Transforming mortgage lending processes
When we speak with industry leaders, one of the main issues they identify is a need to revolutionise their lending operations. Twin pain points of a need to drive efficiency and keep up with competitors are nudging companies towards automating their mortgage application process. On average, companies that embrace automation make around 20% efficiency gains meaning that their cost base reduces, allowing them to either offer lower rates or return more investor value. The way forward for an FI that wants to reshape the way they do business isn’t always obvious, so where does the forward-looking CEO go first when they want to develop a digitised lending platform?
In this article, we will look at how FIs can set about propelling mortgages into the age of the cloud and make a fundamental shift in their approach towards a consumer-friendly future. With a particular focus on;
- the customer experience
- removing the paperwork
- removing human error
- embracing automation
- increasing transparency and credibility
- fighting the past
Reshaping mortgage lending processes to focus on the customer experience
Paperwork has mostly disappeared in many aspects of our lives, and it comes as an unwelcome surprise to be asked to fill in a physical form. Paper takes time to process, manage and store. Whatsmore, the retrieval of information can be a nightmare. Yet the issue goes much deeper than this, as any manual process invites human error.
In a remarkable example of this, employees in the credit department at Citigroup sent almost $1bn to Revlon Inc’s lenders, with whom they were in dispute. Unsurprisingly, the lenders refused to return the funds watch has led to Citigroup starting legal proceedings.
But consider this; an FI may spend lots of money developing a system that could read the handwriting on physical forms to avoid all of that expense by simply putting everything online. A core banking platform that has at its heart the collection of data in electronic form has to be a significant part of any effort towards reinventing mortgages.
Removing the paperwork doesn’t just refer to the initial application. It has to extend all the way through to the point where the customer takes over the keys to their new home.
Transforming mortgage lending processes to remove human error
The more manual processing that is done, the more errors there are. In a recent study, researchers found that in one of the most critical areas of transcription, medical records, even the most skilled operators made errors almost 4% of the time. Of these, 15% were severe. If manual processing errors can creep into the most serious area of data collection, then it means no sector is safe.
Data processing errors could result in an embarrassing mistake, but more importantly, they could expose the FI to greater risk. Ironically, we find banks spending a great deal of time and effort implementing workflows to spot errors when that would be time better spent Identifying where the errors have come from and preventing them from happening in the first place.
A key takeaway here is that removing human intervention wherever possible is a significant step forward. This allows staff to work on the parts of the system, such as non-standard underwriting cases, quality assurance and fraud detection that can’t be left to automation.
Integration of systems using APIs means that data can be passed from external partners to internal systems with no loss of accuracy. For example, bringing in checks from credit reference agencies or income verification from banks automatically removes the possibility of human error and speeds up this part of the process massively. A fully integrated system reduces manual errors and means that executives and analysts can have confidence in their data.
Restructuring mortgage lending processes by embracing automation
System automation has evolved to such a degree that it doesn’t make sense to have manual workflows progressing most cases. Automating the data collection process with links to banks and credit reporting agencies reduces errors and speeds up the underwriting process. It also means that automated emails/SMS can be sent out to the customer at each stage of the application, informing them of the progress made and requesting any missing information, thus improving their experience of your business. The result is less work for the credit handler with fewer follow-ups when a single piece of information is missing.
Cases progress through the application stages, with each department automatically receiving a list of actions that need to be completed rather than having a large paper file hit their desk. This means that for supervisors, managers and customer support, spotting where a case is in the system is straightforward with complete visibility of where each application sits in the process, what has been done and what needs to happen next.
An automated lending platform removes human error, speeds up processing and increases the conversion and completion rate.
Revamping mortgage lending processes through increasing transparency and credibility
Many FI’s find their departments working in virtual silos, using a range of legacy systems with no integration and no possibility of gaining an overall view. This means financial institutions will require a team of analysts to pull all the information together and cleanse data for even the simplest reports. Yet, what is particularly inefficient and, in some cases, dangerous is where different departments have different versions of the truth.
Mortgages can only be reinvented if everyone is reading from a single data source and where executives have timely and credible information on which to make their decisions. This means that bottlenecks can be identified and removed, data analysis becomes simple, and reporting is quicker and more accurate.
For managers and credit handlers to have the best opportunity to make sound decisions, they need access to relevant information. They need the ability to generate reports using a platform that provides transparency of all stages of the lending lifecycle and utilises real-time data. Only then can directors and managers have confidence in their decision making.
Replacing legacy tech to modernise mortgage lending processes
There can’t be many project managers and change professionals who haven’t heard the phrase “We’ve always done it that way” a hundred times. Additionally, most people only know their specific area of expertise, with few people (if any) having a clear sight of the overall picture.
The truth is that when you are looking at reshaping mortgage lending, there will be many times when you come across processes that have carried on for many years without question.
Something has to change to reshape how the market works and change internal bank processes, offering a seamless customer journey and providing world-class service. The starting point is a deep-dive review of processes and a rejection of things that serve no purpose. We wouldn’t entirely advocate adopting the Elon Musk approach and deleting parts of a process until something breaks, but the general concept is sound.
Rather than simply copying existing processes and translating them to a cloud-based alternative, we need to look at every section of the application, underwriting and acceptance procedure and ask the fundamental question; “Why do we do that?” If it serves no positive purpose, we shouldn’t be porting it to new systems as we are simply replicating the slow procedures of the past. Instead, we should have the courage to forge new ways of communicating with our customers and using our systems to improve things rather than maintain the status quo.
Change is coming - FI's need to be ready
Change is an inevitable part of life, but it seems that it is accelerating with every passing year in business. There’s a clear message here for FI’s – if you don’t change, you risk being left behind. Adopting a customer-focused approach and looking for ways to make the whole experience of obtaining a mortgage better is the starting point. Forgetting how things have been done is the next step, removing unneeded parts of the process before moving to a digitised, automated lending platform.
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The mortgage market is changing, so how can CEOs reshape their mortgage process to take advantage of the new world? There is no simple quick fix that can transform the entire mortgage lending process and the culture within the FI overnight but there are a few focus key areas that should be examined.