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The Dynamic and Unpredictable Digital Mortgage Landscape

V P
Vaishali Patil , Associate Director, Delivery
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As the pace of technology innovation surges, the mortgage industry looks to uncover new opportunities and create new revenue streams for long-term growth and success. Digital mortgage is quickly becoming the ‚Äúin‚ÄĚ way to serve the tech-savvy customers of today. But market success also requires mortgage lenders to keep up with evolving trends in consumer behaviors, new technologies, and constantly changing economic drivers. Read further to understand why there is a rise in mortgage demand in the post-pandemic times, what trends are gaining traction, and how ISVs, as well as lenders and non-ISV fintechs, can cash in on this increased demand. 

The Rise in Mortgage Demand Post-Pandemic

Mortgage demand has skyrocketed. Although the initial few months were laden with worry and concern, soon after the pandemic subsided, the mortgage industry witnessed a high demand that continues to climb today ‚Äď despite rising interest rates. According to a report, between September 2019 and September 2020, homeowners accumulated a collective $1 trillion in additional home equity. 
As mortgage rates shoot up, the cost of lending is also rising, impacting the bottom lines of homeowners and borrowers alike. Mortgage rates have registered the biggest quarterly climb in 28 years in the first quarter of 2022, with rising inflation being touted as one of the main drivers. In March 2022, the consumer price index (CPI) rose to 8.5%, the highest ever since 1981, and almost 6 Fed rate increases are expected in the coming year. 

Let‚Äôs look at a few drivers that have led to the post-pandemic rise in mortgage demand: 

  • Surge in home buying: Despite the COVID-19 global recession, the housing market is enjoying a purchasing boom that remains strong, at least for now. Over the past two years, plummeting mortgage rates have dramatically brought down the cost of buying a home. At the same time, global stay-at-home orders forced people to re-evaluate the space and amenities of their current homes and begin scouring limited inventories in the same or new geographies. And, as long as the interest rates remained low, the timing seemed right.
     
  • Low interest rates: Fixed mortgage rates, which were once the most popular loan product, quickly hit rock bottom just a few months after the pandemic. This was yet another factor contributing to the sudden and widespread growth of the mortgage industry.  As the low rates made refinancing more attractive, banks and investors witnessed strong demand from the purchase market. 
     
  • Millennials enter the housing market: The Millennial Generation, now in their late 20s to early 40s, are recovering from the pandemic-driven economic downturn and entering the housing market in higher numbers than ever before. Research from Zillow shows that half of all home buyers in 2021 were under the age of 41 with the median age at 36. According to the CoreLogic Loan Application Database, millennials made up 67% of first-time home purchase applications last year.

7 Evolving Trends in Digital Mortgage

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  1. Rising Customer Expectations: As customers started spending most of their time at home and online ‚Äď shopping, socializing, exercising, and connecting - their expectations for on-demand digital content and one-click service delivery grew exponentially. Not only did they expect mortgage lenders to digitize end-to-end solutions that were traditionally manual or face-to-face but they also expected them to reduce closing cycles by automating origination, processing, underwriting, and servicing for smoother and faster home-financing and home-buying experiences. Offering customers the ability to apply for mortgages online and delivering capabilities like eClose are quickly becoming a mandate in today‚Äôs digital world, helping improve borrower experience, boost operational efficiencies, and maximize margins.
     
  2. Increasing Digitalization by Third-Party Technology Providers: As digital transformation continued at a stop-and-start pace, the mortgage industry faced competitive pressures from fintech startups to digitize LO processes or adopt a digital loan platform solution. And so began a journey of technology adoption that continues to this day, encompassing digital solutions by partner ISVs and third-party technology providers across the value chain including, but not limited to, platform modernization, workflow management, document extraction and management, customer verification, and more.
     
  3. The Proliferation of Non-Bank Lenders: Mortgage services are no longer restricted to banks; the share of total originations by non-bank lenders has been growing in the last couple of years. Driven primarily by a handful of non-banks with a strong digital focus and a differentiated value proposition, the proliferation of these lenders is making it easy for customers to submit applications and close the mortgage process sooner ‚Äď thanks to continued investments in digital innovations. However, simplified digital experiences and closing speeds offered by these online lenders are nibbling away at established MLOs‚Äô market share.
     
  4. Introduction of More-Efficient Digital Platforms: At the same time, the introduction of customizable, modern digital LO platforms is helping the mortgage industry sustain its post-pandemic growth. Additionally, as regulatory complexity and scrutiny increase, the industry is realizing the urgent requirement to bolster security and transparency across the LOS lifecycle, by undergoing a rip-and-replace of legacy systems. Digital lending platforms are designed to improve the borrowing experience, boost retention, and strengthen compliance. Since these platforms also allow borrowers to get detailed insight into their loans based on the volume of data, they help facilitate on-time payments, while communicating seamlessly with lenders. While some MLOs are cautious about sharing confidential data with platform vendors, it doesn’t seem to impact adoption, at least not yet.
     
  5. The Growth of Bundled Services: The concept of bundled services is also surging across the digital mortgage industry. This will enable borrowers to have a one-stop-shop for all their mortgage needs: from home search to warranty, inspection to insurance, and more. By partnering with third-party providers to offer a more varied portfolio of services and, at the same time, building new products in-house, many lenders are looking to create a digital mortgage experience that is more comprehensive and manageable for customers, saving everyone time and money.
     
  6. The Re-Entry of Non-Qualified Mortgage (non-QM) Lenders: The industry which once stopped accepting non-QM applications is once again underwriting them. As the global economy recovers, there is immense liquidity in the non-QM market, prompting mortgage lenders to expand access to mortgages for borrowers whose financial attributes have restricted them from leveraging traditional lending programs, often for reasons out of their control.
     
  7. The Pressure to Reduce Costs: As the loan lifecycle gets increasingly complex, there is immense pressure on lenders to reduce costs. To successfully do this, lenders need to opt for cloud-based technology platforms that are specifically designed for the loan lifecycle. Such platforms not only allow for fast deployment but also reduce operational costs, enabling lenders to cost-effectively launch product and service portfolios. 

Lenders looking to capitalize on these trends need to embrace custom solutions that can enable the rapid and secure digital delivery of personalized experiences to customers. Working in tandem with ISVs, they can implement solutions that leverage the latest trends in digital, AI/ML, hyper-automation, and other new technologies to deliver more value to borrowers and greater ROI to lenders’ bottom lines, while weathering the ups and downs of industry markets with new-found agility.

How ISVs Can Cash In

Building mortgage lending solutions that transform existing models with exciting new technologies can enhance customer satisfaction, minimize costs, and boost market positions. ISVs looking to cash in on this new digital wave have many options at hand: 

  • Take a Customer-First Approach: Enabling a customer-first approach to digital mortgage is one of the key attributes ISVs need to integrate into their product development processes and solutions. This may include designing software that is digital-ready, cloud-friendly, and easy to transform into containers and/or microservices. It will require building solutions that can easily adapt to and interoperate with MLO ecosystem products and services, extending the reach and potential profitability of their industry solutions.
     
  • Adopt Modern Technology: While adopting modern technology is extremely important for ISVs who want to build products for today‚Äôs digital customers, it is essential to evaluate existing tools, systems, and IT skill sets to develop modern, scalable, robust, future-ready solutions that will help customers ride the digital transformation wave while staying ahead of their ISV competitors.
     
  • Enhance Transparency: To implement strategic improvements, lenders need more insight into the lending journey; therefore, increasing end-to-end transparency across the entire lending process is critical. Empowering customers to get a real-time view of their loans ‚Äď from specific document requirements to expected approval timelines ‚Äď will pave the way for easier lending, faster closings, and increased borrower satisfaction.
     
  • Unify Processes: Reducing the complexity of the lending process is another step lenders need to take to cater to today‚Äôs digital customers. ISVs can help enable this by adopting an open-architecture solution for all loan types and leveraging modern, customizable APIs to provide access and interoperability to data and functionality on an as-needed basis. Such an architecture not only enables easy integration; it increases business agility while reducing the complexity and costs of managing multiple systems. 

The pandemic has sparked digital acceleration in the once-conservative mortgage industry, driven by the need to deliver superior customer experiences and achieve long-term operational efficiencies designed to outdo the competition. As innovative new mortgage product offerings and technology solutions emerge, keeping up with the evolving market and technological trends and embracing innovative digital mortgage and lending services is the only way lenders and ISVs can offer compelling and differentiated customer value. 

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