WE'RE HEARING my daughter recently went through the college selection process and I would happily say that this experience is even more emotionally charged than going through a mortgage loan process and took a lot longer. So, maybe we’re not the worst place to do business. On the other hand, we can learn a lot from the college application process.
Let me start this story by telling you that my daughter is perfect. You should keep this in mind. She is the greatest kid in the history of the world and I have no idea why every single college she applied to didn’t fully understand that.
I suspect it’s very similar to how borrowers feel when they’ve worked very hard, saved money for a downpayment and kept their FICO score in the 700s and still not every single lender is able to give them an instant answer and accept the fact that they’re the greatest. Of course, we know not all borrowers are perfect, while my daughter is.
My daughter applied to more than 20 good colleges and was accepted by a lot of them. Now you may think that 20 seems like a very high number of schools to make application to, and back in our day it was.
Back in the last millennium when we all went to college, we sat down and wrote out by hand or pecked out on a typewriter (with a ready can of white out) each application—one by one. So, time constraints kept us to applying to only a few schools and there was certainly no college blogs or websites that tried to guide us.
Most of us picked a few we knew we could get into, and then a few that were maybe stretch schools. And that’s how we ended up at the school of our choice, to spend four years not studying mortgage banking (I mention that last part because I have never met someone who studied mortgage banking in college and apparently they still don’t offer it today). However, some things are different today.
Today, college applicants have something called the “Common App.” As any parent who’s gone through this knows, the common app allows you to put all of your pertinent information, your rough GPA, your class rank, extracurricular activities and then it automatically pulls in your SAT scores. You can even put in there all of your unbelievable accomplishments, such as the fact that you led the fund drive to raise money for the local church, all the way down to the unbelievable club that you ran.
For example, my daughter was the president of the Math Honor Society, but then again I already explained that she is perfect. In many ways, this is similar to the way home sellers will illuminate the fact that they have terrific recessed lighting and a mirrored backsplash in the kitchen when they enter the information into the MLS where everyone can see it.
You see, the college process is similar—you enter all your information in the one “MLS” that represents nearly all the colleges just like Realtors have a single MLS that has all the properties for sale. I am just happy I did not need to have an open house for my daughter or put a sign in my yard.
Anyhow, you put all the detail you want into the common app and then every college that accepts the common app is one button away from receiving your completed application, as long as you’re willing to pay the application fee.
Imagine what it would be like if mortgage banking worked that way. You could put all of your information into a common online app—your income, your assets—and the system then pulls in your credit score.
Now, that credit score is very important, and is not much different from the SAT, which is really just a numeric measure of the risk that you will be able to complete college—higher the number, lower the risk—the same way a credit score tells you the likelihood that someone can pay a loan. And guess what else—in both cases, if you have scores in the high 700s you are in good shape.
So, in the perfect mortgage application process, the borrower could press a button and send out all the data, saying “I want to apply to these specific lenders.” Those lenders would then, through whatever process they choose, provide an answer.
Given the same level of information that colleges request of students, mortgage bankers should be able to return a decision almost immediately, which doesn’t happen in academia. That’s because, supposedly, they’re going to read an essay about the unbelievable experience my daughter had each and every one of her summers, as well as the unbelievable things she learned answering the phone at the local insurance agency.
It would certainly be much more efficient if we had something like the common app—not just a 1003 that’s a common app, but the ability to enter the data into a single system and then submit it from there to be sent to the lender of your choice, where you then can get a decision back. And we, by the way, are nowhere near that at this point in the mortgage industry.
If we were that efficient, each lender could use the common data stream to make a decision and then compete with each other for the attention of the customer. Maybe they will send T-shirts (like some colleges did) or invite her to special invitation Facebook pages.
In any case, the more efficient we can be at receiving and analyzing the data, the more time (and resources) each lender will have to focus on the "near misses"—those that don’t fit perfectly into the application bucket.
In fact, the colleges have a name for this and that is that they view each application “holistically.” Every single college visit has a nice admission counselor that stresses it. What they mean is that they look at the real person, not just the SAT’s and the grades (hmmm, so the colleges that my daughter applied to received 30,000 applications and read every one of them?). I was skeptical, so I asked one of the admissions folks once, “do you ever look at your applicants atomistically?” Which, for those of you who don’t know, is the opposite of holistically. She had no idea what I was talking about and my poor daughter just pretended she did not know me. By the way, she was admitted to that college, so my smart ass question did not hurt her at all.
So, this points to two areas in the mortgage banking industry that are going to have to evolve in the future. We have to get much better about receiving common data and making decisions based on that, which hopefully will lower our cost to produce and free up time to focus on those applications that need more scrutiny. And we’re going to have to look at more than just the numbers to figure out if a borrower has the ability to repay the loan—you know, be holistic in our review of each application.
There’s another lesson hidden in the way colleges help new applicants understand the financial aid process, but I’ll get into that next time. I’ll also tell you what school my daughter ended up in and how that choice brought me full circle to a community I got to know well earlier in my career.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience.