Today, the mortgage industry is marked by a unique set of challenges and opportunities. On the one hand, mortgage volumes saw a historic rise last year thanks to purchases and refinancing activity. Lenders that can keep pace will be able to grow their margins and pave the way for a more profitable future.
On the other hand, rising volumes have caused friction in the customer experience, owing partly to the lack of digital tools. 89% of respondents on a Mastercard survey felt that the loan application process was as stressful as the home buying experience. 64% said that they were too frustrated to continue with the process. Lenders need a robust digital infrastructure to overcome these challenges and come out on the winning side in 2022’s moderate to bullish industry climate.
There are five signs that a lender needs to urgently relook at their digital infrastructure:
1. You (still) have a complex on-premise environment
Even in the current cloud-first era, most legacy lenders operate on-premise equipment, servers, and data centers. Some of these infrastructure components were purchased decades ago, and are so entrenched into operational workflows that they are now difficult to replace/modernize. With time, on-premise infrastructure will weigh you down, add to costs, and prevent the adoption of new-age systems like analytics (on-premise data processing consumes too much computing power to be viable in terms of costs) or AI. The presence of heavy on-premise equipment beyond the one-off perpetual license is a surefire sign that it is time to upgrade your IT infrastructure.
2. Modernization initiatives tend to stall after the first few months
For most lenders, successful digital transformation isn’t a case of “first-time right.” They typically commence a few isolated projects and start to modernize select workflows, before running into bottlenecks. After several such stalled initiatives, the transformation project loses momentum and the infrastructure is left as-is. If your modernization initiatives are struggling to take off, the root cause is probably the state of IT infrastructure. It could have siloed systems that prevent interoperability, it could rely overwhelmingly on manual effort, or it could be any one of the eight common bottlenecks that hold back mortgage systems. If you have seen multiple modernization initiatives start and stop, it might be time to revisit and upgrade the core IT infrastructure at an architectural level.
3. Infrastructure bills are unpredictable
As the IT environment evolves, standalone and sprawling systems tend to crop up that may not have been part of the original blueprint. For instance, there could be separate support costs, additional cooling costs for data centers to keep up with climate change, the cost of hiring a support team to maintain new systems, and much more. If, more often than not, the monthly bill comes as a surprise, you may need to upgrade your IT infrastructure with a focus on simplicity and lean operations. Modern cloud-based mortgage systems offer a far more streamlined alternative to the traditional three-tier IT architecture, which had discrete physical layers for the user interface, application hosting, and data storage/processing.
4. You aren’t prepared for disasters
Lenders need to be ready for the occasional rainy day, unpredictable external event, or act of God, so that business processes are not interrupted by infrastructure downtime. For instance, during COVID-19, the industry witnessed infrastructure and operational bottlenecks that contributed to unusually inelastic credit supply. Cyber-attacks and data exposure penalties could also halt mortgage operations. There are a variety of disaster scenarios that lenders must prepare for, and legacy IT does not factor in this requirement. By taking the decision to upgrade your IT infrastructure, you also institute backup and disaster recovery best practices that ensure there are fallback systems in place.
5. Productivity is flatlining beyond a point
Lenders that rely on manual labor and traditional IT systems will witness a bell-shaped productivity curve. Towards the beginning, an increase in headcount and rise in IT spends directly translates into a productivity gain. But the curve will soon peak, after which per capita productivity will only fall due to persistent inefficiencies in the operational landscape. By upgrading your IT infrastructure, lenders can embrace efficient systems that unlock the benefits of scale. It can continue to support productivity through automated document management, seamless and low-cost integration of new tools and third-party (i.e., non-hired) support so that operational expenses do not increase.
Ready for an Upgrade? Watch Out for These Barriers
Lenders that have experienced one or more of the above five scenarios, should immediately consider an IT upgrade. However, there could be a few barriers in the way:
- Limited resources – Existing headcount and budget may not be able to accommodate transformation plans. Look for an expert outsourcing partner and the best-cost location for your IT operations.
- Internal resistance – An infrastructure upgrade will disrupt existing processes and the company culture. Explain the benefits to the workforce (e.g., automation of mundane tasks to free up employee time) to overcome resistance.
- Functional silos – Silos between different processes at different stages of the loan lifecycle makes it difficult to holistically upgrade IT. Partner with an expert that can identify the root cause of silos and address them before technology implementation.
- Leadership buy-in – Upgrading digital infrastructure isn’t just an IT decision. It involves (and will influence) decision-makers, business leaders, and managers at every tier, and cannot progress without their buy-in. Understand the business benefits of an IT upgrade clearly before commencing your plans.
At Nexval, we bring decades of experience in the mortgage industry and provide lenders with cutting-edge solutions that elevate their capabilities for the future. According to 65% of bank lenders and 73% of credit union lenders, digitization is central to the future of the mortgage industry. We support this ongoing journey through strategic assessments, tailored offerings, and next-gen efficiency enablers like AI and RPA.
Have you faced any of these signs at your organization? Talk to our Tech Gurus to find out about the next steps.