If anything good came from the mortgage crisis, it’s that the playing field became more leveled for banks of different sizes, which resulted in consumers being given more choosing power. As behemoth financial institutions lost their death grip on the mortgage servicing and loan origination space, market share has become available for the taking.
Investor buyback risks and servicing issues have opened up opportunities for small and mid-tier institutions that can better engage consumers — the same consumers who may have newfound trust and confidence issues when it comes to the big banks.
The perfect storm has been forming for all banks to perfect their mortgage-lending operations, primarily because jaded customers are already seeking out new, trustworthy providers for mortgage financing. With the first widely open window in decades, now is the time to put effort and resources into the next fruitful season of mortgage lending. But it’s going to take time and strategy to fully capitalize on the new opportunity.
Historically, small and mid-tier banks have used limited channel strategy to engage customers, with emphasis on the branch network. Although this helped to create strong relationships, it was only with borrowers who were willing to do business within the branch, while large banks scooped up customers with online mortgage originations. The big institutions broke free from the branch chains to locate borrowers in the virtual world, leaving the little guys behind.
Today, banks must think leaps and bounds beyond online origination. Mobile devices, the preferred channel for most borrowers, have not been fully utilized by banks in terms of true loan origination and customer onboarding. Today’s mobile-centric customers can leave you with a simple swipe of the finger, so banks must cater to their channel demands and desires.
Mortgage-focused banks have always committed ample resources and staff to home financing and other banks have not. Smaller banks have lacked the marketing and sales efforts needed to compete, and have traditionally spent more time attracting depositors than selling mortgages. While the bigger institutions were hiring specialized mortgage sales staff, other firms were spreading general staff thin. This has been damaging for these banks as specialized expertise in the field is critical. Although many institutions have increased mortgage capacity over the years, bank resources are still shared across product lines, and mortgage is just one piece of the portfolio. The financial crash has disrupted this pattern, but firms that have not dedicated resources to this space have work to do.
In terms of compliance, banks have always had to follow regulations, but nothing in the past compares to the post-Dodd-Frank age. The thought of modern-day compliance keeps banking executives up at night; the total volume of new mortgage rules can be intimidating to institutions of all shapes and sizes, and many firms are playing catch-up in the regulations department.
Banks have never been mistaken for technological vanguards. Specifically, specialized mortgage technology has not been well integrated with banks’ core processing platform. Large banks that entered the mortgage space hastily, many with homegrown loan-origination systems, have been paying the price for not doing it right the first time. Compliance issues have left many firms desperate for effective, enterprise-wide solutions for loan-origination technology platforms. Although all financial institutions are subject to some level of consumer distrust after the financial crisis, the nation’s largest banks have taken the most heat. Many potential borrowers are very aware of the $25 billion settlement established by the Office of Mortgage Settlement Oversight and paid by these large institutions. Small and mid-tier firms can begin building trust and relationships with borrowers and, once engaged, can talk mortgage financing with less competitive pressure compared to other industries.
Banks with the strongest lines of communication to their customers will be the most successful. As rudimentary as that sounds, few financial institutions have mastered this concept. In the Age of the Customer, where data-enabled consumers are more empowered than ever, banks relying on traditional, antiquated differentiators are in for a rough ride. In terms of loan origination business, the true competitive advantage is centered on obsession with the customer and then engaging them via their preferred channel.
CUSTOMER OBSESSION
Customer-obsessed companies have forgone traditional strategies to get inside the head of the consumer so that the proper red carpet can be rolled out. What steps are being taken? As Forrester points out, “Empowered customers are disrupting every industry; competitive barriers like manufacturing strength, distribution power, and information mastery can’t save you. In this Age of the Customer, the only sustainable competitive advantage is knowledge of and engagement with customers. Executives in customer-obsessed companies must pull budget dollars from areas that traditionally created dominance — brand advertising, distribution lockup, mergers for scale, and supplier relationships — and invest in four priority areas: 1) real-time customer intelligence; 2) customer experience and customer service; 3) sales channels that deliver customer intelligence; and 4) useful content and interactive marketing. Those that master the customer data flow and improve frontline customer staff will have the edge.”
CONQUER PAPER
Banks looking to take advantage of emerging mortgage business must systematically remove paper from their processes. Paper worsens every minor and major issue along the path to a strong mortgage process and more profitable institution. Most other industries have left financial institutions behind when it comes to electronic processes; banks are still using what comes out of the printer.
Removing paper is the best way to accomplish what every bank wants to accomplish — improving the client experience, reducing costs and meeting regulatory requirements. It doesn’t take much imagination to see how paper can hinder each of these goals.
You won’t hear much argument against the desire and need to reduce paper. But what do you replace it with? Many banks that have removed paper have failed to find an alternative that meets customers where they are. A financial institution can build a successful and profitable mortgage loan origination business, and take market share from geographically out-of-touch large firms, by investing in and implementing the following four strategies:
- Most customers and potential borrowers use smartphones or tablets several times a day — for nearly everything. Yet very few mortgages are being truly originated on mobile devices. Mobile mortgage technologies allow the bank to bring their applicants and loan officers into the process by capturing all supporting documents directly from a mobile device, while ensuring that all data is accurate and valid. Moreover, the communications tools built into mobile origination platforms create electronic audit trails for compliance purposes, all while increasing customer satisfaction.
- Executives within financial institutions are forced to eat and breathe compliance. The rules are in a constant state of change. Therefore, if unanswered questions remain in terms of compliance within the mortgage space, banks will move slowly. It is wise to invest in a powerful platform that directs workflow to enhance and fill gaps in existing processes. Banks have already seen the positive results that have come from taking compliance decisions out of the hands of human managers, especially those who receive production-based incentives.
- Sound decisions cannot be made if untapped customer and mortgage data remains a mystery. That being said, data analytics have also been late to arrive in the mortgage space. This is primarily because the loans and customers that data referred to were quickly sold off to the next party. Depository institutions are used to maintaining their own assets, servicing their own loans and collecting and analyzing their own data; however, where the mortgage is concerned, the amount of data available can be overwhelming. The right technology is required to optimize the information flow and gain invaluable (and rarely seen) insight into the mortgage process, customers and metrics in place at the institution.
- Data silos exist within most financial institutions. Since all bank products don’t originate on the same technology platform, breaking down these silos has been a major challenge. The mortgage loan origination system (LOS) cannot be easily executed by other bank systems, as it represents a very specialized technology platform. The data stored on the LOS, the mortgage database of record, is often left out of the mix when enterprise-wide data analytics are employed. Anything less than a tight integration between the mortgage LOS and other systems in use will compromise the bank’s ability to take full advantage of accurate and valid data — making it nearly impossible to reduce time to close.
These steps support the philosophy that an efficient, customer-obsessed mortgage origination process will elevate banks looking to outmaneuver competition in the mortgage origination arena. And the aforementioned solutions are specifically designed to pay off quickly. Financial institutions that capitalize on this opportunity can succeed in the areas of cost containment, improved customer service and regulatory compliance.
It all starts with removing paper from the process.
