It’s finally happening. After years of focusing on regulatory requirements to strengthen housing finance, the mortgage industry is revamping its traditional processes and going digital. The goal? Speedier transactions, lower costs and fewer processing errors.

But there’s yet another compelling reason to embrace the industry’s digital reinvention: New tools can help knock down barriers to entry for hard-to-reach consumers traditionally overlooked by the mortgage industry. Cultivating business in untapped borrower segments can help lenders gain an edge in an increasingly competitive mortgage market.

Competition Heats Up

Rising interest rates and lofty home prices, combined with new restrictions on the deductibility of property taxes and mortgage interest under the Tax Cuts and Jobs Act (TCJA) of 2017, are making homeownership more expensive, and consumers are growing cautious. Total mortgage originations — including new and refinanced mortgages — were down 17 percent in 2017 and are expected to decline another 6 percent this year, according to the Mortgage Bankers Association.

Meanwhile, consumers’ preferences for a more streamlined, digital experience becomes clearer each year as online lenders gobble up more market share from traditional banks, which are still in different stages of transitioning to newer technologies. Last year, nonbank lenders — meaning those with no depository business — accounted for the majority of all mortgage transactions for the first time ever. Six out of the 10 largest mortgage originators were nontraditional companies, according to Inside Mortgage Finance, which tracks trends in the residential mortgage market.

“Lenders who want to survive and even thrive in an environment with these macromarket-driven headwinds should be making every effort to eliminate friction in the mortgage application and approval process,” says Daren Blomquist, senior vice president at ATTOM Data Solutions, a real estate analytics firm. “Moving toward a digitized mortgage is a key way to achieve this.”

“Digitization should not be a question of if it will happen, but when it will happen,” says Kevin S. Parikh, CEO of Avasant, a Los Angeles-based management consulting firm, and author of Digital Singularity: A Case for Humanity. “People expect complete digital and omnichannel access to their business partners and services. Businesses that do not make this investment will be left behind and quickly disrupted by challengers in the emerging digital economy.”

Leveraging a Digital Platform

Digitization can begin early in a consumer’s homebuying process with online primers on the purchasing process and interactive tools to analyze buying readiness, says Rick Lang, vice president of Freddie Mac’s Loan Advisor platform. From there, more sophisticated technology is available to handle the mortgage application and underwriting processes. Even alternatives to traditional appraisals can be conducted digitally, by analyzing historical data and public records to size up collateral risk and valuations, he says.

These technologies eliminate the need for in-person meetings, paper shuffling and manual data transcription, potentially reducing costs by 25 percent or more and shaving weeks off of a transaction’s time frame, adds Dan Ashdon, vice president of product capability at Freddie Mac.

If leveraged wisely, these tools can also help clear the way to homeownership for consumers who have traditionally posed a big challenge for mortgage lenders, such as people with no W-2 income, little to no credit history or limited liquidity to put down a 20 percent down payment on a home. The age-old process of compiling documents, culling data and crunching numbers is particularly cumbersome and risky when credit issues and income complications are in play. Digitization provides speedy analysis of potential borrowers’ ability to afford a mortgage and improves the accuracy of the process.

“With a manual process, omissions could be overlooked or take hours to uncover,” Lang says. “A digital system will flag it instantly.”

Furthermore, lenders, particularly bank lenders, have troves of data on depository customers, the kind of data that nonbanks have to pay for. Surprisingly, only 10 percent to 15 percent of consumers have mortgages with their depository bank, Lang says. But banks can potentially increase that percentage by leveraging data to reach out to depository customers and proudly marketing the benefits of their digital platforms.

Going for Growth

The big prize for traditional lenders who are savvy about leveraging digital capabilities is the ability to compete for business among Millennials, many of whom are in the early stages of savings, are self-employed and have short credit histories. Millennials have been notoriously slow to step into the housing market. Just 37 percent are homeowners — 8 percentage points fewer than Gen Xers and Baby Boomers when they were at the same 25- to 34-year-old age range, according to the Urban Institute, a social and economic policy think tank.

It’s not that they’re slackers — one-third of the U.S. labor force is made up of this generation, born between 1981 and 1997. But they came of age during the 2008 housing crisis and recession. A wariness, combined with hefty student loan debt and marriages later in life, has kept many of the 56 million Millennial workers on the sidelines of homeownership.

As they trickle in, this tech-savvy generation is likely to have little tolerance for a lengthy face-to-face and paper-heavy mortgage process, Lang says.

Indeed, consumer expectations are high across the board, and traditional business hours are a thing of the past. “Real time is the new standard,” says Suzanne Dann, general manager at Avanade, Inc., a global digital innovator for businesses worldwide and joint venture between Microsoft and Accenture. “The expectation is consumers can get an answer to any question and get served relevant and timely content to make a decision or execute a transaction any time of day without talking to a person, much less visiting a physical location.”

Going digital is a journey that requires lenders to rethink their business, including processes, talent and how they measure success, Dann says. “Companies that embrace digital transformation can create more targeted and personalized consumer interactions, modernize their business operations and ultimately gain efficiency.”

This article originally appeared at

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