Despite massive advancements in mortgage automation technology, most financial service providers are stuck in second gear. According to a 2021 research report, 69% of firms are yet to deploy a digital transformation strategy that will address the gaps in their existing systems. Just 30% are implementing such a strategy, and some are yet to come up with a digitization strategy in the first place. This causes severe inefficiencies in mortgage operations, which places large financial service institutions at a disadvantage when compared to digital native players.
For instance, Deloitte reports that FinTech lenders process mortgage applications 20% faster than traditional firms, yet have 25% lower default rates than the US average. What are the challenges in current mortgage systems that hold lenders back from unlocking similar efficiencies? Here are eight bottlenecks to watch out for:
1. Outdated architecture hinder extensibility through APIs
Traditional mortgage processing systems are either homegrown or deployed as a standalone solution. They are not futureproof, and typically, they are hosted on-premise using company-owned hardware infrastructure. Not only does this add to hosting and upkeep costs, but they also hinder extensibility – i.e., the ability to extend and scale mortgage systems by adding on new features and connecting new software. This means that every time the lender refurbishes the system, the existing architecture has to be overhauled, instead of simply adding on modular components through low code application programming interfaces (APIs).
2. Siloed systems cause data and effort duplication
The end-to-end mortgage lifecycle involves multiple interfaces from user-facing points of sale (POS) to loan origination systems (LOS), asset-liability management (ALM) systems, and several backend databases. Current mortgage systems usually lack bidirectional data flow between these interfaces as the technologies exist in silos, without any interoperability configured to connect them. When data stored in one system has to be accessed from a different interface, the task requires a lot of manual effort. Such siloes can cost mortgage businesses in several ways.
3. Over-reliance on manual processes leads to origination and servicing delays
Most homebuyers in the US face the same problem when interacting with lenders – “why does getting a mortgage take so long?” In 2021, the average time from application submission to approval and closing was 51 days, which can seem like an eternity to the buyer. Even after the mortgage is closed, servicing can be a cumbersome process, with buyers waiting for days to receive answers to even simple queries. This is because current mortgage systems rely on manual processes during underwriting, title processing, and property appraisal. Manual processes are also more risk-prone, which further adds to the origination and servicing timelines.
4. Disjointed systems pose a severe cybersecurity risk
An outdated mortgage system with several fragmented parts is a prime candidate for cybersecurity attacks. This is because a multitude of interfaces gives rise to multiple threat vectors and a broad attack surface for malicious actors. Last year, US-based Residential Mortgage Services, Inc. reported a massive data breach that cost the company $1.5 million in penalties. To absorb such penalties, lenders will be forced to increase their interest rates (at approximately 39.85 basis points for a $923 million loan amount), which is a major deterrent for borrowers. It is better to have a consolidated and up-to-date mortgage system that leverages digitization to protect against cyber risks.
5. Lack of digital skills impact employee and customer experiences
Due to their outdated nature, current mortgage systems also pose a “culture challenge.” Employees are used to a manual, time-consuming, and protracted way of doing things, which is not conducive to productivity or an agile business model. Over time, employee innovation and growth are stifled, even as they fall back on the digital literacy curve, compared to other industries like healthcare and retail, which are fast going digital. This also has an impact on customer experiences, while millennials and Gen Z buyers increasingly prefer digital.
6. Processes that could be automated still run inefficiently
Ideally, any mortgage process that is low on variability and high in volumes should be automated using pre-configured business rules. Cutting-edge technologies like robotic process automation (RPA) in mortgage, artificial intelligence (AI), and mortgage bots can perform tasks like document reviews and information extraction with little to no human intervention. But current mortgage systems are not equipped to gain from these opportunities. Even when the opportunities exist, lenders perceive automation costs to be formidable, which is not really the case.
7. Introducing new products and regulations is costly
The US mortgage landscape is evolving rapidly, with new regulations and new product opportunities for lenders. For instance, in mid-2021, the government introduced new refinancing programs for low-income homeowners. New servicing rules were also introduced to help homeowners through the forbearance process amid the COVID-19 pandemic, and in December, the CFPB introduced new rules and exemption thresholds for higher-priced mortgage loans under the Truth in Lending Act. In addition to complying with these regulations, there are also new opportunities to be unlocked, such as fully digital loan application and approval systems. But using current infrastructure, mortgage innovation proves extremely expensive.
8. Data repositories are not designed for ad-hoc queries and reports
The mortgage servicing process relies on speedy retrieval of key data, no matter how complex, to address customer queries and requests. Unfortunately, the recent regulations by the CFPB make this more difficult, as there are new multiple checks and balances in place when allowing exemptions, filing notices, permitting loan modifications, etc. Lenders need a consolidated data repository where they can run ad-hoc queries and generate reports as requested by the customer and mandated by the law.
Making mortgage smarter: Speak with our Mortgage Tech Gurus
As the economy gradually takes a positive turn in 2022, interest in homeownership is likely to rise and stabilize, re-energizing demand for the mortgage sector. Meanwhile, there are security and servicing complexities that require industry attention, which cannot be fulfilled through the current state of mortgage systems. Our mortgage Tech Gurus bring decades of industry experience, coupled with research and innovation in the latest mortgage automation technologies.
Are you ready to strengthen your mortgage infrastructure for the future? Speak with a mortgage tech guru today.