As several experts laid out in Housing Wire’s webinar on blockchain and mortgage in 2021 – blockchain is no longer “a solution looking for a problem” in housing finance and has come a long way since its associations with cryptocurrency. In fact, it could prove to be the fix to several long-term issues.
So, let’s lay them all out…starting with the broken credit application process.
Here's why that's not working:
Poor borrower (consumer) experience
Borrowers are asked to complete a similar credit application each time they apply for a personal mortgage loan, even if their personal information has not changed..
Loan processing and approval is taking too long
This part can take 30, 45, even 60 days+ to approve a loan which means huge costs for mortgage companies that have to hire and maintain a large staff to keep up with the volume. And those extra costs hurt when the startup technology cost is an estimated $5,000 for each new employee.
Low interest rate doesn’t mean everybody is making big money
If borrowers are benefiting from the lower interest rates and loan officers/processors are making good money off the volume, how much money are lenders really making after accounting for early payoff demand rollback? There’s a lot of money left on the table for companies who don’t know when their borrowers are going to ditch them for a better deal.
Most mortgage companies don’t know cybersecurity
We know by now that firewall and data encryption isn’t enough to ward off cyber criminals and a part-time engineer is definitely not enough to prevent data breaches. The risk of losing a borrower’s personally identifiable information or PII is huge.
Next, let’s talk about mortgage companies treating all incoming leads equally.
Companies buy leads and load those into a platform that reaches out to the contacts. The average conversion rate that way is around 2 percent and the average marketing cost per converted lead is around $2,500. That’s on top of call center infrastructure and human resources costs.
Then there’s that long loan application status, as outlined above, which takes 30 to 60+ days, multiple conversations, emails and touch points between the loan officer, loan setup, processor, underwriter and the borrower. That means, not all of those loan applications actually turn into funded loans which means wasted time and money for mortgage companies.
I spoke to a mortgage executive who was content that his company closed around 30 percent of all loan applications started. But that means, 70 percent of the time, he’s wasting time and money.
The third problem? Mortgage companies don’t do a good job mining and analyzing their existing borrower database. Some use the “Shark Tank” concept to remarket to existing borrowers. Some use internally built data warehouse applications. And some advance to data mining tools such as Snowflake or Tableau.
Many companies have mechanisms in place to alert their sales teams if existing borrowers are having their credit pulled by another company so they can reach out to try and retain the borrower. But in many cases, it’s too late.
And all of these problems exist on top of a cultural change in terms of what borrowers expect these days. Most want an Amazon-type experience, which lets them take control of when and what information they want to share, and how they want to share it. Yes, just point, click and buy.
Millennials don’t want to sit on the phone for a long time to get answers. They’d rather authorize vendors or service providers to get that information for them. Plus, they want to pay for everything online, including their mortgage. When was the last time any of us sent in a mortgage payment via snail mail?
And with all those issues, the mortgage companies that can fix them will win, especially when interest rates go back up and competition for borrowers gets tougher.
So, here’s how mortgage companies can overcome these problems:
Build a blockchain environment that can be used as the borrower’s PII data repository platform.
The information is secured, immutable and sharable with a very strict level of authentication and authorization. Once the borrower data is securely stored in the lender’s or servicer’s blockchain environment, it can be reused for future business transactions. It is truly a “One and Done” experience.
Implement an artificial intelligence (AI) solution that can be used to identify, validate, and prioritize the highest-valued borrowers for immediate contact.
These are borrowers that qualify for the offered loan programs, have high interest in loan purchasing or refinancing, and have strong mortgage worthiness profile. Call these borrowers first and stop wasting time calling everybody.
Give borrowers their Amazon experience
An online application process that could cut the 30-to-60-day wait time down to 10 days. Point, click and get approved!
By successfully implementing and integrating these three concepts into their core lending processes, mortgage companies will save time, money and increase borrower satisfaction and happiness.
Michael H. Wilson is the President and Managing Partners with Dragon9 Partners. He is an experienced Mortgage and Technology executive. He held executive leadership positions with Plaza Home Mortgage, Option One Mortgage, First NLC Financial Services, loanDepot and Impac Mortgage. Mike received his MSEE degree at Loyola Marymount University and BS in Applied Mathematics/System Engineering at UCLA.
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