Technology advances will benefit both borrowers and originators.

As eMortgages, including eClosings, gain traction and acceptance, the mortgage industry is focused on implementing the latest technology to reduce costs, attract customers and gain efficiencies amid a competitive environment.

It’s not an entirely smooth transition, but progress is underway.

Fitch Ratings described in a late 2019 report that “widespread eMortgage adoption remains several years away, slowed by several obstacles,” according to author Caroline Otis, a Fitch analyst in structured finance U.S. RMBS.

Full-scale digital eMortgages remain elusive in the non-agency space, she noted, due to the limited number of originators and servicers that have the technology to support them. That’s not the case on the agency side, where Fannie Mae and Freddie Mac are active participants.

The mortgage sector began taking baby steps toward digital mortgages about eight to 10 years ago, with a focus largely on the front-facing mortgage application. That is still a major focus today. However, with technology advances, the industry has innovated with predictive analytics via artificial intelligence and automation in a way that is changing how mortgage applications are received, processed, underwritten, closed and sold.

Technology is able to hone the process of lead qualification and follow-up before the mortgage application is even submitted. For example, “duplicate checker” technology allows an originator to filter out duplicate leads from its customer relationship management database. If a potential borrower visits the company’s website and a social media page, then contacts a loan officer directly, those three touches are able to be funneled into a single lead to avoid the wasted time and energy required to react to all three individual “touches.”

When a large mortgage originator gets thousands of leads, it becomes impossible for a human to adequately sort them. Technology is imperative to make the process of sorting leads fast and efficient. Once duplicates are removed, the software can sort the leads based on their strength. A lead in which a borrower has already selected a property to buy goes into one pot, while a lead in which the inquiry is more general might go into another. Technology is then able to leverage a round-robin technique to assign the leads to individual loan officers.

Further down the mortgage pipeline, the mortgage industry continues to innovate in processing and underwriting with a variety of digital efforts that can help create better efficiencies and even price loans based on risk analysis models.

eClosings Gain Steam
Once a borrower makes it through underwriting and to the closing table, all digital aspects—at least for a good number of mortgage companies—cease to exist. But even that is beginning to change. It’s still common for a borrower to physically show up at a title company table, sit down and reach for a pen at closing to sign a stack of paper documents. However, 30 states now have laws, processes and the infrastructure to support eClosing, and Fannie and Freddie are actively promoting it.

In 2015, the Consumer Financial Protection Bureau (CFPB) did a pilot study of eClosings. “We know that much work and further study lies ahead,” it said after the pilot.

“We envision a world where most of the mortgage transaction is facilitated by technology, and where consumers have adequate time to review documents and access tools to help them break down the complexity of the process,” it said. “In the years ahead, we believe that eClosing can provide an opportunity to deliver an improved experience for this important step in the mortgage transaction and benefit both industry and consumers.”

The CFPB noted in its pilot report that borrowers who had a chance to review their closing documents ahead of the closing date also had the time to understand them and find potential errors (and get them corrected) ahead of the closing date.

eClosing technology is arriving one mortgage company at a time. The idea of mortgage transactions facilitated by technology, as the CFPB envisioned, is happening, albeit some would say the pace is slow. GO Mortgages, an originator based in Milwaukee, announced in mid-February that it was introducing eClosings for its borrowers—one of the most recent examples out there.

A Slow Process of Acceptance
Although tech-savvy millennials now make up the largest share of homebuyers, not everyone is onboard with a fully digital mortgage, or an eClosing. That will likely change over time as borrowers become more familiar with technology being used in the mortgage space.

Interestingly, Solidifi, which provides valuation, title and settlement services and operates a technology-based marketplace for independent field professionals, did a survey of borrowers in which 81% of consumers said they still preferred an in-person closing. In the same survey, seven in 10 said they prefer a more digital process at the closing table. A possible translation: We want it, but we don’t. Nearly a quarter of these professionals suffered delays during the closing process, according to the survey, and half of these delays were caused by problems with the paperwork or the filing, according to Solidifi.

GSEs and Rocket Mortgage Lead the Way
The conventional mortgage industry took a major step down the digital road when Fannie Mae launched Day 1 Certainty in 2016. Day 1 Certainty allows borrowers to streamline the application process by giving lenders permission to use electronic data to verify employment, income and assets. This automation speeds up the application process for borrowers and the verification process for originators. It has also freed lenders from certain representations and warranties for eligible mortgages to be sold to Fannie Mae. Freddie Mac made a similar program available in early 2017.

Quicken Loan’s Rocket Mortgage (“Push button. Get Mortgage.”) deserves much credit for pushing the industry forward on eMortgages. The lender began offering a 10-minute mobile mortgage application in late 2015. Since then, they have run commercials in three different Super Bowls. The 30-second spot featuring former Game of Thrones actor Jason Momoa, which aired in the 2020 Super Bowl, reportedly cost more than $5.5 million. Rocket Mortgage offers borrowers conditional preapproval within just minutes.

Within two years, Quicken had surpassed Wells Fargo to become the largest U.S. mortgage originator, due largely to the growth at Rocket Mortgage. In early 2020, Quicken announced that it was pausing operations at its reverse lender One Reverse Mortgage to move all those employees into Rocket Mortgage, according to a report that first appeared in Reverse Mortgage

“We envision a world where most of the mortgage transaction is facilitated by technology, and where consumers have adequate time to review documents and access tools to help them break down the complexity of the process,” it said. “In the years ahead, we believe that eClosing can provide an opportunity to deliver an improved experience for this important step in the mortgage transaction and benefit both industry and consumers.”

The CFPB noted in its pilot report that borrowers who had a chance to review their closing documents ahead of the closing date also had the time to understand them and find potential errors (and get them corrected) ahead of the closing date.

eClosing technology is arriving one mortgage company at a time. The idea of mortgage transactions facilitated by technology, as the CFPB envisioned, is happening, albeit some would say the pace is slow. GO Mortgages, an originator based in Milwaukee, announced in mid-February that it was introducing eClosings for its borrowers—one of the most recent examples out there.

Why Investors Will Embrace Digital
Technology that makes use of innovation such as AI, machine learning, chat boxes and automated tasks is fueling the use of predictive analytics in the industry. Mortgage originators will continue to explore how they can take robust mortgage, housing and consumer data that is already collected, often due to regulatory requirements, and use it to improve and predict outcomes.

Technology, for example, can be used to create universal pricing engines that will establish the price of a loan and even assign it to an institutional buyer based on the purchasers’ parameters for buying loans. Such efficiency could allow originators to close loans even faster and optimize the price at which the loan can be sold, even reducing the need for interim line financing. Investors, meanwhile, will know sooner and with greater certainty that a loan meets its requirements and is available for purchase.

Borrower and broker secured portals will allow communication and the ability to upload sensitive encrypted documents as part of the process. The underwriting process will become less labor-intensive as software programs work through a list of tasks to make sure the loan meets all its requirements for funding and can reduce human error at this stage.

The industry has seen great strides in going digital, although it’s been a slow-moving beast.

To move further down the pipeline on digital mortgages in the non-agency space, “originators and servicers will need to address concerns regarding enforceability, required technology, system security and showing borrower consent,” the Fitch report says. Unlike the GSEs, where a full framework for eMortgages exists, that’s not the case in the non-agency space.

Ultimately, technology should enable mortgage originators in both the agency and the non-agency space to earn more profit and use their staff more efficiently. Technology isn’t there to replace people. Technology is a complement to the process, not a competitor.  It’s there to improve margins, profitability and productivity.