Insights

Don’t blink, the times they are a’ changing
Because necessity is the mother of invention—or at least the instigator of action—mortgage sector firms took swift action at the onset of the pandemic to create online mortgage solutions for customers and remote working constructs for a suddenly distributed workforce.

Although the practice of in-person preparation of mortgage documents and in-person customer signing had been in place for decades, lenders, realtors, and other stakeholders in the market swiftly reimagined processes allowing business to continue despite necessary social distancing measures.

Digital transformation efforts gained momentum due to the pandemic restrictions; however, the resulting changes correspond nicely with the digital desires of young home buyers who now comprise a large share of the market. Specifically, millennials now account for more than 37 per cent of the home-buying market.¹ Particularly, younger millennials are digital natives, and Generation Z, a digitally savvy generation, is not far behind.

Digital transformation allowed the mortgage industry to navigate the pandemic and better position the market to serve the needs of digital natives. In fact, Fannie Mae just issued guidance on remote closing and notarization which adds additional acceptance and momentum to digital transformation efforts. These changes are also contributing significantly to efficiency gains, cost reduction, and revenue generation opportunities.

The following are five technology trends and their resulting impacts ThoughtFocus’s mortgage sector experts are currently observing in the market.

The widespread adoption of AI technology is improving mortgage decision-making and process efficiency
Although some sectors of the financial services industry—like credit card and auto loan product providers—had already integrated AI in a widespread manner before 2020, the mortgage industry had not made much movement.

However, just like other financial sectors, the mortgage industry is extremely data-intensive and requires many repetitive tasks, like document handling and verifying application forms. AI and machine learning are extremely effective at analyzing large amounts of data and can train computers to perform cognitive tasks, like classifying information, predicting the ability to pay, and recommending approval or denial decisions.

The Bank of America was one of the mortgage industry leaders in applying AI when it launched its Digital Mortgage Experience in 2018. Its automated mortgage lending platform heavily leveraged AI, reducing the number of fields on the mortgage application from 330 to 10 and reducing the closing process timeline from 52 days to 20.

Although Bank of America was one of the first to apply AI to its mortgage lending processes, many other lenders and loan processors are now following suit.

Migration to the cloud became imperative
While the industry was already moving to the cloud, the pandemic made cloud computing nearly a requirement. For some time, financial services companies’ C-suite executives knew that cloud computing would enhance collaboration. Greater collaboration would help productivity, increase transparency, and improve operations.

With the onset of the pandemic, remote workers’ ability to conduct work and customers’ ability to finalize documentation remotely was no longer a “nice to have”; it became essential. Team members could no longer pop into each other’s offices to work out a problem. They had to work on files and issues from their respective locations; working in the cloud is the only feasible way to do so.

In addition to becoming an imperative of the pandemic era, cloud computing offers opportunities to streamline operations and reduce costs. As just one example, the database administrator—a role with an annual salary of approximately $150,000—can increasingly be automated by turning on an AI database administrator with the click of a button. Organizations may obviously still opt for a full-time database administrator role, but the role can be more strategic, offering long-term benefits to the firm instead of performing monotonous tasks.

By moving to the cloud, many compliance requirements are also reduced as cloud vendors provide compliance “out-of-the-box” and there is nothing on-prem that needs to be audited.

In addition to cost reduction, for mortgage sector clients, cloud computing provides revenue generation opportunities. For instance, some industry players are using the cloud to rapidly scale the servicing of large numbers of loans in aggregate worth many billions of dollars. Without cloud computing, quickly scaling load processing operations would not be possible, which would restrict revenue opportunities.

Outsourcing is getting agile and strategic
Outsourcing business models operate on a continuum. At one end, there are the simple lift-and-shift models where the customer defines the inputs. From price and scope standpoints, lift-and-shift constructs are easy to define. You tell a couple of providers exactly what you want and how many resources you need to deliver it; you explain exactly how you want it done; you read a few proposals, and you compare prices; and then you select the lowest-cost provider.

Although many mortgage companies are comfortable with straightforward lift-and-shift approaches and have been executing them for years, these simplistic models very often do not stand up to the complex needs and opportunities of today’s market.

With such a fluid and evolving economy, attempting to reduce operating costs by driving suppliers down on price, as traditional outsourcing models tend to do, maybe causing more harm than good. When outsourcing suppliers are under such immense price pressure, they cut resources, rotate senior talent out in favour of junior resources, and charge for extras. This creates a huge gap between expectation and reality.

Innovative organizations are rethinking how they outsource with an outcome-based model where desired outcomes are defined, and the outsourcer delivers using aggressive and dynamic technology and process-driven improvements.

Instead of hiring someone to manage “the mess for less,” innovators are giving their partners the flexibility to deliver desired outcomes in the best, most efficient manner possible. The goal is to create continual opportunities for scale instead of relying on static metrics.

In addition, finding key talent and skills is also an important benefit of outsourcing. With newfound mobility, many workers are moving away from the location of their employers – creating additional pressure on attracting and retaining talent.

Growing API usage increases the efficiency of business processes
APIs are the software-to-software interfaces enabling a growing stack of applications that mortgage lenders use, and they enable applications to communicate back and forth and data to flow in an automated manner. They can be used both internally and externally, and according to a recent Fannie Mae survey, mortgage lenders view APIs as the top technology that has the potential to improve or streamline processes.²

Getting the data to flow seamlessly across the organization and other aspects of workflow automation are the most important benefits of API utilization. Used in conjunction with a scheduling tool, an API can automate the execution of mortgage servicing software programs that improve operational efficiency and increase customer service levels.

This increased automation can reduce costs by lowering labour costs, decreasing errors, and improving overall operational efficiency. These improvements allow lenders to deliver timely and accurate documentation to customers, improving overall customer satisfaction levels.

Self-service and omnichannel capabilities are strengthening
With the social distancing era that the pandemic has brought on and with younger, digitally native customers becoming a larger portion of home buyers, mortgage companies have had to respond. Most customers are already familiar with online banking—now, similar functionality is extending to the mortgage market. The same trends are appearing in commercial loans as well.

Next, consumers now want to communicate with mortgage providers within their preferred channels. For this reason, omni-channel technologies such as AI-powered chatbots are rapidly growing in popularity and helping companies bridge mobile, chat, social media, phone, and email. The ability to quickly respond back to any inquiry is becoming a critical differentiator and captures a 360-degree view of the entire customer relationship.

Additionally, customers want to work with mortgage providers that can quickly deliver preapproval and lock-in lending rates and can provide access to the required mortgage documentation.

Closing Thoughts
Mortgage and lending leaders are looking at these trends and building a next-generation operating model to support growth and scale. Finding ways to implement a rapid cycle of continuous innovation and improvement is now the norm instead of the exception.

Mortgage companies were already being pressured by the digital preferences of younger, tech-savvy customers. However, the pandemic era has been a vital pivot point that demanded the digital transformation of both internal operations and the delivery of mortgage services to customers. As the world locked down, the business needed to continue, and necessity did prove to be the mother of invention.

Although many of the technology trends currently guiding the mortgage industry were a long time coming, many organizations are challenged by these changing dynamics. If ThoughtFocus’s team of mortgage industry digital transformation experts can help, don’t hesitate to contact us.

Sources

• 2021 Home Buyers and Sellers Generational Trends Report,” National Association of REALTORS Research Group, https://www.nar.realtor/sites/default/files/documents/2021-home-buyers-and-sellers-generational-trends-03-16-2021.pdf
• Andrew Peters, “Impact of Digital Innovation on Lender Workforce, Now and Looking Forward,” Fannie Mae, May 13, 2020.