Better Lending! The case for Mortgage Digitization - Cognizant Perspectives

After years of obsessing over regulatory concerns, mortgage banks and financial institutions are now looking to advanced digital technologies to inspire process innovation. And given the momentum of fintech insurgents, the timing couldn’t be better. 

One key focal point is the laboriously manual activity of all things mortgages. By transforming how mortgages are assessed, processed, and granted, digitization will improve customer experience, cost containment, asset quality and risk, and regulatory compliance efficiency. Mortgage lenders that ignore or fail to respond risk irrelevancy.

In part one of a two-part series, we examine the “why” of mortgage digitization. Part two reveals a detailed path for digital mortgage success.

What Is Mortgage Digitization?

Mortgage digitization can be best understood by examining its innate characteristics. 

Processes/tech transformation.

Digitization optimizes non-customer-facing processes through modern technology that is used to deliver a superior customer experience.

Deep insights into customer needs.

Digitization allows banks to more effectively target their customers with relevant, thoughtful, and more appropriately timed offers. 

Innovative products and services.

Inherent in digitization is innovation, which supports a redesign of products and services based on customer research, segmentation, and analysis.

Personalized and stellar experience.

Digitization provides a consistent, convenient, and synchronous customer experience across all channels and devices.

Business model disruption and innovation.

Digitization is a business disrupter that prompts lenders to adopt new business models while supplying in-demand digital products, pricing and packaging.

Figure 1

Where Do We Fall On The Maturity Scale?

An organization that fully embraces digital processes will demonstrate maturity in its program capabilities and execution. Successful organizations will deploy a customer-centric model that allows for flexibility when customer behaviors and expectations change (e.g., how and when to be engaged, enhancements in personal technology such as phones and tablets, and multichannel preferences).

Leaders embody qualities such as team structuring, customer journey maps, project management experience, and capabilities such as organization agility, process innovation and sophisticated design and technology architecture. The following are key digitization traits that successful mortgage lenders display:

• Organizational agility: Organizations with a nimble operating model and agile methodologies will be better equipped to adapt their digital strategies as customer behaviors and technologies change.
• Process digitization/innovation: The progression toward a fully digitized mortgage process requires a fresh perspective obtained via process reengineering in order to simplify and redefine lendee convenience.
• Technology and architecture: A flexible, agile, contemporary architecture/framework is required for complete digitization.
• Data and analytics: Data and analytical capabilities that predict and meet needs are essential for adjusting digitization strategies in real time.
• Experience design: Designing a stellar customer experience and competitor differentiation across all channels is a key element of success. 
• Team structure and skills: At the peak of the digital mortgage maturity curve, the organization will maintain team structures with a complementary mix of skills and defined roles.
• Customer segmentation: Digitization equips lenders with the tools to gain a deeper understanding of customer wants and needs.
• Customer journey maps: Customer needs are supported through a deeper understanding of their preferred interactions via journey maps.
• Multichannel approach: Multiple modes of communication (e.g., text message, e-mail, etc.) allow customers the flexibility to use features how/when/where they want.
• Customer offer and service orchestration: Personalization is further advanced by capabilities that enable mass customization.
• Project execution: Program management and governance that thrive on digitization will deliver long-term sustainability. 

Although these capabilities are the foundation for success, the industry is still evolving and essential customer segmentation through hyper-personalized services and offers remains a work in progress.

The challenge set before mortgage lenders and servicers is to bridge the gap between current systems and platforms and the “ease of use” customer-centric systems and features that are already the norm in other industries. For example, a consumer can already download a movie, and order food and clothing online or on her smartphone without ever dealing with a cashier or customer sales/service representative. Naturally, they’ll increasingly reach for “push button” mortgages a la the mass advertised and well-rated loans from Rocket Mortgages. 

How Digitization Benefits Lenders

Simply put, the benefits are tremendous. 

• First, digitization allows lenders to further automate compliance processes and remove manual interference. For instance, enhanced digitization of the TRID review process will more effectively automate the review, leading to lower error rates with fewer resources.
• Second, competing on only products and services is no longer enough. A survey conducted by the White House Office of Consumer Affairs found that 80% of U.S. consumers will pay more for a better experience. For the mortgage industry, digitization is the key to that experience. In addition, younger generations often prefer digital technology as a self-service tool to meet their needs. 
• Third, digitization can improve asset quality. A fully digitized mortgage process allows for expanded automation of underwriting, processing, closing, and quality assurance capabilities. For instance, within processing, technology may be deployed to not just upload and store a digital copy of a borrower’s W2 in the lender’s file system, but actually “pull” wage data into the loan origination system (LOS) from the document or direct sources. With fewer defects, better efficiency, and additional cost containment, asset quality will only improve.

Ultimately, the improvements realized through digitization and the benefits to compliance, customer experience, asset quality, and efficiencies lead to a more streamlined, faster, and less expensive mortgage process. 

In part-two of this series, we’ll examine how lenders can digitally transform their mortgages to better meet market needs and compete for (if not win) tomorrow. 

To learn more, please read “The Path Ahead For Mortgage Digitization,” visit our Banking & Financial Services Practice, or contact us.