As we enter 2018, the world of finance is ripe with new technology and online efficiencies, ultimately saving us time and effort. And then there’s the mortgage industry, which is ripe for disruption.
If you’re a baby boomer who got a mortgage pre-2008, the old process is all too familiar. Meet with your mortgage advisor. Hand-sign your disclosures. And, personally deliver all your financial documents. I’m sure you also had to call and check in for progress updates. You could probably close in under 60 days (that’s right, 60).
In walk the millennials, for whom anything longer than overnight delivery for an Amazon Prime product is deemed unacceptable. We’re impulsive. We expect information immediately. We make decisions quickly. And once we’ve decided, we want the end result now.
As more and more millennials enter the housing market, in 2018 and beyond, it’s only natural that we’ll be asking the same thing we ask of every other financial decision in our lives: Where can I find a simple, online offering that saves me time and gives me the information I need, when I need it, with the ability to do it now?
The answer, it seems, is a digital mortgage.
But can the mortgage process be fully automated? We know that digital tools make the loan process more seamless, but can they cut out the paper trail entirely?
Millennials envision the digital mortgage process, in a perfect world, going something like this:
• Fill out an online application
• Click to select a product and interest rate
• Click to approve the loan terms
• Click to close
Ah, wouldn’t it be nice?
Unfortunately, there are two significant misconceptions about the potential of digital mortgages. Let’s debunk them:
I can get a loan at the touch of a button.
Don’t expect this to be the case, at least not in our lifetimes.
Why? Lenders must follow eight standard criteria in determining your ability to repay your loan. Satisfying these eight pieces to the puzzle is destined to take at least some time. Even current digital offerings, such as Quicken’s acclaimed Rocket Mortgage could take you well upwards of two weeks to close.
Lenders will require less documentation.
The idea behind the digital mortgage is that lenders are able to quickly access the documents that they need from you on their own (e.g., tax returns from the IRS, W2s from your employer, a credit report and bank statements from your banking institution). You’ll also be asked to provide the lender with all your online credentials (login and password) for them to access these documents on their own. (If you flinched, you aren’t alone!)
The burden remains on the lender to fully document all aspects of your application, from income to assets and credit. From a lenders point of view, the devil is in the details. These details need to be documented and verified by someone, even if you aren’t the one physically providing them.
And, let’s not forget, lenders still need to complete a new appraisal on almost every property they finance. This piece alone can take a week or more, so hold your horses (at least until the creation of the digital appraisal).
And, let’s be clear, this ease of use is not just for millennials -- ease is for everyone. Many of today's borrowers prefer self-service websites, especially during the informational stage.
There’s no denying that a digital mortgage could significantly speed up the loan process from start to finish. There’s also no denying that lenders are ramping up their online capacities and fighting for market share in a tech-focused environment. Not only do they stand to benefit from the enhanced customer experience, but when their efficiencies increase, their costs decrease. The first lender to master the digital mortgage successfully will gain a significant cost advantage in a commoditized industry.
However, this doesn’t come without its challenges and concerns. Change is an unnerving concept for many in the mortgage industry -- and with just cause. The mortgage business attracts significant regulatory scrutiny. A mistake, as we’ve seen in the past decade or so, can cripple the American economy.
For instance, there is a rising concern regarding privacy protection and data security. Not to mention, fraud risk is significantly higher for digital mortgages than standard ones. The recent Equifax breach certainly doesn’t do anything to help this cause -- and make no qualms about it, the mortgage industry has a lot of exposure to Equifax. After all, mortgage lenders require a borrowers loan application include a credit score and full history to be issued.
All these concerns lay credence to the fact that lenders still need to create all sorts of new factors for authentication, but this could take some time (and cost them a lot). On the bright side, the industry is leaps and bounds ahead of where it was just a few years removed from the Great Recession in 2008.
Let's face it: The world of finance is already shifting in this new direction. While the mortgage industry is notable for having lagged the technological revolution of the 21st century, it’s time to make the digital mortgage a reality.
Only time will tell when this might come to fruition.
