How digital mortgages are reshaping the lending ecosystem

A reimagined and reshaped lending ecosystem can improve the experience of borrowers, reduce the loan processing time, and facilitate operational efficiency & transparency.  

Traditionally, a mortgage process takes an average of roughly 46 days for completion, costing the lending institution about $2000 to $2500 per loan. Not only is the traditional process lengthy and tedious, its reliance on the paper-based transactions through over 30 touch points and interactions resulted in unpredictable delays, higher costs, inefficiencies, and poor customer experience.  

With the introduction of digital solutions in the mortgage industry, the five steps of mortgage origination – initial consideration, application, processing, underwriting, and closing – can be completed in a period of a few hours to a couple of days.  

What is a digital mortgage – impact, benefits, and challenges 

KPMG defines digital mortgage as “a holistic experience for the borrower, starting with targeted marketing and lead generation to the initial application to processing to underwriting to closing and beyond with postclose audits and marketing” and believes that it is not just about having an online application on your website but including automation into every step of the way with minimum to no human interaction. 

KPMG estimates that with digital mortgage solutions, 20-30 percent in top-line growth and 30-50 percent in sustainable cost savings is achievable evaluating a set of impacted KPIs. 

A digital mortgage origination journey can reduce costs per loan by 10 percent, shorten the loan processing time by 15 to 40 percent, and reduce the underwriting touches per application by 15 to 40 percent by promoting higher collaboration among internal stakeholders and borrowers using technologies such as chatbots, videos, interactive calculators, e-notes, and self-serve online tools. 

By leveraging digital mortgage solutions, the lending institutions can observe a 75 percent increase in sales productivity, a 20 to 25 percent increase in the pull-through rate, 25 to 50% decrease in the origination costs, and 25 to 40% reduction in the cost to service. As customer expectations are changing along with the shifting market dynamics and evolving technology, digital mortgage can have a significant positive impact on the customer experience.  

Digital mortgage is about streamlining the origination journey and offering a quick and smooth buying experience to the borrowers. It eliminates the necessity for wasting long hours in filling lengthy application forms and collecting documents, optimizes product solution by using data intelligence, facilitates instant conditional approval and transparency throughout the process so that the consumers are aware of every transaction and status, offers the customers the choice of automated and manual support, and provides the option of electronic closing to reduce the need for in-person meetings. 

Legacy IT systems and a lack of collaboration between businesses, risk, IT, and operations functions can fail the digitization efforts of the lenders. As digital mortgage solutions are heavily dependent on data analytics, the limited data access and required skills can also pose a huge challenge. Further, there is a general disbelief in the automated systems. Taking a mortgage is often the most important decision of a consumer’s life and they might not trust an automated process with zero human intervention in supporting such a major decision. Regulatory hurdles are also a major concern for lenders who are approaching digitization of their mortgage services. In fact, as per a survey, 64% say compliance and related challenges represent a significant or very significant challenge to digitized mortgages. 

The technologies driving the future of mortgage 

Some of the major technology trends in the mortgage sector are: 

• Mobile-first design: for ease of accessibility 
• Minimal viable product (MVP) and agile development: for avoiding complex transformational challenges in the early stage and facilitating rapid iteration & testing of journeys, data integration, and results 
• Big data and analytics: for generating real-time insights and simplified reports using rich data about financial statements, affordability ratios, and more. 
• Application programming interfaces (APIs) and “connected” ecosystems: for offering a holistic, end-to-end experience to the consumers 
• Automation (OCR, machine learning): for accelerating iterative processes, personalizing consumer experience, and eliminating the possibility for errors 
• Cloud–based core: for lowering start-up and run costs, and speeding up the time-to-market for new entrants  
• Artificial intelligence (AI) and robo-advisory: for providing any-time support access to the consumers and increasing loan affordability. 

Mat Ishbia, CEO, United Wholesale Mortgage (UWM), says, “You put tech into any industry and you create more efficiency, driving costs down while improving service. Technology is helping us grow.” 

The lending ecosystem was undergoing a gradual transition from some time. Stakeholders are now ready to embrace a change in the processes; there is now better clarity and alignment to the eMortgage processes, and better infrastructure is available to deal with the advanced automation. 

The consumer’s perspective 

Digital mortgage is a hit among consumers as 

• 66 percent of borrowers are interested in a fully digital process 
• 75 percent of borrowers think it should take one month or less to get a mortgage 
• 72 percent of borrowers would prefer to fill out the mortgage application online 
• 70 percent of them would prefer to submit documents online 

The lender’s perspective 

Lenders expect the digital trends to grow as 

• 95 percent of lenders are reliant on technology solution providers to deliver services in some form 
• 53 percent of lenders who consider loan origination technology as an investment priority say improving the borrower experience is a main goal of investing in loan origination tech 
• 68 percent of lenders say online B2C lenders will be their biggest competitor in the next five years. 

Why testing digital mortgage software applications is the key to success 

Let us take an example – a leading mortgage provider was struggling with severe performance issues with their customer-facing website and software applications. Several of their customers complained of poor performance and slow speed. Further, they had legacy IT infrastructure that was further slowing down their digital mortgage. By leveraging software testing services for their mortgage applications, the lender obtained the following outcomes: 

• Baseline analysis of the database’s performance 
• Insights into the transactions that were not performing properly 
• In-depth analysis of the problematic code area 
• Identification of the root cause of the performance problems 
• Improved performance of the legacy applications by 25% 
• 10% improvement in the application scalability 

Implementing quality engineering services and quality assurance solutions for their digital mortgage applications, this mortgage provider was able to ensure the delivery of streamlined digital mortgage origination processes. 

Cigniti’s dedicated FinTech Domain Competency Group concentrates on testing complex real-time digital mortgage applications. Our capital market initiatives are led by domain and technology experts and backed by a team of high-caliber professionals with rich experience in wealth management applications. Our repertoire of proprietary tools, reusable artifacts, & automation framework positively impact your time-to-market significantly and help you improve your customers’ overall experience. Schedule a free consult to have a detailed discussion with our experts.