Digital Enablement in the Mortgage Industry Mortgage Bankers Association

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1 Monday, November 07, 2016 Digital Enablement in the Mortgage Industry By Shelley Leonard Topics: Shelley Leonard Digital Mortgage Technology Shelley Leonard is Executive Vice President and Chief Product Officer for Black Knight Financial Services, Jacksonville, Fla. She is responsible for defining product strategy and working with each division to develop a product strategy roadmap across the enterprise. Prior to this position, Leonard was Executive Vice Page 1 of 7

2 President and Managing Director of LoanSphere Business Strategy for Black Knight's Servicing Technologies division, where she was responsible for identifying and developing the business strategies for workflow-based solutions to support servicing and default clients' needs. She also served as Senior Vice President of Business Strategy for the Servicing Solutions & Technology division of Lender Processing Services. She was also responsible for LPS' Consumer Lending Strategy division. She has been with Black Knight and its predecessor companies since The heavily regulated, high-stakes mortgage industry environment is probably not the first business segment that comes to mind when people think of digital applications. Most digital apps are associated with consumer products, such as fitness, health, retail or social media. Many retail banking apps have been around for quite a while, allowing consumers to look at their balances, transfer funds between accounts and make car payments. Depending on the institution, some consumers can even make deposits by simply taking a picture of their check. Still, the desire to produce a better user experience for mortgage customers--one that is better aligned with the responsive, self-directed activities consumers enjoy when using their favorite apps--has continued to intensify over the years. To make some progress in this regard, many mortgage lenders elected to pursue a mobile strategy by making mortgage information available online. Mobile access allowed consumers to easily view the status of their mortgages and to make loan payments through banking apps many already had on their mobile devices. Access to their mortgage information simply became another click on an app that was up and running and well-accepted by most bank customers. However, consumers want more than just visibility into their accounts. Today, consumers want to be able to initiate and complete actions on the device of their choosing and without the time constraints of normal business hours. Page 2 of 7

3 The Digital Mortgage Loan Application The idea of an electronic mortgage has been discussed in the industry for some time, and of course, digitized data from internal and external sources has been used by lenders for years to help them make the best decisions for their customers and other stakeholders. But, in an industry that has been focused on investing to secure the tools and technology needed to meet rapidly changing regulatory requirements, an effort like digitizing the mortgage origination process was not a top priority. Super Bowl 50 changed all that. As the nation watched football, it also saw the Super Bowl ads--including one that sparked a great deal of interest from mortgage industry participants and consumers alike: a digital mortgage loan application had been launched and was open for business. It is important to note that digital is different than an e-mortgage and different than mobile enablement. Digital is the ability for technology to transform the customer experience. It is a new way of doing things, not just one single thing or activity. Lenders with a secure digital mortgage loan application interface for their origination system can enable consumers to interact with them through any device and have the same experience--this is called omni-channel. For example, a consumer can visit the institution's website to begin the process or download the bank's app, click a button or link to start a mortgage application. Throughout the process, , text and notifications pushed to the phone can be used to engage the consumer and allow them to complete the mortgage application from the device of their choice. Moreover, consumers can easily link their bank accounts or a personal finance consolidation application like Mint to their mortgage application, add employer information so their pay records are automatically associated with their file, and provide their Social Security number and authorization so the lender can obtain their tax returns electronically directly from the IRS. And that's just scratching the surface of what's possible. Of course, these developments have generated a fair amount of excitement with consumers, and sparked new conversations about how far and how fast the digital transformation can actually take the mortgage industry. Financial institutions continue to focus much of their investment and resources on compliance-related tools and technology, as well as on productivity and efficiency improvements that can help keep costs down for consumers. So, the Page 3 of 7

4 promise of digital technology must be balanced against the mandates that govern the mortgage industry and the origination process. Frontend Digital Options Today, lenders may offer consumers a digital mortgage application option that has a look and feel similar to other online apps they may use. The app may also allow them to interact with a loan officer or advisor during the process from their preferred devices. These capabilities improve the quality of the consumer experience in a positive way, which is advantageous for both the lender and the borrower. However, while opportunities to enrich consumer experience are welcome ones, the mandate to maintain the safety and security of the mortgage industry--which is so vital to the U.S. economy--remains the first priority. To help keep necessary protections intact and retain the rigor that is required to meet the regulatory and fiduciary duties of banks and their interests, a digitized mortgage application and related capabilities can sit in front of the lender's mortgage loan origination system. All the features and functionality associated with the LOS continue to perform as before, so the application review and decision process occurs according to the rules established by lenders and their investors--and in compliance with related government rules and regulations. Of course, maintaining appropriate back-end rigor and taking advantage of consumer-friendly front-end technology are not mutually exclusive objectives. And certainly, the mortgage industry continues to evaluate and incorporate new functionality that not only enhances consumer experience, but also delivers the capabilities needed to address evolving regulatory requirements, support datadriven decisioning, provide auditability when needed, and help generate productivity improvements as well. Building Customer Trust When digital technology can help remove friction from the mortgage process-- the result is more positive interactions between the lender and consumer. The improved consumer experience also helps strengthen the lender's brand equity and goodwill with its customers. For example, a digitized process enables click-and-link options, so that nearly everything a consumer previously had to produce in paper form can now be provided directly to the lender electronically. Beyond convenience, this has important advantages for the customer/lender relationship. It allows much of the origination process to be handled in a more automated fashion, which enables lenders to focus more of their time providing consumers with value-added Page 4 of 7

5 information and expertise. This also helps lenders form lasting relationships with their customers that are built on trust. Humans will always remain an important part of the mortgage process, not only to validate information and make judgement calls when the inevitable gray areas arise, but to inform and support their customers during one of the biggest transactions of their lives. The digital experience can certainly enhance the mortgage process, but it should not be considered a substitute for valuable human interactions. The Bigger Picture In the larger context, lending institutions have been working in the digital realm to incorporate innovation across financial services products--from checking accounts to wealth management products--and to leverage the speed and flexibility of digital processes in areas like customer service interactions. But, when you think about the broader real estate industry, there are even more exciting opportunities to come. Consider consumers who have decided to start searching for a home. Perhaps they go to an online site where they can search on available properties based on a variety of factors like location, number of bedrooms, with or without a pool and so on. Once they find a suitable property to pursue, they can simply click to link over to the digital mortgage application process from their bank of choice. Next, the consumer can download a picture of the property to the app, which then allows the bank to use geolocation to find the property and instantly pull the history of the home, taxes, valuation considerations and so on. Within minutes, a consumer could be prequalified for the home and ready to make an offer. When all of these steps come together, the home buying, mortgage application and origination process will be revolutionized. Of course, this kind of seamless activity has to be driven by the consumer in a very secure environment. But the technology is there. We're at the point where the technology is not the inhibitor, and in many ways, it's up to the imagination and ingenuity of the mortgage industry to decide how it's going to all work. Even so, there is still quite a bit of work to be done. Today, most origination systems are built with modern.net or Java-based languages. Interfaces are more user-friendly, systems have more recent messaging capabilities and integrations with partners, like document providers, have been established. But the legacy back-end systems are where the heavy lifting is done and where the rigor and controls are in place to make sure the borrowers get the loans that Page 5 of 7

6 are best for them and are right for a bank's risk appetite. The industry as a whole is very focused on modernizing the integration layer that is needed to enable faster, more responsive communications across all mortgage industry systems and tools--from origination and servicing to secondary markets. And to clarify: the ability to generate and process a digital mortgage loan application does not mean the industry is going back to a "No Doc" or "Low Doc" loan. It simply means that the industry is finding new ways to aggregate those documents digitally so the document and the data exist together. And of course, this can lead us down the path toward the true e-mortgage. Ultimately, we are not so much talking about a technology revolution in the mortgage industry, as we are an evolution that occurs over time. Financial institutions and other participants in the mortgage business segment are continually evaluating the toolsets that are available and that can produce positive results for efficiency, quality and automation. Those that are successful can help reduce some of the tedious, more frustrating activities associated with the mortgage loan life cycle, both for borrowers and for service providers. It's an exciting time to be in the mortgage industry--and we're at the point where the technology is available at the same time that investments can be shifted to moving the industry forward. Each part of the mortgage ecosystem has its own unique opportunities as well as challenges, but there is a concerted effort across the industry to move forward responsibly and define the future. We can adopt digital technology incrementally as we enhance our processes and improve customer experience within our existing lending ecosystem without the need for wholesale replacement or the full realization of an e-mortgage. Although the digital transformation path may still seem uncertain, there is one thing that is clear: we cannot wait any longer to build the foundation that will move us closer to a digital future. (Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA Insights welcomes your submissions; articles should be of a general nature on the real estate finance industry. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org.) Page 6 of 7

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