“If you don’t view yourself as a technology company that does mortgages, you’re missing it.”—Bill Emerson, Vice Chairman, Quicken Loans
That quote encapsulated this week’s third annual Digital Mortgage Conference in Las Vegas. To compete in the next decade, brokers and lenders will have to provide consumers with the online experience they want in the way they want it.
But the majority of brokers, and many lenders, aren’t equipped to create the leading-edge technology—the enterprise technology—they need to stay on top. The cost is too high and the required expertise is too great for most. The event made that obvious and it reinforced that brokers need strong technology partners.
As Emerson said in his address, we all need to view digital mortgages as an investment, not an expense. We may think we have ample time to deploy technology in a few years or so. But that would be a mistake. The mortgage industry is moving far faster than the majority of us realize.
What’s Driving Digital Mortgages
- According to a KPMG live poll, “enhancing the borrower experience” was the #1 reason the audience said it is moving towards digitalization, followed by “operational efficiency gains,” “cost reduction,” and “quality improvements.”
- The “digital mortgage is needed in our industry to drive down labour cost,” said LoanDepot founder, Anthony Hsieh.
- Before the housing crash, the average U.S. mortgage required 300 pages of documents. Today, it’s close to 800 thanks to all the new regulations, said Emerson.
- e-closings will save each large lender millions per year.
- The typical attendee at the conference seemed to think that an “end-to-end” digital mortgage will become common in approximately 2-3 years (based on a live poll of the audience).
- Already, online loan originations have been growing at a 30% annual rate in the U.S. since 2010, according to NBER. J.D. Power estimated the digital application growth rate last year was 54%.
Improving the Online Process
- 97% of borrowers feel frustration with the mortgage process, according to recent survey data shared by Hsieh.
- If your application isn’t easy to complete on a small cell phone, the message was: scrap it and start over.
- Anything that saves borrowers steps is gold. The more fields you ask a consumer to fill in, the less likely they are to convert.
- U.S. companies like infutor (which presented at the conference) lets lenders pull up detailed info on new clients with just a name and email. In some cases, one other identifying data point is required.
- Panelist: “It’s not about the [front-end] app, it’s about the whole process.”
- “A digital mortgage isn’t a digital mortgage without an e-closing,” argued DocuTech.
- Most governmental bodies are not yet digital, but lenders and brokers should strive to “make every mortgage as “e” as it can be,” DocuTech said. To the Canadian broker-channel lenders who still don’t allow e-signatures on commitments, the time is now (actually, the time was 2-3 years ago, you’re late).
- “Pre-filling data is a must in today’s world,” said LendingConnect.com in its presentation. The unforgivable sin in 2018 is making clients enter the same data twice.
The Future of Underwriters and Loan Officers (Brokers)
- “Loan officers are not going away….I believe that,” said Emerson, who helps lead the undisputed U.S. leader in online mortgages. But at the same time, he said a growing slice of the population would “love to deal with a virtual loan officer….without interacting with a human.”
- “We definitely need loan officers, but then again we definitely needed taxi drivers too,” said Francis Lobo, President of Cooper Labs and former CRO of WeWork. Before too long, mortgages will be commoditized, he said, and the process will become as efficient as it can possibly be.
- One panelist predicted a “substantial consolidation” of loan officers by the end of 2020.
- Even underwriters are not immune to technology incursion when, in seconds, a platform like “AutomatIQ Borrower” can:
- take digital source documents (like tax statements, bank account statements, etc.)
- load them into the system
- analyze the data using algorithms to confirm down payment funds and income (even analyzing BFS tax filings to confirm what is income and what isn’t)
- check credit
- calculate debt ratios
- apply lender rules, and
- automate the approval decision.
- “It’s not a question of if. It’s coming,” Emerson promised the crowd. But mortgage digitization will be “an evolution,” not an overnight “revolution.”
- Ironically, one panellist argued that removing humans from the mortgage process will eventually eliminate competitive differentiation for many in the industry (i.e., for customers who prefer dealing with people). But we’re still a ways off from that happening.
- 80% of volume in the U.S. is done by 40% of originators, said Garth Graham, Senior Partner, STRATMOR Group. He said if tech tools make the top loan officers more efficient, “the bottom 60% [of loan officers] will have opportunities in careers elsewhere.”
On Lead Sources
- Realtors are a vital source of referrals today. And 20% of realtors do almost 90% of real estate business in the U.S., said one speaker.
- Today, 95% of people start their home search online, Emerson said.
- In the market of tomorrow, the importance of realtors as referral providers will diminish. Customers themselves (using their cell phones) will increasingly pick their own lenders. That’s driving big gains in lead-buying, which is far more prevalent in the U.S. than Canada.
- Already, 92% of borrowers research mortgages online vs. 57% two years ago, said Ellie Mae’s EVP of Corporate Strategy, Joe Tyrell. And 72% are researching the best rate, while 59% are researching what amount they qualify for.
- A primary driver of online research is the consumer’s desire to stay anonymous, Tyrell added.
- Over 9 in 10 borrowers are solicited in some way by a competing lender or broker, according to AgentFind.
- New players who are “way up the funnel” will increasingly direct borrower mortgage decisions (e.g. Home Advisor, Houzz and LendingTree), said one panelist, adding that, if you’re buying leads, “buy as early in the funnel as possible” and communicate with the borrower religiously until closing.
The Winning Formula
- We are rapidly approaching an environment where the digital mortgage becomes “table stakes,” said Daryl Grant, KPMG’s managing director of lending transformation
- Brands that “win the customer early” with a completely digital mortgage service will “dominate the marketplace for years to come,” argued Hsieh.
- Blending a digital mortgage with a menu of local services (e.g., realtors, legal services, home inspectors, moving companies, etc.) “is, in our opinion, the formula” for success, Hsieh added. “Market consolidation favours companies mastering complete vertical and horizontal integration.” That’s largely why Quicken Loans has got into the real estate business with Rocket Homes.
- The lowest rate product is often not the “most affordable product,” said Mortgage Coach. TCA or “Total cost analysis” (i.e., comparing the present and future cost of two or more different mortgages) is key to closing more leads, the company said. This analysis must be “simple, understandable and shareable.” Mortgage Coach recommended using video to send TCA presentations to the borrower.
- Emerson suggested asking yourself one question if you want to ensure you’re keeping pace with competitors: “Are you doing anything [technology-wise] about importing income or assets?” If you’re not, your biggest competitors are — and before too long they will win over your customers with an offering that’s faster and more satisfying.