How To Reapproach the Real Estate Mortgage Industry For The Modern Times With Digital Transformations?

Over 63% of the homeowners in the US still have mortgages to pay. So, clearly, the mortgage spectrum is something we cannot avoid when we discuss the real estate industry in its entirety.

Mortgaging and real estate are almost inseparable as most buyers buy their first (and sometimes subsequent properties) on mortgage. No, this is not an assumption or a plain opinion. This is a fact backed by the statistic that the mortgage debt in the US is currently close to $10.3tn.

For several owners in the US, cash payments are not possible, especially if it's their first house they are buying. The prices of real estate properties in states like Georgia, Utah, Tennessee, Arizona and Idaho are increasing at exponential prices, leaving no space for homeowners to think of cash payments or payments from their savings.

And with the millennials joining the workforce and gradually becoming the bearers of economics, mortgaging is the most common way of approaching home ownership. With such close connections with the real estate industry, shedding light on what drives the mortgaging sector, the challenges persisting in the industry which makes it difficult for potential buyers to opt for mortgaging, their probable solutions and more becomes inevitable.

And that’s exactly what we are about to present in this chapter of our Digital Transformations in Real Estate series. For those of you who have been following us, you would have been looking forward to this chapter to understand if there are solutions to some of the mortgaging concerns you’ve been facing.

And for those of you who are new, we recommend reading our previous posts and chapters on diverse aspects of the real estate industry apart from this post as well.                   

So, like usual, let’s get started. But before that, let’s look at some crucial numbers on the mortgage industry.

Mortgage Facts and Statistics

• In the year 2018, over 45% of the new mortgage applications and loans were accounted for by millennials.
• Credit scores are one of the decisive factors in determining the eligibility of an individual’s mortgage application.
• An average homeowner pays close to $1,500 (or over) as mortgage payment every month.
• The most common mortgage loan is the 30-year FRM (Fixed Rate Mortgage).
• Fintech leaders are reducing the processing time of mortgages by 10 days.

Challenges Faced By The Mortgaging Industry

Mortgaging is a common practice when it comes to the purchasing of land, commercial, residential or an industrial space. If you are someone who has a mortgage, you would probably know the intricacies involved in getting a mortgage loan approved, the demanding paperwork and other hassles that come with the procedures and process.

But if you haven’t so far, let us break down the challenges one by one to get a good understanding of the industry.

Time-consuming Processing

Buying a real estate property is exciting but the associated challenges slowly take away all the excitement along the process. One of the most common challenges in purchasing a property is the mortgaging phase. For an average homebuyer, it could take anywhere between six to eight weeks from understanding the different types of mortgages that would be appropriate to them to getting them approved. And you need to understand that this timeline also includes the time you would spend looking for a house.

Mortgaging is a long-term affair and that is exactly why it is time consuming as well. Tons of factors are considered before application and banks and lenders throw innumerable procedures, paperwork, documentation and more before they actually seal your application’s approval.

Qualified Resources

Anything associated with finance, legal and compliances requires the presence of an expert who can simplify things for us and present them in layman terms. From the complex jargons that are part of the terms and conditions to the risks involved in getting a wrong mortgage, a qualified resource is required to make the entire process seamless. However, there are hardly any sources to look for qualified professionals who can help potential homebuyers out.

Scalability of Manpower

If you think, the real estate industry is not a perineal industry. It’s seasonal, where there are off seasons and peak seasons alternating with the volatility associated with the market. And because of this uncertainty, mortgage firms need to have flexibility or even scalability for that matter in their manpower.

For peak seasons, they would need more associates to process the higher influx of documents and applications while in the off season, they would need fewer people at work. This calls for a flexible hiring and assignment landscape which the current mortgage companies are underprepared for.

Meeting Compliance Needs

In mortgaging, compliance is all about adhering to the prevailing terms and conditions presented by lenders, compilation and submission of adequate and foolproof documents, analysis of credit scores, background verification and more. If you notice, each and every sub-task is time-consuming and tedious. Besides, for an average homebuyer without any previous mortgaging experience, understanding what is involved in the mortgaging process and the absence of a solid checklist makes the entire journey difficult and tiresome.

Focus on Core Competencies

Real estate mortgaging is at a weird phase currently with the onset of several unique and peculiar shortcomings and concerns popping up. The market has hardly seen such vast rifts in dynamics but over the last few years, the volatility has been rough. And situations like these demands the deployment of a workforce with core competencies – those who can tackle complex problems, make sense of the ever-changing customer behaviour, deduce insights from fluctuations and more. Apart from regular skills, people with additional skills are required.

Data Challenges: Silos and ETL

Regulatory requirements in the mortgaging industry have been constantly evolving since the industry witnessed the financial crisis of 2008. One of the evolutionary aspects is the fact that firms can incur fines when they present incorrect information to mortgage customers when asked questions or queries on mortgaging, making the process not only time-consuming but expensive as well. This is why firms have tons of researchers digging up data to offer the most precise information to consumers.

That’s exactly what gives rise to data silos as well. In the process of providing authentic information, firms are forced to retrieve data from multiple sources and systems to answer one query. And any inconsistency in data in silos means that the answers will have multiple aspects or pieces of information, with zero accuracy

Several firms and users hardly have an idea of where most of the chunk of data exists, let alone retrieve it. And the associated evolutionary requirements from FTC, Consumer Financial Protection Bureau and more keep changing document structures in mortgage infrastructure, giving rise to new modelling work or ETL to access and store them.

Documentation Overload

Like you know, the mortgage industry is highly complex because mortgage terms can extend up to 30 years. And in this duration, a single property can be sold again and again, which means the conception and maintenance of new documents for every single purchase on the same mortgage.

For any firm, maintaining such multitudes of documents is a tedious task and these documents have to be maintained and made available at all times because they have to be compiled together as a response to subpoena or other incidences. With an overload of documents, firms find it extremely difficult to store, retrieve, access and maintain them with age-old mechanisms still in place.

Querying Across Silos

In a lot of firms, different document types are stored across different systems, making it difficult for the firms to integrate them as a whole for querying purposes. To tackle this, firms often serially query diverse data stores by writing codes to integrate them. Or, they create duplicate data to make the process of querying easier. However, in either case, data inconsistency becomes a problem because of the intricacies involved in the updating of these data sets.

Data Quality Issues

A lot of processes in real estate mortgaging could be streamlined if the source of all data was consistent or just one. Unfortunately, that’s not the case. Similar to healthcare, there are myriads of data touchpoints, where essential data that needs to be processed comes from:

• Paper-based documents
• Scans and faxes
• Soft copies in multiple formats such as doc, pdf, png and more
• Desktop underwriter
• Comma-separated values
• Spreadsheets and more

Because the sources are diverse, the quality of data generated takes a bad hit because of its high vulnerability to errors. And due to this, processing loan applications becomes difficult to validate and complicated as well.

Increased Risks

Real estate mortgaging is risky. It’s like the stock market but with higher stakes. When the market crumbles with decreasing housing prices and increasing unemployment, there are higher chances of people defaulting their repayment. Crunched under economic circumstances, people could end up being unable to pay back their mortgage at all. This puts the lender on a high risk.

Limited Analytics

Analytics is key in financing sectors, especially mortgaging. With obsolete mechanisms being implemented, there is no way a mortgaging servicing firm can have access to real-time and sound analytics with the data in hand. Analytics identifies loopholes in payments, tenures, fluctuating rate of interests, non-payment of rents, fines, credit scores and more. But with poor data generation and storage factors, a proper analytics system cannot be implemented in the mortgage sector currently.

Slow and Inferior Decisions

This is an extension of the factor associated with analytics because to arrive at a decision, insights and inferences are crucial. And when there is an entire process that helps in the decision-making process absent, decisions are bound to be time-consuming and inferior. Manual analyses of data, information, charts, tables and more are the only ways through which conclusions can be arrived at for a number of mortgage-based challenges and queries. And this is definitely not healthy.

High Costs

For applicants who have a really low score, the costs incurred to manually process their applications explodes. This further adds to the costs they would be paying to get their loan manually processed by the firms.

Limited Liability To Detect Fraud

Most firms conduct background checks and execute a series of processes that help them gauge the authenticity of mortgage applicants. But these processes are linear and there is no way one can be sure that the verifications yield 100% accurate results. This makes the system weak with firms and mortgage associates having little control of the liability to detect fraud. And when frauds happen, it only costs the lending firms.

Inferior Pricing of Mortgages

In economics, there is a theory that is closely associated with real estate mortgaging. In this, the demand for inferior mortgages decreases under conditions such as increase in economy or purchasing power. When such a scenario kicks in, consumers will be willing to spend on more expensive mortgages on houses, abandoning inferiorly priced mortgages.

Lack of Transparency and Visibility

The real estate industry is one of the most opaque industries out there. There is little to no transparency in operations and among multiple stakeholders. Each mortgaging process involves tons of compliances, financial and real estate middlemen and intermediaries, giving rise to tons of third-party collaborations. Collectively, they make the mortgage process more complex and opaquer, offering hardly any insights to the most crucial stakeholder involved – the buyer.

High Operational Cost

Statistics reveal that the average cost of mortgage in the US is close to $9,000 per loan. This is majorly because of the complex manual work involved in the initiation of one mortgage in terms of paperwork, documentation, compliances, background checks, credit score verifications and more. The manpower involved in the entire process reflects on the high operational costs in getting a mortgage.

Longer Processing Time of Loans

An average mortgage application file is approximately 500-page long, which takes around 50 days for a firm to finish. This process is cumbersome for not just the firm associates who have to take care of immense paperwork and liaisons like we just discussed but for buyers as well. Throughout the process, they are paranoid of their loan’s update and progress, living with the stress of whether their application would get rejected or approved.

Lack of Ideal Customer Experience

Because it is a very stringent industry, customer experience is not always pleasant. Unlike other services or facilities consumers avail, they cannot reach out to a mortgage firm or a lender at any given time of the day. And like we saw, there’s minimal transparency in the processes as well. With customers mostly in the dark for the entire process of mortgaging, they are often exposed to a poor and questionable customer experience. And this doesn’t seem to change with the changing dynamics in consumer demands and market ecosystems as well.

Transforming The Mortgage Sector With Digital Implementations

Digital transformation, or the process of bringing in advanced systems such as artificial intelligence, machine learning, Big Data, analytics and more can improve the systems and procedures involved in mortgaging. A holistic improvement can be experienced within a short span of time of implementation in both buyers and firms.

If you are a lender looking to make processes seamless and pave the way for a pleasant customer experience, we recommend deploying these solutions at your firm or mortgage business.

Smart Contracts

Smart contracts are the newest offerings of technology that are powered by Blockchain. For those of you who didn’t know, blockchain is a decentralized system that has no governing authority like a bank. This means all transactions in a blockchain system happen with the knowledge of all the stakeholders involved in terms of approval and stamping of transactions. They are also tamper-proof meaning no breaching or modification of crucial information.

In mortgaging, smart contracts can replace existing documents to seamlessly update information and specifics mentioned in each. So for cases involving 30-year mortgage information of multiple properties, smart contracts can allow stakeholders to make real-time changes for appropriate processing. This helps in the easier access and retrieval of documents over time.

Process Automation

Data generation is a perpetual process in the real estate spectrum. If you take a moment to think, data comes from a multitude of aspects like borrower assets, property information, credit information, income data and more. By streamlining such data together and implementing technologies like artificial intelligence, machine learning, data analytics and more, tons of processes associated with mortgaging can be automated.

The completion of one task can trigger the initiation of the next and bring together all stakeholders together on the same page. Like we mentioned, smart contracts could be made part of automation for instant approval and signing, loan queries can be automated through chatbots, real-time notifications can be sent on the progress of each process and more. With automation, the time taken in mortgage application can be drastically reduced.

Digital Mortgage Solution

Changing market conditions and customer behavior are pushing lenders and mortgage firms to adopt newer models and service delivery mechanisms and a digital mortgage solution is the ideal pick for those looking out.

These solutions help firms to cut down on operational costs, comply with ever-evolving stringent regulations, cater to tech-savvy consumers, minimize origination, optimize portfolio quality and more.

Point of Sale Platform

A point of sale is a decentralized platform for mortgage firms operating across multiple branches. Through a point of sale platform, firms and managers can have a holistic overview of all transactions, processes, workflows, progress of each task and more. Besides, they can also assign tasks in real time, send notifications, reassign tasks, prioritize them, seek additional resources from another branch, collaborate with teams globally, store interoperable data, instantly update mortgage information or details and more.

Automated Document Recognition

Sensing technologies are becoming more advanced today. So much to the extent that they are being implemented in driverless cars. Today, sensors, image recognition technologies and its allied offerings are laying out the foundations for tomorrow’s standards.

And the same technology can be applied in the real estate spectrum by allowing firms to automatically detect documents of all types from a decentralized system. For instance, borrowers only need to upload digital copies of their documents and the system can automatically detect the document type, segregate it, assess its authenticity and initiate subsequent processes. When an uploaded document fails to meet the standards, the system can immediately notify the borrower and all stakeholders about the same as well. This ensures manual intervention happens only when it is required.

Robotic Process Automation

Robotic Process Automation or RPA is an exhaustive term that encompasses several applications of technologies. The RPA industry is all set to become a $2.9bn industry by 2021. Besides, RPA is proven to improve compliance, accuracy, quality, productivity and expense management in companies it has been deployed in.

In the real estate space, RPA can be deployed across an array of processes. Let’s look at some of them here.

Chatbots

Chatbots are integral parts of RPA, which can be deployed to optimize automation in real estate firms. Chatbots are powered by artificial intelligence and machine learning which means they can be trained to mimic human conversations. And once optimally trained, they can be deployed to answer queries and questions associated with mortgaging.

Like you know, mortgaging is prone to a swarm of questions on interests, documentations, tenure, repayment conditions and more. Instead of a manual resource spending time on answering redundant questions, chatbots can be integrated to answer them in real time.

Transparency in Lending Process

With machines taking charge of all processes, humans can now access and retrieve data at any time they want. This means they can know the progress of their application, credibility scores in availing a loan, documentation verifications and more. This brings in transparency in the lending process, giving customers an idea of why or how their application got rejected so they could take corrective measures the next time.

Due Diligence Portal

In mortgaging, due diligence is a systematic process that protects a lender’s interests in all aspects. This process determines the value of a property and the ability of an applicant to repay the loan amount. So far, due diligence procedure has been manual, making it time-consuming and prone to errors.

But with a due diligence portal, a checklist can be developed by firms and automated. So, this portal can work on assessing the financial health of a borrower, verify credentials, conduct background verifications, verify real estate documentations, appraise reports, evaluate insurance policies and conditions and do more.

Quality Control Portal

In the current real estate mortgaging scenario, lenders are required to make sense of a range of mandates, regulatory requirements and guidelines and implement them into their operations. In such cases, a tool to ensure all the regulations are met and abided by is inevitable. That’s where quality control portals come in. Some of the aspects they assist and help with include quality checks and audits on HMDA audits, pre-funding reviews, federal agency reviews, post-closing solutions, AML audits, due diligence reviews and more.

Business Intelligence

All your diverse processes, workflows and systems can be brought into one entity called mortgage business intelligence. This tool empowers you with solid analytics, a convenient dashboard, scorecards and more to help you coordinate better, streamline processes and have a better understanding of the mortgage market, behaviors, lending trends, best practices and more.

Besides, a business intelligence portal can help you with:

• Advanced reporting
• Integration with third-party portals and point of sale systems
• Data security and interoperability
• Collaborative dashboards
• Scalability
• Efficiency optimization
• Expenses minimization
• Micromanagement elimination and more
• Fulfilment Workflow Enhancement

Cognitive Computing Platform

Cognitive computing is a relatively new concept in the market, especially real estate and mortgaging. In simple terms, cognitive computing involves the development of computing architecture that mimics the functionalities and capabilities of a human brain. To facilitate this, cognitive computing incorporates machine learning, natural language processing, advanced sensing systems and more.

With cognitive computing, firms can achieve newer standards of insurance, assets management, augment decision-making, client management, portfolio management, operational excellence and more. Besides, firms can also ensure they have better fraud detection systems in place to eliminate the incurring of probable losses due to non-repayment of mortgage.

Unified Omni-channel Experience

The mortgage spectrum is chaotic at the moment. But with digitization, firms can create authentic and engaging omni-channel experience to their borrowers regardless of the medium through which they get in touch with them. A customer’s journey is essential in any business and with a unified system, mortgage firms can ensure their interaction with their borrowers is seamless and universal.

This includes leveraging the benefits of a customer’s digital footprints to ensure adequate services that are closest to what their requirements are. Pricing calculators, chatbot interactions, augmented reality, financial tools and more can all be incorporated in the process. This will allow customers to have the same interaction experience no matter if they approach the firm from Australia, Texas, Mumbai or Hong Kong, from their smartphone, laptop or through Facebook, LinkedIn or website.

Document Management

A document management keeps all the confusions associated with maintaining documents at bay. With such a system, customers have to upload the required document once and the firm can retrieve the document as and when required for procedures. And because this rests in the cloud, it can be used for a fresh application of a mortgage after a few years of repayment as well.

Predictive Tools

Predictive tools are powered by artificial intelligence and advanced machine and deep learning algorithms. These tools can be deployed by firms to assess the credibility of applicants and decide – without an iota of second thoughts – if the applicant would be able to repay the loan, if a document submitted is fraudulent, if the person would indulge in malpractices in the future and more.

Predictive tools can also be used to assess the value of properties in the future. Predictive analytics is versatile, which means it can be molded based on the requirements of a firm and put to best use.

Reporting Tools

Any transaction and every action taken on point of sale systems or portals can be tracked, monitored, accessed and retrieved as reports for analyses and observation. And because of this, reports on diverse parameters can be instantly generated and retrieved.

The beauty of reporting tools is that they are layman-friendly, which means all stakeholders could find inferences easily from such reports. Reporting includes credit history, previous loans, overall due, rate of interests, market fluctuations and more.

Trend Analysis Tools

Trend analysis tools moderate pricing of properties by giving mortgage firms an extensive idea on the market value of properties listed and current trends in rental pricing. These systems consider tons of factors such geographical value, economic volatility, happiness index and more to come up with pricing standards. This ensures tenants don’t end up paying more than what the property is worth for and owners don’t underquote their properties.

Case Study

Quicken Loans Tech Adoptions To Transform The Real Estate Mortgaging Space

The year 2018’s largest retail lender in the entire United States, Quicken Loans is one of the most popular mortgage lending firms in the country. Established as Rock Financial in the year 1985 in Detroit, the name was changed to Rock Financial Corp in 1987.

Ever since its inception, the company has been nothing less than a market leader and pioneer in the real estate mortgaging space. While the company was the second largest lender in 2014, it became the largest lender in a short span of the following four years. And recently in August 2020, the company went public under RKT as well.

A major aspect of the progress and scalability could be attributed to the company’s adoption of diverse technology. Being a finance company, it streamlined a lot of processes and brought in several digitization into its workflow.

In October 2020, the company launched an exclusive real estate agent-friendly platform that assists them in seeking real-time information about their clients’ loan application statuses. It achieved this through the implementation of a website and a mobile app that would be used by agents, which now empowers them with adequate information on the progress of each loan, terms and conditions in each application, requirement of additional documents and more.

The portal is called Rocket Pro and is immensely helping the company streamline processes and bring in transparency in operations. Remember we mentioned it as a challenge earlier?

Well, it’s not recently that the company adopted digital technologies. In 2015, the company also introduced Rocket Mortgage that worked on bringing together several processes under one umbrella. With Rocket Mortgage, the company paved the way for seamless digital signature of documents, downloads of credit reports, document storage, interoperability of data, customization and more.

Truly, Quicken Loans has simplified several processes in and made real estate mortgaging accessible and sensible to laymen. And this couldn’t be possible without digital transformations.

Future of Digital Mortgage

Science and technology never settle. They are always working on a better tomorrow by pushing barriers and functionalities of today. That’s why the future always looks promising regardless of the timeline of evolution you are looking at.

In real estate mortgage, the future looks equally promising because of what is in store for the space with respect to the rise of new devices, mechanisms, technologies and solutions and their implementations.

Let’s have a quick overview of some of the futuristic implementations in real estate mortgaging.

Blockchain

Real estate companies implementing blockchain technology are only scratching its surface. It’s a Mariana Trench of opportunities and capabilities in blockchain. In the coming years, we could see individual blockchain bubbles popping up in market segments and firms, facilitating tons of complex processes. We could see advanced and airtight verification systems, smarter contracts, fool-proof business in place and more.

Current blockchain technology reduces processing time from 40 to 30. In the future, we could expect the processing time to be less than ten with advanced blockchain systems.

Besides, it can also pave the way for:

• Quicker asset appraisal
• Document interoperation
• Faster due diligence processes
• Reduced mortgage expenses
• Higher approval rates with rigid fraud detection systems
• Faster qualification checks and more

Artificial Intelligence

When we mention artificial intelligence, we include machine learning by default. In the future, real estate mortgages will experience the arrival of super-systems in realms such as RPAs, cognitive computing, analytics, chatbots and more.

Besides, these systems will cater to the shifting trends in consumer behavior as well. All these systems will incorporate mechanisms to respond to voice searches, gestures and other input modes that the future will offer.

Wrapping Up

Renaissance in mortgage is a complex process but it has to start somewhere. At X-Byte, we want you to take charge of this and bring in a revolution with your tech implementations for your mortgage firm. All the challenges you have been facing – and we just saw – can be fixed by simple deployments of systems or development of portals like point of sale systems, document management portals, business intelligence tools and more.

All these ensure your operations are optimized, customer experiences are elevated, you are always on the safer side of the gamble and you establish market credibility that will remain undisputed. For all this, you need to act now.

Get in touch with us to find out how your real estate mortgage firm can go about implementing digital transformation.