Lenders Look to Tech Innovation to Drive Down Costs, Increase Efficiency
The mortgage industry may have been a bit slow-footed in embracing the technology innovation that consumers take for granted these days when they go online for services from retailers like Amazon or Apple.
But “a growing number of mortgage originators, origination platform solution providers, and financial technology (fintech) start-ups have recently begun introducing innovative technology platforms,” Katrina Jones, Fannie Mae’s vice president for single-family business solutions, notes in a July 26 FM Commentary.
They are moving in that direction, she says, “to not only drive operational efficiency, but also, and equally important, provide a better consumer experience.”
Citing work that Fannie Mae has been doing through its front-end re-engineering efforts, Jones says that the company is “rethinking how we do business with lenders and that puts us in alignment with them, because they are doing the exact same thing with their customers.”
“We are both re-imagining our businesses processes, technology, and policies to improve the customer experience and make our business interactions simpler,” she says. “We are starting with our single-family strategy and putting the customer at the center of everything we need to do.”
As an example, Jones points to the common data standards and requirements for mortgage appraisal data and how Fannie Mae has leveraged technology and risk management innovation to provide value to its customers.
“We now use the appraisal data standards to support our collateral risk management tool — Collateral Underwriter® — which we launched in January of last year. And we have Desktop Underwriter®, which provides our customers with greater transparency, efficiency, and certainty when they sell loans to us,” she says.
Jones backs up her observations about ongoing mortgage technology innovation with recently released research from Fannie Mae’s Economic and Strategic Research (ESR) group.
ESR surveyed senior mortgage executives in May through its quarterly Mortgage Lender Sentiment Survey. The researchers set out to examine lenders’ experiences with mortgage technologies in driving their firm’s operational efficiency and see how they view efforts by the mortgage industry to innovate.
Almost four in five survey participants agreed — to at least some extent — that their industry is innovating to drive operational efficiency.
Previous ESR analysis suggests that a cloudy outlook for profit margins is driving lenders’ efforts to improve the efficiency of their operations. Cutting into those margins are the cost of complying with regulations like the TILA-RESPA Integrated Disclosure (TRID) rule as well as tighter competition in an origination market that is shifting from booming refinance activity to purchase loans.
When asked about some of the technological innovations they would like to see, participants in the most recent survey cited a need for digitization and automation. Survey results suggested that mortgage lenders have a strong interest in a fully digitalized mortgage process.
Lenders were split over the impact a disruptor like Uber might have in hastening a transition to technology innovation. Fifty-six percent agreed that a disruptor might be beneficial for the industry; many brought up Quicken Loans’ Rocket Mortgage as an example. And others thought that disruptors could help move the industry toward online and digital platforms.
Technology Solution Providers
Survey results also established that lenders rely heavily on technology solution providers (TSPs). Ninety-five percent said they depended in some measure on TSPs. Those lenders said that TSPs enable 84 percent of their business, and 44 percent expect to become more dependent on TSPs over the next 12 months.
Many in the survey acknowledged that the mortgage industry has successfully invested in innovations that reduce reliance on paper, use data to a greater extent, and provide a more consumer friendly digital process.
“We expect technology solution providers to play a critical role in driving this technology evolution across the mortgage loan life cycle,” says Jones.
“In turn, we believe lenders will continue to rely on [TSPs] to innovate, streamline processes, and improve operational efficiency. And lenders that can translate these efficiencies to a better consumer experience will encourage others to follow in order to effectively compete.”
Forty-six percent of ESR survey respondents identified loan origination as an investment priority. And lenders like Mid America Mortgage Inc. are showing other lenders that this is something they can do.
Headquartered in Addison, TX, Mid America recently completed its first eClosing and eNote through its retail origination channel. It intends to expand eClosing to all of its retail business and will execute eNotes and utilize electronic documents where local jurisdictions allow them.
“We’re early in the process and it hasn’t yet moved the needle very much,” says Jeff Bode, Mid America’s owner and chief executive officer. “But we anticipate a dramatic lowering of costs with eNote.”
Title companies probably “stand to gain the most from the efficiency” the new technology provides, Bode says. But they have been slow to embrace it, simply out of “fear of the unknown,” he says. “People hate change.”
And he expects the transformation to take time to gather momentum.
In the meantime, Mid America can deliver notes to Fannie Mae more quickly, fund them itself (and eliminate warehouse fees amounting to $200 on a $200,000 loan), reduce labor costs for sending documents, expedite funding for closings with title companies, and provide better service.
“Mid America’s vision for its future is to conduct eClosings with eNotes for all loans across all origination channels,” Bode says in the press release announcing the first execution. This strategy also aligns with the Consumer Financial Protection Bureau’s position that the industry should continue to explore eClosing as a promising option for borrowers.
Bode observes that Fannie Mae has been “instrumental” in knocking down barriers and helping “show the path on how to get there.”
Challenging the Status Quo
“We’re seeing a growing number of financial service organizations introducing innovation,” says Jones. “They want to challenge the status quo around the mortgage lending process and bring in new technology to disrupt the way things are done. [Consumers] see today’s mortgage lending process as a complex engagement, but it doesn’t have to be as hard as it is. It can be an easier and a more efficient process.”
“Organizations are focusing on changing the way consumers obtain mortgages,” she adds. “But lenders also recognize that at the end of the day, they have to create a mortgage that they can sell to Fannie Mae and that meets the various regulatory requirements.”
For its part, Fannie Mae is hard at work on innovation to help lenders deploy changes in the mortgage process that can benefit consumers.
“And even as Fannie Mae strives to innovate, our customers are investing in new technology to create a more efficient mortgage lending process that drives down the costs while maintaining high quality,” Jones says.
The mortgage industry is closely watching technology innovators. “We can learn from them,” Jones says, “as they continue to challenge the way we think about operational processes, risk management, and quality control.”
Tim Ahern is a writer in Fannie Mae’s Corporate Communications department.
Estimates, forecasts, and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current, or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.