it automatically pulls in your SAT scores. You can even put in there all of your unbelievable accomplishments, such as the fact that you led the fund drive to raise money for the local church, all the way down to the unbelievable club that you ran.

For example, my daughter was the president of the Math Honor Society, but then again I already explained that she is perfect. In many ways, this is similar to the way home sellers will illuminate the fact that they have terrific recessed lighting and a mirrored backsplash in the kitchen when they enter the information into the MLS where everyone can see it.

You see, the college process is similar—you enter all your information in the one “MLS” that represents nearly all the colleges just like Realtors have a single MLS that has all the properties for sale. I am just happy I did not need to have an open house for my daughter or put a sign in my yard.

Anyhow, you put all the detail you want into the common app and then every college that accepts the common app is one button away from receiving your completed application, as long as you’re willing to pay the application fee.

Imagine what it would be like if mortgage banking worked that way. You could put all of your information into a common online app—your income, your assets—and the system then pulls in your credit score.

Now, that credit score is very important, and is not much different from the SAT, which is really just a numeric measure of the risk that you will be able to complete college—higher the number, lower the risk—the same way a credit score tells you the likelihood that someone can pay a loan. And guess what else—in both cases, if you have scores in the high 700s you are in good shape.

So, in the perfect mortgage application process, the borrower could press a button and send out all the data, saying “I want to apply to these specific lenders.” Those lenders would then, through whatever process they choose, provide an answer.

Given the same level of information that colleges request of students, mortgage bankers should be able to return a decision almost immediately, which doesn’t happen in academia. That’s because, supposedly, they’re going to read an essay about the unbelievable experience my daughter had each and every one of her summers, as well as the unbelievable things she learned answering the phone at the local insurance agency.

It would certainly be much more efficient if we had something like the common app—not just a 1003 that’s a common app, but the ability to enter the data into a single system and then submit it from there to be sent to the lender of your choice, where you then can get a decision back. And we, by the way, are nowhere near that at this point in the mortgage industry.

If we were that efficient, each lender could use the common data stream to make a decision and then compete with each other for the attention of the customer. Maybe they will send T-shirts (like some colleges did) or invite her to special invitation Facebook pages.

In any case, the more efficient we can be at receiving and analyzing the data, the more time (and resources) each lender will have to focus on the "near misses"—those that don’t fit perfectly into the application bucket.

In fact, the colleges have a name for this and that is that they view each application “holistically.” Every single college visit has a nice admission counselor that stresses it. What they mean is that they look at the real person, not just the SAT’s and the grades (hmmm, so the colleges that my daughter applied to received 30,000 applications and read every one of them?). I was skeptical, so I asked one of the admissions folks once, “do you ever look at your applicants atomistically?” Which, for those of you who don’t know, is the opposite of holistically. She had no idea what I was talking about and my poor daughter just pretended she did not know me. By the way, she was admitted to that college, so my smart ass question did not hurt her at all.

So, this points to two areas in the mortgage banking industry that are going to have to evolve in the future. We have to get much better about receiving common data and making decisions based on that, which hopefully will lower our cost to produce and free up time to focus on those applications that need more scrutiny. And we’re going to have to look at more than just the numbers to figure out if a borrower has the ability to repay the loan—you know, be holistic in our review of each application.

There’s another lesson hidden in the way colleges help new applicants understand the financial aid process, but I’ll get into that next time. I’ll also tell you what school my daughter ended up in and how that choice brought me full circle to a community I got to know well earlier in my career.

Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience.

Comments (14)
The idea of making a decision based a standardized set of data is basically just running AUS. This is part of most originator's prequal letter pending an final underwriter's determination.

The idea that you raise of lenders competing for the borrower is effectively LendingTree.
Posted by Stephen H | Thursday, April 24 2014 at 2:35PM ET
Thanks for your comment Stephen. I think the big difference is that you put all the data needed for the decision into a system and then you choose multiple lenders and get approved. With AU you can get to it, but you have to do it with each lender, one by one by one. It would be like if you had to apply to every single college separately but supplying the exact same data. That is exactly what the we do for mortgage banking now. And the difference with LT is that you do not get a decision directly from all the lenders, you get a price and then choose the lender and then wait for the decision.
Posted by Garth G | Thursday, April 24 2014 at 10:50PM ET
There are far too many moving parts in a mortgage application for this to work. What you suggest has always been the "holy grail" of mortgage automation. With college admissions they are looking at SAT, GPA, and Class rank....three primary variables. As you know, that is not the case for mortgage lending and particularly government loans, each one is like a complicated puzzle that needs a true expert to assemble properly and timely. Until we can approve loans with only a few data points, your idea (which would be wonderful)is not possible.
Posted by Mark J | Friday, April 25 2014 at 8:34AM ET
The college system is imperfect and assumes that everyone fits into a nice neat box. This has been the same problem with the mortgage business. Each client is different and no automation system is capable of making a personalized decision. Data is just one third of the process. Lending is local and always will be. The best lenders are the ones who can assess each borrower's situation through a personal interview. Your suggestion while it sounds nice and has some good comparisons doesn't make much sense, just ask the kids how enjoyable and personal the college process is. Ask the college personnel how their desks have been overwhelmed with so many more applications today and how in an effort to make decisons they rely on impersonal data rather an eye ball to eye ball in depth discussion.
Posted by Charles F | Friday, April 25 2014 at 9:36AM ET
You are making an assumption that a consumer understands how to complete the mortgage application, that they know how to average bonus income or manage self-employment income. I had a borrower say to our processor "I am not self-employed, I own 100% of a corporation". A consumer cannot navigate the complexities of our process, more originators cannot - there are too many 'gotchas' imbedded in the system that have to be known to be addressed!
Posted by Amy T | Friday, April 25 2014 at 10:37AM ET
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