Today’s mortgage lenders are constantly being pushed to do more with less. Rising federal rates combined with increasing property prices have led to a challenging market – with more frequent delinquency, volatile demand, and narrow operating margins. In this context, the right tech investment strategies can make a world of difference for mortgage lenders. That is why traditional mortgage outsourcing vendors are reimagining themselves as fintech companies to address this growing need.
Why Strategic Tech Investments Is a Top Priority
Both pull and push factors have contributed to an uptick in interest in mortgage technology. On the one hand, emerging tools such as generative artificial intelligence, robotic process automation, data fabrics, and industry cloud platforms open up a world of new opportunities for mortgage lenders. They can leverage these cutting-edge tools (provided they have the right infrastructure) to go head-to-head with disruptive fintech companies that have entered the mortgage landscape.
On the other hand, market conditions are propelling mortgage lenders towards tech adoption and relying less on human effort. During the COVID-19 pandemic, manual processes were interrupted at a very large scale, and lenders had to digitize and automate. Also, in the face of a decline in origination volumes, it becomes essential to maintain maximum margins per loan origination.
As a result, mortgage lenders are turning towards strategic tech investments, even in today’s complex economy. According to research, nearly 3 in 4 lenders believe that technology offers better operational returns than only human resources; speed and efficiency are the top benefits, say 65% of respondents.
Pros and Cons of Tech Investments in 2023
Despite the overwhelming benefits, it is advisable for mortgage lenders to be cautious about investing in technology in 2023. With over 26,000 fintech companies and startups worldwide, it can be difficult to find the right partner who will deliver unique and differentiated value for your mortgage business. Technology hype is another concern, with several new tools now in the experimental stage but without enterprise readiness.
Finally, strategic technology investments can have a longer lead time, which means that you cannot ascertain value right away. If planned and executed correctly, solutions such as cloud-based loan origination systems, automated bots for document processing, and ML-based credit models can garner a lot of value. However, mortgage lenders could risk jumping ship too fast if they do not choose the right implementation partner.
As a result, lenders are looking for assured ROI when they invest in new technologies. For instance, 55% of mortgage lenders said that they would require at least $200 in savings per loan in order to justify the investment.
How to Make Informed Decisions and Amplify Returns from Tech
To zero in on technology solutions that truly pay off, lenders need to:
1. Start with the business problem
Too often, financial service providers come across a promising new technology that is now “all the rage” with fintech companies and digital native providers. However, these are not necessarily a good fit for your business model or your product portfolio.
That is why it is important to first think about the business problem you are looking to solve – reduce credit approval times, bring down the number of stakeholders involved in a single origination cycle, improve borrower NPS, etc. Starting with the business problem ensures that you know the precise outcomes you are looking for and how to measure them.
2. Select technology that integrates
One of the key challenges with buying commercial off-the-shelf (COTS) platforms is that they may not be easy to integrate. Chances are that you already have an intricate process map in place, which you would not want to uproot with your new technology investments. Sometimes, integrating tech takes more effort than the value it ultimately generates.
Therefore, one of the Key parameters when making tech investment decisions is the availability of integrations and APIs. Application programming interfaces or APIs are prepackaged bits of code that enable data flow between different systems. Through integration, mortgage lenders can set up automated actions, centralize their data, improve analytics, and much more.
3. Look for scalability
Technology that can freely scale up or down in response to market conditions is geared to generate value for your mortgage business. Particularly in 2023, the mortgage industry and financial services/fintech companies as a whole are going through a turbulent period. The absence of agility and scalability has been a top challenge.
For example, 90% of mortgage lenders increased their headcount to handle the lending boom in 2021, as per the research we cited. Human resources are difficult to scale; in contrast, technologies like the cloud, serverless architecture, RPA bots, and chatbots can easily respond to an increase or decline in origination volumes or regulatory changes. This is crucial for tech investment strategies that continue to garner value in the long term.
Streamlining Your Tech Investments with a Trusted Partner
In 2023, mortgage lenders are caught between somewhat of a rock and a hard place. Origination volumes saw a slump across the last few quarters, shrinking margins for the mortgage industry. This has caused several companies to tighten their purse strings and protect their business from risk exposure.
At the same time, fintech companies and new-age lenders are providing stiff competition to incumbent financial institutions. In this context, strategic tech investments may seem like a leap in the short term but can unlock exponential value over time. At Nexval, we build bespoke mortgage tech products and outsourcing solutions for US mortgage lenders, perfectly aligned with your requirements and business goals. Speak with our tech experts to know more.