PERSON OF THE WEEK: Rajesh Bhat is CEO of Roostify, a provider of automated real estate transaction technology. MortgageOrb recently interviewed Bhat to get his take on the challenges of bringing the ‘end-to-end’ e-mortgage to fruition, what the advent of mobile banking means for borrowers and mortgage lenders, and how security considerations will change in the future.
Q: What has kept an end-to-end electronic mortgage (e-mortgage) from coming to fruition up until now?
Bhat: It comes down to three things:
1) Consumer aptitude and demand: Consumers these days are much more accustomed to sharing sensitive information and transacting online. To first-time home buyers in particular, anything requiring a pen or a printer seems antiquated. This is a real shift from even five years ago, when e-signatures were less ubiquitous and the idea of sending money from your phone was just catching on. In order for the e-mortgage to become viable, the consumer must initiate the process. The consumer is now ready to do so.
2) Lack of end-to-end integration: The mortgage industry has done a great job in integrating back-end technologies over the last few years. The loan officer-to-investor experience is now highly automated. However, with mortgage application tools and "point of sale" solutions remaining centered on the 1003, the borrower-to-loan office experience has been remarkably offline. With the advent of ability-to-repay and the qualified mortgage, there is an opportunity to leverage sophisticated, secure APIs to allow borrowers to automate and digitize their mortgage application.
3) Regulatory adoption: The Consumer Financial Protection Bureau rules and guidelines that took effect this past January enforce consumer transparency and incentivize use of integrated technologies. At the same time, more investors have started to accept electronic or digital signatures on transaction documents. This has long been a hurdle to keeping a transaction electronic all the way through closing.Â
Q: What expectations should mortgage originators have of first-time home buyers?
Bhat: First-time home buyers are handling more and more of the buying experience on their own in order to have greater control over the experience. Mortgage professionals must, in turn, think about where the crossroads of process and technology meet the do-it-yourself home buyer.Â
First-time home buyers want to do everything in one place. They expect an integrated online experience for any product or service. They don't want to find a vacation rental online only to have to contact the person via email, wet sign and mail a rental agreement. They want to find, book, communicate, pay and provide feedback about the experience all in one place. And they expect the same with the mortgage application and closing process.
This is a generation of borrowers who want to transact where they want – from any place and any device – and they want to be able to check the status of a transaction at the touch of a button. Logistics companies recognized this consumer desire awhile ago and rolled out online tracking systems. This desire is now a need and part of a lifestyle.
Q: How will the increased use of mobile devices change the mortgage business?
Bhat: Nearly one-third, or 32%, of U.S. consumers engage in mobile banking at least once a month. While many may just be checking account balances, more and more are engaging in activities that reduce costs for banks, such as mobile check deposits, money transfer and mobile bill pay. In fact, the rate of adoption is growing, with the survey reporting a 50% increase among respondents indicating that they use mobile banking solutions.
This trend extends to the mortgage space. With originators' focus shifting to home purchases, it should be of interest that nearly 70% of home shoppers use mobile apps during their home buying process to compare home prices and review listings. While the same home buyers (many of whom can be expected to bank online) are excellent candidates to engage with lenders over mortgage-related mobile apps, few do more than quote rates. Borrowers who are mobile banking expect to be able to do more within the mortgage process over their phone.
Q: How will the new mortgage rules change consumer behavior?
Bhat: The new mortgage rules have changed the order of how things are done. More lenders are running things through their secondary mortgage purchaser's systems further up front in the process in order to issue a decision. Loan officers will want all of a borrower's hard documentation up front in order to create a full loan file at the very beginning and identify the best product options for their client. Once borrower documentation is on-hand, loan officers will look to identify issues or inconsistencies in income and asset documentation automatically, rather than having to wait for their underwriter to uncover it.
Q: How will security considerations change in the future?
Bhat: A few years ago, I attended a speech on cybersecurity by Michael Hayden, the former CIA director. He provided a great analogy of the future of cybersecurity being a three-legged stool, with privacy, security and ease-of-use each representing a leg. If one of those goes away, the stool will fall.
While the Facebook generation feels more comfortable sharing sensitive information online, clearly emphasizing the ease of use, they still have expectations about security. A secure service is table stakes now – and the moment that an online service breaks the promise of trust and privacy, it risks its viability as a going concern. Secure solutions that are not easy to use or impede privacy tend to not see a lot of adoption. Fortunately, concepts like two- and three-factor authentication and client-side encryption make securing online services simple while preserving ease of use. Look for more trends like this in the future.Â
Q: How do you see the growth of mobile banking affecting lenders and regulators?
Bhat: This is a great forward-looking question that I continually discuss with my partners, clients and others in the mortgage sector. Like batters that would fear Trevor Rosenthal's two-seam fastball, many lenders fear regulators are slow to grasp how smartphones are shifting consumer-banking behavior. Regulators will need to work closer to banks to implement higher standards for securing an individual's financial and credit information from identity theft.
Lenders have already recognized mobile banking is a lifestyle for over 90% of Gen X and Gen Y consumers. We will see the continued development of additional mobile apps that speed banking transactions, especially in the mortgage approval process.