A Holistic View of the Lending Process

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BLOG VIEW: Over the past few years, mortgage visionaries have had many reasons to begin looking at the mortgage origination process in new ways. The ongoing COVID-19 crisis is just the latest event in a long chain that has served to hasten the industry’s search for better, more streamlined processes.

Fortunately, the result has been a host of innovations that together are changing the way we approach our work. This new vision turns the old paradigm on its head and offers lenders, perhaps for the first time, a more comprehensive view of what has traditionally been a very complicated and disjointed process.

These mortgage technologists refuse to rely on the same old disconnected set of independent sub-processes that have been the industry’s bedrock in the past. In their view, having an overworked mortgage loan processor struggling to pull together the required information for the lender’s closing department is inefficient and unnecessary. They don’t accept the requirement that the processor should have to jump from tab to tab or between applications to find the data they seek.

Instead, they see something different – a more holistic view of the process that puts the critical technology in the center of a vibrant ecosystem of partners and their tools. It’s a new world founded on automation and driven by advanced artificial intelligence (AI) with machine learning built in. 

Time For An Industry Sea Change

This new vision comes at just the right moment. Even as consumer demands continue to drive the mortgage industry toward a more borrower-centric model and compliance requirements push lenders deeper into automation, the more decentralized process required to keep partners and borrowers healthy has made digital not just the new normal but an absolute requirement.

One could point to significant evidence showing that the industry is ready for a change, but we suspect that every reader of this publication understands the challenges in the current environment and is even now seeking a better way to lend. Despite the many promises made by technologists and business consultants, this has not been an easy problem to solve.

It’s no surprise that most lenders still struggle with this. The COVID-19 crisis has made that abundantly clear as the technology required to meet these demands continues to fall short. Too many are still living in a paper-based world where information must be pushed into the database of record instead of pulled into it electronically.

Given the history of our industry, this comes as no surprise. Coordinating the efforts of so many third-party settlement services partners in a paper-based world was a challenge from the beginning. With so much information required to close a loan and so many partners needed to provide it, efficiency was never an easy target to hit.

However, as more of the mortgage lending process became digitized, it became easier to get information into the borrower’s file ─ but it still wasn’t always accurate nor did it always get there in a timely fashion. The entire process was still inefficient and fraught with risk.

But, things have changed.

The Digital Mortgage And Its Impact On The Industry

With the advent of electronic lending, the paper documents required to process and close a loan were transformed into data and then delivered it to the database of record automatically. Yet, it was still a disjointed process because each report received from a vendor had to be integrated into the file by the processor. And, because of the risk of human error, many mistakes occurred during the early days of paperless lending.

However, digital lending was something different – or at least it was approached differently.

With digital lending, the LOS deals directly with third party platforms electronically, building the loan file automatically by pulling all necessary information directly into the database of record. This method only requires the services of a human loan processor if an exception is encountered. 

These smarter systems feature open architectures and rely on new AI with machine learning which have changed the game entirely.

Digital lending is as much of a mind shift as it is a technological advancement, and those mortgage visionaries deserve all the credit. The systems they built and deployed fostered a greater trust among lenders and their borrowers.

Today, the process of getting loan data from a third-party service provider is significantly simpler than it was in the past. The connections between systems that once required complicated software development kits (SDKs) are now made with simple calls to software residing elsewhere on the web. The result is that the lender can receive exactly the information required to advance the lending process, often within a fraction of a second.

However, it’s not just third-party settlement services providers that are now connected seamlessly to the modern LOS. By taking a holistic view of the entire lending process, visionaries have discovered that there are also systems inside the enterprise that must be wired into a more efficient process. In fact, the LOS should sit at the center of a complete ecosystem of technologies that can exchange data seamlessly and securely with the lender’s database of record.

When this happens, the lender becomes much more efficient and that leads directly to greater profitability. Of course, this requires the right technology to empower that process. 

The Power Behind The Modern Digital Lender

Today’s leading mortgage technologists don’t look at the mortgage origination process as a single transaction, but rather as one more valuable interaction with the customer. This is especially true for credit unions, the masters of the member relationship. In that world, a 360-degree view of the customer fuels many, if not all, of the transactions between the credit union and the member.

This suggests that the ecosystem should include many more data sources than just the platforms used by the lender’s settlement services partners. Lenders must determine what sources of data will reside within their own ecosystems. How they each configure their platform will constitute part of their unique competitive positioning, in other words, their “secret sauce.”

Some of the platforms we often see connected through this ecosystem include the following:

  • Core banking technologies;
  • Digital banking tools;
  • Borrower engagement tools;
  • Risk & compliance systems;
  • Imaging services;
  • Data aggregation tools;
  • Document management; and
  • Third-party integrations.

Some have suggested that today’s modern micro-services architectures make it possible to call all of these functions from a central processing system that would not necessarily serve as the lender’s database of record. We don’t subscribe to that theory. Today, the LOS is the strong central processing unit that is tied directly to the lender’s secure database of record. It is the hub of the lender’s loan origination process and we expect it to remain so for many, many years. This is why the LOS is so important to the lender’s success.

Naturally, the more robust the ecosystem of service providers who are willing and able to deliver data to the lender’s LOS, the more efficiently the firm will be able to move the loan along. The faster the loan moves through this process, the lower the cost to originate and the more profitable the lender will be.

But, that’s not all. Borrowers and realtors both strongly prefer quick closes and the lenders that can deliver them will always be more competitive than those that cannot. More than that, the industry has begun to embrace technologies that allow for completely electronic closings where parties are geographically separated.

Never before has there been a greater need for technology that fully enables eLending, from digital document exchange to e-sign, e-closing and e-vaulting – the complete e-closing suite.

One final advantage derived from this holistic approach is that with the LOS at the center of a vibrant ecosystem of data providers, the lender is in complete control of every aspect of the loan origination process including loan quality, a very important metric for overall success.

This is a huge step forward from the way the industry processed mortgage loans even a few years ago. It changes the paradigm and makes it possible for lenders, for the first time, to have a 360-degree view of their loan origination process. This is the future of lending.

Nicole Valentin-Smith is director, client management, digital lending and origination at Fiserv, Inc., a global provider of financial services technology solutions.

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