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Moving to a Real World of “Instant Mortgages”

Bai Horizontallockup Primary Spot

BAI Banking Strategies

As featured in BAI Bank Strategies 

Stephen Butler, January 18, 2019 

You may have seen advertisements for “Mortgage approvals in minutes!” using a mobile phone. These ads often run during halftime of a football game, or before our favorite prime-time TV shows. The “approved in minutes” concept has grabbed the attention of many consumers, but those of us in the mortgage industry know that behind the marketing gimmick lies the same old laborious mortgage approval process (on the back-end). And if an underwriter does not agree on an applicant’s credit-worthiness, that initial approval simply sets up consumers to be disappointed weeks later.

The true game-changer will be when an actual approval, complete with underwriter support, takes a matter of days or hours, rather than weeks. It’s important to know the difference, and what it will take to get us to a real world of rapid approvals. Artificial Intelligence, machine learning and automation will play an important role in making 1-2 day mortgage approvals a reality.  

Separating Myth from Reality

First, we need to separate myth from reality when it comes to speeding the mortgage approval process. Let’s start by looking at what happens on the front-end and back-end of a current technology-based mortgage system. On the front-end, you may submit some figures online, such as your income, assets and credit score. What you may get back in minutes, or a short period of time, is an estimated pre-approval for a loan. This is only an initial estimate.

Next, you will need to support the numbers that you entered on your phone or PC by submitting actual documentation for income, assets, liabilities, credit rating, etc. Then, these documents are sent to a large facility filled with people who pour over the documents in detail, asking questions and requesting more information. This creates a bottleneck that turns an “instant mortgage” into a much longer process, which is similar to a traditional mortgage.

On average, it takes about three weeks to close a mortgage, including underwriting and all the necessary approvals. And, the later stages of this three-week process are where approvals may get denied, and loans may be turned down, leading to people losing the house that they wanted so much.

Moving Toward Real-World Instant Mortgages: AI Leads the Way

To truly get the mortgage application and underwriting process from three weeks down to 1-2 days, we need to enlist the help of technology, namely artificial intelligence (AI), machine learning and automation. AI can make the gathering, reviewing and verification of mortgage documents much faster and more accurate. It can turn the mortgage application process into more of an “assembly line” system that not only moves faster but has fewer errors and is much more efficient. Documents can be automatically scanned, processed and verified quickly using AI, and consumers can see what the current status of their mortgage application is, and what, if any, additional information is required. This type of real-time information and interaction can help spare consumers the emotional swings of being pre-approved one day and then rejected the next.

In addition, this AI-based automation would enable mortgage lenders to put new power in the hands of consumers, because they could help eliminate mortgage contingencies and compete more effectively against cash buyers. According to a report from Attom Data Solutions, reported in The Wall Street Journal, 28.8 percent of U.S. home sales in 2017 were all-cash transactions. Being able to compete more effectively against cash buyers can be important as housing inventories get tighter and people face more competition when buying a home. It will also be a competitive advantage for banks and lenders to be able to provide these rapid approvals to prospective home buyers.

For a bank or lending institution, this AI-based process can surprise and delight customers in a way that could not be done under the old manual methods. Consumers, especially millennials and other young buyers, are expecting instant, “Uber-like” experiences in all aspects of their lives, so the time is now for the financial industry to embrace change and create a better customer experience by tackling back-office processes that are ripe for automation. According to a story in USA Today, Millennials are buying more homes than any other generation, making up 36% of home buyers in 2017.

At the same time, this AI-driven approach helps banks and other lenders make data more actionable, allowing teams to identify, understand and use information in a way that they never have before. This can improve efficiency and make staffs more productive, while also freeing up staff time for more customer-facing work that can help build the business.

Improved efficiency is important, as banks and lenders face even greater cost pressure and competition, which will lead them to look for new ways to improve productivity and reduce costs. In the months and years ahead, AI and automation will become more widely used as a way to achieve productivity and cost reduction goals. And, consumers will become more educated and aware of the “instant mortgage” concept in the near future, and with that their expectations for a faster, more predictable experience will increase.

In all, it is important to know what is real and what is not in the new age of instant mortgages. While there is progress that needs to be made, AI and automation will help us significantly improve the time to close a mortgage, allowing banks to surprise and delight consumers. This is good news for lenders, home buyers, real estate agents…the entire industry.

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