Shortly after a training session in the 1986 hit film “Top Gun,” Pete “Maverick” Mitchell, played by Tom Cruise, turns to his wingman Goose, played by Anthony Edwards, and says “I feel the need ….” In tandem, they shout “The need for speed!”
For the past decade, the residential mortgage industry has felt the need to speed up the transaction. The industry is experiencing a wave of technological innovation as existing lenders and start-ups seek ways to automate, simplify and accelerate each step of the mortgage origination process.
The industry is working to streamline the overall mortgage process by encouraging the use of electronic documents. Fortunately, there are U.S. federal and state laws that permit lenders to originate e-mortgages in any state and deliver them to investors for purchase. And with the legal framework in place, interest in e-mortgages is picking up speed.
According to a report from the Federal Reserve Bank of New York, one driving force behind this change is FinTech lenders that embrace a complete end-to-end online mortgage application and approval process supported by centralized underwriting operations.
The report, titled “The Role of Technology in Mortgage Lending” uses market-wide loan-level data on U.S. mortgage applications and originations and defines FinTech lenders as those who offer a mortgage application process online.
The report shows that FinTech lenders process mortgage applications about 20 percent faster than other lenders, while keeping the default rates low. FinTech lenders have increased their market share in U.S. mortgage lending from 2 percent in 2010 to 8 percent in 2016 with higher growth in refinancing and mortgages issued by the Federal Housing Administration (FHA), which primarily serves lower-income borrowers. Data from Inside Mortgage Finance show that Quicken Loans—driven by its Rocket Mortgage—catapulted past Wells Fargo as the top originator during the fourth quarter of 2017. During the quarter, Quicken Loans originated $25.1 billion in loans versus Wells Fargo’s $22.9 billion.
FinTech lenders process mortgages faster than traditional lenders, as measured by total days from the submission of a mortgage application until the closing, the report indicated. It used loan-level data of U.S. mortgages from 2010 to 2016 and found that FinTech lenders reduced processing time by about 10 days or 20 percent of the average processing time. The effect on refinance mortgages was even more pronounced, with processing times trimmed by 14.6 days compared to purchase loans with processing times reduced by 9.2 days.
Finding success using technology to speed up the loan processing process, lenders are now turning to their wing mates—title and settlement companies—to deliver similar results to the closing.
Electronic closings offer potential advantages over traditional closings for several reasons. The first is that it improves efficiency of the transaction and makes it more transparent. Second, it’s a less paper-intensive closing that saves time. Finally, in states that permit remote online notarization (RON), consumers can close almost anytime, anywhere.
Lenders can use digital closings to better serve borrowers. Reduced paperwork can offer an improved closing process and better experience. A digital closing process also improves data quality by reducing errors caused by missing documents or signatures. Since notes from an electronic closing are already digital, they can be quickly be transferred to an investor.
What’s in it for:
Consumers
• Increased transparency
• Convenient signing experiences
• More streamlined process
• Time-savings
Realtors
• Convenient closings for customers
• Faster payments
• Better consumer experience
Title Companies
• Improved customer experience
• Increased market share
• Operational efficiencies
• Reduced closing times
• Reduced risk of missed signatures or documents
• Searchable files and audit trails
• Improved relationships with industry partners
• Being on the cutting edge of industry trends
Mortgage Lenders
• Improved customer experience
• Increased market share
• Operational efficiencies
• Better quality data and fewer errors
• Faster delivery of loans to the secondary market
• Improved relationships with industry partners
• Being on the cutting edge of industry trends
According to a recent national survey by Solidifi US Inc., 81 percent of consumers would prefer to close in person. The survey reached 1,000 consumers who bought or refinanced their home in the past two years, asking them about their mortgage borrowing and transaction closing experience. According to Solidifi, 70 percent of consumers would like a more digital process at the closing table. Additionally, a survey by Fannie Mae showed that two third of borrowers are interested in a fully digital mortgage process. The results reinforce the importance of having a professional and qualified closing agent at the table as they proceed through the closing process on a home purchase or refinance.
“As our survey revealed, a truly extraordinary consumer experience goes beyond digital,” said Solidifi President Loren Cooke. “In a market where consumers expect an omnichannel banking experience, it’s the human touch points that can really make a difference and lead to repeat business and loyal customers.”
Jeremy Yohe is vice president of communications for the American Land Title Association and Tyler Newlon is an escrow officer at Pioneer Title Agency, Arizona’s largest locally owned and operated title company. For more information, visit www.alta.org/digitalclosing.
