Before ever starting their first loan application, many potential homebuyers are constantly reminded of how difficult and frustrating the mortgage process is.
This is because for so many borrowers over the years the home financing journey was filled with friction that led them to associate getting a mortgage with getting a root canal.
“Nothing is smooth or easy and there will be setbacks. Just hope you close on time” is a common refrain from friends and family.
Contrary to this assessment, the financing process isn’t one big pain-point for borrowers, but there are pieces of it that cause the majority of frustration and friction. By identifying which portions of the overall process are responsible for the most pain, and then applying solutions that reduce or remove the friction, originators can continually assess and improve their customer experience.
A borrower-centric financing experience is one that is often also more efficient by nature and generates positive reviews, repeat business, and referrals.
To get the wheels turning, here are three elements of the mortgage origination process that present the most friction to borrowers and where big leaps in service can be made.
The pre-approval process is inherently something that creates lots of anxiety for borrowers. They’ve committed to having their credit pulled, and submitting their information, but they still are left to wonder: Will I be approved for the loan amount I need for this home?
But before they can get an answer to that question, just getting the required information to the lender so they can make a determination has bottlenecks and friction at multiple points.
In reality, pre-approval requires the navigation of several processes tied to one early outcome. First, you have the loan application which in and of itself can be daunting to borrowers, particularly first-timers. Then they’ll need to sign an authorization for the credit pull and with some LOs, they’ll also have to submit credit card information to pay for the credit pull. Finally, the initial document gathering process will begin.
With so many steps and requirements necessary just to get the first pre-approval decision it’s easy to see why unaccustomed borrowers would flee back to the safety of their rental home. It just feels difficult from the start to acquire home financing, even for well qualified borrowers.
Tech-savvy non-banks have seized on this discomfort to create a HUGE competitive advantage for themselves. They’ve figured out how to fully leverage their digital prowess to get prospects through pre-approval extremely fast, and the resulting growth in market share has been hard to ignore.
So, how do they do it?
By utilizing an intelligent loan application that removes the friction for borrowers by walking them through only the necessary parts of the application (based on their answers). The best analogy for this would be like going from filing your taxes on paper, to using TurboTax®.
Then, they leverage direct source connections to digitally verify borrower information from credit to assets, employment, and income. With all that data in hand, they’re able to bring back a quick result through their automated underwriting system.
This competitive, friction-free process advantage only exists because lenders and LOs have been hesitant to offer similar services.
The intelligent, “interview style” loan application has made its way to the mortgage industry. Direct source verifications are available to retail originators (Floify already integrates with dozens of credit reporting agencies, plus AccountChek, Plaid, and The Work Number) and are rapidly gaining acceptance by underwriters and the GSEs. Point-of-sale systems are integrating with AUS and PPE providers to streamline the decision process.
Documents + LOEs
As processes go, gathering accurate client documentation can be one of the most frustrating activities for both the origination team and the borrower. Even with modern POS systems allowing for the secure uploading of documents, errors still happen that can sidetrack the transaction. And even when the issue is a result of an action the borrower took (or didn’t take), the stress level can spike very fast.
There are two different paths originators take to simplify this task for their clients. One is through coaching, wherein accurate checklists, document samples, and LOE templates can close the information gap for borrowers.
The second is the use of direct source verifications, as mentioned above. By digitally gathering the borrower’s information, originators are not relying on the client to supply accurate docs for the underwriter, and the borrower doesn’t need to search down those documents either and go through the process of submitting them for review.
Back in 2015 when the TILA-RESPA Integrated Disclosures rule went into effect, there was a lot of anxiety about the impact on the lending
But what about the effect on borrowers?
While the rule was designed to help consumers get more transparency into their loan, it has also created a situation where the borrower often feels pressed to quickly review, sign, and return their disclosures instead of carefully reviewing their disclosures, asking questions and getting clarification, and then signing and returning their disclosures.
Furthermore, the system being used by the LO has a huge impact on the friction felt by the borrower.
Traditional paper-based practices will easily be the most stressful situation for a borrower. With paper disclosures, the document can’t be reviewed easily from anywhere, thus eliminating valuable moments that could be used to process the information. With paper disclosures, the borrower must either drop off the signed document to the LO’s office or use a pre-labeled overnight envelope ($) provided by the LO. There are few, if any, advantages to this method.
eSignature offers an acceptable alternative that provides many of the conveniences borrowers are seeking. Documents can be reviewed from anywhere with internet, signed from anywhere with internet, and instantly returned for processing.
But eSignature itself is not without its own friction points if not carefully implemented.
The introduction of a separate system can be confusing for borrowers. They’ve become accustomed to logging in to a web-based point-of-sale to complete their loan tasks but now must utilize a different, stand-alone system for the purpose of eSigning. It’s not a very clean process for borrowers and makes accessing the completed documents much more complicated.
These are the reasons Floify introduced our enterprise-grade Disclosure Desk feature. Disclosure Desk creates an integrated environment on the backend that provides borrowers with the single sign-on experience that allows them to access their disclosures in the same place they’ve been going to upload docs and track progress.