Who originates a mortgage loan? Mostly mortgage brokers, be it as firms or individuals. In some cases, the lending organization itself acts as the originator. A large volume of mortgages are originated by only a few giant firms. However, an equally large volume is originated by thousands of individuals and small firms.
Is the industry going to stay that way, or will it change sometime soon?
Studies and statistics say that the share of proportions is changing fast. However, how fast, is anyone’s guess! A study by Accenture says that by 2020, today’s mortgage originators will have collectively lost 35% of their market share to new entrants and small lenders, who are adopting new operating models. Online and independent lenders, who emerged after the great credit crisis, have already stolen the market share of midsize banks.
Origination comprises marketing mortgages to consumers, assessing their credit-worthiness, verifying the documents and legal papers, identifying the right products for borrowers, processing the mortgages, capturing data, and storing it productively. Steps involved in originating a loan differ based on factors like loan type, loan risks, regulations, and lender policies.
The disruption
The traditional pen-and-paper mode of lending is gradually being replaced by IT intervention, leading to online implementation of almost all origination processes. All that is required is a web portal or a mobile app. Recent trends and projections for the coming years highlight some good news and some bad news for firms. The good news is that loan processes will be quicker and less dreary. The bad news is firms that are failing to gear up will gradually lose business—just like Kodak faded away from the photography industry, or the way tape recorders disappeared when digital disks and iTunes took over.
The traditional model
Sales agents assist customers to understand how terms of payment and interest rates matter before selecting the right product. Agents also help select suitable add-on products like insurance protection for loans. The assistance is available for filling application forms, and the required documents like proof of income, identity, address, assets and liabilities, right up to when the application is submitted. Back-office functions of loan origination continue from that point.
The new self-service model
Web technologies and smartphone apps are revolutionizing mortgage lending. Online-only originators like GuaranteedRate.com, QuickenLoans.com, and Sindeo.com have come up with websites and mobile apps capable of doing everything that sales agents and mortgage brokers did. With uncluttered user interfaces and intuitive algorithms, they can guide even the not-so-tech-savvy customer smoothly through the entire process.
The smart systems help customers calculate loan durations and identify suitable repayment structures. The systems auto-fill customer forms with the right data and provide tips and suggestions depending on the needs of particular customers. All documents, photographs, and signatures can be submitted online, and the systems can verify immediately if the applicant qualifies for the loan. If everything is fine, the whole process will be completed and the amount disbursed in less than 15 days—without any in-person interaction. Quick and cost-effective, such a system also offers customers a seamless experience.
In addition, smart systems provide personal financial management tools and access to other multiple accounts of the user. At any point of time, the customer will have access to all relevant data pertaining to the mortgage.
New firms benefit from big data, analytics, cloud, and virtualization, and are able to come up with market-smart mortgage products. They can analyze customer profiles in no time and offer risk-adjusted products offsetting risk costs. It helps the firms with greater volume of business than one can fetch by sticking to the traditional risk-avoidance model. Moreover, new firms stay embedded in social media, constantly grabbing attention of customers and building rapport.
In short, the coming years will present increasingly complex and highly dynamic environments. Besides immediate implementation, agility in IT development and constant innovation shall be the key drivers of lending businesses.
