Many of the silicon valley startups splashed across WSJ headlines believe that loan officers, processors, and underwriters will disappear. Sofi has proudly proclaimed that their entire mortgage can be completed without speaking to anyone and that it no longer relies on FICO to underwrite a mortgage, looking instead at employment history, track record of meeting financial obligations, and monthly cash flow. Venture capitalists have eagerly lined up behind this vision, pouring billions in additional capital into the company to drive its expansion.
Meanwhile, many technology startups hope to bring a fully digitized, low- or no-human touch to the experience of getting a mortgage. In their vision of the future, a computer is sufficient to complete and service a mortgage, just as computers do for investing funds through wealthfront or buying a used car from carvana.
For those of us on the front lines of origination, that future reality is fuzzy at best.
Home buyers, particularly first-time home buyers, ask for coaching through the myriad product and pricing options. The complexity of the mortgage process—from documentation requirements and underwriting conditions to disclosures—necessitates an experienced guide to avoid pitfalls. This need for education is especially true among millennial home buyers. In fact, recent data suggests 90% of home buyers aged 37 and younger work with a real estate agent, and many of them cite that they need help in understanding the home buying process.
GSE and investor guidelines, along with overlays and the potential for audits, only add to the complexity of approving a loan for funding. And real estate agents rely on partners they trust to drive their transactions to a close before the contract date.
The future of the loan officer
Ultimately, loan originators realize that real estate is a relationship-driven business. Redfin was not successful by disrupting the real estate agent, of which it employs over 1,000. It was successful by empowering those agents with a powerful technology infrastructure. Similarly, a professional counselor is necessary in the complex and deadline-driven mortgage process. Wells fargo invested $500 million in a digital mortgage experience, but recently admitted that 73% of home buyers wanted assurance that they could speak with a real person through the process.
In the response to the question of whether robots will take over jobs, peter thiel, paypal co-founder and silicon valley billionaire, writes in his book zero to one:
“futurists can seem like they hope the answer is yes. Luddites are so worried about being replaced that they would rather we stop building new technology altogether. Neither side questions the premise that better computers will necessarily replace human workers. But that premise is wrong: computers are complements for humans, not substitutes. The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.”
Thiel cites paypal and palantir as examples. At paypal, fraud was only solved when max levchin’s algorithms were paired with human analysts. Palantir strives to make it easier for human analysts to deduce patterns from disparate data sources — not to deduce the patterns automatically. A machine makes professionals more productive and more efficient.
As futurists who understand the burden of reality in the mortgage business, we must adjust our presupposition. A toaster is far better than a gas oven at browning bread. That means you are out the door faster in the morning, but a toaster doesn’t mean you can skip breakfast altogether. Like a toaster, computers and software are simply a better tool for humans. Mortgage companies will win by betting on the augmentation of human ability and not by trying to eradicate humans.
So, the answer is not to dismiss the innovation that is happening in mortgage today. An unfortunate trait of our industry is that we are slow to invest in and adapt to technological advances. In fact, even the CFPB, fannie mae, and other government bodies expound the need to invest. In 2016, former CFPB director richard cordray scolded mortgage servicers for hiding behind their bad computer systems or outdated technology. “there are no excuses for not following federal rules,” he said. “mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally.”
There are a few immediate areas where all institutions should take action.
The top 3 areas where lenders should invest in technology
1. Digitizing documentation at the point of origination.
Digitizing documents dramatically reduces turnaround time on requests and eliminates error and fraud by accessing borrower data directly from the authenticated source.
Both gses and many investors continue to take steps to accept digitally-sourced documentation as authentic. Instead of requiring a borrower to provide copies of pay stubs or other documents to verify income, fannie mae enables lenders to validate income with data provided by third parties. Similar capabilities are available for asset verification and taxes.
2. Automating error-prone manual tasks.
Instant data analysis and flagging, image clean-up, and document type identification are all examples of tasks to improve the accuracy of loan files and minimize manual data entry. What’s more, burdening front-line originators with manual tasks reduces their time to do what you’ve actually hired them for: sales.
3. Centralizing communication.
Gallup recently reported that 28% of borrowers were asked to provide documentation they had already supplied. In these situations, customer satisfaction understandably declines. Streamlining the number of point solutions, from secure messaging tools and file sharing portals, and consolidating communication channels, from email to text messages, will not only make customers happier, but improve the efficiency of loan officers and processors.
The power of a mortgage business is in its people
If you spend any time reading about what is happening in the world of science and technology, you know significant leaps are being made in artificial intelligence and machine learning. Signs hint that work as we currently know it will be fundamentally altered in the coming years.
So in the midst of innovation in the mortgage industry, where venture capitalists and entrepreneurs bet on the demise of the human, unlocking the potential of your business doesn’t mean avoiding technology. Rather, embrace technology as a means to take your people to the next level.