Last year, the real estate industry broke many records due to the homebuying rush and refinance frenzy that began in 2020. For example, in January 2021, the average 30-year fixed mortgage rate hit an all-time low of 2.65%, and the average dollar amount of purchase loans hit a record of $418,000 in February 2021.
Though the real estate market benefited from two years of record-breaking mortgage volume and lender profits, the repercussions of an increasingly inefficient mortgage process were disguised. Just below the veneer of success, cost–per-loan has steadily increased, and loan closing times have surpassed 50 days.
Lenders will no longer be able to depend on refinance and purchase volume to stay profitable in today’s environment where new mortgage originations are already significantly declining. As a result, lenders must look for ways to tighten their operations and create efficiencies that drive bottom-line impact. One often under-recognized yet powerful opportunity is for lenders to look closer at their operations with title companies.
Headwinds impacting margins
This year refinances dwindled after the Federal Reserve raised interest rates to battle inflation. It’s expected that rates will continue to rise in the coming months. According to the MBA, refinances are 62% lower than a year ago. With purchases projected to increase to a record $1.72 trillion in 2022, purchases dominate the industry. A purchase market means tough competition for lenders to win new business. Therefore, referral business is now more vital than ever.
In the purchase market, lenders have less influence over which settlement partners they collaborate with. Because lenders need to work with infrequently used and unfamiliar settlement agencies, the closing process will further lack standardization, putting closing timelines at risk and compressing already narrow margins.
And finally, cyber attacks, which have become the new norm, are expected to double by 2025—further threatening mortgage lender profitability. Cyber strikes targeting the financial sector have made the lending industry vulnerable in recent weeks. The amount of sensitive information lenders work with daily makes them susceptible to phishing attacks and fraud. Such breaches can lead to damaged borrower confidence, increased operational costs and loss of revenue that eat away at margins, further squeezing any potential profit.
Lender-title processes are an overlooked improvement opportunity
One of the most significant opportunities to combat margin compression is for lenders to improve their operations with title companies. In a survey of mortgage lenders conducted by Qualia and STRATMOR Group, nearly 1 in 4 speak to over 100 title companies a month, and 1 in 4 spends more than 75% of their time coordinating and sharing information with them.
The Qualia and STRATMOR data validate that lenders spend a significant amount of time engaging in manual follow-ups and inefficient back-and-forth with title companies. This creates a massive opportunity for lenders to generate significant operational efficiencies. Lenders can save money and minimize margin erosion by streamlining and standardizing their dealings with title companies.
Additionally, in an environment where repeat and referral business is increasingly vital for profitability, operations with title companies are essential to improve the borrower experience and secure such business. Qualia’s Homebuyer Sentiment Index found that the closing process is the most important indicator of whether a borrower will work with a lender again. When asked “which of the following is important when evaluating whether you would work with a lender again?” The top 3 responses were “quick response times” (42%), “how well they helped me through the closing” (42%), and “on-time closing” (35%).
The biggest shortcoming — a reliance on email
To better understand where opportunities exist to improve lender-title operations, Qualia and STRATMOR asked lenders about the tools and systems they use to engage with their title partners. One of the most prominent findings was just how reliant lenders are on email to communicate and collaborate with title companies. The survey found that 1 in 4 lenders make more than 30 emails or phone calls per loan. A single discrepancy in a document, for example, could result in closing problems or delays, which would negatively impact the borrower’s experience.
Not only do email and telephone exchanges demand manual effort, but they are also challenging to track. Lenders are unable to track the status of individual orders or the overall efficiency of their processes with title companies on a global level due to decentralized communication via numerous email chains and ad hoc phone calls. Furthermore, lenders can’t utilize reporting to optimize their operations. Because of the absence of global visibility, top-level employees are unable to allocate and shift their efforts as necessary.
This lack of visibility into the title process results in various challenges, but most acutely, the lack of visibility negatively impacts the employee experience. Per the Qualia and STRATMOR survey, respondents ranked “employees spending too much time on manual tasks” as the top outcome of untrackable processes with title companies. Employee churn, the resources required to hire new processors, and the company’s overall effectiveness when onboarding new employees all substantially impact profits.
Email communication opens up significant security risks
The heavy reliance on email not only creates operational inefficiencies that impact margins, it also presents an existential threat to the business. By 2025, global cybercrime is expected to be worth $10.5 trillion per year. One of the most prevalent forms of attack is business email compromise (BEC). When lenders exchange sensitive information over email, they put the business and their clients at risk of a BEC scheme.
The level of damage that cyber attacks can inflict on lenders is staggering. For example, systems can become inoperable after an attack which can delay closings for days or even weeks. The financial impact of a cyber attack can tally up to millions of dollars due to often underrecognized costs such as increased insurance premiums and lost customer relationships.
Automation to tackle margin compression
Given the risks surrounding email, it’s paramount that title companies transition to automated systems that enable seamless information exchange without the need for traditional communication. Instead of exchanging emails, automated tools would automatically update the lender’s file and the title company’s file.
Technology that allows lenders and settlement agents to automate exchanges can help create incremental efficiencies; however, technology that examines the entire lender-title relationship from beginning to end will truly address the inefficiencies that plague lender-title operations. By providing a holistic and collaborative system that encompasses all lender-title touch points, lenders can reduce or completely eradicate the need for emails and phone conversations through automation.
Qualia’s unique offering to mortgage lenders is a direct connection to the system of record most widely adopted by title companies in the U.S.—Qualia Core. Our suite of products is designed to enable lenders and other participants in the transaction, including other technology point solutions, to finally be able to plug into the settlement ecosystem.
Qualia Connect allows the lender to remain in their LOS while the title company remains in their core system for true adoption and efficiency on both sides.
To read more from the report and learn the importance of effective lender-title coordination to meet borrower expectations and win new business, click below to download your copy.