Technology is transforming the mortgage business in some surprising and perhaps unexpected ways.
Lenders that offer pre-approvals of loans over the Internet, for example, have forced all lenders, wired or not, to make lending decisions much more quickly. With customers growing more savvy and having far more options, few are willing to wait three or four weeks for a pre-approval when it is available in minutes on-line. (See article, page 3A.)
The same thing goes for mortgage brokers and correspondent banks. Why should they wait for weeks while the primary lender makes a decision when another lender will decide on the spot? And why wait for price sheets to arrive by fax once or twice a day when continuously updated prices are available on the computer?
The benefits to consumers also have a downside for lenders; they generally have to process more applications to close a loan because the instant decisions give consumers more ability to shop around and make multiple applications.
Some borrowers may also be getting fewer calls from their loan servicer when they are a few days late with their monthly payment. That would be because the servicer's computer analysis of payment patterns shows that that borrower is always a bit late but always pays. So the borrower does not get a call and the servicer, eliminating many such calls, cuts expenses. (See article, page 4A.)
Much of what is happening in mortgage technology, however, is invisible to the borrower. Two hot new areas are risk management systems for top management, and work flow software to increase processing efficiency.
The consolidation in financial services has led to ever-larger portfolios of loans and servicing, a trend that is likely to continue for many years.
Lenders now worry about the geographic distribution of their loans. Are they overly concentrated in one region, perhaps a shakier one economically?
New programs allow managers to monitor changes in their portfolios in minutes or hours, depending on size, rather than the days or weeks needed previously. (See article, page 8A.)
The programs can also be used to monitor loan quality from brokers and correspondents, helping to detect pockets of low-quality credit or churning of loans.
With improved information on the portfolio, including prepayment projections and delinquency forecasts, many lenders are able to reduce the reserves they hold against losses, and thus can achieve the ultimate business goal, a fatter bottom line.
One technology application that is still not logging impressive results is cross-selling. While the largest lenders are making major efforts to make use of their gold mine of information about customers, success stories have been few. And smaller lenders are mostly not even in the game. (See article, page 7A.)
Work-flow software, meanwhile, is making a rapid leap into mortgages from other lines of business. (See article, page 6A.) A major feature is the elimination of dead time between loan-processing steps, which reduces total processing time dramatically.
Another feature is the availability of a status report on each loan at any time. Some systems even automatically send the loan officer an e-mail advising of the loan's status.
The proliferation of technology in mortgage lending has brought with it a proliferation of vendors, each catering to some specific niche in the market. But one company that is getting close to being all things to all lenders is Fiserv Orlando, which offers different originations systems for large lenders and small ones. This has allowed the company to grow rapidly, indicating its acquisition of a rival software provider was very timely. (See article, page 10A.)
The long boom in the mortgage market has clearly been providing the funds for lenders to spend on technology. When the market inevitably shrinks, those that have made the investments will be in a position to gobble up those that have not, and the industry's long consolidation will march on.