Building A Digital Bridge Between Separate Revenue Streams

Adaptation: The Constant Struggle

One only needs to look back two years to see how quickly and dramatically the lending environment can change. Rates went from all-time lows during the height of the COVID-19 pandemic to the highest level in more than three decades during 2022 and 2023. Coupled with near-historically low inventory, the stunning transformation placed enormous pressure on lenders who found themselves having to trim headcounts while still finding a way to compete for an ever-smaller pool of borrowers. 

At any point, the market could shift again. Most market observers, including the Mortgage Bankers Association (MBA), forecast a sizable drop in rates this year. Such a reduction in borrowing costs could find lenders once again struggling with staffing and capacity issues. 

However, servicers face their own set of challenges, including a small but steady increase in delinquency rates. Should rates fall, they’re likely to face early payoffs. Sadly, legacy mortgage technologies play only a passive role when it comes to navigating these shifts. 

Numerous reasons account for this passivity, perhaps the most significant being that lenders who service their own originations typically use separate technologies for each business. More often than not, the platforms they use for each channel are difficult or impossible to integrate since most of those programs were developed decades ago before the cloud-computing era. 

Try as they might, most tech vendors have also struggled to transition their premise-based loan operating system (LOS) and servicing software to the cloud. Now cloud native solutions are available, though, lenders can chart a smoother course through the tidal rate environment of the mortgage market. 

The Role of a Digital Bridge

By deploying modern, cloud-based digital lending technology, mortgage bankers can start transforming their loan origination workflows from the point of sale all the way through closing with very little investment. Automating dozens or even hundreds of routine tasks eliminates the routine, manual tasks once required of their loan officers, processors and underwriters.

The journey doesn’t have to end once a loan closes, though. Lenders who leverage digital servicing technology in the same cloud infrastructure as their LOS can connect and coordinate their origination and servicing operations. Creating this digital bridge allows lenders to immediately onboard newly originated loans, creating a single, seamless, digital strategy that encompasses the entire borrowing cycle.

For lenders who retain their servicing, this unleashes numerous benefits. Cloud-delivered systems facilitate growth and digital adaptation without major investments in resources or staff. Whether their focus is retail, wholesale, or correspondent lending, cloud-based automation is highly customizable and flexible. Lenders can leverage the technology to stay lean, improve efficiency, and close more loans, while also gaining the agility to quickly expand or shrink their mortgage offerings in response to evolving market and customer demands. 

Building a digital bridge that allows data to channel seamlessly between the origination and servicing side of a lender’s business enhances that lender’s ability to study the relationship between these sets of data. Advanced analytics that generate strategic insights lead to more informed decision-making and accelerated growth. 

A Sea Change Awaits

Mortgage bankers in today’s market face a rising tide of costs for originating and servicing loans. The MBA reported that in the third quarter of 2023 independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks lost approximately $1,015 per loan they originated (pre-tax), nearly double their per loan losses in the second quarter. Servicing income, buoyed by the recent spike in rates, began to ebb as interest rates receded, slightly.

With cloud-native origination and servicing technology, all point-of-sale, underwriting, and servicing software is completely browser-based and infinitely scalable. Automation enables lenders to adapt quickly to any rate environment without having to go through the painful – and painfully expensive – process of hiring, firing, and rehiring staff. At the same time, digital, cloud-based technology is extraordinarily fast to deploy.

While, typically, only large financial institutions both originate and service loans, cloud-based servicing technology opens the gates for smaller originators to adopt servicing capacity – again, without major investments in resources or staff. 

By efficiently and cost-effectively holding their originations and servicing in the same cloud ecosystem, these smaller lenders gain a competitive advantage by being able to maintain relationships with borrowers throughout the mortgage borrowing cycle, not only creating deeper levels of trust, but opening up opportunities to cross-sell other financial products and services.

The Bottom Line

In tumultuous times, digital mortgage origination and servicing technology offer a sense of stability, similar to how fins and rotors stabilize a ship in turbulent waters. More than simply tools, the automations and application programming interfaces (APIs) behind new cloud-based platforms create lifelines that help lenders steer both sides of their business in tandem, more efficiently, and more cost-effectively. 

As the digital evolution of the mortgage business accelerates, adopting cloud-based technologies may mean survival for some mortgage lenders.

Lenders are no more capable of controlling the housing market than they are controlling the weather, or the timing of interest rate cuts. However, lenders can control how they evolve with the market. Building a digital bridge between origination and servicing is not only building a bridge between revenue channels, staff, and customer databases. It’s building a bridge between the past and the future of a lender’s profitability in the mortgage business.