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Why Data Modernization Should be a Priority for all Lenders and Bankers

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Before the pandemic, mortgage companies were already under attack from fintech and nontraditional lending organizations. Most businesses didn’t have much to say about how the changing competitive landscape would impact their lending programs, so it seemed like the mortgage and banking industries were happy with how things were going. They mainly relied on the relationships they had built with their customers.

However, in a post-COVID world, digital technology has completely transformed the financial industry. Mobile banking has gradually replaced brick-and-mortar banking. The cadence of transaction processing has shifted from periodic batching to real-time processing, posing a significant challenge to financial institutions; legacy IT systems are obsolete and incapable of providing a real-time digital banking and lending experience.

This is challenging because customer expectations are not just sky-high – they are stratospheric. The demand for consistent real-time digital lending has made the financial services industry more competitive, and banks and fintech mortgage lenders are struggling to meet the needs of modern customers with their legacy, rigid IT systems.

Data Modernization: The Foundation for Digital Transformation  

Data modernization, a process of migrating siloed data from legacy databases to modern cloud-based databases, enables organizations to be more agile by eliminating the inefficiencies, bottlenecks, and unnecessary complexities associated with legacy systems.

Until recently, the processes for implementing loan origination hadn’t changed for decades. In many organizations, the process is still “informal” and carried out manually, often with paper documentation sent from department to department.

The pandemic has revealed flaws in nearly every company’s data management practices. Organizations have recognized the urgent and critical need for a modern data infrastructure that manages data to make it highly accessible, practical, compliant, and valuable. Fintech mortgage lenders benefit from near-term cost savings and powerful analytics that extend personalization and optimize forecasting when they have a modern data backbone and digital mortgage solutions. As a result, mortgage companies have started shifting their focus from optional to critical digital transformation.

The first step toward modernization is to create automated flows for this overall process, employing RPA, artificial intelligence (AI), or machine learning (ML) technologies to reduce human involvement, reduce errors, and automate adjustments where necessary, all in support of human activity where desired. Second, reviewing the data needs for this process and making the data better and more complete can help people make better decisions and grow the credit market.

Data becomes even more powerful when it is smartly combined with intelligent process automation (a combination of Robotics Process Automation (RPA) and Artificial Intelligence (AI), or more precisely, a mix of tools and techniques such as OCR, speech recognition, Machine Learning, and Natural Language Processing (NLP) techniques.

Loan forgiveness and mortgage forbearance are not new elements of loan servicing, but those areas have reached a scale hitherto unknown in the mortgage industry. Therefore, additional data and analytics are needed to make better decisions about loan modifications and their potential impact on the business’s risk and capital. AI analytics will only be helpful if the mortgage companies have the additional data to make a meaningful decision.

A real-world example of the value of alternative data came from 2016 when severe flooding affected homes owned by a regional bank. Rather than waiting for homeowners to default on flooded or destroyed homes, the bank enlisted the assistance of a mapping and analytics firm to confirm flood-stricken homes against the bank’s mortgages. As a consequence of this, the bank was able to make use of the data and achieve a significantly improved comprehension of the threat that this event posed to its portfolio. And the organization was given the tools it needed to proactively reach out to the customer to arrange forbearance or provide other assistance to the homeowner.

Why is Data Modernization an opportunity for lenders and bankers?

Process efficiency: Reducing the “time to yes” 

The underwriting process’s inefficiency occurs in preparing the credit proposal, outlining detail for the credit committee what all these risks are, and calculating their likelihood and impact. Automation, data insights and analytics, and underwriting platform-based digital mortgage solutions are key levers that significantly impact the underwriting value chain. These technologies influence risk assessment and proactive risk monitoring and thus aid in risk prevention. Next-gen modern technologies automate manual processes and integrate legacy applications, such as policy administration systems, to eliminate information duplication. Other interventions, such as agent/customer portals, intelligent workflow, and real-time process visibility, allow agents and underwriters to work closely together. Subsequently, it reduces sales cycles, bringing “time to yes” down to five minutes.

Raising the standard: transparency, consistency, and auditability

Modern loan origination systems help standardize the credit underwriting process by ensuring that the best method for managing operations is used. Individual lending organization differs in some details, but most follow a consistent pattern in credit underwriting, and this process can be improved if everyone involved uses the same platform. Having instant shared access to the information required to complete the underwriting process improves efficiency while also increasing transparency and lowering the operational risk of critical information remaining in the hands of a few key personnel.

It’s all about the data 

Banks and financial organizations generate massive amounts of data, and the vast majority of them are terrible at managing it. Data can now be found everywhere. Data modernization allows for more informed decision-making by reliably extracting data from various disparate systems. It facilitates the identification of high-value data combinations and integrations. It also enables people to identify opportunities at the moment quickly, allowing them to capitalize on something that would otherwise have gone unnoticed, eventually generating more revenue.

Furthermore, data modernization reduces the risks associated with data security and privacy compliance. In its process, it looks for sensitive information so that you can limit user access to data in a precise and more efficient way.

How can your organization take advantage of digital lending modernization? 

Consumers have shifted dramatically toward online channels during the pandemic, and businesses and industries have responded in kind. To help financial institutions achieve operational efficiencies, credit process optimization and automation of low-end credit processes to enable straight-through processing can help drive down costs and reduce credit processing time. The key is to lean into your existing client base and address what they require while also looking for new opportunities. Given the current technology architectures of open API, microservices, cloud, and modern data platforms, it is unnecessary to “boil the ocean” with a single platform that can achieve all. Interoperability is much improved, and it may make more sense to solve one market challenge before moving on to the next.

What’s Next?

Tavant is delivering on the promise of data by assisting its clients in building a modern digital core — regardless of their starting point. We help them achieve their business goals in 40% less time than they could if they did it themselves: ideas and iterations, piloting, data migration, full implementation, or expanding existing systems.

Companies collaborate with Tavant to build a trusted foundation that powers hybrid IT and multi-cloud infrastructures, removing data silos that lead to inefficient data use. Request a free demo to see how Tavant can help you modernize your data through cloud data migration. Contact us at [email protected] or visit here to learn more.

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