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For most mortgage origination companies, the following statement may sound a little crazy.
“So, we did something remarkable last week: We went from lead to clear to close in less than six hours.”
The statement is from a 12-minute video shared via loom.com earlier this week by Shashank Shekhar, CEO of InstaMortgage (formerly Arcus Lending).
Shekhar makes it clear that he’s not talking about the time between actually getting the application submitted to the time the loan was cleared to close, he’s talking about the time it took from the initial contact with a potential borrower seeking to refinance a loan to the time the OK was received.
He also notes that the time it takes to close a loan in the industry has never been great – not in 2018 or 2019, when the mortgage industry was relatively slow, and not in 2020 or 2021, when loan volumes soared. “We were still consistently averaging close to 40 days, if not more,” he said. “It’s not as if we were closing loans in like 15 days” before the pandemic hit.
He adds that this is “probably the biggest pain point in the mortgage experience right now, which is that the current mortgage process is slow and unpredictable.”
Which makes what happened on April 13 all the more remarkable, particularly as it demonstrates what technology and automation can achieve.
In the video, Shekhar shows an email InstaMortgage received from a woman he identifies only as “Julia.” Her email arrived at 9:02 a.m., stating that she had received an estimate for a refi from Better.com and wanted to know whether InstaMortgage could match it.
A reply wasn’t sent until 10:51 a.m., an hour and 49 minutes later. (Later in the video, Shekhar notes the process could have been completed even faster if the response time had been quicker.) The reply stated that, yes, InstaMortgage could match the refi and asked her to click on a link to complete an application. The link led to an application she could download to her phone or laptop.
Shekhar said that, within nine minutes, Julia had downloaded the app, and just seven minutes later had used it to submit an automated verification of assets.
In a telephone interview this morning, Shekhar said the app is rules based, meaning that it responds specifically to whatever information a borrower enters, and can automatically search for an pull in information, such as verifying income via a W-2, whenever possible.
“That does not work for 100% of employers; they have to be on ADP or other platforms, but it does work for about 30% to 35% of employers,” he said.
He noted that this automated process was a key part to speeding the process, because it removed the onus on providing documents from the borrower and instead used automation to get the needed verifications.
“She had submitted an automated verification of assets; she did not have to provide any bank statements,” he said. “And by 11:10 a.m. she has actually submitted the loan application. So the total time commitment from the borrower in this case was 10 minutes total so far.”
In the telephone interview, Shekhar also said it helped that the borrower had no credit or financial problems, and that an appraisal waiver was granted on the property. “It may not be six hours if we have to get a desktop appraisal,” he said. “It may be 72 hours or 96 hours in at least one-third of the applications.”
By 2 p.m. the application was being reviewed by a processor, who ordered the payoff amount and the title and insurance information, which took a couple of hours, Shekhar said. It then went to underwriting, and the clear to close was given after 4 p.m.
“If CFPB did not mandate that you have to wait seven days from the time of loan estimate to closing, we could have closed this loan, literally she could have been signing her closing documents less than 24 hours after she applied on her website,” Shekhar said.
While proud of this accomplishment, Shekhar says this particular case study is important as an example for the industry of how to make the origination process faster and more predictable, as well as both a better and cheaper experience for borrowers.
“Most of the cost of producing a loan is in the operations right now, and if we take that cost of production and cut it in half, for example, because we’re able to do it faster, then we can pass on that benefit to the customers,” he said. “We can’t do much with the rates, it is what it is, but we can at least reduce the cost of production of the loan, and thus offer lower fees to the borrowers for doing that.”
He said four specific things went into making the less than six-hour process possible:
- Automation: This sped the process for both the borrower and the processor;
- Completeness of the files: It’s not just the speed, he said, it’s the ability to submit a complete file to underwriting to get a clear to close in one touch;
- Underwriting urgency: Shekhar called that a “human turn time,” focusing on how quickly an underwriter gets to the file and processes it, and
- The culture of the organization: “We obsess about the consumer experience, it’s because we’re always looking to improve it, always trying to make it better,” he said.
“The consumer experience when it comes to mortgages is not just a technology problem, or it’s not just a human problem – it’s kind of tech plus human problem that we need to fix,” Shekhar said. “Companies that do both of those things better are the companies that will thrive over the next three to five years as we can see the consumer preferences changing.”
He said if companies can build in automation to do things that don’t require a human to do, but at the same time have the humans consulting on the process, it can eventually eliminate the biggest pain point for consumers in the mortgage process.
Shekhar also said he is surprised that this is the first time a loan approval has gone so quickly, given all of the talk in the mortgage industry about speeding up the process.
“Even though they have talked about it, (the processing time) has stayed the same over the last 10 years,” he said. “I have heard all the talk, so how come it’s not improving? That’s our number one purpose, to improve the speed of the process.”