New data shows growing use of product, pricing and eligibility engines has given nonbank mortgage executives, their loan officers and others more immediate access to capital-markets information that could be a competitive advantage.
It also points to opportunities that could jumpstart
Most of the industry automates product and pricing or plans to soon, according to Arizent's latest Emerging Tech survey. The survey shows 95% of nonbanks and 79% of players across institution types use this type of technology. Another 13% report near-term plans to adopt.
The majority of even the smallest lenders, which currently have the lowest PPE use rates, have adopted the technology.
The use rate is 95% for the larger players across institution types making more than 5,000 loans per year. Most moderate-sized lenders also utilize PPEs. The use rate is 81% for companies with 1,000-5,000 loans annually and 62% for those with lower mortgage volumes.
Drivers in adoption rates by institution size
"There are some big players who spent a lot of time focusing on how to optimize the secondary market side of things that the smaller lenders don't get as much value from," said Andrew Weiss, partner and managing director in Black Group's technology consulting practice.
However, smaller players are looking for "more nimble and less expensive solutions," and there are vendors that have responded to that, Weiss said.
Mortgage brokers, which can be smaller players, have been among active PPE users, according to Paul Orlando, chief strategy officer at Lender Price.
"We have 30,000 plus brokers that use our marketplace application," he said, referring to technology that links third-party originators who source mortgages and get rate information through investors on the technology platform.
With lower rates likely and uncertain policy leading to some unpredictable market moves, at the minimum what immediate availability of pricing information can do for loan officers and other originators is help them to react quickly and close deals.
They may want to do even more with PPEs and other technology that brings them closer to the capital markets given recent market trends.
Broader trends that argue for more use of PPEs
During the period after the Great Financial Crisis and before 2020, the mortgage industry experienced a long run of relatively low rates in which origination generally took center stage.
But the historic low in rates amid the pandemic's uncertainty and the following climb aimed at tamping down inflation were shocks to the system highlighting why cap markets expertise is essential.
"Both 2020 and 2022 created markets that were extreme," said Todd Leddon, executive vice president at LeaderOne Financial, who recently authored a book aimed at explaining mortgage capital markets strategy to the broader industry after his experiences during those cycles.
"A lot of these PP&Es have improved dramatically on showing competitive information their clients would be interested in from an anonymous standpoint," said Leddon, who is the chief capital markets officer at his company.
The technology also has been working on doing more to help with the reporting cap market professionals have to do.
"It's better for storytelling of what's happening with your profitability that's occurring and margin management," Leddon said.
The heightened importance of cap markets teams managing funding sources and pricing that ensures nonbank mortgage businesses are profitable as market conditions change has been a catalyst for broader PPE use, according to Erin Wester, chief product officer at Optimal Blue.
"That's where the lenders are configuring their profitability targets for all of their mortgage product offerings," she said. "The job of the PPE is to protect accurate pricing that the lender is not left to cure."
Increased immediacy of market options for loan officers
For LOs, since affordability has been a concern and many borrowers may not have rate incentive to refinance for a while, it's important to act quickly when
"The loan officers can come to our application and they can interact with their pipeline, but they also can run scenarios while they're on the go," said Jonathan Foy, vice president, product at Polly, a vertically-integrated capital markets platform that added mobile capabilities this year.
Challenges in mobile have included security for technology used outside the office and creating interfaces that operate effectively in that format. Polly, which uses an internationally-recognized standard to audit user-data controls, has worked to address these concerns.
"You've got fly-out menus that work more natively on more of a mobile device. You can swipe back and forth. It brings a lot of very common, more modern mobile interactions to our web application for the mortgage industry, which traditionally hasn't allowed loan officers to interact with their scenarios and their locks and everything as directly," Foy said.
Tech that takes LO cap markets knowledge a step further
Some originators prefer to stick to their knitting and trust the PPE to handle the cap markets expertise, but others may want to go a step further in their understanding.
"Loan officers may not seek out a deep dive, but they want the system to be smart enough to tell them what they need," said Dawar Alimi, founder and CEO of Lender Price.
However, volatility in rates seen recently does generally argue for broader understanding of the capital markets that some LO have wanted to convey to borrowers with the aim of building authority that could lead to sales.
To that end, loan officers who are inclined to learn more might want to consider resources like Leddon's book, which is available in both traditional and digital formats. Other technology resources such as Highway.ai or TrustEngine also are resources in this area.
Originators should decide whether they're looking for, say, an explanation of the mortgage-backed securities market for borrowers or locking or hedging loans and protecting margins, the latter of which may be of more interest to a branch manager, said Leddon.
Highway.ai, a pioneering player in the space, originally was centered around mortgage-backed securities information in the capital markets and later expanded out into some real estate information functions through acquisition, said Dan Habib, chief revenue officer.
"We truly believe that if you're more of an advisor and you can really build trust through knowledge, it really helps you to increase your conversion. But not only that, to some degree, it insulates you from
This highlights questions around whether capital technology could displace the less knowledgeable originator to any degree.
How this type of technology could impact originator jobs
There are longtime, never-realized originator fears that government-sponsored enterprises in the secondary market could go direct to consumers, possibly via technology, and these have resurfaced with the wide range of GSE reform speculation. But experts largely dismiss these.
Such a move would have to be allowed under the GSEs' charters and even if it is, the officials who want to monetize Fannie Mae and Freddie through public offering for some of their shares are unlikely to do it at the private market's expense.
Digital mortgages have made some headway over the years, but legislation would have to be dismantled to completely sideline licensed LOs' role. Also, online originations generally have been more effective for refinancing which currently has built-in limits.
"Our technology is designed to make loan officers more effective in the field, not less essential," said Wester.
Any type of automation could displace some manual functions but likely not all of them, said Leddon, noting that he does not see online business relationships through platforms as replacing the ones people build outside of them.
"Even if potentially the market is allowed to and can do things digitally, I always think it's going to be a mix," said Leddon.
- Brad Finkelstein and Spencer Lee contributed to this report
- This analysis is one of a multipart research series on mortgage technology disruption. Check back tomorrow for more analysis.
