The popular topic of financial technology, better known as “fintech,” is saturating the blogosphere. A simple search for “fintech” on Google gives you millions of results. Some authors seem riddled with anxiety, prophesizing doom, while others suggest investing millions into this new market. In truth, fintech has been around in one form or another since the development of technology itself. For the mortgage industry, fintech is not new, but particular innovations are.
Online mortgage applications, automated underwriting and customer resource managers (CRM) are only a few of the innovations that are improving the customer experience. Mortgage companies are notorious for having a low adoption rate, but now they have no choice. It’s not a matter of why, but when. The good news is the change won’t be as dramatic as some of you may fear.
Where Can The Customer Experience Improve?
Unreasonable underwriting periods, uncertainty about approval and unknown market conditions can cause stress for the buyer. It’s hard out here for a prospective borrower. Despite all of our attempts to make it seem simple, in advertising and in-person, mortgage origination is not magic. In some cases, the origination process takes weeks of labor. Borrowers will sometimes give up halfway through, and insight from Ellie Mae suggests around half will actually quit during the beginning of the online application. This leaves plenty of room for lenders to improve.
What The Borrower Wants
According to a mortgage survey conducted by JD Power, consumers have a few basic needs …
►Number one, lenders need to communicate with consumers throughout the origination process. It’s important that loan officers and lenders make themselves available for consumers and update them at each milestone. At our firm, On Q Financial, we send out automated e-mail updates, and go a step further by conferring with clients over the phone. This personal touch is a characteristic of smaller agencies that borrowers find larger organizations lack, according to a recent study published by Ellie Mae.
►Number two, borrowers want faster closings. It’s a hot market, and borrowers want to know their loan is secure. The mortgage process is extremely time-consuming, so any way that we as originators can accelerate the process without sacrificing quality will benefit consumers.
►Number three, borrowers want to be treated like individuals. Whether they prefer to work online or in person, you should be giving them the choice. Technology should only be an addition to the already existing experience. FinTech won’t be able to improve the borrower experience by itself. It’s about letting the borrower have their choice and working within the needs of the individual. We shouldn’t treat every borrower as if they were the same.
Where Does Technology Play A Role?
Technology will be able to help with every single aspect of origination from application to the closing table. Better CRMs will allow large and small lenders to take a more personalized approach with their clients. Automation will make faster closings possible. Every aspect of origination is going to change, and it’s for the better, but it is by no means the end of the story.
Fintech And The Customer Experience
There is plenty of discussion about how FinTech is disrupting the market, but as stated before, it’s supplementary. In all truth, people will need a personalized approach to origination, because the process itself will always be confusing.
What are the specific technological innovations and how are they changing the industry? An innovation that is impacting the bulk of the process by automating underwriting is Artificial Intelligence (AI).
AI, in reality, is much different from AI in our imaginations. AI in our imaginations is dominating the world by hacking into all of our computers and deleting our Facebook profiles. AI in reality is scraping our data and feeding us individualized ads and will not be able to make decisions on complicated loan profiles.
Technology with CRMs is allowing for multi-channel touch point methods. This means that you’ll be reaching out via e-mail, phone and text. This is good for the borrower, because there are many steps they should be informed of. Many borrowers are particular about how they like to communicate, so reaching out through multiple channels will allow you to provide custom and prompt communication.
Ninety-three percent of lenders offer online applications, according to a recent study done by Ellie Mae. The same exact study explains that borrowers are making their choices about which lender to use based on whether they offered an online application. It’s predicted that in the future this will become an even more important point to borrowers. The technology behind these applications is great for the borrower experience, but be wary, because if it takes too long, or is overly complicated, it is likely that the borrower will abandon the application and move to a different lender.
Chatbots are an innovation that will be able to impact a lender’s bottom line when it comes to servicing. Chatbots will give the customer the opportunity to have their questions immediately answered.
In addition, automation will be integrating into every aspect of the origination process. Automation allows waivers to be applied to certain loans. These significantly speed up the process and can even allow some borrowers to forgo appraisals. Automation will shorten the period between closing and selling the loan. This will not only speed up the process, but also save lenders money. A savings that they will be able to pass along to the borrower.
Hybrid e-Closings and e-Closings are also on the horizon. This is perhaps the newest development of FinTech in the mortgage space. Being able to sign closing documents before the closing date gives customers the opportunity to make their closing easier. Even being able to offer closings online, might be a possibility in the near future. Right now, not all investors accept this type of closing method. Some examples of organizations that do accept this type of closing methods are Fannie Mae and Freddie Mac.
Effect On The Lender
Developing this kind of automation in house or outsourcing to another company is not always cheap, but it will save money. Not only that, it’s clear that offering a superior product is how to get a borrower’s attention. If you offer the fastest and cheapest products, they aren’t likely to hold up over time.
A main concern people have with fintech is that they think it will leave many underwriters and operational employees out of work. Fintech is meant to streamline operations and improve efficiencies across the board. The ebb and flow of this industry leaves many operational individuals out in the cold, but improving efficiencies would actually mean more job security for many employees.
Margins will shrink with fintech. Over time, this means that the cost to originate will go down. This is wonderful news for the borrower who has been paying attention to the rising cost to originate. Margins are a major concern for many lenders right now.
Fintech is going to be the driving force behind changes in the industry for decades to come. For some, this is great news and for others it’s a matter of concern. The reality is that many of those individuals resistant to fintech don’t understand its capabilities or they only want to do what is easy for them. What matters is finding ways to improve the customer experience.
Fintech is allowing us to target segments of the population that lenders wouldn’t have previously had access to. Technology allows us to keep better track of customers and gather more data about them.
In Ellie Mae’s recent survey of the borrower experience, they say that lenders who experienced an increase in loan volume were more likely to offer a mobile app, and those who didn’t unfortunately saw a decrease in loan volume.
It’s simple, we work in a market where we need to follow the customer and the customer is being very clear about what they want. They want a great rate and a process that doesn’t drive them to pull their hair out of their head.
Fintech is a topic that has been at the top of every originator's mind lately, but we need to take a step back and take a customer-centric approach. Integrating technology into the mortgage process will be critical if we want to appeal to customers in the future. The customer experience overall is going to change for the better. All we must do is adapt and look at how we can encourage innovation and growth.
Christian Olin started his career right out of college as a rookie on Wall Street with Morgan Stanley. With more than 20 years of experience, he has become a specialist at sales management, strategic business development, building best of breed teams, and cross-functional selling. In particular, his experiences in emerging finance technologies have been useful in his current role as vice president of the direct lending team at On Q Financial. He may be reached by phone at (480)-320-3095 or e-mail [email protected].