You get what you pay for, the saying goes. But in our industry this rule doesn’t always apply—especially when it comes to loan production. Today’s lenders have made major investments in producing high quality loans and improving the borrower experience. Yet, too often, they don’t receive the results they expected.
This is particularly frustrating given the current lending environment. For lenders, producing high quality, compliant loans designed to meet federal and state mandates and investor requirements has meant adding staff to review loan files for accuracy and completeness. In fact, loan production costs are at all-time highs because of the new rules of the road. Higher rates and a cooling housing market have only exacerbated this situation.
Meeting the demands of today’s mortgage borrower and providing great customer service have also come at a premium. This is true in spite of rapid adoption of new fintech solutions designed to make the mortgage process simpler for consumers. While these tools make the mortgage process easier in many ways, they are often poorly integrated with a lender’s back end technologies, pushing manufacturing costs even higher.
Every lender wants to provide a better customer experience and lower their costs, but limited options appear to make attaining both goals impossible. Yet, they actually are achievable. A quiet revolution is taking place in mortgage production that is reversing this all-to-familiar predicament—and it’s all happening in the cloud.
A Revolution Driven by Millennials
Clearly, Millennials are behind the mortgage industry’s most important advancements in customer service. They’re the ones who literally grew up with computers all around them, even in their back pockets, and they’re the ones driving demand for more convenience and simplicity. They’re also the ones increasingly driving the housing market.
According to Realtor.com, Millennials accounted for 45 percent of all new mortgages by the end of 2018, compared to 36 percent for Generation X buyers and 17 percent for Baby Boomers. In order to better serve this growing market, lenders are swarming to do-it-yourself websites and mobile apps designed to give borrowers a simpler, more convenient way to get a mortgage. And they are making it easier in many ways.
Another driving factor behind this “new normal” in mortgage customer service is that the lender, not the real estate agent, is now the first point of contact for most homebuyers. Most consumers are well aware that it’s not easy to qualify for a mortgage. They know there is no point in calling a real estate agent or even looking at homes until they are sure they can afford to buy, so they are more likely to look first at financing. This puts lenders behind the wheel in the homebuying transaction. The problem is how to take the borrower to where they want to go.
Because they are so comfortable with technology, Millennials are more likely to research and shop for mortgages online long before they are willing or even interested in speaking with a lender. In response, lenders have adopted consumer-direct tools such as self-driven borrower websites, automated asset and income verifications, and credit services that let borrowers find out their FICO scores and determine what they can afford to buy.
These technologies are available on a wider number of platforms than ever before. Borrowers today can literally research, qualify, apply for a mortgage and sign disclosure documents while sipping a latte at their local Starbucks. Therefore the potential for excellent customer service is evident. So is the potential for saving costs, since borrowers are able to do more of the legwork of getting qualifying and approved for loans. So what’s the problem?
The problem is that this whiz-bang mortgage experience doesn’t last because it only exists on the front end of the transaction. Behind the scenes, lenders are still struggling with legacy technologies that hamper production efficiency. This is because borrowers and lenders are still using different technologies to create the same loan, when both sides should really be using the same system. That’s where the magic of a platform built in the cloud enters the picture.
More Cloud, Lower Costs
To be sure, cloud technology is not a new concept for our industry. Instead of hosting their own servers and data centers, the vast majority are leveraging cloud environments for their data storage needs. Unfortunately, however, the cloud isn’t being properly leveraged to create a faster, more efficient mortgage production process. That’s because most lenders continue to place their trust in legacy loan origination systems that were never designed for a cloud environment. They can’t integrate easily with many newer technologies, and weren’t built for consumers for use.
On the other hand, new mortgage platforms that have recently come into the market are built with modern technology and designed from the start for a cloud environment. They’re capable of leveraging an unlimited number of software integrations, and they’re also able to handle multiple lines of business, including wholesale and correspondent lines, traditional retail and consumer-direct business. Most importantly, they can be used by borrowers to apply for loans using a common web browsers or even mobile apps.
While it is true that several traditional LOS solutions are now being migrated to cloud environments, they are still tethered to their legacy technologies—in other words, they cannot simply scratch everything and start over. Even as they shift to the cloud, they still have to support their legacy systems. That comes at a cost that is inevitably passed onto clients.
According to a recent MBA study, approximately 80 percent of a lender’s costs to originate a loan is tied to human staff, while roughly 10 percent is spent on technology. With a cloud-based mortgage platform that is capable of automating more pieces of the loan process, however, lenders can start making serious dents in these costs. The beauty of a cloud-based mortgage platform lies in its ability to improve process automation at practically every stage of the loan production process.
These new platforms do not require lengthy, complicated and ultimately costly integrations that require site visits and repeated testing and retesting. Because they are built in the cloud with modern technology and flexible application programming interfaces (APIs), they are able to make interoperability between third-party technologies completely seamless. These third-party technologies can include credit reporting services, pricing engines and document services and many more. As a result, lenders are able to automate various steps in the loan production process and deliver a totally end-to-end mortgage experience at a lower cost.
For example, cloud-built platforms are able to integrate software that provides real-time fees from thousands of different service providers, which can be used to populate loan disclosures. This allows lenders to manage an endless supply of accurate closing cost data, so that lenders no longer have to verify fees for accuracy by hand. If there is a change to any loan data, the fees can be instantly recalculated and repopulated throughout the loan file, reducing costs even further. Performed manually, these tasks could easily take an hour or more. When automated, they just take a second.
No Better Time Than Now
Of course, lenders could build a cloud-based mortgage platform themselves. But very few lenders have the staff resources, the technology expertise or the necessary capital on hand to make this happen. On the other hand, there are new mortgage platforms that have already been built that can be customized to fit a business’ needs at a fraction of what it costs to build such a system in-house.
Today’s new breed of mortgage platforms also cost about the same or less than any legacy mortgage production platforms on the market today. And they pay the cost several times over by reducing manual tasks, such as collecting borrower documents or using staff resources on “stare and compare” methods of reviewing loan documents for accuracy.
The only obstacle for lenders, it seems, is leaving behind technology that manages to get the job done—even if a better way is possible. And I get it. It’s a pretty big deal to put aside technology that the vast majority of our industry still relies on. After all, many American households – roughly 46 percent – still have landline telephones, according to a National Center for Health Statistics survey. But those numbers are dropping fast, because better technology exists.
Better technology exists in our industry, too. And with so much at stake – especially with soaring loan production costs and Millennials poised to drive the future real estate market – there is no better time to use it.
Joe Langner is CEO at Blue Sage. He is responsible for establishing the Blue Sage platform as the industry’s technology of choice for direct lenders, retail lenders, wholesale lenders and correspondent lenders. A mortgage technology veteran and former chief operations officer at Ellie Mae, Joe has more than 25 years of executive experience in the financial services and software industries.