A Seismic Shift Has Happened with Even Greater Transformation Coming Soon

The mortgage industry experienced a seismic shift in 2018 with an even greater transformation coming soon. While most mortgage executives have accelerated the adoption of technology to lower cost and increase speed in their operations, customer expectations have evolved at a faster pace than the mortgage industry. As more mobile apps, startups, and tech companies meet these demands in all industries, consumers are looking for more value and personalization from their lenders.

Just look at the radical increase in competition in just one single year.

Digital is the new normal, and mastering technology is no longer a competitive advantage. Homebuyers and homeowners are doing everything in life using technology and mobile devices, and they don’t see them as something separate from their non-digital lives. E-commerce is just business as usual. Smartphones are just phones, and digital wallets have increasingly become our “wallet.” Historically, we have talked about the digital mortgage or online communication as an alternative to the traditional offline process, but today’s consumers don’t differentiate and they want both simultaneously. The line between digital and physical or online and offline will continue to blur, and that’s only the beginning.

We’re barely into 2019 and Ellie Mae, the largest tech company in the mortgage space, has been acquired for $3.8B, and Zillow just told us last week what the future of buying a home looks like. On the earnings call today, Barton said, as a homeowner, you have been “Uber-ized,” meaning you expect complex things to happen with a push of a button on your phone (and it should, duh). Zillow wants to be the company that does that for your next home. We just read a great article called Zillow Just Told Us What The Future of Buying a Home Look Like by Julian Hebron in The Basis Point check it out for a great synopsis on Zillow’s impact on the real estate space this year.

Mastering technology to deliver a faster, more efficient mortgage is a requirement for survival. “Embracing” tech was sufficient in 2017, but today if you want to thrive, lenders and loan officers must master the high-tech, high-touch advice-based lending experience.

THE DIGITAL SHIFT:

According to Steve Brown, former futurist and chief evangelist for Intel, we have gone through three major shifts in the way we work and deliver customer service. The first was what he calls the “physical era of work,” in which the primary source of work depended on your ability to perform physical labor (i.e. hunting, field work, etc.). This later shifted into the “knowledge era of work,” in which your work is measured by how much you know. You personally are providing the advice and expertise. A homebuyer would approach a loan officer, for example, with the expectation that they have the expertise and therefore would own the process.

Today, Steve says, we have stepped into the “augmented era,” or what we will refer to as the "digital shift era". This era is built upon a foundation of digital tools and automation that free up the provider to deliver a smarter, more optimized experience to the consumer that ultimately empowers the consumer to own the transaction. The digital shift is about understanding that we're moving from an offline process that was driven by the industry to a buyer driven process that has the customer at the center of the transaction. CLICK to watch a 10-min interview with Steve and hear for yourself.

THE DIGITAL SHIFT in mortgage:

The digital shift in mortgage began in the real estate space when Zillow disrupted the MLS in 2006 and made home search available on everyone’s mobile devices in 2009. This was the first significant shift from a Realtor-controlled process to buyer-controlled.

The official arms race in the mortgage industry started with the launch of Quicken’s Rocket Mortgage during a Super Bowl commercial in early 2016. This commercial was not only the talk of the industry, but it was a mainstream news event. Since this time, we’ve seen startups raise serious capital. According to FinTech Global, $40.3 billion was invested in the Marketplace Lending sector between 2014 and 2018, across 1,219 deals.

A new tech stack category in the mortgage space was created called POS (Point of Sale), which made it easier and faster for borrowers to complete a mortgage application online, and it made it faster and more profitable for lenders to process and approve mortgages. Today, we’re at a point where most lenders have either installed and deployed a POS or they are within 12 months of having optimized the point-of-sale experience for borrowers. 

Local lenders are well aware of the race against time to speed up and streamline the origination process. In 2019, no one is accustomed to waiting. Consumers can order groceries to arrive within hours, ride services within minutes and book a hotel within seconds from their mobile devices. Meanwhile, it still takes an archaic average of 44 days to close on a home loan. According to a 2018 study released by the Consumer Financial Protection Bureau (CFPB), borrower satisfaction with closing among younger applicants is diminishing.

“It’s time for the mortgage industry to stop using taxi driver strategies in the age of Uber. Uber and Lyft drivers use their mobile app with every customer. It’s time for mortgage pros to use their mobile app with every client for every mortgage experience.”

While local lenders try to solve for these issues in the midst of a heavily regulated and costly origination process, their efforts seem futile in comparison to the rapid pace of change in technology. Last year, tech giants in real estate, Zillow and Redfin, announced their own mortgage companies, and it’s anticipated Amazon will enter the mortgage space in the future.

Steve Brown says lenders need to think about “WACD” -- or “What Amazon Can’t Do.” “Imagine that five years from now, Amazon has crashed into the mortgage market. What can't they do that you can do? And start doing that now.”

THE DIGITAL SHIFT ERA

The digital shift thus far in the mortgage industry has still largely been about how to create value for lenders by optimizing their speed of applications, processing and origination. However, the digital shift is about much more than a faster, more efficient experience. The real shift is about the consumer’s empowerment. Herein lies the opportunity for lenders to remain competitive in a futurist’s world run by Amazon. 

Digital Shift as empowerment through personalized advice

Most loan officers lose 70% of their past customers and still rely on outdated methods of referrals from Realtors. While real estate agents were previously the gatekeepers to customers, in the "digital shift era" where consumers are leading the transaction, local lenders need to adopt a new model to generate business. The new model should deliver a greater value prop to consumers by empowering them to make smarter financial decisions throughout the customer experience.

According to Francis Lobo, Chief Business & Product Officer at Mr. Cooper and former WeWork C-suite executive, one of the largest opportunities in the mortgage industry that is ripe for disruption is providing consumers with helpful information to make smarter decisions about their home finances. With the vast availability of personal data, consumers are growing accustomed to receiving advice tailored to their unique situation, and there are benefits for consumers to better understand how their home fits into their broader financial picture.

Lobo says lenders could also benefit from helping their customers manage their home as a financial asset. He explains, “Once you buy a home, it's the place you live in, but it's also the largest source of wealth creation in the country. So, if you can support consumers with information and tools to help them manage their homes in a smarter manner, whether it's as simple as payment tools, as foundational as debt consolidation, or opportunities around home value or maintenance or just understanding what is happening in your neighborhood, you can make a real large and positive impact.”

While homes are the biggest asset that most families have, they are almost never strategic around it, and it's completely off their financial planners’ radar. Financial planners only worry about assets and diversification of those assets, but no one is managing mortgages or houses. This reveals an untapped opportunity for lenders to empower the consumer through advice.

Lenders and loan officers should be using technology to optimize their advice to be seen as a vital part of the transaction. In the era of empowerment, knowledge and expertise is optimized through AI and the loan officer becomes the navigator or guide through that information. The shift here is that the consumer is the one empowered through the personalized advice, optimized by technology.

How local lenders compete in the DIGIAL SHIFT ERA

Local lenders need to step outside of the box that limits technology as a means to improve efficiencies and move into the bigger picture of consumer empowerment.

To compete with the tech giants, local lenders should compete by appealing to their humanity. However, this does not mean business as usual. This means partnering with technology to optimize productivity, technical execution (loan origination and processing), and advice so that loan officers can focus on being the guide to the consumer. The loan officer should be freed up as much as possible to spend their time building relationships online and offline, offering education, and being a guide for their customers. Technology MUST enhance the human experience with the goal of empowerment.

CLICK to see a real-world example of how modern mortgage advisors are helping borrowers make more informed decisions and leveraging technology to deliver a rich, personalized experience that includes a personal video and transparency beyond the typical mortgage experience.

The standard for service is around how successful you are at integrating technology to save time, reduce costs, and deliver value to your network. The competitive advantage is how you empower the consumer to make smarter decisions. Local lenders will compete based on how good they are at packaging and marketing advice-based experience in a way that creates perceived value over low cost and online lenders.

Written by Kristin Messerli and Dave Savage.