Borrower experience is not the digital mortgage holy grail
Editor's Note: 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.
The mortgage industry is suffering from shiny object syndrome, and it's hampering the progress we could be making toward true innovation and transformation. Lending executives are under dual pressure from both the CFPB's directive to deliver a glitch- and complaint-free "borrower experience" and reports of consumer demand for mortgage transactions that resemble other app-enabled online purchases.
In response, many are focusing the bulk of their time and resources on user experience and overlooking an area of far greater pain: the frustratingly inefficient mortgage process happening behind all those pretty loan applications.
Don't get me wrong; I'm not hopelessly out of touch with the tide of industry trends, recklessly heedless of regulators' stated objectives or callously immune to the frustrations of consumers. The rallying cry to "build a better borrower experience" espoused by nearly everyone in the industry, from the GSEs to the Mortgage Bankers Association and from bright-eyed newcomers to established incumbents, is both infectious and well intentioned. Yet while streamlining the loan application is important, it's just the tip of the proverbial iceberg.
If you're entrusted with technology purchasing authority for your lending organization — or if you are an influential force on those who do — you owe it to yourself and your company to hear me out.
All style and no substance
The most talked-about companies in mortgage technology today are industry newcomers, many of them hailing from Silicon Valley and other storied high-tech corridors. Some spent their early careers helping businesses solve supply chain and data management problem. Others hail from rock-star software and app development teams. They have deep venture capital pockets, loads of confidence, and the skill to produce incredibly attractive and modern user interfaces that make lenders' antiquated systems seem pale and feeble in comparison.
What many don't have, however, is the deep industry experience that is essential to tackling a problem with as many moving parts and intricate details as mortgage origination.
In their quest to disrupt the industry, newcomers are quick to warn an aging lender workforce that it has grown out of touch with the expectations of home buyers — especially millennials and members of Generation Y. Research from trusted analysts inside and outside the industry only reinforces the notion that consumers will abandon trusted lenders in droves if they cannot deliver a digital home-buying transaction that matches the slick, speedy and effortless experience consumers have come to expect.
Outsiders might believe that a cool app can solve anything, but you and I know that mortgage origination is complex stuff, and it takes mortgage expertise to get it right. To successfully automate any given origination process, you first need a deep understanding of how the current-state process works, how it connects to the steps that precede and follow it, and why it’s done a certain way for a particular loan or lender.
As a nearly 20-year veteran of the mortgage industry, I have experienced firsthand the frustrations of working in a trailing-edge industry, so I understand the buzz of excitement generated by these would-be disruptors. But lenders need to keep their eyes on the prize.
Building a better borrower experience by pouring dollars into developing an Apple-like borrower app is like a restaurant trying to reverse its poor Yelp ratings by firing the hostess and changing the tablecloths. First impressions matter, yes — but it's what happens in the kitchen that matters most.
We're too caught up in thinking about the borrower experience as being synonymous with the online loan application, when in reality, the borrower experience is everything that happens from the moment a consumer starts browsing loan options to the closing table. As a result, we place way too much emphasis on the first 15 minutes of the mortgage process and shortchange the other 39 days it currently takes to close a loan.
The home-buying process is notoriously onerous, with teeth-grinding frustrations such as selecting a loan product only to be told you don't qualify, or submitting piles of requested documents and then being told two weeks later that the lender needs more. A friendly interface with real-time status notifications may address the consumer's desire for transparency, but it doesn't solve the systemic problems making lending slower and costlier than ever before. It's the irritating back-and-forth with all parties to a loan, seemingly born of incompetency but really born of inefficiency, manual workflows and legacy systems, that is the real root of pain for both lenders and borrowers.
What we really need are technologies that redefine "digital mortgage" by completely rethinking the origination workflow step by step. When you do that, you find the real holy grail: consumers and lenders are empowered to do the application once and do it right, and a better borrower experience is the inevitable byproduct. The best technologies can even accomplish all this while maintaining or exceeding historical loan compliance.
Money talks — and lenders know it
In 2016, average total production expenses per loan rose to a whopping $7,209, of which personnel expenses account for nearly 67%, according to the MBA's Annual Mortgage Bankers Performance Report. Over the same period, it took an average of nearly 47 days to close a loan — a figure that has come down only slightly in 2017 to a current average of just under 45 days, according to Ellie Mae's latest Origination Insight Report.
In other words, mortgage origination is still costing lenders more than $153 per day, per loan. If those numbers aren't compelling enough to convince you that our industry's No. 1 technology focus should be reducing time to close, then allow me to do some quick, back-of-the-napkin math for you.
Let's say a mortgage lender closes 50,000 loans in a year — a respectable volume that would net it a coveted top-15 ranking. By shaving just 10 days off its average time to close, that lender could feasibly recoup more than $76 million per year. "Good for them," you may say, "but I'm an average lender." Even for a lender ranked in the No. 50 position, with annual volume closer to 12,000 loans, closing loans faster could mean an $18.4 million boost.
In 2Q 2016, Fannie Mae asked 191 senior mortgage executives what technological innovations they would most like to see from next-generation mortgage technology service providers. Their answers — "build compliance into the workflow," "reduce paper in the system," "easy verification of customer info" and "automated pre-approval process" — all point to an overriding interest less directly about borrower experience and more about increased digitization and process efficiency through automation.
Behind closed doors, lending executives are apt to spend more time talking about out-of-control origination costs and tight margins than the borrower experience, and you'd better believe they're putting pressure on their operations teams to reduce costs and boost productivity. They're just understandably skittish about sounding overly mercenary when it comes to their publicized objectives.
The truth is that shiny object syndrome is impeding our industry's pursuit of innovation. Let's fix our eyes, instead, on real process efficiencies that will restore loan profitability and transform the borrower experience by eliminating their points of pain and making the "47 day" loan process a thing of the past. Pretty apps are great, but they just scratch the surface to what needs to be done.