Currently, the mortgage lending process is facing several challenges. Operational inefficiencies and lack of the right tech solution lead to long loan closure times. Compliance and regulatory compulsions are driving up the costs in origination. Borrowers are also looking for a streamlined and user-friendly origination process and this is putting pressure on lenders.
In this blog, we will talk through some of the lenders’ challenges and discuss how digitization addresses these challenges.
Challenges faced by lenders
Lack of transparency and visibility: The real estate sector never maintains the desired level of transparency and visibility, which they are supposed to do. Lenders always need to deal with many financial, legal and real-estate intermediaries, which add complexity in the mortgage sector because of the lack of transparency for the lenders. Because of stringent rules of compliance and regulation, lenders should know about the borrowers’ ability to pay off debt. To collect such data, they are supposed to contact credit rating agencies and verify the same.
High operational cost: Mortgage cost is another prime challenge in the lending process. As per Mortgage Bankers Association, currently, the costs involved in originating a loan is as high as US$9000 per loan. The reason behind such high costs in origination is the manual process involved in the origination process and increased compliances. Automation of some of these processes will help significantly reduce the cost.
Long time to process mortgage loans: The current mortgage process is extremely cumbersome, as it requires a long time to get completed. Much of the lenders’ time is wasted in cross-verification of data taken from multiple stakeholders. An average mortgage file comprising of more than 500 pages usually takes up to 50 days to process right from start to finish. This increases borrowers’ frustration level, which is not good from lenders’ point of view.
How digitization has addressed the challenges and added value
The digitization process is promising to eliminate several of the challenges mentioned above. Data Analytics, Blockchain, Artificial Intelligence (AI), and digital content management are weapons that can transform the complete cumbersome and time-consuming process into a seamless experience for lenders. Now let’s discuss how digital technology has given a new direction to the mortgage industry.
Online loan application submission: In the current online world, when e-commerce and other sectors have gone online, digitization in loan application form submission will be a boon for lenders. Their borrowers can submit the form at their own convenience, which will increase their satisfaction level. Through the web portal, mobile applications borrowers can submit the form from any corner of the world without visiting personally to the mortgage office. When the borrowers are satisfied, lenders will become happy, thus a win-win solution to both parties.
OCR has automated multiple manual activities: OCR powered by AI/ML can address the pain points of mortgage lenders. The efficiency of OCR has matured with time, and it can significantly validate retail borrowers’ documents. The automation involved in validation will quickly let the lender know about the missing documents. Validation of all the necessary documents will save a lot of lenders’ time.
OCR can segregate all the versions of documents right from the initial to the final. It can help in content extraction and can compare the content with the respective document data. For instance, it can compare the suitable versions of loan estimate data with the appropriate version of closing disclosure. When the borrower submits the missing document, OCR will clear all the conditions automatically, thus reducing the manual intervention, which speeds up the process.
Smart verification of credits: Currently mortgage industry involves multiple stakeholders- retailers, credit rating agencies, attorneys and regulatory authorities. This makes the process completely opaque and results in data inaccuracies. It becomes difficult for lenders to do verification of multiple documents manually. Blockchain technology has introduced smart contracts to reduce visibility and transparency issues. These smart contracts can store immutable digital identities of both the mortgage company and the stakeholders. This increases transparency and speeds up the verification process.
Acceleration in e-closing procedure: The complete closing procedure involves lots of paperwork from various parties. Such things result in delays and complexities in the procedures. Digitization helps in the creation of electronic documents, which reduces time to a greater extent. Digital signatures save time during e-closing. The whole documentation is encrypted and reliable. Thus the changes even after post-signing can be identified and addressed properly.
Notification regarding loan application status: This is the most appreciable feature of digitization. After submitting the loan application form, borrowers will always get notifications about the complete process and how much time it will take to process the loan. All such information increases the trust level of borrowers towards lenders.
Finally, it can be concluded that digitization can truly transform the mortgage industry by streamlining the process. It will make the process fast and will help deliver an improved experience to the lenders. There are multiple stakeholders involved in the complete process; digitization can bring synergy among them and increase the entire process’s efficiency.