According to many customers, the U.S. (United States) mortgage lending process is regarded as complicated and tedious. The current business environment has seen many new and innovative ways to enhance the customer experience by offering convenience and speed in service delivery, driven by technological advancements. However, even with breakthroughs in technology, the application of technology has not been widely adopted in the mortgage lending process. This paper will review some of the potential benefits of digital mortgages for customers and lenders, its challenges, and the experiences of early adopters in the mortgage industry.
The digital mortgage uses technology in the entire mortgage application process, starting from the lead, application, approval, closing, and servicing of the mortgage loan. Customers are increasingly demanding convenience, efficiency in their transactions, and an overall improved level of service. The digitization of mortgage lending can make the application process more efficient, cheaper, and more transparent. The duration of the processing of loans depends on the type of loan, market environment, and the level of technology a company uses. Digital mortgage technology has led to a reduction in the loan cycle by up to 6days. The use of technology shortens the closing time due to operational efficiencies leading to the processing of more loans with virtually no errors. According to research by Freddie Mac, one of the most important considerations for consumers in the choice of lender is the duration of loan processing (Freddie Mac, 2020). The average duration for processing purchase loans has decreased from 46days in 2016 to 40 days in 2019, with market leaders processing the loans more than 60% faster than their peers.
The COVID-19 pandemic saw businesses shifting from their physical offices to online platforms. During the COVID-19 pandemic, States developed legislation permitting online notarization to enable loan applicants to complete their mortgage applications while complying with social distancing rules. This led to the acceleration of the growth of digital mortgage platforms and the online notarization of documents. The number of lenders using digital platforms increased with consumers growing more acquainted with digital online platforms. According to a report by Ellie Mae (2020) 91% of mortgage companies offered online applications for customers, with 61% of the customers using online application portals in 2020. Another 61% of the customers also used online portals for electronically signing and notarizing their statutory documents for the loan applications. The digital mortgage space is likely to experience increased adoption, with 25% of mortgage lenders looking to invest in digital technology while 26% have already invested in online platforms.
Another significant trend that is likely to fuel the growth of digital mortgages is the appeal of mobile applications by the younger generation. In the coming decades, the young generations comprising GenZ and Millennials will be looking into purchasing homes. The survey by Ellie Mae (2020) found that 59% of Millennials and 70% of GenZ would prefer applying for Mortgages on mobile phone applications. Nevertheless, most mortgage companies use online application portals, with only 63% using Mobile applications and 57% using e-Closing portals. According to a survey by Atomik Research for Wyndham Capital Mortgage, 58% of customers prefer to apply for their mortgages entirely through their mobile devices.
Digital Mortgage applications can reduce the process costs for mortgage applications. The use of digital technology can allow customers to notarize their documents online, saving more than $100 million annually. The associated costs of manual notarization include traveling, paper, postage, and person-hours spent handling the documents. Where lenders, lawyers, notaries, and real estate agents shifted from posting the documents to sending them online, further cost savings could be achieved. Digital notarization can be done using audio-visual technology instead of physical notarization during all the stages of mortgage processing. However, the process is subject to individual state laws. In the U.S., 29 States have approved legislation for the online notarization of documents. Mortgage lenders can also use electronic signatures in the signing of electronic documents. According to Finastra's (2020) survey, 81% of mortgage customers prefer signing loan documents online. Electronic signatures are legally binding and reduce the processing times of loan documents by more than 200%, leading to increased customer experience (Finastra, 2020).
In the United States, the leading mortgage company is United Wholesale Mortgage (UWM) which has been at the forefront of innovations (Torne, 2021). UWM reported a market share of 32.1% in the first quarter of 2022 in the U.S. mortgage market. UWM's latest product is the bolt platform which can process loan approvals in minutes using artificial intelligence and other tools. The platform extracts data from personal information, income and salary statements, and other loan-related records and approves initial screen or report queries in the application. The portal is also available for mortgage brokers to reduce processing times (Torne, 2021). Other innovations by the company include the UClose notary system, the InTouch Mobile application, and the AUS, which are all technology-based systems used by UWM to increase loan processing speeds and improve the integrity of transactions (Torne, 2021).
In conclusion, the use of digital mortgage applications and the software has streamlined the loan application process where borrowers can upload relevant loan documents into a portal and have their applications processed conveniently. Mortgage lenders will have to adopt the trend for convenience and efficiency purposes. The lenders can ultimately focus on customer relationship management to ensure they meet customers' needs and expectations.
References
Freddie Mac. (2020). Mortgage Closing Cycle Time Benchmark Study. https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/mortgage-cycle-time-benchmark-study.pdf
Ellie Mae. (2020). Borrower and Lender Insights Survey. https://static.elliemae.com/pdf/2020_borrower_insights_ebook.pdf?v=2
Business Wire. (2021, July 13). Most Americans Believe Homeownership Is Still a Wise Investment, but Mortgage Process Doesn’t Fit Their Lives. Business Wire. https://www.businesswire.com/news/home/20210713005073/en/Most-Americans-Believe-Homeownership-Is-Still-a-Wise-Investment-but-Mortgage-Process-Doesn%E2%80%99t-Fit-Their-Lives
Finastra. (2020). Homebuyers embrace digital lending in COVID-19 era Finastra survey results 2 Finastra Finastra survey results White Paper. https://www.finastra.com/sites/default/files/documents/2020/11/market-insight_homebuyers-embrace-digital-lending-covid-19-era.pdf
Torne, R. (2021, September 28). United Wholesale Mortgage launches “game-changing” platform. Www.mpamag.com. https://www.mpamag.com/us/specialty/wholesale/united-wholesale-mortgage-launches-game-changing-platform/311442
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