While most prospective borrowers start the mortgage process over the Internet, the typical consumer experience transitions offline before the loan closes. But a mortgage lender backed by Silicon Valley investors wants to close that gap, while at the same time, wring out origination costs by having consumers self-service loan applications.
From the airport to the grocery store — and throughout the digital traverses of the Internet — technology has increasingly enabled self-service commerce. An estimated 197 million American consumers purchased retail goods in 2014 from all sorts of proprietors with minimal, if any, use of a sales person as an intermediary — that's up from 191 million in 2013, according to research firm Statista.
But the do-it-yourself approach has so far only penetrated parts of the mortgage process. Lenders may advertise on lead generation websites, but borrowers are often routed offline to call centers and telemarketing reps.
"We think that model is dead and broken. It is obviously very expensive too, because it costs money to pay commissions to telemarketers and junior loan officers and loan officers," said Jason van den Brand, CEO of San Francisco-based independent mortgage banker Lenda.
Even Quicken Loans, a perennial online-based lender renowned for its customer satisfaction ratings, relies on a hybrid approach that combines its website, call centers and mobile application. But Lenda, which launched in October 2013, envisions taking the concept a step further with a do-it-yourself approach to mortgage originations.
"We're building software that removes a lot of that stuff so when people find us online, they actually stay online and they don't have to talk to a loan officer," van den Brand said.
Van den Brand is a 10-year veteran of the mortgage industry. At Lenda, he has created a process that uses minimal, if any, human intervention during the origination process. Lenda doesn't have a staff of loan officers waiting to pounce on leads as soon as they come in, he said. Still, if a consumer does need help with the process, Lenda has a toll free number where the applicant can speak with a licensed loan officer.
"But the traditional model of a loan officer picking up the phone and calling you after you fill out a form online, we're not doing that," van den Brand said.
The company's technology uses algorithms to identify which type of loan product is most suitable for a borrower early on in the process. By eliminating questions that are redundant or unnecessary for a specific product, the technology helps to speed up the application process.
"The biggest pain-point for clients is still getting their [verification] documents," van den Brand said. To help address this, Lenda is working to incorporate tools that would allow borrowers to log into their bank accounts from the Lenda platform to verify deposit information. It also wants to let borrowers access their income tax transcripts through the site.
"All the little tech tricks that we can do on the front end makes things easier for people, can provide for a better experience and is going to save a ton of time. Ultimately, time is money, we all know that. So they're going to save money by utilizing this technology," van den Brand said.
The company's ultimate goal is to create efficiencies and reduce costs by having fewer people in the middle of the origination process.
With the cost of a loan officer accounting for about 50 to 100 basis points of the loan amount, an arrangement like Lenda's would likely help a mortgage originator lower its cost structure, said Garth Graham, managing director at Stratmor Group, an industry consulting firm based in Peachtree City, Ga.
Graham was an executive at the original Mortgage.com, which was headquartered in Plantation, Fla. The firm was one of the early pioneers in online lending and ancillary services. It was founded as First Mortgage Network in 1994 and went public in 1999. But by November 2000, the company shut its doors. The website was quickly scooped up by ABN Amro; Graham also joined ABN Amro. He said reducing costs for consumers was "a big part of the model we had at Mortgage.com, but it was a challenge to deliver."
That same challenge exists today and Lenda likely faces an uphill climb, Graham said.
"To be effective at the self-service model, you really need to invest in technology and need to be committed to innovation. For example, you need to have tools that figure out what program is best for consumers, sort of like a wizard or automated interview," he said.
"That is not as simple as asking 'do you want an ARM or fixed,' but rather asking about how long the borrower is going to live in the property, how risk-averse they are, and what their goals are," he added. "That is part of what a good LO does, and you need to have some automation that does that for you."
But Lenda already has some believers in its vision. Investors in the company include venture capitalists Cameron and Tyler Winklevoss, the twin brothers who famously took Mark Zuckerberg to court in a dispute over the creation of Facebook.
A human element is still necessary to ensure timely processing and thorough customer service, said Jamie Williamson, a vice president at Xerox Mortgage Services, an electronic document management technology vendor in Sandy Springs, Ga.
"An online origination is possible through a business-to-consumer portal that both supports electronic documents and integrates with a loan origination system in order to process the collected data," Williamson said.
Ideally, a consumer portal would integrate with both the lender's loan origination system and EDM platform and automate file sharing between parties.
"However, a lender employee, perhaps a loan officer or/and a processor, still has to 'own' the loan to oversee the loan's path through post-closing," Williamson added. "Moreover, it's important to consider customers' needs. Millennials would probably embrace an entirely online process, but many borrowers will still want to communicate with a live person."
To be sure, interest in using technology to reduce paperwork in the mortgage process continues to grow. An annual Xerox Mortgage Services survey of industry professionals found 83% of respondents believe that within seven years, more than half of all mortgages will be electronically-signed loans, or e-mortgages. That's up from 68% of respondents in the 2013 edition of the survey.
Lenda's goal is to speed the origination process. Where turn times from loan application to closing has been in the area of two months, the company has reduced that to three weeks.
"And we want to get that down to hours," he said, though admits there are many regulatory challenges which have to be overcome in order to pull it off. But van den Brand pointed to the success of technology firms like Uber and Airbnb in changing some cities' taxi and hotel regulations as inspiration for Lenda's mission.
"Our hope is to build up enough of a movement where we can prove to the Fannies and Freddies of the world that we can actually do this in hours," he said. "We can deliver a better-underwritten, lower-risk file because of technology and actually end up helping people save a ton of money."
Currently, Lenda only originates conforming refinance mortgages. The lender is only licensed in California, but there are plans to expand into Oregon and Washington — states with similar demographics to California — by the end of the first quarter. The company is targeting nationwide expansion by the end of 2015 or the first quarter of 2016.
Eventually Lenda plans to start originating purchase loans as well. It wants to conduct beta tests with real estate agents and could begin originating purchase mortgages at some time this year. And while Lenda currently sells its loans through aggregators, it's looking to become a direct seller/servicer to the agencies.
But selling to other mortgage bankers could be a potential bottleneck for Lenda, said Graham, because each aggregator has different underwriting, documentation and packaging requirements.
"If the investor will not buy that loan, then you have a lot or risk. And since you don't know exactly where the loan is going to be delivered to, you likely have to process to the lowest common denominator of investor requirements," Graham said.
However, Graham added the mortgage industry needs more innovation with the process, "and I applaud anyone for taking it on, and for focusing on a better way to deliver the loan process to consumers."