Ask a mortgage lender, “Do you effectively use digital documents?” Most will highlight advances they’ve made in incorporating imaging into their processes.
Then ask a borrower the same question. You’ll frequently hear a very different story—one full of paper documents, multiple resubmissions of the same document, misrouted mail, and other sources of borrower headaches. Thirty-six percent of borrowers list multiple asks for information as their biggest source of frustration.1
When it comes to the use of paper, the numbers don’t lie. The average mortgage application includes a staggering 500 pages, a number that has trended up rather than down in recent years, despite the expected benefits of technological advances.2 Moreover, the industry has failed to make significant progress in the number of loans registered on the Mortgage Electronic Registration Systems (MERS®) eRegistry, and the mortgage closing process continues to frustrate borrowers with its sometimes glacial pace.
The reason? Some mortgage lenders are taking a fragmented approach to electronic documents and, in most cases, failing to build integrated paperless workflows. Many lenders use electronic documents at certain points in their processes but then convert back to paper-based processes for the next step, often printing out the very files they just created electronically. While some individual components may be working well for lenders in areas such as electronic disclosures, most lenders are missing an integrated end-to-end strategy that supports an efficient paperless process.
Converting a paper loan file to an electronic copy at the closing room doesn’t do anything to help you get there faster or with fewer errors. Unless paperless processes are integrated earlier in your value chain, you miss out on opportunities for more efficient workflows, improved data quality at every stage in the process, and the elimination of costs and delays associated with printing, shipping, and storing paper documents.
Lenders can start to reap benefits by developing paperless capabilities in a single area, effectively building the paperless functionality into a workflow. But the true value comes when paperless processes are linked seamlessly from application and document intake through closing and beyond to establish a true, end-to-end digital mortgage process—often referred to as an eMortgage.
Since the barriers that once stood in the way of digital processes, such as regulatory and enforceability concerns, have recently been cleared, lenders are now able to drive strategic change with these technologies. Based on our analysis, we believe digital mortgages will soon become an industry disruptor as more participants start identifying the full spectrum of advantages. It’s not a matter of if, but rather, when digital mortgages will gain widespread adoption. Some of the advantages include:
• Market share protection and growth. Even though consumers are increasingly requesting electronic mortgages, today’s mortgage origination process does not satisfy the customer. It’s lengthy, paper-intensive, and slow. And it’s not on par with the streamlined experience consumers have come to expect from their other banking and non-banking services. Lenders who offer a digital mortgage process will be able to differentiate themselves in the marketplace.
• Industry-wide savings of $1 billion per year.3 Digital mortgages aren’t just more convenient; they’re significantly less expensive than today’s paper-based or partially electronic mortgages. Lenders who are able to tap into these savings may decrease their operating costs and increase their margins.
• Improved regulatory compliance. As regulatory compliance becomes more complex, paper-intensive processes could become a risk factor due to the possibility of increased error rates. Lenders who automate and streamline with electronic mortgage processing have the opportunity to improve both their quality control and their regulatory compliance outcomes. And in many cases there’s an opportunity to automate controls, testing, and loan quality reporting that would allow for either increased sample test sizes or even full population testing (as opposed to smaller, manually selected samples).
This Point of View paper explores the considerations mortgage lenders face as they rethink their paperless strategies to begin to reap the long-awaited benefits of adopting digital processes. It also explores 10 areas where lenders can benefit from establishing paperless processes, as well as provides a framework for determining an overarching strategy.
1 “Lock in Loyalt. Coming to terms with the new borrower’s needs.” PwC, 2013.
2 Mortgage Bankers Association. MBA NewsLink, December 13, 2013.
3 Fannie Mae, “Advancing eMortgage: Why Are We Still Using Paper?” May 6, 2014.
Principal, Consumer Finance Group
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Consumer Finance Group Practice Leader
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