BLOG VIEW: Over the last year, there have been many debates about the role of government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac in the mortgage industry. There are many different opinions, but regardless of where one stands on the policy spectrum, what is clear is that everyone – banks, mortgage brokers and GSEs – need to adopt new technologies to speed up the loan application and approval process.
Here's why: Much of the inefficiency in the mortgage industry stems from the fact that the loan application and approval process relies on legacy infrastructure that hasn't changed in 50 years. In a world where people are buying food, books, art and electronics with the click of a mouse, they still need to spend hours filling out paper forms when it comes time to apply for a mortgage. And once the forms are filled out, they are usually processed manually.
In order to underwrite a loan, lenders require borrowers to verify their financial profile by providing paper documentation, not data, as well as the written opinion of an appraiser, rather than relying on sophisticated automated valuation models.
The GSEs have a mandate to increase homeownership, which invariably means extending credit to borrowers that might otherwise be considered too risky. Pursuing this mandate, while at the same time protecting consumers, lenders, investors and taxpayers, is the challenge.
Using a paper-based system to try to manage this formidable challenge is a surefire way to stay behind the curve and to fail to meet objectives. That's because too much energy is going into clerical work rather than actually moving loans through the process quickly and efficiently.
Many in the mortgage industry continue to feel constrained by what they perceive as onerous government interference. There is also the sentiment that the government is keeping the industry in the Stone Age with its compliance requirements and slow adoption of technology.
While there is no way to force the government to accelerate technology adoption, streamlining processes should improve results even as the policy debate continues. Government agencies, large banks and the GSEs are the trendsetters in this industry, and if they are able to successfully move the mortgage experience from manual to digital, it will push the entire industry toward a more efficient approach with better outcomes.
Rajesh Bhat is CEO of Roostify, a provider of Web-based technology that streamlines the mortgage process.
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