Now Is the Time to Beef Up Mortgage Tech for Long-Term Gains

By Andrew Dubinsky, Encomia

Lenders have lost billions in the ongoing mortgage crisis, causing dramatically tightened lending standards and cutbacks in technology spending, particularly within large institutions that were highly exposed to subprime loans. Many small and midsize community banks that have been less affected by the mortgage crisis due to their limited involvement with such loans are recognizing and taking advantage of unique opportunities to "gear up" with electronic mortgage technology that will enable them to better compete with their distressed counterparts. The advantages experienced by those that are utilizing this particular type of technology are increased loan capacity, improved cost savings and advanced customer service.Until recently, the mortgage giants have ridden the wave of success made possible by their enormous sizes and infrastructures. Today, the flow of business that once poured from their taps has been reduced to a trickle, forcing significant reductions in new technology spending. Although the mortgage market is far from prosperous, smaller community banks are getting a head start on adopting electronic mortgage technology in hopes of claiming a bigger share of the mortgage market once it begins its upswing.

This technology is making it possible for community banks to efficiently support larger volumes of loans by eliminating a number of hassles typically associated with printed mortgage documents-particularly disclosures. Instead of printing and shipping documents, banks use this technology to post disclosure documents online for customers to access, review and sign. Painful, multi-hour loan closings via paper and pen now take as little as 15 minutes when done electronically. Such time savings has dramatically increased banks' loan capacities-translating into significantly higher revenues due to the ability to support greater numbers of loans than before.

Online origination is also helping smaller banks achieve enormous cost savings through reduced wait times on warehouse lines and reductions in overhead costs. Electronically originated loans also considerably reduce overhead costs associated with printed documents. Since everything is facilitated online, banks don't have to waste money on paper, toner and shipping costs that average as much as $16 each way. Additionally, costly storage of loan documents, which can amount to hundreds of dollars per square foot, never becomes an issue.

Electronically originated loans sell seven to 10 times more quickly than traditional loans. Moving loans off warehouse lines faster frees up precious credit facilities and expedites payment. Investors on the secondary mortgage market, in turn, do not have to spend as much time and money examining and storing physical documents, which are now audited and stored electronically. These loans ultimately create a win for mortgage investors, who have the ability to audit every electronic loan in their portfolio and fully understand their risk exposure. And because interest is paid to warehouse lenders between a loan's closing and its resale to an investor, less time spent on warehouse lines translates into less chance of negative carry.

Further, fixed costs associated with loan review and post-closing activities are converted to variable costs since electronic mortgages can be audited electronically without having to increase full-time staff in loan processing and post-closing departments. Labor costs are also reduced in loan aggregation because instead of slotting and grading loans manually, banks electronically search their stores of new loans using data contained in electronic mortgage files. It is estimated that the total cost and efficiency savings of electronic mortgages is roughly $250 to $400 per loan-better positioning banks to scale up operations, which previously involved expanding physical offices and support teams.

Finally, electronic mortgage technology has enabled banks to provide excellent customer service through a disclosures process that is much easier. Printing the documents is the only required step; they are then uploaded to a website and accessed through a link that is e-mailed directly to the customer. Customers are directed to a site that allows them access to their secure disclosure documents. Not only does this allow customers to easily sign documents in the comfort of their own homes, it allows them to save their work online to be completed at a more convenient time if necessary. Any questions that may arise regarding the disclosure documents can be addressed over the phone while both the lender and customer simultaneously review the documents online.

A new report from Deloitte Consulting (New York), validates the convenience customers are experiencing with electronic mortgage technology. The report, "Online Lending Shaping Up as Key Battleground," was based on a survey of 604 consumers who had applied recently for mortgage and home equity products. Findings indicated that among online applicants, 73 percent reported online applications were more convenient, 66 percent reported it was easier to submit information online, 58 percent said the process was faster and 59 percent felt more comfortable with the process than they did with traditional methods.

Institutions that are still using the "paper and pen" disclosures method are spending weeks waiting to receive and finalize documents. This does not even take into account the time that is wasted on resolving disclosure discrepancies through the mail. Deloitte also found that customers' online access to loan documents makes it possible for institutions to ensure a positive mortgage application process that is likely to have customers coming back in the future or recommending the bank to their friends.

Although much of the mortgage origination industry is currently drifting in the doldrums of today's credit crunch, it is an ideal time for banks to invest in the technology that will efficiently provide the infrastructure to support more loans in the future, thus leveling the playing field with larger mortgage institutions that have traditionally dominated the market.

Andrew Dubinsky is CEO of Houston-based electronic lending solutions provider Encomia.