The Need For Speed

Lenders race to the ‘holy grail’ of the one-day commitment letter

Dave Krechevsky Headshot
David Krechevsky
Need For Speed

That desire for an ever-faster mortgage process, however, leads to a few questions. First, is the “one-day mortgage” even possible? Second, and perhaps more importantly, is it possible for every borrower, regardless of their financial situation? Third, is speed as important to borrowers as it seems to be for financial industry executives?

The answers aren’t as simple as they may seem.

Benchmark Study

The amount of time it takes for a borrower to complete the mortgage approval process is not just a marketing gimmick. According to “Mortgage Cycle Closing Time,” a study published in December 2020 by Freddie Mac, the top-performing mortgage originators in the second quarter of 2020 “processed loans up to 63% faster than their lower-performing rivals.”

The study was initiated to benchmark mortgage closing cycle times, which the report described as a “critical performance indicator” for lenders. It also noted that the times had increased during the COVID-19 pandemic due to “high volumes, mandated closures, and social distancing.”

Still, according to the report, the industry average closing cycle time had gradually improved from 46 days in the first quarter of 2016 to 40 days in the early part of 2020. It also noted that the range between the higher- and lower-performing companies had narrowed over that time, “and is more pronounced across the lower performers, whose cycle times have improved the most.”

Pavan Agarwal

The report also noted that customers “increasingly want faster and easier ways to maneuver through the mortgage process.”

Clearly, a faster mortgage process is a goal across the industry, regardless of the size of the organization. A more recent study, an “Origination Insight Report” published in December 2021 by ICE Mortgage Technology, found that closing on a conventional mortgage took 48 days; closing an FHA loan took 54 days; and closing a VA loan took 57 days. The average time to close a refinance loan was 45 days, the report said.

Commitment Letters

While longing for the one-day mortgage, many lenders tout the speed with which they can approve a commitment letter. These letters can lock in a mortgage rate while offering either a firm commitment to lend the borrower the money needed to buy a house, or a conditional commitment that requires certain conditions to be met.

That’s what Better’s One-Day Mortgage program actually does. As stated in its news release, “Better customers will be able to go online, get pre-approved, lock their rate, and get a mortgage commitment letter from Better, all within 24 hours.”

– Sun West CEO Pavan Agarwal

The company said it quietly launched a test of the program in the second week of January, and by the time it was officially launched about two weeks later it had “processed over $50 million in One-Day Mortgage commitments, with customers receiving a commitment letter in an average of 12 hours.”

In an interview with NMP, Nicholas Taylor, Better’s head of real estate, said the company’s approval process is often even faster. “In most cases, we’re averaging about six to eight hours to deliver that conditional approval letter,” he said.

Taylor said the process is a “new combination of technology and personnel,” and ensures that Better customers get a conditional approval letter within 24 hours of starting that process, so they don’t have “to wait 20, or in some cases, 30 days for the lender to greenlight” approval for the borrower.

Check out the Need for Speed on 'The Interest.'

While Better describes the program as “a breakthrough innovation in the real estate industry,” other lenders offer similar programs. Sun West, for one, has offered its “8 a.m. approval” program for more than a year. That program uses the company’s proprietary AI technology, called Morgan, to provide a conditional commitment letter by no later than 8 a.m. the next day, as long as the file was uploaded by 8 p.m. the previous evening.

According to Sun West CEO Pavan Agarwal, a customer submitting documentation using Morgan’s website portal will usually receive a decision within minutes.

“Currently, 70% are under 40 minutes,” he said. “The goal over the next quarter is 99.5% in a few minutes.”

Nicholas Taylor

Fast vs. Fair

In a recent interview with NMP, however, Agarwal raised questions about the efforts to create an ever-faster mortgage approval process.

His concern? “I think there’s a greater need for fairness than there is a need for speed,” he said.

He continued, “The disadvantage of trying to do it so quickly is that if you don’t have the technology, then … you only end up doing it quickly for a small segment of the population. And that is not fair.”

From Agarwal’s perspective, completing a mortgage process quickly for most lenders requires borrowers with financial profiles that fit neatly into agency guidelines established decades ago.

“These guidelines are old, right?” he said. “I mean, the culture in which they were written is kind of like a ‘60s’ or ‘70s’ kind of culture, where everyone was like [Gregory Peck] in that (1956) movie, ‘The Man in the Gray Flannel Suit.’ … Everyone had a job, they worked at a big corporation, and they retired with the gold watch.”

– Nicholas Taylor, Better head of real estate

Agarwal said life is much more complicated today, particularly with a gig economy in which workers hold several jobs, none of which provide a W-2. As a result, he said, the “need for speed” tends to focus on a select group of people, neglecting the rest.

“So, if you’re not part of that culture, then you’re not getting the service levels that you deserve and you’re not getting as many lenders serving you, so that makes your pricing worse because there’s a lack of supply,” he said. “This isn’t some kind of premeditated discrimination; it’s just market forces.”

Given that, he said, “you can’t have fair lending unless you have equality of service. Fair lending isn’t just about, ‘Did you charge one group more than another group,’ or ‘Did you approve one group more than the other group.’ Fair lending is really about, ‘Did you give equal service across the spectrum?’”

Agarwal also touted Sun West’s Morgan, its AI platform, stating that it gives his company an advantage over its competitors in speeding up the mortgage-approval process because so much of it is automated, removing human errors.

As an example, he said, humans might mistakenly put the wrong year on a document in January, such as writing 2022 when they mean 2023. Morgan won’t make that mistake, he said.

“So, what happens is then you get all pieces of your problem solved,” he said. “You get speed. You get accuracy. And you get fairness, because it doesn’t matter … how complex it is. … The AI doesn’t care.”

He added that Morgan works with all kinds of borrowers, including not just those with W-2s, but those who are self-employed, have disabilities, have low or high FICO scores, or who have gaps in their resumes, as well as for all kinds of loan types, from conventional to FHA, VA, jumbo, and more.

“We are true fair lending,” he said.

Taylor, Better’s head of real estate, said his company is working to expand eligibility for its One-Day Mortgage program, which among other restrictions currently requires applicants to have a W-2.

“We’re starting more simply,” he said, “but we have some really aggressive goals to meet the needs of the majority of the borrowers by the beginning of the busy season.” He added that Better’s goal is to meet the needs of 75% of the purchase borrowing market within two to three months, and eventually 100%.

The ‘Holy Grail’

Taylor said he believes there is a difference between the one-day mortgage (or commitment letter) and the so-called “holy grail” of a one-day closing. And he doesn’t believe the latter is a pipe dream.

He said so many lenders have been investing in innovation over just the past decade, that the “flywheel is starting to spin pretty fast.”

Lenders also need to consider the growing expectations of the consumer, he said.

“I do think that everybody wants to be faster,” Taylor said. “That customer expectation has definitely only grown over the last 20 years for other parts of someone’s life, right?”

For example, he cited how Amazon changed customers’ expectations about shopping online.

“I hate to use Amazon, but … what they had aspired to originally start was a journey to deliver two-day shipping for all products,” he said. “But it couldn’t accommodate all products to begin with. And we look at that kind of ‘assembly line’ and that exercise of, how do you get every single product shipped in two days, if not faster?

“We look at that exercise and we internalize it as a mortgage company within our corner of the industry,” he continued. “And we’re taking it upon ourselves to figure out how to combine tech, ops, and our platform to provide that service for all types of borrowers.”

Ultimately, he said, the industry is likely closer to the “holy grail” goal than you might think.

“I think that all of this is not far away from materializing, but I do think that the challenge we face today is that too much of this industry is not motivated to address that customer need,” he said. “And so I think to really unlock a one-day closing, it requires a company that is truly invested and motivated and curious to solve that question, ‘how do we bring all these disparate parts together?’”

He continued, “Do I think it could happen in one day? Oof, that would require some serious coordination, but I think we are not far away from offering three-day closings or five-day closings — much faster than the standard 40, 45 days. I don’t think we’re far away from that.”

Dave Krechevsky Headshot
David Krechevsky,
This article was originally published in the NMP Magazine March 2023 issue.
Published on
Mar 06, 2023
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