Mortgage technology has exploded in growth over the past few years, but how has this technology impacted productivity, efficiency, and consumer experience?
At the Future of Real Estate Summit, Marina Walsh, VP of Industry Analysis at the Mortgage Bankers Association (MBA), and Rick Hill, VP of Industry Technology at the MBA, joined Julian Hebron, Founder of the Basis Point, for a dynamic conversation about mortgage production in 2020 and the impact of technology.
2020 was a “wild but amazing year” for the mortgage industry
This past year, the mortgage industry experienced incredible volume at close to $3.7 trillion—the highest level of origination since 2003. (*Note: updated MBA data since the time of this presentation indicates an estimated increase in production volume in 2020 at $3.8 trillion.) “It was a wild but amazing year for mortgage…and a very strong year in terms of volume as well as profitability,” Walsh said.
Refinances dominated transaction volume at $2.3 trillion; however, the purchase market was “a real surprise,” according to Walsh. Despite the pandemic, there was still demand for housing. 2020 purchase market volume reached $1.4 trillion. Walsh expects to see the purchase market continue its upward trajectory over the next 3 years.
Heavy production resulted in historic profitability but also capacity constraints
Walsh noted that in the third quarter of 2020, profitability reached $5,500 per loan. “We’ve never seen profits like that in the history of this study, going back to 2008,” she said. Net production typically averages around $1,200 per loan. “We’re in a very unusual period of time,” Walsh said.
Typically, with higher volume, expenses drop off because fixed costs are divided by more loans. “What’s interesting is that high revenues were really driven by secondary marketing gains helped by the government,” Walsh said.
Expenses did drop off overall in 2020; however, there was a bit of an increase between the second and third quarters of 2020. “This is likely driven by higher loan balances… but also from capacity issues,” Walsh said. Mortgage lenders struggled with operational constraints during peak volume because there was such high turnover among servicers such as underwriters and closers.
Technology to alleviate capacity constraints was activated overnight
The mortgage industry overcame significant obstacles throughout the pandemic. “Overnight, we went home,” Hill said. “And then you had what I’ll classify as the breakdowns from social distancing… The IRS offices closed so you couldn’t get tax transcripts, and in some counties, you couldn’t record because of county office closures.”
At the same time, the industry experienced tremendous volume increases. “[Lenders] needed robotic process automation (RPA),” Hill said. “Something that enabled organizations to start to improve what they had. If they couldn’t implement new software overnight, they could leverage RPA.”
Hill added that the industry also saw increases in automating the closing process and implementing eClosing concepts and remote notary. “I don’t think we quite got to where we wanted to get to due to the volume itself creating an inability to implement new technologies,” Hill said.
Technology investment over the past 10 years steadily increasing
Walsh said that technology spend across production technology, servicing technology, corporate-related technology (such as network administration and overall privacy and security) has increased over the past 10 years.
Technology investment has varied in type and scope based on different “moment in time” industry focuses:
- Regulatory updates: in 2010 with Dodd-Frank and other regulatory updates, lenders invested significantly in the necessary tech resources needed to comply. Additionally, large banks working from legacy systems needed to update and sometimes piece together up to 4 loan origination systems to get their systems talking to one another.
- Consumer point-of-sale: for the past few years, the industry has been focused on point-of-sale to reach consumers more directly. During that time, tech spend increased for front-end digital touchpoints.
- Remote closings: today, during the pandemic, the industry is focused on remote online notarization and eMortgages.
The overall upward trend in technology investment is a signal for mortgage lenders to get on board or potentially be “left behind,” according to Walsh.
eMortgage investments increased in 2020, but the technology is not yet implemented
“We haven’t seen the adoption we expect [with eNotes],” Hill said. He added that lenders are making the investment in eMortgage technology, but are not yet implementing the new technology due to capacity constraints. “As volume starts to decrease in 2021, implementation will be fairly rapid when resources aren’t so overutilized,” he said.
Hill added that prior to 2020, the MBA didn’t track remote notary due to low adoption. “The digital closing wasn’t quite there, not because we didn’t have the products, but because lenders were focused on the front-end. Now [with COVID-19] people are more focused on the back-end [processes].”
Hill added that eMortgages are likely to become the norm moving forward—not because consumers are demanding digital closings specifically. “Consumers don’t wake up and say they want an eNote…what they want is an experience,” he said.
Reducing time to close will be the “holy grail” for lenders to differentiate from competitors
Another component of the consumer experience is time from application to close. “If there’s anything that bothers a borrower more, it’s not being able to close their loan on time,” Walsh said. “[Reducing time from application to close] is the holy grail in terms of differentiation [for lenders] especially as we enter a purchase market.”
Walsh said that time from application to close varies widely across the industry. For some, the number is over 80 days for refinances. Meanwhile, around 23% of lenders are doing well and staying within 40-50 days. Investing in technology to reduce time from application to close will be key for businesses looking to differentiate themselves.
Mortgage lenders must redefine processes in order to have greater market influence
Hill added that the key to reducing time to close and overall costs is a movement toward new ways of operating. “It’s not that the tech isn’t available today, it’s that we’re not changing how we look at things,” he said. “External entrance may come in and force the hand of folks that aren’t able to rethink it.”
Hill noted that those who are able to redesign their processes with technology in mind will start to have influence.
To watch Hebron, Walsh, and Hill’s presentation in full, click below to stream a recording of the panel from Qualia’s Future of Real Estate Summit.