The need for Digitizing the Mortgage Process

 

Introduction

Digitization is all set to transform the mortgage industry by addressing issues ranging from customer experience, asset quality and risk, and regulatory compliance, to efficiency and cost containment. Lenders must forge a path to digitization or risk becoming irrelevant. With seasonality, changing interest rates, and not to mention compliance changes and the global pandemic, mortgage lenders are dealing with constant change.

Mortgage Processing Scenario Currently

While mortgage interest rates have dropped significantly, applications have skyrocketed, mainly fuelled by refinancing. The industry projects mortgage originations to total about $2.61 trillion in 2021, a 20.3% gain from last year's volume. Refinance originations are expected to double earlier projections, increasing 36.7% to around $1.23 trillion.

At the same time, the mortgage industry is dealing with record refinancing; there's uncertainty about existing loans that may need short-term payment suspensions or be entirely in jeopardy. This massive influx of borrowers seeking to refinance or asking for a forbearance of their current loans means mortgage companies are staff strapped in a time where more people must work virtually.

Digitization in Mortgage Processing: What’s it all about?

Data digitization can efficiently enable mortgage lenders to automate their processes and reduce reliance on manual labour, thereby creating extra capacity. Intelligent data ingestion complemented with AI helps mortgage processing businesses take on more work, working faster and more accurately. Hence, customers get their loans processed quicker. More than 70-80% of mortgage processes across the value chain are logical, replicable, and direct candidates for automation.

Do Companies Embrace Digitization Easily?

In general, mortgage companies have been sluggish to adopt technology, and most firms are late adopters when it comes to automation technology. Intelligent data ingestion helps mortgage processing businesses increase their profits in an environment in which loan processing costs rise. Digitally enabled mortgage processors extract relevant information from bank statements and W2s required for loan applications.

Manual entry of physical documents which need to be scanned is prone to errors leading to time delay and losses. Intelligent data ingestion solutions prevent such mistakes from occurring.

How Digitization in Mortgage Processing Actually Works?

The digitally enabled mortgage process is fully automated end-to-end, providing a touchless straight-through-process (STP) experience for more than 70% of mortgage applications. It starts with a hyper-personalized point-of-sale (POS), a mobile app that allows the user to make a mortgage application with a minimal set of data. Most of the heavy lifting is done by intelligent data ingestion and integration through APIs with banks, credit rating agencies etc.

All About Data

  • The data movement between the POC and the Loan Origination System (LOS) is seamless.
  • A 'rules engine' that can be pre-configured makes all basic checks and ensures that all necessary data is available.
  • An automated mortgage underwriting engine (AUE) calculates all the necessary ratios and then, based on specific risk calculations and default probabilities, determines whether the loan can be approved.
  • Fractal-based automation means the AI engine is trained once. A machine learning engine continuously enhances the automation based on a feedback loop. That means mortgage lenders do not have to spend time and resources training AI on every variation.

Given the 80-20 rule, more than 70% of the loans have low risk and can be approved with limited intervention from the underwriter. Typically, the mortgage process is heavily paper-dependent but using intelligent document management systems and eSignature capabilities, the entire 'Closing' process can be made paperless.

Final Words

Mortgage companies that adopt digitization technology will free up valuable resources to better support customers throughout the mortgage loan process. There is a demographic shift happening in the 'applicant' profile with a higher percentage of millennials. This customer profile demands a different customer experience and instant gratification. Mortgage companies that take advantage of the benefits of automation will survive in the future.