Today, most borrowers have the option of applying for a mortgage via a mobile digital application – a major process improvement from 15 years ago. But after that initial application, the mortgage origination process is frustratingly unchanged from what it was in 2004 – which, for context, is three years before the iPhone launched.
How is this possible? In the same timeframe, we’ve seen fintech startups disrupt everything from payments to retirement investing to insurance. Now we can handle all those financial matters from our phones.
And yet if you want to buy a home, you still have to wait about 30 days for all the paperwork to go through.
That 30-day wait (which is longer if you have “uncommon” income, as do the more than one third of Americans who currently freelance) is evidence that the digital front end of the mortgage process is a far cry from a true “digital mortgage” – that is, a process that leverages the power of digital tools to significantly reduce origination time while easing the process for the consumer and lender, and lowering costs.
Here’s why it’s essential that we get to a place where the digital mortgage is a reality – and how we can make it happen.
The High Costs of Manual Mortgage Origination
In other areas of fintech, we’ve seen increased innovation yield increased accessibility for ordinary people. Look at investing: firms like Fidelity made it easy and cheap to invest in the stock market; firms like Betterment and Wealthfront made it easier and cheaper; firms like Robinhood and M1 Finance made it free.
Innovations in the mortgage space, however, have seen just the opposite: an increase in the cost of mortgage loans. As of Q4 last year, the average cost to originate a mortgage was $8,611 – and that price has been rising steadily, even as more and more lenders make a digital front-end application available to borrowers.
Why have consumers put up with this? Why haven’t they demanded en masse that someone build a better house-trap, so to speak?
The very nature of the mortgage is certainly part of it. The average homeowner stays in their home for about 13.3 years, meaning that even if the experience of getting a mortgage is abysmal, it’s the kind of thing you can grit your teeth and get through knowing you won’t have to do it again for more than a decade – unless you decide to refinance.
And plenty of people do: for every two new mortgage run through Ellie Mae’s origination software, for example, it closes about one refinance loan. So figure the typical homeowner goes through the process of getting or refinancing a mortgage about every seven years.
And then there’s the fact that mortgages are just so regulated. Fintech startups have been slow to disrupt the space because doing so requires deep industry knowledge to adhere to those regulations, plus substantial capital, plus robust technical capabilities – a combination that few startups have or are able to cultivate.
The Hidden Costs of Manual Mortgage Origination
Beyond the visible $8,611 it costs to originate a mortgage, there are hidden costs to sticking to manual methods.
Consider, for example, that 96 percent of employees said they’d be happier at work if they were able to use better software. That’s almost everyone. And given that the average loan originator stays in their job for just 2.29 years (about half the average job tenure) and that the cost to replace an employee can be as high as 200 percent of their annual salary, there’s a clear case that banks and other lenders need to update their tech stack.
The demand for better software isn’t likely to go away, either. Millennials, those digital natives who came of age around the turn of the millennium, are now the largest age group in the workforce.
As they rise through the ranks of loan origination, they will demand better and better software solutions to do their jobs – and they should. In the survey I cited earlier, 84 percent of employees said that, given better software, they’d spend more time on non-work activities. For loan officers, that’s crucial: non-work activities that involve engaging with the community, serving their customers and building relationships are what position them to close more loans more easily.
How We’re Ushering in the Digital Mortgage
I claim in the title of this piece that the digital mortgage is still a mirage, but I’d like to modify that now: the digital mortgage is still a mirage for most lenders.
For Cloudvirga and its partners, it’s actually a work in progress.
Our founders spent enough time in the mortgage industry to recognize that loan advisors needed a better solution. They also spent enough time with technology to have an idea of how to build that solution.
Today, Cloudvirga works with lenders’ existing loan origination software to integrate data sources and workflows on the back end of the loan origination process. After a buyer fills out a digital application, our system streamlines data so that loan advisors can actually close the sale when they’re talking to the borrower – in other words, so that the point of transaction actually becomes a point of sale.
We couldn’t be more excited about bringing this technology to lenders and loan advisors. With the ability to complete a true digital mortgage, originators can spend less time in the office tracking down paperwork and following up with colleagues by leveraging automation, and reduce the amount of time spent deal structuring. They’ll be able to spend more time at open houses and in client meetings, building relationships with partners and clients. The result will be stronger relationships, happier clients, smoother transactions and at a lower cost for the consumer.
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