The traditional loan origination process is well-known for including several manual, paper-based underwriting steps that cost borrowers in time (and stress) and lenders in resources. According to a recent J.D. Power Survey, 68 percent of customers have to provide additional documents after completing the loan application process, and 48 percent of customers were asked to provide the same document more than once. The outdated process isn’t just costly for the borrower. MBA’s Quarterly Mortgage Bankers Performance Report found that inefficiencies in the home loan origination process drove personnel expenses to an average of $5,131 per loan in the fourth quarter of 2015, compared to $4,674 per loan in the third quarter of that same year. Loan production also stalled to 2.4 loans originated per production employee per month.
- Rising consumer expectation of convenience and technology:
Today’s borrowers count on the convenience and efficiency of technology, especially when millennials make up the largest share of homebuyers. These individuals in particular are doing everything online, and cannot understand why they still have to locate and submit multiple paper documents to secure a loan. Accenture’s 2015 North America Consumer Banking Survey revealed that when choosing a bank, online banking services are a key factor for millennials. The generation was also 15 percent more likely to switch primary banks in the past 12 months than people 55 and older. Millennials desire a personalized and seamless banking experience, and that preference does not change when it comes to the home loan origination process.
- Increasing fraud projections:
CoreLogic predicts that 2016 could reach the highest mortgage fraud risk since 2010. In addition, this growth in fraud risk is actually attributed to areas that were previously considered low-risk. While all banks feel the impact of a fraud scheme, for smaller community banks the results could be devastating. Consider this one example reported by the FBI: from 2005 to 2013, two men in Pennsylvania orchestrated a massive fraud scheme that cost banks almost $13 million dollars. Mortgage schemes that use false documentation to secure loans are unfortunately all too common, and they don’t appear to be slowing down any time soon.
- Continued uncertainty for Government-sponsored Enterprises (GSEs)
In today’s lending market, 85 percent of the 8.7 million loans originated in the U.S. are later repurchased by GSEs. Outdated, manual processes pose big risks for this stakeholder, too. A process that uses paper-based evidence of assets makes it harder for investors to determine loan quality when they look to buy the loans.
- Automating Asset Search and Verification
Banks are increasingly implementing automated asset search and verification. However, they need to choose wisely when implementing a solution. Automation isn’t just about speed; data accuracy and quality are even more vital to making smart lending decisions and preventing fraud. Many simply expedite the process on the front end by screen scraping and data aggregation, but the data gathered in this way often does not give banks the level of insight they need. Rather than adding solutions that don’t solve the full problem, lenders should evaluate whether a given solution is capable of systematically verifying liquid asset information using collaborative, shared data.
Every lender is managing competing priorities: closing loans faster, strengthening loan portfolios, meeting borrowers’ demands, and now – thwarting added fraud risks. As they look to technology to automate new areas of the lending cycle, lenders that invest in updating their asset search and verification processes will be able to tackle several issues at once. What may seem as one, small aspect of the entire loan origination process in many ways represents lenders’ biggest opportunity to positively impact their businesses and more importantly, their borrowers.
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