Editor's Note: This feature from the September issue of NMN magazine is part two of a two-part series. Read part one here. NMN is proud to present the 2017 Digital Mortgage Conference Sept. 28-29 in San Francisco. Click here to read more from our digital mortgage special report.
For more than a decade, technologists have envisioned a fully paperless origination process where the closing transaction is consummated with an electronic promissory note. The e-mortgage mantra held that digital forms and electronic signatures could save the industry time and money by not printing, faxing and shipping paper between borrowers, lenders and investors.
Where the e-mortgage could be thought of as a product, the digital mortgage is a process — one that prioritizes automation backed by data, even if some, or all, of the final loan documents are still executed on paper. Digital mortgage technology takes many forms, but it should ultimately make the process more accessible and intuitive for borrowers, while also providing lenders with more accurate information to make a loan decision.
Digital mortgages also empower consumers to direct the application process on their own, reducing workload for loan officers and processors.
"The concept we started with was really simple: What if we could make the borrower the loan officer? What if we could actually have that customer do the bulk of the work and be able to deposit that information directly into the system?" said Mark Greco, CEO of 360 Mortgage Group.
The Austin, Texas-based lender recently launched its own homegrown point of sale system, called NOLO, which stands for "No Originating Loan Officer." A key component of this is an emphasis on integrations with data services to provide independent and secure sources of the information needed to process a mortgage application.
For example, rather than collect static bank statements from borrowers, lenders can tap into third-party services to verify assets, along with other sources for income, employment and credit information.
"The two reasons I think a lender would do this is either they want to drive a much better consumer experience or they want to get a lot more data to drive efficiency and certainty in their processes," said Nima Ghamsari, co-founder and CEO of Blend, a San Francisco-based online point of sale system developer. "Our goal is to have the best access to information so the consumer is always served and has the option to do it, and that the lender gets the broadest utilization of that data."
Digitizing the lender
Improving the front end of the process makes for a great consumer experience, but what happens once a loan file is ready for underwriting? For the digital mortgage to reach its full potential, lenders and technology developers still have to solve for the disconnect between the front-end application process and the underwriting work required before a loan can close.
With lenders moving away from verifying borrower details from documents and instead relying on third-party data sources, there's an opportunity to re-engineer the entire underwriting process.
"What we've realized is that is because this data has never really existed in this format for them before — it's always been a paper paystub that a human reads through, versus a data feed — they don't have those algorithms built internally," Ghamsari said. "Now that we have all these consumers going through this great process and collecting all this data, how do we build the intelligence around it so that it naturally just by using our platform, it drives efficiencies for their business?"
One approach is to pull more underwriting tasks forward in the process. Rather than have underwriters validate information provided by the borrower, 360 Mortgage Group's platform "inverts" that by asking the borrower to confirm information that the lender aggregates from its data providers.
"In a traditional underwriting, they're pulling the validation and having to make sure the validation is consistent with what's on the application and making corrections," Greco said. "Because we are pulling the data directly from the source, the underwriting system is significantly streamlined and it is a much faster process."
Likewise, using rules that are configured to a lender's products and investor guidelines can make the approval process more efficient and ensure that consumers have the information they need to choose the product that best fits their needs at the time of application, rather than after the file gets to the underwriter.
"We're talking about truly bringing underwriting and guideline management to the forefront of the process. But the only way to be able to do that is not just by filling out a pretty application," said Kyle Kamrooz, co-founder and chief operating officer of origination software startup Cloudvirga. "You've got to build that core foundation to be able to support that workflow. That massively changes the entire paradigm of how a loan gets done."