Despite High Frequency of ‘Fool's Gold,' the Digital Mortgage Gold Rush Is On
By Kyle Kamrooz
August 7, 2018
Kyle Kamrooz is Co-founder of Cloudvirga, Irvine, Calif., a digital mortgage platform. He has 18 years of senior/executive management experience in residential mortgage lending. Since co-founding Cloudvirga in 2016, he has led the company through multiple rounds of investment funding, set the vision for its flagship POS systems, forged partnerships with leading mortgage service providers, and signed eight of the top 40 non-bank mortgage lenders. Kamrooz serves on Fannie Mae's Technology Advisory Board and is a member of the Mortgage Bankers Association, where he has served on the Loan Production, Legal and Regulatory Compliance and State Legislative & Regulatory committees.
For those who thought there was nowhere to go but up after a dismal Q4 2017, the news remains grim. The first quarter of 2018 saw average production expenses swell to a record high of nearly $9,000 per loan, and net profits were non-existent; independent mortgage banks reported a net loss of $118 on each loan they originated in Q1.
The mortgage cost problem is no longer an academic one, and many lenders are wondering when their digital mortgage technology will deliver on its promises of greater efficiency and increased profitability. As a case in point, consider that one of the nation's largest lenders, who declared itself progenitor of "the world's first digital mortgage," recently announced layoffs of 180 employees.
The problem is that most lenders haven't yet implemented full digital mortgage technology. Those who think otherwise have been sold "fool's gold." Our industry has been hoodwinked into believing that by offering a digital loan application--and perhaps even enabling loan officers to co-browse with borrowers to help them fill out form fields--we are "digital mortgage ready."
Make no mistake: digital applications and borrower collaboration portals are important. There are more active mobile devices than people in the world today, so enabling borrowers to apply for loans, upload documents, verify assets and other direct-source data and check loan statuses from a mobile device is a no-brainer.
The point is that these capabilities have become table stakes. Lenders who don't have them will soon lose their seat at the table in today's high-stakes lending game. But taking a digital loan application or enabling borrower-LO collaboration is NOT synonymous with originating a digital mortgage. Rather, these tools represent only a small part of the digital mortgage whole. They get you in the game, but they're not sufficient to win it.
The Real Digital Mortgage is Worth its Weight in Gold
The autonomy and transparency offered by digital applications are no replacement for expert loan officer assistance. Borrowers are not mortgage experts, so they need help understanding and choosing from the various loan products on offer. Most online tutorials are not sufficient to convey the minute differences between a 90% FHA loan, an 80% first mortgage with a 10% line of credit and a 90% with mortgage insurance--and those are fairly basic examples.
This truth bodes well for the long-term importance of loan officers. And since loan officers are sticking around, it follows that tackling the mortgage cost problem requires technology that streamlines not just the borrower experience, but the actual manufacturing of the loan.
Loan officers shouldn't have to jump between several software tools just to identify which loans are the best fit for a given client. They don't want to collaborate with the borrower in one system, get pricing or fees from another system and structure the deal in still another system. That's the old way of doing business. A full digital mortgage platform rolls all those processes into one point-of-sale experience, so loan officers can perfect the loan with great efficiency without sacrificing borrower collaboration features like texting, chat and status updates.
Of course, a digital mortgage platform doesn't just make the loan officer's job easier - it also automates numerous back-office processes. Since personnel expenses account for most of today's loan production costs, streamlining the back office can deliver massive return on investment for lenders.
Already, several forward-thinking lenders have demonstrated that it's possible to close a purchase loan in 14 days--but it still takes two or three times that long to close the average loan. Until we embrace technology that makes these achievements the norm and addresses the root causes of rising loan costs, production expenses will continue to eat up margins.
A true digital mortgage platform leverages data to work more efficiently on every transaction, not just edge cases, and thinks beyond the initial application to consider downstream implications across all the various loan products (i.e., conventional, government and non-QM loans). The cost of a digital mortgage platform becomes easy to justify once lenders see how much faster they can lock in borrower commitment and how much time and effort they can save loan officers and back-office teams while still enabling a slick consumer experience.
In this tough mortgage environment, lenders cannot afford to sit out the digital mortgage gold rush. Your digital application is scratching the surface, but to hit the mother lode, you must dig deeper with a true digital mortgage platform.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)