The ideal mortgage system under Dodd-Frank is electronic, automated and built for speed. No errors in underwriting, high efficiency; the system delivers a repeatable, commoditized process that ensures compliance with the latest reforms. Think of a McDonald's drive-through for the home mortgage. No matter what location you are in, you know what products to expect. Technology provides the perfect solution for the no-exceptions loan.
In attempting to achieve this standard, large financial institutions have devoted considerable time and money. They've reviewed procedural steps, personnel management, document flows and the physical work space to create the ultimate mortgage team environment, physically and virtually, to facilitate efficient mortgage loan processing.
Even smaller banks across the country have invested in automation and technology to improve their margins, especially since the refinancing boom has tapered off. Most feel the pressure to be more efficient and improve economies of scale in order to safeguard profitability with lighter volume of loans.
While new regulations will push this commitment to automation further, the majority of lenders are or will be soon ready to meet their requirements and prepared to process the bulk of routine mortgage loans. (Those financial organizations who haven't done the advance work are decidedly behind the eight-ball, but that is a topic worthy of its own article.)
With all this emphasis on speed and efficiency, where will there be opportunity for distinction and innovation in the mortgage lending business? It all comes down to the customer experience. The financial institutions that can figure out how to couple an efficient and optimized loan process with personalized service will win in the future.
Financing the purchase of a home is a big deal. For most consumers, the home is at once their biggest purchase and investment. While there are consumers who will choose a lender solely on rate and closing costs, many will seek out a relationship-based lender to usher them through the process. For many individuals, particularly small business or existing real estate owners, the mortgage application process is anything but routine. It's a complex process, aided certainly by the increased efficiency and safeguards contained in new regulations, but also requiring advice and help from a professional.
Given the dynamic nature of the mortgage loan process and its myriad variables fluctuating rates, third-party participants, closing logistics it's inconceivable that the need for human interaction at various points throughout the loan process will ever be eliminated.
For example, in the event a borrower runs into an obstacle such as being self-employed and asked to provide additional documentation verifying income a loan officer is able to provide critical assistance in determining the information necessary to address the question and keep the loan application moving forward.
These interactions open the door for innovation in the process. Lenders can distinguish themselves by the type of service and support they offer to customers. Savvy institutions emphasize the customer relationship as a competitive advantage and key differentiator. By focusing on the customer's broader needs and long-term objectives as opposed to simply the mortgage transaction, they are able to drive meaningful value.
In this new era of lending, the challenge will be find to the balance between a streamlined system and customer service that isn't a margin killer.
Though the philosophy of "we'll work with you" needs to be redefined according to regulatory and cost considerations, it's critical to the process. While the mortgage loan is becoming a commodity, the servicing of it should not be, especially for smaller institutions hoping to maintain a stake in the mortgage industry.
Drew McMullen is financial services segment leader for the management consulting firm Sense Corp.