Digital Mortgages: The Tipping Point Is Near

by Yvonne von Jena | October 5, 2017

This year’s Digital Mortgage Conference in San Francisco provided good insights into the future of digital mortgages. The most meaningful of these insights is effectively captured by Robert McLister in an article about the event: “the tipping point is near”. Although the event was largely US-focused, much of the information, trends and findings apply to Canada. 

Why is the tipping point near?

There are a variety of reasons why the US is getting very close to the tipping point for digital mortgages:

  • Significant investment: US VCs, mortgage tech companies, traditional lenders, government-sponsored enterprises (Fannie and Ellie Mae, etc.) and others are investing heavily in digitizing mortgages
  • Greater efficiencies: There are a lot of opportunities for greater efficiencies in processing mortgages, which not only remove manual work and errors, improve turnaround times, but also deliver a better customer experience and more loyal customers
  • Consumer demand: Across all age groups, consumers are demanding, adopting and liking digital mortgage experiences
  • Lender demand: Lenders are aware of consumers’ demands, understand the ROI that digitizing their mortgage processes can deliver, and see the market share success of digital mortgage providers such as Rocket Mortgages 

The consumer

Research by Velocify about US consumers is quite telling. Essentially, all borrowers are increasingly using the Internet to research and shop for lenders as well as buy mortgages:

 Researching mortgages

  • Borrowers are 3.7 x’s more likely to find their lender through online research or social media than they were 5-10 years ago
  • Driving this trends are Millennials and Gen X borrowers; Millennials (<35 years of age) were 45% more likely to have found their lender online compared to Baby Boomers (55+ years of age), who were 87% more likely than Millennials to use their current bank or lender; meanwhile, Gen Xers (35-54 years of age) were more closely aligned to Millennials, as 42% found their lender online
  • As a result, the importance of realtors in driving referrals is falling; today’s borrowers are 42% less likely to find their lender based on realtor referrals compared to 2-5 years ago

 Buying mortgages

  • More borrowers are turning to online lenders for assistance
  • Throughout all stages of the loan process, technology is increasingly playing a bigger role; although as the loan progresses, the preference for human interaction increases
  • Preference for a digital experience varies by generation and stage; for example, Millennials prefer less in person and more chat, especially during the application phase, and more phone during application and after closing; Gen Xers prefer slightly more email and less phone throughout; and Baby Boomers prefer less chat and email, and more phone and in-person throughout
  • Borrowers believe technology improves the process; borrowers who were provided an online portal were more than 2 x’s more likely to say technology improved the process than those who were not provided with an online portal, which was higher amongst Baby Boomers who were 3 x’s more likely to think technology improved the loan process when provided with an online portal

Lender adoption

According to a survey by the Stratmor Group of top 200 lenders, the adoption of digital mortgages is well underway:

 Adoption ranked - Top digital mortgage capabilities in production or development

  • The ability for the borrower to execute disclosures online
  • The ability for the borrower to upload documents and respond to conditions online
  • Lead management / CRM systems that enables sales to nurture relationships
  • An online borrower satisfaction survey process

 Next - Top digital mortgage capabilities – borrower interactions

  • Status updates provided automatically to the borrower (text, email or mobile)
  • Borrower has the ability to select contact method (text, email or mobile)
  • Dynamic online application for borrower to input information through interview (wizard style)
  • The ability for bank / asset and income data to be submitted electronically

 Other findings

  • In general, independents US lenders have adopted more digital mortgage functionality than the US banks; although this did not hold true for every capability surveyed
  • Large US lenders tended to be more advanced than mid-sized US lenders 

As noted by Robert McLister, Fintech isn’t (only) about startups. He points to comments by Nick Beim, Partner of VC firm Venrock, who said, “Incumbents are very strong” in the mortgage business.

Select trends

Although many technologies were demo-ed at the conference, here are two notable trends that will define the mid- to longer-term of digital mortgages:

  • e-Signatures and online closings: Efficient electronic document processing is starting to define the leading players in the US market. “Virtual e-closings are…how all [US] closings will be done in three years,” predicted Mat Ishbia, CEO of United Wholesale. “You’ll click an app, a virtual notary will pop up on FaceTime, he/she will verify your ID and go through security questions….and it will all happen on yourschedule, “anytime, day or night.” com (which won the “Best in Show” technology award) was the first to do it in the US.
  • Artificial intelligence (AI) is beginning to be used in mortgage processes, it is arguably in the nascent stage. Currently, only a handful of providers are using AI in the loan decision. For example, one provider has incorporated AI to cross-reference information across various documents and the application, flagging gaps and inconsistencies for the loan officer. Regis Hadiaris, Rocket Mortgage Product Lead at Quicken Loans, said that Rocket Mortgage is employing machine learning to optimize its user interface. There were various other use cases outlined for AI, and the expectation is that AI will become much more pervasive.