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I‘m a self-professed techie. I love technology and I’ve spent the better part of my career looking to see how I can incorporate tech advancements into my day-to-day life, both personal and professional.
And as a product manager at Alight, a fast-growing tech company that works with mortgage banks, I find this a particularly exciting time for mortgage lending. Why? Because the mortgage industry is at a critical inflection point technology-wise.
Mortgage banks have traditionally been slow to embrace new technologies, and while the technology that has improved efficiency, security and customer experience in a multitude of other industries (transportation, education and retail, to name a few) is finding its way into the loan production process, a lot of opportunity still exists in other stages of the mortgage life cycle.
And now that cloud-based technology is widely accepted and as individuals we’re all using technology all the time in other parts of our lives, the time has come to accelerate the pace of tech adoption across the mortgage banking enterprise or risk seeing the cost of doing business (both on the production side and the back office) continue to rise — dramatically.
Worse still, without an end-to-end process that is quick, easy and accessible from anywhere at any time, lenders risk alienating the single largest, growing and untapped home buying demographic—Millennials. Millennials are looking for a user experience similar to what they’ve become accustomed to in managing other areas of their personal lives and finances: ease, security and accessibility. Brick-and-mortar banks with processes facilitated through paperwork and fax machines are barriers many simply will not cross.
Today’s technology will transform mortgage lending from a commoditized business to one where originators differentiate themselves in the eyes of the customer through the borrower experience. And with companies like Blend and Roostify streamlining and digitizing the consumer loan process, we are well on our way.
Loan production is not the only stage of the loan life cycle that needs technological advancement. Just attend any mortgage industry conference today — like the MBA’s Independent Mortgage Bankers Conference I attended in late January — to see how the business of mortgage banking has changed from even one year ago. Topics dominating the agenda now include Modernizing for Success in the Digital Era, Overcoming the Final Hurdles to Digital Mortgage, Blockchain Basics, and — my favorite — TechLive: Live Demonstrations of Technology Products Representing the Mortgage Lifecycle (a session I presented Alight’s technology at). There is clearly a growing need and significant opportunity for technology to bring new efficiencies and security to other areas like servicing, secondary marketing and warehouse lending.
So as I see it, three hot tech trends that are shaping other industries will be adopted and embraced by the mortgage industry within the next 12 to 18 months:
AUTOMATION: MACHINES CAN DO MANY THINGS (THAT WE DON'T WANT TO DO)
Artificial Intelligence, or AI, is one of the hottest topics in Silicon Valley. But in truth, AI has been around for a long time. One of the most common ways we are already benefiting from AI is in autonomy, the ability for software to make decisions on behalf of the user without human intervention. Current autonomous technology applications span from your media player choosing the next song based on your established taste, to a loan pre-approval or business expense program auto-filling forms from a captured image, to more complex technologies and processes used in “smart” thermostats or self-driving cars.
As for the mortgage industry, there are endless everyday decisions that can — and, I predict, in relatively short order, will — be automated.
In warehousing, lending decisions could be automatically made based on up-to-date financials imported by the borrowing bank. Or in servicing, options for loan modifications could automatically be offered based on the borrower’s payment history and financial standing. And lastly, via autonomous trading platforms, MSR pools could be automatically bought or sold based on predetermined parameters once the correct trade exists.
There are a multitude of examples in mortgage, but when you consider servicing, the automation of different points of contact with the borrower could quickly change the economics of the process and make it a more appealing and feasible part of the business for banks with limited capital. Because there are developments already in use, it’s important to become aware of the current offerings and to stay apprised of future ones as well.
BLOCKCHAIN: THE UNBREAKABLE DISTRIBUTED LEDGER
Blockchain, popularized by Bitcoin and other cryptocurrencies, actually has many uses beyond facilitating unregulated currency. Blockchain is a distributed ledger, which you can think of as a database with two key characteristics: it’s extremely secure and unfailingly true. This means that it is a form of record that no one can hack or interfere with. There are companies that have already developed the technology to make it available to any organization that wants to incorporate it into their system architecture.
As you can imagine, there are many uses for this type of security, but the mortgage industry is one that can benefit in a huge way.
• Secondary marketing trades (with confirmations that currently take three days to clear) could be automatically cleared, removing the necessity of clearing houses and other third parties.
• In servicing, tracking of a borrower’s monthly mortgage payments could be quickly automated.
• For warehouse lending, with large volume funds being transferred back and forth, a form of record with this level of certainty could remove a lot of pain.
• And fraud could be dramatically reduced — or eliminated — with blockchain identity verification.
DATA SCIENCE: PREDICTING RATE CHANGES
Heaps of data that have been captured over several decades hold the key to valuable insights into the future. Many researchers and analysts have made high-level use of this data, but there are nuances that exist within the data that is valuable, but overlooked. As a result of the advances made in processing power, we are finally able to capture the depth of detail necessary to make much more intelligent decisions based on history. One of the most widely-known applications of data science is Google’s search algorithm that brings you the most applicable results for each search string.
In mortgage, the greatest potential for big data lies in macroeconomic forecasting. In an industry as volatile as mortgage and as dependent on the direction of interest rates, a lot could be gained from predicting — with greater reliability — where interest rates will be three or 12 months out. Exciting, right?
Having this insight would enhance many aspects of your business, for example forecasting your MSR value to determine whether or not to sell some of your portfolio. But beyond the macroeconomic aspect of it, if you are a servicer or warehouse lender, you could also analyze borrower behavior (individual- or bank-level) to understand the likelihood of repayment.
OK, YOU'RE READY. WHAT NEXT?
In today’s environment, mortgages are a commodity market for borrowers, and under the current constructs it’s very difficult for lenders to differentiate themselves. But an infusion of new technology into antiquated aspects of your loan life cycle can not only differentiate you and help you deliver a customer experience that is in demand, but will also provide opportunity for increased efficiencies — and profits.
This is a pivotal moment for the industry and I believe that in as little as five years, many of the business models that define our industry today will no longer exist.
But the onus to change is on you. Be proactive in incorporating existing technology into your operations, stay current on new technology that offers opportunities for greater differentiation and as technology continues to evolve, consider being an early adopter to give you a leg up on the competition.
And who knows? Maybe you’ll find out that you’re a techie, too.
