Secondary mortgage market: lenders must embrace digital change

Despite the benefits of going to a fully or hybrid digital mortgage process, some lenders still hesitate to adopt it as fast as expected. Adoption is found in pockets and where specific problems try to get solved, but acceptance is not happening all at once.

Change invariably impacts the borrowers as well and that can be hard. However, "those who are successful are those embracing change and working through it with all those affected," Todd Hougaard, product manager at Mortgage Cadence, said at the Mortgage Bankers Association's National Secondary Market Conference.

Explaining how modernizing the process comes with cost savings, fraud reduction and enhanced customer experience is a good place to start. Lenders need to meet the borrower where they're at — on a mobile platform.

"You have to think about workflow, you have to think about processes and then you have to think about the loan officer and explain the benefits to them," said Shane Hartzler, director at Fannie Mae. "You have to have them buy in. Once you have the high-producing LOs figure it out, everyone else is going to come along."

The use of e-notes is on the rise, with the first quarter of 2019 outpacing the entirety of 2018, according to Merscorp Holdings. However, the absence of guidelines to originate and securitize government-backed e-notes presents a barrier for widespread adoption.

"As long as Ginnie does not accept e-notes, the economic assessment associated with the integration of e-closing platforms into an origination shop is probably not a favorable one because they need to have a certainty they'll be able to deliver," said Angel Hernandez, manager of strategic planning, policy and program development at Ginnie Mae.

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Hernandez noted Ginnie is committed to eventually accepting them since the absence of large-scale adoption also delays the overall progress to a fully mature digital mortgage ecosystem.

Digitization within the secondary market continues to grow organically, but e-notes don't even make up 50% of the marketplace.

"On a panel in 2003, our prediction was we'd be at 50% by 2005. We're still not there yet," Hougaard said. "Over the next two years you're going to see a lot of changes. But I think getting to the 50% after you look at the retooling of operations, is another five to seven years out. It's starting to happen in enough places that it's becoming reality not just conversation."

When the change comes, Hartzler believes it’ll be exponential. "I don't want to keep maintaining these bifurcated processes. At some point, you've got to commit to going all electronic. Once we see some of the larger lenders commit, it's going to be a quick migration," he said.