The Current State of the End-to-End Digital Mortgage
New technologies were gradually making the mortgage-lending process more efficient, then COVID-19 propelled the industry into a new era.
With mortgage-origination volumes soaring, loan originators adapted to remote work, accelerating the need for digital solutions like remote online notarizations (RON). These have all been important steps towards digital mortgage, which at least one expert calls the mortgage industry’s white whale.—a long-standing goal for industry innovators.
Despite significant advancements and growing consumer interest, a completely end-to-end digital mortgage remains elusive. In this blog post, we'll explore the current state of digital mortgages and the hurdles yet to be overcome.
What is a Digital Mortgage
The mortgage loan experience is increasingly online, particularly when it comes to customer-facing elements. Gone are the days when borrowers had to drop by an office to hand in tax returns and bank statements.
However, a fully digital mortgage involves much more than online applications via banking websites or the ability to sign disclosures and documents virtually. It’s an entirely paperless mortgage that taps the latest technology for every step of the borrowing journey, from the initial application to closing and servicing the loan.
The digital mortgage has many benefits for borrowers and originators alike. For consumers, it’s hard to overstate the convenience of being able to secure a loan without setting foot outside.
For lenders, technology can simplify the mortgage-origination steps, shorten closing times, and slash manual data entry, the American business magazine Forbes reports. Embracing digital mortgage tools also frees up time so that originators can focus on marketing and growing their businesses.
What’s the Status of Fully Digital Mortgages Today?
In recent years, loan originators have been ramping up investments in digital mortgage lending technology as the industry continues on the path to complete digitization. On average, annual spending on loan-origination software by lenders has increased slowly but steadily by 2.5% in the past 5 years, according to research from McKinsey & Company.
The U.S.-based management consultancy anticipates that this trend will persist: “In the near future and amid growing investment, we expect technology-driven innovation to seep into core platforms and back-end technology.”
As loan-origination software sales grow, so does the number of available digital mortgage platform solutions. For example, Floify continues to deploy innovative features to help loan originators transform operations towards the fully digital mortgage. Floify’s Hybrid E-Closing enables eSigning for non-notarized closing documents and integrates with the eOriginal platform and ICE Mortgage Technology’s Encompass eNote. These features focus on an area where the least amount of digital adoption has occurred to date: the closing.
What Challenges Remain?
Recent technological advances have significantly streamlined the mortgage process, enabling many aspects to move online. Yet, the industry hasn't fully achieved widespread adoption of digitized eClosing processes involving eNotaries and eNotes.
Here are 3 primary challenges impeding this progress:
Legislation
Legislation remains a hurdle in different parts of the U.S., although this is rapidly changing. In 2017, only a handful of states had passed remote notarization laws, compared to 38 today. There’s hope that a federal bill will give the greenlight to RONs nationally, although it has been stuck in Congress since 2020.
Aversion to Change
Some in the industry are reluctant to embrace change. Loan originators might fear that a fully automated process will make them redundant. Yet research suggests that customer relationships with loan originators do matter.
Some 68% of borrowers say they chose their latest mortgage lender from one of their current financial services providers or a personal referral, according to a recent survey from ICE Mortgage Technology. Clearly, the role of loan originators, as well as the relationships that they cultivate with clients, is still important.
Demographics
Demographic preferences have also held back the adoption of the fully digital mortgage – but that’s quickly shifting. Nearly 70% of Gen Z and Millennials view an online mortgage process favorably, according to the same survey, which signals “a generational shift.”
Demographics, industry trends, and federal and state laws may be temporary hurdles, but it’s clear that consumer demand is driving change. About 60% of today’s borrowers – including both homebuyers and those refinancing existing loans – are interested in a fully digital mortgage application process, according to McKinsey & Company.
Optimizing Mortgage Digital Strategies
The journey to a fully digital mortgage landscape, aimed at enhancing the overall digital mortgage experience, is filled with promise, yet certain challenges persist, slowing the pace of adoption. Here's how lenders can fine-tune their approach to digital mortgages:
1. Embrace End-to-End Digital Solutions:
o fully benefit from digital mortgages, lenders should adopt digital solutions at every step of the loan processing lifecycle.—from the initial application to the final closing. This means using online forms for faster data collection, automated underwriting systems for quicker decision-making and digital closing solutions to finalize the deal. By ensuring that every stage is digital, lenders can streamline the process, reduce the time and cost involved, and provide a smoother experience for customers.
2. Invest in User-Friendly Platforms:
The key to a successful digital mortgage strategy is user satisfaction. Lenders should invest in platforms that are easy for both their staff and customers to use. This includes intuitive interfaces, clear instructions, and responsive design that works across all devices. A user-friendly platform makes the process more efficient and helps build trust and satisfaction among users.
3. Utilize Data Analytics:
Digital strategies provide access to vast amounts of data. By utilizing data analytics, lenders can gain insights into customer behavior, market trends, and operational efficiency. This information can be used to tailor services to customer needs, anticipate market changes, and make informed decisions that enhance performance and profitability.
4. Continual Training and Support:
As digital tools and platforms evolve, so should the people using them. Lenders should provide ongoing training and support to ensure their team is up-to-date with the latest digital trends and technologies. This not only boosts confidence and efficiency among staff but also ensures that customers receive the best service possible.
5. Feedback and Adaptation:
Finally, an effective digital strategy is not set in stone; it evolves with feedback and changing market conditions. Lenders should actively seek feedback from both customers and staff on their digital tools and services. This feedback should then be used to make continual improvements, adapting the strategy to better meet the needs of all parties involved.
By optimizing their digital mortgage technology strategies across the mortgage lifecycle, lenders can not only improve their own operations but also enhance the overall customer experience. This leads to a win-win situation where the process becomes smoother, faster, and more cost-effective for everyone involved. As the industry continues to move towards a fully digital future, those who adapt and optimize their digital strategies will be well-placed to succeed.
Moving Forward: The Digital Mortgage Journey
The path to fully adopting digital mortgages has its challenges, but the benefits are clear. By tackling legal changes, tech problems, and industry fears, and making sure everyone is included, lenders can move past these issues and lead the industry toward a future that's better for everyone. This means easier access, faster service, and happier customers.
On the other hand, lenders who don't use new digital ways are holding themselves back. As noted by McKinsey & Company, sticking to old methods can lead to higher costs and slower service.
When lots of people want loans, not being ready to handle them quickly can be a big problem. So, it's important for those in the mortgage world to keep up with the digital trend. The journey might have some tough spots, but reaching a fully digital mortgage world will make it worth it.