The Shifting Digital Tides of Mortgage Underwriting- Part 2

In part one of this blog series, we speculated as to why the shift to a more digital mortgage underwriting approach took so long to emerge, and how recent market forces and health crises may have catalyzed the use of automation and loan decisioning systems in the mortgage underwriting function. In part two, we will also parse out three other factors that may have contributed to the shifting tides of digital mortgage underwriting and outline opportunities to leverage mortgage underwriting and decisioning technology to solve for these factors.

Factor 1: Borrower Demands- It’s Not TikTok, But It’s Something

Automated underwriting and loan decisioning systems are not the types of technologies that the borrowers interact with or crave using. In actuality, these technologies do not involve customer-facing interactions. Instead, these systems are hidden away in the middle-office mortgage operation, for use by processors and underwriters. Lenders may even find it challenging to defend investing in a back-office system at a time when customer experience is all the rage because the benefits to borrowers are more elusive. Automated loan decisioning systems and other underwriting technologies, in contrast to TikTok, Snapchat, or digital apps, do not immediately compel a borrower to act in a particular way. The covert benefits of technology to the customer include faster loan application approval times and better customer service from a loan officer. No, the borrowers won’t see how the amazing technology is improving their experience behind the scenes, but the technology’s outcomes will help lenders better satisfy customer experience demands, especially from the Millennial and Gen Z homebuyer groups, who are the fastest-growing demographic.

More than half (51%) of home loan applications made in 2021 were made by people between the ages of 26 and 41, according to statistics gathered by Corelogic. We already know that this demographic is most at ease with online and digital technologies, and they expect to breeze through the application process for instant approval; a demand that is hard to meet in mortgage banking. And, despite what their heavy tech use might suggest, these consumers want more face-time and attention during the home-buying process with prompt responses to their questions. Dare we suggest that ALL homebuyers would appreciate a little more speed and customer care?

While the use automated underwriting and decisioning systems in the underwriting process may not be able to immediately or directly satisfy that tech-itch with borrowers, it certainly provides lenders faster turnaround times and give their staff more time to engage with them. Indeed, most lenders today recognize that using technology to drive middle-office efficiencies is a practical way to improve the borrower experience.

Factor 2: Muscling through vs. Moving through Mortgage Market Cycles

Market forces and outside variables have always had an impact on the mortgage industry, causing an occasionally choppy ebb and flow. Lending through these cycles is often an act of muscling through market changes when they occur; working against the push and pull of market demand. Mortgage volume cycles and market swings are not a new phenomenon. But what is somewhat new is that lenders are more eager than ever to deal with it.

In the past, when market change occurred and a huge quantum of loans fell into the underwriting queue, lenders would flex their muscles and add on more weight to meet the demand; increasing the underwriting staff and subsequently increasing the pressure on the underwriters to review and close more loans in a given time frame.

On the other hand, falling loan origination applications add a different kind of pressure. When lenders feel the pinch, they will reduce the number staff to stop the bleeding and urge their short-staffed underwriting team to close more loans.  While slower market cycles may imply more time to carefully review a loan file, one may also contend that a low-volume market is a haven for fraud and mistake-prone lending. And, in scarce market conditions, regulators also have a tendency to add more weight to the mortgage operational barbell and begin tweaking lending terms and compliance requirements.

In either case, a pull-and-push reaction to the push-and-pull of mortgage market cycles may or may not provide the intended outcome.  In contrast, digital transformation, including the use of automated decisioning tools, can aid lenders in remaining agile and nimble in the face of significant market upheaval, as many lenders are beginning to understand. With digital transformation at their elbow, lenders can normalize staffing levels, maintain high-quality underwriting and timelines, and meet the ebbs and crests of the market with greater confidence.

Factor 3: Efficiency and Cost Savings:  The Middle-office Burden

Since 2010, a lot of “front-office” advancements have been made by tech vendors, lendtech companies, and fintech businesses. Solutions like mobile banking and point of sale (POS) systems transformed how customers do business with mortgage lenders.  Unfortunately, even as recently as last year, customer satisfaction and net promoter score (NPS) were still declining. Additionally, the cost to originate a loan remains elevated, suggesting that front-end innovations did not have the impact lenders had hoped for.

Consumers with high expectations for speed and efficiency (see factor 1) are getting a better experience using customer-facing technologies, but it is just not enough. The middle-office mortgage operation is where the actual shift needs to take place.  Specifically, mortgage underwriting is a complex, time-consuming, and traditionally manual “middle-office” mortgage function.

Detail-obsessive, mortgage underwriters (without access to modern technologies) can be found diving into the nitty gritty, tiny crevices of the loan file, thinking through the ramifications of those findings. The work is often mind-numbing, repetitive, and tedious. Yes, this is the role of the underwriter, but their time could be better spent on deeper analysis rather than manually revisiting the same sets of documents, rekeying, checking, and rechecking data, and re-doing the same calculations. This is a huge waste of time and time means money. Moreover, by not resolving these inefficiencies, borrowers become bewildered by what began off as a digitally friendly procedure and still took days and days of waiting.

As more lenders begin to see the opportunity for digital transformation beyond borrower-facing technologies, they are recognizing the value of tech-enabled mortgage underwriting. To that end, there are numerous types of underwriting technology available to lenders, even within Indecomm’s own Genius suite of solutions. Here are just a few solutions that reduce the chasm between front-office and middle-office digital sophistication, accelerate turnaround times, and improve the customer experience:

BotGenius: Little digital workers that handle repeatable tasks such as ordering credit reports and appraisal reviews. Pre-underwriting tasks in the middle-office are loaded with time-consuming tasks that give processors hours of time back on each loan file.

IncomeGenius: Income calculations can be complex and time-consuming, especially when you are working with self-employed borrowers. IncomeGenius uses Machine learning (ML) technology, integrated “sources of truth” data, and a robust rules engine to reduce income calculation time by up to 50% on self-employed borrower applications (accuracy intact)

DecisionGenius: Indecomm’s automated and SaaS loan decisioning platform (which incorporates IncomeGenius) uses intelligent automation to deliver automated, risk-based decisions across the four pillars of loan decisioning: credit, assets, income, and collateral. Lenders can analyze more loans, faster, increasing productivity, boosting application intake volumes, and generating more business while simultaneously minimizing risk.

Intelligent Document Extractor (IDX):  Indecomm’s Genius suite of technology and automation can accelerate large portions of the income calculation and loan decisioning process precisely because of the award-winning IDX solution operating in the background, reducing manual document intervention by 50-60%! Read the AWS Case Study

Conclusion

The tides of change in underwriting are shifting toward efficiency, agility, and customer experience.  Now that the market cycles are down, it may just be the right time to invest in automated decisioning systems that ensure your customers get the best of your time and attention, and your bottom line is performing optimally in any given market.

Underwriting automation like our own DecisionGenius is the provision to keep in place for when business cycles start to recover from their current lows. Don’t muscle through the next high-volume market. Instead, explore how a digital-first automation-led underwriting solution can strengthen your business on all fronts.  Get a deeper dive into DecisionGenius through a demo here or reach out by email to [email protected]