Who will shape the next big disruption in the mortgage lending arena?

The Future of Digital Mortgages, Part 2


Remember the days when, if you needed a new coffee maker and a cookbook, you’d drive to a department store, then to a bookstore? Then Amazon came along and, with a few clicks, it provided the convenience of buying both items from your sofa and offered options for the best price. Amazon became the one-stop portal through which you can access an ecosystem of sellers supplying most of your worldly needs. They handle all the transactions from various vendors. Better yet, they anticipate your needs with helpful recommendations like, “Customers who bought this coffee maker, also bought these coffee beans and filters.”

Amazon disrupted the known retail paradigms by putting customers and convenience at the center of a retail ecosystem. Now the same transformation is happening with the home buying process. And since nearly every home sale triggers a mortgage loan transaction, we predict fintech innovators will drive the new, customer-centric home buying ecosystem. If you’re in the lending space, it’s time to start imagining ways that you can provide the same level of service to customers who are on the verge of making the largest—and most important—purchase of their lives.

What is driving this transformation?

A number of advances are making this transformation a reality. Technology is already making digital loans possible and popular. Access to relevant data to approve the loan—and the rapid processing of that data—is increasing daily. There is a shift in customer buying experience from seeking products to seeking buying experiences. And technological advances in automation, predictive analytics, machine learning and artificial intelligence are fueling greater efficiency and possibilities in the loan process.

You can see the results of these advances with Quicken Loans. They introduced their fast Rocket Mortgage application in 2015. Two years later, they became the nation’s largest loan originator by volume, surpassing leaders in the banking industry.

What are the likely disrupters in digital mortage?

Consumers are demanding far more control and transparency in their interactions for products and services in the current marketplace – shaking up the mortgage lending process that has historically been slow, confusing and cumbersome. We predict four key shifts happening as a result of technology breakthroughs in the real-estate lending world. The same advances that are driving Quicken’s success are paving the way for critical shifts in the larger home buying ecosystem, including:

New ways to qualify for loans

Today you use your credit score and a record of your earnings to qualify for a loan. But not everyone pays for things on credit. The millennials demographic often uses apps like Venmo to pay for their credit obligations, for example. In January, FICO announced how it is about to change credit score worthiness. The new changes will help new borrowers get better rates and not go into a debt swirl. Connecting to data from these alternative payment sources can prove creditworthiness in ways your credit score cannot account for today.

Faster loan processing

The Federal Reserve Bank of New York found that technology-based lenders process mortgage applications 20% faster while decreasing the default rate by 25%. Digitizing the process can not only increase capacity, but can also improve time-to-close helping to increase cashflow for institutions who have adopted digital processes. With 92% of borrowers doing online research before even contacting a mortgage lender, offering a fast, digital process will increase customer satisfaction and improve business results.

New types of mortgages

Today’s mortgage process is linear, and the lenders dictate the process based on years of guidance from Fannie Mae and Freddie Mac. In the years to come, however, we think there will be a significant shift where customers will have more say. The borrower demographics and shortage of affordable housing options will drive the market need for alternatives. For example, current loan terms might become far more customizable based on borrower needs. Your loan can be tailored to the timeframe and payment schedules you need. Moreover, sophisticated digital processing enables the data to be easily connected to other resources and metrics that will help better predict risks for more granular pricing and product segmentation.

New ways to interact with complimentary services

With your digital loan approved, a real estate vendor in the ecosystem (like Zillow) can start suggesting properties. Based on your interests, these apps learn your tastes and finding the right home becomes easier. Once found, the home buying process automatically kicks in. Home inspectors will relay deep insights into the history of your home, including the maintenance history of your appliances and systems, like CARFAX does with cars. Title companies will be triggered to draw up contracts you can sign online. Utilities will be automatically transferred into your name. Moving and Cleaning services will offer a discount to buyers in the ecosystem—everything you had to hunt down and coordinate under the old paradigm is presented to you with competitive bids and offers. Even your need for new decorating options can be anticipated with suggestions offered to you from your favorite home store.

Between the advent of emerging capabilities and models that have already been proven in other industries, a digital tsunami is brewing in the home buying industry. If financial institutions are going to claim their spot at the center of this new ecosystem, they need to start driving the transformation today. It’s a process that will take years to complete and require a responsive enterprise able to adapt to many incremental changes along the way. Because of this, the institutions that wait for others to take the lead will quickly find themselves falling behind.

So what can you do about it?

Now is not the time to wait to see what others are doing. Nor do you want to. You already have data you can start using to evolve your enterprise and put your customers at the center of your business capabilities. You can also better understand your customer needs and define how you imagine them interacting in your future ecosystem. It is not about being just efficient anymore. It is about being efficient and providing a great customer experience. So develop a prioritized plan for change, focusing on outcomes and not outputs. Become a responsive organization by being customer centric and adaptable to change.

These are relatively simple steps you can start taking today to prepare for the impending digital tsunami. There is an urgency to this because this is no everyday disruption. New leaders are emerging, and the industry evolution will leave consolidation—and acquisitions—in its wake.

From assessing your current state and finding small changes that create big ROI to building a disruption-proof enterprise that is responsive to change, Celerity can help you develop the best strategies to start capturing your share of the digital mortgage market before you fall behind.

This is the second of three Insights posts on the future of digital mortgages. In Part 1, I laid out a vision for the future, a home-buying journey and ecosystem that revolves around the customer. And in Part 3 I’ll take a closer look at the impact digital mortgages will have on consumers, lenders, and service providers.