Optimization in mortgage processing: A PEX Network guide

Mortgage processing is considered one of the most complex financial processes undertaken by banks and financial organizations, for which mortgages are often seen as a cornerstone product.

If a customer has a mortgage with one organization, then it is likely they will retain more of their services such as a bank account, so it is important to marry efficient mortgage processing with enhanced customer experience to ensure brands do not miss these opportunities.

Making decisions involving long-term liability for considerable sums of money is not something organizations take lightly. As a result, the approval process can seem long-winded and involve stringent assessments of customer reliability and creditworthiness.

This process can generally be broken down into six key stages:

1. Mortgage pre-approval – The lender reviews the financial situation of the potential customer, or buyer, to determine if and how much they are willing to lend.
2. House hunting and offer – A potential home is located by the buyer, who then negotiates price before signing a purchase agreement.
3. Loan application – A loan application is completed by the buyer, containing all necessary information about the home being purchased.
4. Mortgage processing – The lender gathers all of the information needed to complete the loan and create a file.
5. Mortgage underwriting – A mortgage underwriter undertakes an in-depth analysis of the loan application regarding the risk of lending to the buyer and produces a risk assessment.
6. Approval and closing – The underwriter issues and final approval or denial. If successful, the buyer will attend a closing meeting to finalize the deal.

This process is further complicated by the aforementioned examinations that a lender must carry out to determine the creditworthiness of the customer, which include credit checks, income verification and property appraisal. This six-stage process is traditionally paper-based but can be optimized and accelerated through document digitization and automation of manual tasks.

This guide will outline the challenges involved in this process and the methods that can be applied for optimization, reducing human error and improving transparency.

What are the key challenges of mortgage processing?

There are a number of key challenges that arise from such a complex and heavily litigated process that, if not properly addressed, can significantly impact the efficiency and ease of mortgage processing. If lenders are aware of these challenges and the current best practice with regard to combatting them, they can take action to reduce inefficiencies and optimize the process.

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• Lack of resources and technology

  Andrina Valdes, chief operating officer at Cornerstone Home Lending, believes that the primary challenge currently faced by mortgage processors is a lack of resources and technology. She says that if staff are not supported with the right tools and technologies, each stage of the mortgage process can take longer than necessary as they are traditionally dependent on manual, paper-based activities with procedures that must be stringently adhered to, particularly during the current Covid-19 pandemic.

  “This is especially relevant right now, at a time when more buyers are looking for remote mortgage services,” notes Valdes. “Many buyers are also seeking out speedier mortgage processing to compensate for the slowdown caused by the surge in mortgage applications when rates dropped this summer.”

  Valdes explains that the only way to overcome this challenge is to provide mortgage processors with more support, both in technology and process efficiency. She notes that the latter can be improved by eliminating any obstacles that get in the way of the closing process, which Cornerstone Home Lending achieves through a focus on in-house operations and product innovation. Examples of this include specialty teams that are continually adding new loan products and hiring extra support staff to increase support ratio, so that nothing slips through the cracks.

  As for technology, “a mortgage processor can benefit from integrated tools, such as an all-in-one mortgage app that enhances communication with a buyer and expedite the loan process”, she remarks. Valdes adds that “the right technology can move a loan from start to finish, with less effort and with less paperwork, while also keeping everyone involved in the process connected”.

• Gathering documentation

  Simon Huften, President of Life Insurance Canada, asserts that one of the greatest challenges faced by mortgage processors is the need to gather extensive documentation from buyers in order to supply the underwriter with the information they need to approve a mortgage.

  Huften notes: “Due to strict lending guidelines, there are lots of documents required to back up information supplied via the application process and most clients do not want to provide income documents, tax bills and bank statements, as they may not have them prepared. A lender’s requirements can take them by surprise, which can make it very challenging to complete the process.”

  Huften believes that the best way to alleviate this challenge is to maintain transparency with the buyers throughout the entire mortgage process. By providing them with a detailed overview of the process right from the initial conversation, lenders ensure that no document requests will take them by surprise.

  “Making the client aware that the lender will more than likely require additional documents to confirm certain details can help to prepare the buyer,” Huften adds. “Letting your client know that this is entirely normal and standard across the industry can also provide for a smoother experience as well as a platform that safely and securely sends certain documents directly to the lender.”

How to optimize the mortgage process?

With increasing levels of regulation and the numerous challenges involved with mortgage processing, such as those discussed above, it is no surprise that many practitioners are seeking new ways to optimize the process and improve efficiencies across the board. One of the most heavily discussed methods for optimization is the automation of manual tasks throughout the process.

• Automation

  Robotic process automation (RPA) can assist mortgage processors in dealing with an increasingly demanding clientele who want information be readily available to them, through automatic responses to information requests, and by reducing reliance on manual, time-consuming tasks.

  Cornerstone Home Lending’s Valdes remarks: “Anything that can be automated, without sacrificing borrower relationships, should be.”

  Automation essentially involves assigning a ‘bot’ to carry out routine and repetitive tasks, which can be enhanced through artificial intelligence (AI) technology to perform tasks intelligently. RPA can easily interface with existing loan origination platforms or other legacy systems to carry out tasks at a much faster rate and with significantly fewer errors than a human. This increased speed and reduction in errors facilitates optimization across many areas throughout the mortgage process.

  Automation also offers organizations the chance to include self-service options, where a bot could automatically provide information to help buyers complete tasks such as checking their unpaid principal balance and status on escrows, obtaining payoff balances and retrieving or submitting documentation. This can help alleviate the frustrations of demanding customers who may be put off by long response times.

  Huften explains: “The best way to optimize the mortgage process is to have certain manual steps automated and gather all of the information upfront from the client, so that it is readily available for automatic processing to be carried out.”

  Areas that see significant benefits through AI application include fraud detection, where predictive analytics can be utilized to identify the risks associated with disbursing a particular loan, or auditing, where documentation automation enhances the ability to quickly identify and mitigate risks.

• Document digitization

  The mortgage industry is edging toward a completely electronic experience, from pre-approval to closing, as practitioners become more aware of the benefits that digitization can bring. In fact, it appears that borrowers also see the value in a digital mortgage process, with a survey by Fannie Mae finding that two-thirds of borrowers would be interested in a digital mortgage.

  Document digitization can alleviate a number of frustrations for both buyers and lenders throughout the mortgage process. For example, the gathering of documentation for verification, appraisal and underwriting are unavoidable and time-consuming tasks, and their digitization can almost instantly and significantly speed up the process. It can also allow it to be conducted remotely, which is critical in today’s Covid-19 remote-working world. If a lender is reliant on paper-based processes, this will raise significant challenges for processing mortgage applications during the pandemic, as it may be unclear where paper documents should be sent to, and what the corresponding safety regulations are.

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  Document digitization can be facilitated through technologies such as optical character recognition (OCR) software, allowing paper documentation to be digitalized without the need for any manual data input from processors. It greatly speeds up the analysis of documentation and gives buyers and lenders greater control over the management and distribution of critical information, which can help the overall process.

  Cornerstone Home Lending's Valdes explains: “Any technology that gives borrowers more control of the loan process can speed up processing time significantly. We can grant borrowers 24/7 access to real-time loan status updates and the capability to submit and track loan documents from anywhere and at any time.”

Going beyond automation and digitization

Aside from those previously discussed, there are a number of technologies that can be applied to facilitate the optimization of the mortgage process.

• Application programming interfaces (APIs)

  They enable systems, services and websites to talk to each other, facilitating the coordination of data and information throughout the mortgage process. At a basic level, APIs allow transmission of case information and decision results, but their capabilities can be enhanced to deliver increased efficiency for lenders and borrowers alike.

• Chatbots

  In today’s world, the prevalence of chatbots for customer service is increasing. These AI-driven robots have the capacity to automatically handle customers queries or concerns, freeing up time for mortgage processors and allowing instant, 24/7 support for buyers.

• Process mining

  By mapping out processes, analyzing event logs and providing a visualization of how the process functions through process mining, organizations can identify its inefficiencies and bottlenecks. They can dive into the data to try and figure out why this is happening and how a particular stage can be expedited.

• Mobile mortgage managers

  One of the more recent advancements in the field of mortgage processing is the implementation of mobile mortgage managers. They make themselves available to meet with buyers who are considering, or undertaking, the process of applying for a mortgage.

  For buyers, having a dependable and stable single point of contact who can be reached even outside of office hours can be extremely beneficial. Some buyers, particularly first-time ones, may require additional coaching or ‘hand-holding’ to ensure that they understand, and are comfortable with, the mortgage process. Mobile mortgage processors can take advantage of this time that they have with buyers to spread out the process into easily manageable stages.

Conclusion

Despite the complex nature of the mortgage process and the level of critical information gathering that it necessitates, there are a number of methods, both traditional and innovative, for ensuring that it runs as smooth as possible.

Practitioners who act on the advice given in this guide, such as through digitization and automation of the mortgage process, stand to gain a competitive advantage in a period of disruption for the mortgage industry.