Has mortgage lending fully embraced technology or is the other way around?
As universal standards are accepted and applied in all facets of loan origination, process and approvals the speed at which a loan can be approved is nothing short of phenomenal. For those who have been in the industry for 20+ years or so we can all remember the immediate impact of credit scoring. At first, many lenders were wary of turning over a loan approval to an automated system with a three digit number derived from a proprietary algorithm. Can an approval be trusted? Will the loan perform over time if we move further away from the human touch and closer to a software program?
There was a time when credit scores were more of a referral or at least a secondary notion as an individual loan moved toward a final loan approval but as these scores were soon accepted as a bona fide representation of an applicant’s overall credit history they soon became a requirement, not a validation of a manual credit approval. So too has the industry witnessed the acceptance and utility of automated underwriting. Instead of documenting an individual loan file at the time of the initial loan application the file is documented only after review of the findings. This saves valuable time and resources when only asking for the minimum needed instead of “Submit these things just in case we might need it” or some such attitude.
Today in the age of a digital loan application and the ease of which different applications talk to one another, lenders are able to operate on razor thin margins due to the reduced overhead of physical documentation. Such margins have also led major players in the banking industry to exit mortgage origination altogether. To not only survive but thrive, banks and Fintech are collaborating with one another not only for mutual survival but dominance in the mortgage industry. That’s why banks are investing in smaller marketplace lenders with an established lending base as well as other Fintech firms to gain market share and streamline operations even further. This focus won’t diminish as Fintech and mortgage companies align themselves in order to adapt to the changing face of the new wave of borrowers.
The so-called “millennial” generation, those roughly between the ages of 18 and 34 have grown up with technology. They communicate less and less with face to face conversations because they don’t have to.
It’s easier to text someone or initiate Facebook Live. If you’re not present on their iPad or Android you’re not going to get their attention as theirs is focused on the glass in front of them. How does this change the future of the mortgage industry?
If you’re not an “app” you probably don’t exist. At least in the millennial’s world. If you’re a mortgage banker or Fintech firm and you’re not in the app store you’re already behind. Fortunately banks and Fintech firms have recognized this and are applying technology to every sector of mortgage banking, way beyond an electronic DU submission.
Non-Performing Loan Opportunities
Consider the data intensive segment of non-performing loans. Buying whole loan portfolios historically took considerable time and resources to fully vet a potential purchase. There were just too many data points to validate that buyers and sellers of non-performing loans were limited to just a few industry players. Yet Fintech today has bridged that gap and mostly automated the evaluation process required when reviewing non-performingloan portfolios.
“With the proper tools, today the ability to properly analyze a whole loan purchase of non-performing loans is not only much easier but more accurate,” says Jeffrey Lawrence Kirsch, non-performing mortgage expert of Fort Lauderdale, Florida. “We’re able to analyze non-performing loan viability while at the same time providing needed financial services which meet the needs of not just underserved communities but disadvantaged individuals as well. This technology meets a critical need by accurately analyzing the prospects of a successful non-performing loan purchase” Jeffrey Lawrence Kirsch continued.
Think for a moment what happens when an individual loan receives an automated decision. The lender then collects the required data in order to sell the loan individually or in bulk in the secondary market.
When a loan goes into default, it’s not the case of the automated decision but that something happened since the initial approval that caused the loan to go into default. Being able to sort through the cause and effect of post-approval events provides new revenue streams for banks and mortgage companies.
Our Crystal Ball
It’s been no secret the non-bank sector has grown in recent years, both with the advances in technology as well as some regional and national banks exiting the mortgage industry due to the overhead required to originate, process and service residential mortgage loans. Who will fill that void?
Companies with the ability to successfully analyze a distressed mortgage portfolio and turn those illiquid assets into working capital will come to the forefront of the lending industry. As technology continues to march unabated and a new generation of borrowers moves the baby boomers to retirement, banks will appear to be more than happy to step aside and let new technology take over.
As well, millennials will be the driving force as banks and Fintech move more closely together. If a potential borrower has the ability to push a couple of icons on a mobile phone to apply then document a mortgage loan application today then it won’t be very long for the entire approval process to shrink dramatically, even from today’s standards. What used to take 30 days or even longer to document and approve a mortgage loan just a few years ago is being compacted into a process that takes a few days, not weeks. With credit scores, automated valuation models, instant verification and electronic documents eliminating not just paper but also time, the mortgage industry is poised to change yet once again. But this time the change may be more dramatic than ever before.