What a True Digital Mortgage Will Look like in the Future
A New Era
Over the last decade, we’ve seen a tectonic shift in the mortgage industry as we transition to all things digital. A decade ago, the idea of getting a mortgage without stepping into a bank or credit union seemed absurd! Slowly but surely, more and more steps in the mortgage process have become digitalized, as email communication and secure document transfer become more widely accepted and trustworthy.
Now, there are countless ways to obtain a mortgage without even being in the same state as your processor & underwriter. Startups are focusing on lending without a physical storefront, and even age-old institutions are trying to capitalize on this trend. Let’s take a look at some of the big changes happening in the industry.
Digital Is Big
News broke recently that Quicken Loans, a completely digital lender, passed Wells Fargo as the nation’s largest mortgage lender. This marks the first time in history that the top spot has been held by an online lender. Quicken revolutionized lending with their “Rocket Mortgage” app which allows you to obtain a mortgage using only your smartphone.
The List of Online Lenders Is Growing
There have been rumors passed through the grapevine that retail giant, Amazon, is considering entering the mortgage business. An Amazon mortgage business would allow buyers to shop for a mortgage strictly from a computer and would be similar in theory to Quicken’s platform.
SoFi is another online-only lender, who has broken into the scene as of late. Founded in 2011 as a student loan lender, they’ve since expanded into mortgages, capitalizing on the digital trend. Other big names include Bank of America, PNC, SunTrust, and Better Mortgage.
Three Reasons Why Digital Mortgages Are the Future
We know there are some big players in the digital mortgage game, but is it just a fad? Due to a variety of factors, we believe digital lending will grow to become the new norm. '
According to a recent report by Ellie Mae, "34% of borrowers initiated contact with their lender online."
Let’s take a look at why this trend is likely to continue:
1. The Younger Generation
Millennials seem to want everything at the click of a button. The idea of spending a Saturday afternoon signing paperwork inside a bank makes any 20-something cringe.
Instead, digital platforms offer the ability for borrowers to complete paperwork in the comfort of their own home, outside of normal business hours. Forms can be signed at any time of day, and questions can be submitted through online portals. Borrowers simply get notifications when something has been added to their to-do list, then they can log in during their lunch break to sign or acknowledge the form. Having access to everything on a smartphone is a major bonus to any tech savvy borrower.
Online lending platforms have the ability to automate many of the steps involved with mortgages. Details such as a borrower’s present address can be entered only once, then instantly copied to many other documents that require the fields. Borrower signatures can be saved, so they can sign countless documents with a single click.
Automation has drastically decreased the amount of time spent on paperwork, creating a better experience for both the lender and borrower. In fact, one of the biggest complaints by homebuyers today is the insurmountable amount of paperwork involved. More automation means faster closing, and happier borrowers.
3. Time Is Money
Let’s face it, closing a loan takes a LOT of effort. Assuming everything goes perfectly according to plan, you’re looking at a month or more to close. One large appeal of online lending is its ability cut origination times by up to half. This is good for the borrower, who is anxious to get into their home, and good for the lender who can now close more loans per employee thus increasing their profit margins.
Looking at the number of companies rushing into the world of online lending, it’s safe to assume that this trend will continue. As more and more millennials enter the market, the demand for all things digital is going to skyrocket. While there will always be buyers who prefer the brick-and-mortar route, the future of homebuying now rests at your fingertips.
A Digital Home Buying Experience
Since 2015, lenders have slowly begun to adopt the idea of online mortgage applications and have now begun to roll out their own digital mortgage platforms; with Bank of America being the most recent large institution to get in on the action.
The promise of digital mortgages is a faster closing process and in return, a better home buying experience. Currently, “It can take 30-45 days to close a loan, whereas digital mortgages take around 20 days on average” (American Banker).
Lenders are looking to attract the next generation of homebuyers who have widely adopted the use of the internet into all aspects of their lives. But is a digital mortgage really what millennials and Generation Z are expecting?
The answer is a resounding "Yes"!
Applying for and getting a mortgage online is just the tip of the iceberg when it comes to the home buying process. We predict that in 5-10 years, 90% of the home buying process will take place online. Sound crazy? It’s already starting to happen.
“90% of home buyers search online at some point during their home buying process” and “for 42% of home buyers, the first step in the home buying process was looking online for properties,” according to the National Association of Realtors.
Currently, you can find listings of homes, their valuation, estimated mortgage payments, get prequalified, contact the real-estate agent and take a video tour online. The only component missing is having everything on a single platform.
Recently, Zillow announced that it would start selling and buying homes directly to and from homeowners. Zillow says that it will make the “necessary repairs and updates” and list the home “as quickly as possible” on its website.
While Zillow doesn’t currently offer mortgages directly to homebuyers, that would be the next logical step for a seamless digital experience. The final result will be complete vertical integration of the home buying experience through their digital platform.
So, what’s stopping FinTech’s from offering mortgages? Well for one, FinTech’s will come under scrutiny from regulators. They will need to comply with all of the regulations nondepository mortgage lenders currently face: HMDA, Fair Lending, Mortgage Call Reports and TRID, just to name a few.
Compliance for mortgage lending is no easy task, but automated software such as Compliance EAGLE can perform complete loan-level reviews in 30 seconds, which helps streamline the workflows of loan origination.
So, what can banks or mortgage lenders do to prepare for the future? They need to get as close to the customer as possible. The majority of FinTech companies running listing sites will not want to take on all of the burden that comes with loan origination. Securing exclusive deals or becoming a certified lender on these online platforms will be paramount for success in the digital world.No matter what the future of mortgage lending looks like, QuestSoft will be there to take the complexity out of compliance.