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Mortgages: The Digital Future

Most of the financial world is already heavily invested in online distribution.

And then there’s the mortgage business.

Our industry is scampering to catch up. But catch up it will…and soon. That was the vivid takeaway from last week’s 2nd annual Digital Mortgage Conference in San Francisco.

Interest in online mortgages is getting more palpable by the year. Attendance at the show was up 30% from last year. And the Canadian contingent was bigger too, with our top banks well represented of course. Interestingly, just a handful of brokers showed up—mostly online discounters.

Yours truly was also there, jotting down nuggets of wisdom from America’s e-mortgage leaders. These were some of the highlights…


The Tipping Point is Near: “The mortgage industry is on the cusp of a significant digital revolution,” said Nick Beim, Partner of VC firm Venrock. It’s a business “ripe for disruption,” added Rebecca Lynn, from another VC firm, Canvas. Why? “Because there’s so much inefficiency you can take out of the system,” she said. That generates ample “opportunity for the entrepreneur” who’s crafty enough to build an innovative user experience.

Fintech isn’t (only) about startups: “There will be many winners in the startup world,” but Beim doesn’t see newbies taking down a majority of market share…“Incumbents are very strong” in the mortgage business, he rightly noted. If you’re a mortgage tech company, finding ways to work with incumbents is often “the best way to create something significant.”

It’s more than just Millennials: Online mortgage adoption spans “all age groups” and demographics, said Brent Chandler, Founder & CEO, FormFree. So it’s a misconception to think streamlined digital mortgages cater mainly to Millennials. Ease is not just for young people, said Mat Ishbia, CEO of United Wholesale, “ease is for everybody.”


More Want Self-Service: “More than a third of all borrowers prefer self-service websites, especially during the research stage of getting a mortgage,” found Velocify in a recent survey. Millennials in particular (those under 35 year old) prefer “slightly less in-person assistance” versus other age groups. But most borrowers still want instant access to mortgage professionals as they move through the process, be it via online chat, telephone, text messaging or email.

Online Presence Isn’t Optional: Borrowers who got a mortgage over the past two years were 3.7 times more likely to find their lender through online research or social media than they were 5 to 10 years ago, says Velocify. Moreover, borrowers who got a mortgage in the last year were 42% less likely to find their lender based on a Realtor referral compared to borrowers 2 to 5 years ago. “Over time, no lender will be able to survive without an online strategy,” Velocify wrote in a recent report.

A.I. Will be Pervasive: Artificial intelligence will be used to better understand what borrowers can afford and better identify their propensity to pay, Chandler said. Regis Hadiaris, Rocket Mortgage Product Lead at Quicken Loans, says Rocket Mortgage employs machine learning to optimize its user interface. “The experience is getting better as more people use it,” he explained. Joe Tyrell from Ellie Mae added that lenders will “employ predictive analytics” to determine “which consumer to reach with what offer.” Beim noted that “AI will make mortgage lenders more anticipatory.” Those with “big data will definitely have proprietary advantages.” Areas where machine learning will make a marked impact are cyber security, fraud detection and risk modelling, said Ramon Richards SVP, Fannie Mae.

Brokers Can Thrive in the e-world: “We believe the best place for a consumer to get a loan is from a mortgage broker,” said Ishbia, who runs the #1 wholesale broker lender in the U.S. Why? Because with a retail lender, “you only have one product” to choose from as a borrower. Brokers, on the other hand, give you “access to options.” (Mind you, he was quick to point out that U.S. broker share will never again be as high as it was pre-financial crisis.)

Where the Payoff Is: “You spend 80% of your resources on 20% of the loans,” said Stephen Sessler, SVP Camden. Make it your mission to automate processes that require “high touch.” If a customer spends 25 minutes of your time filling out an application, that’s 25 minutes where the loan officer could be doing something else, he said. The secret to survival will be to “automate everything that is automatable,” predicted Joe Tyrrell, EVP, Corporate Strategy at Ellie Mae.

Broker Lenders Need Speed: United Wholesale is growing 25% a year because it’s fast. “If our turnaround times go beyond two days we get no loans,” Ishbia said. In Canada’s broker market, some lenders have apparently never heard of a turnaround time service level agreement (SLA). Making brokers wait a week or two for an approval is just the way it is. Right. Well that might fly today, but if 5+ day turnarounds is your service level five years from now, you might as well pack it in. As consumers grow more accustomed to quick (even instant) online approvals, Ishbia predicts slow lenders will be left behind.

Mortgage Professionals

Beyond Finders’ Fees: United Wholesale employs 400 IT staff to “build great technology for our brokers,” said Ishbia. One example is his firm’s “marketing toolbox.” It helps brokers create “high-end plug and play” electronic marketing (ads, websites, video training, e-newsletters, etc.) with the broker’s own name on it. It’s hard to measure return on investment, he admits, but “helping [brokers] grow….is the right thing to do.”

Digital Mortgages Hurt Margins: “Whomever solves the problem of digitizing mortgage manufacturing…can gain a cost advantage in a commoditized industry,” said Beim. That much is intuitive. So is the fact that, “When efficiencies go up, costs go down,” as Ishbia noted. But “what happens next,” he asked? “Margins shrink.” And that’s something all lenders and brokers, online or not, will have to grapple with.

Embrace APIs: APIs are the “preferred methodology” for creating end-to-end digital mortgage systems, said Chandler. As we speak, countless deals are being made between data aggregators and major institutions, added Rocket Mortgage Product Lead, Regis Hadiaris. And when it comes to tech, “You don’t have to have it all (or develop it all in-house),” said Ishbia. “You have to partner with the right [vendors].” Al Franchi, COO of Gold Star Mortgage Financial Group, admitted, “We won’t even look at a vendor unless they have an API.” On a side note, it’s mind boggling that our industry’s #1 origination platform (Expert) does not promote an API for digitally savvy individual brokers to get applications from their web-apps into Expert. With the serious threats from competitors MortgageBoss and Newton, it’s something Finastra better think about.

A.I. Isn’t Hal: In most cases, “all A.I. means is ‘algorithm involved’,” said Lynn. “99% of the time all you need is a good algorithm,” not a machine that can learn and think for itself.

Speed Wins: Millennials surveyed by Ellie Mae said the #1 thing they’d change about the mortgage process is to make it faster. So it’s no surprise that Rocket Mortgage’s amazing growth can be partly attributed to it closing loans two weeks faster than the industry average.

Fast Connections

Act Now or Else: We’re as few as five years away from digital mortgage providers taking over (in the U.S.), suggested Beim. If you want to be competitive online, “Don’t sit and think about it for 6-12 months,” Ishbia warned. Get a minimum viable product in the marketplace today. “If you’re not thinking about this….you’re going to be left behind,” Sessler agreed. “Just start building…Don’t aim for a perfect solution on day one…don’t [try to] build a solution for all-use cases,” and don’t fall victim to “paralysis by analysis.”

e-Sign is Table Stakes: Or at least it is in the U.S. “Everyone does e-sign,” said Ishbia. Meanwhile, above the 49th parallel, far too many of our lenders are still living in the fax era. Efficient electronic document processing is starting to define the leading players in the U.S. market. American lenders are already retrieving borrower docs in the ba3ckground (via electronic access to IRS tax returns) and payroll companies (via electronic access to pay stubs). Canada is well behind in these areas, but there is hope. Canadian companies are working on solutions as we speak, including Lendesk, which hopes to launch a digital down payment confirmation system in the not-too-distant future.

Online Closings are the Future: “Virtual e-closings are…how all [U.S.] closings will be done in three years,” predicted Ishbia. 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 your schedule, “anytime, day or night.” (which won the “Best in Show” technology award) was the first to do it in the U.S.