Originally published in MBA NewsLink // March 21, 2019
It’s no secret that the housing industry is cyclical. While there are unique forces at work in the current downswing, there is still much that can be learned from previous cycles.
By considering where the industry has been–in both good times and in bad–lenders can glean invaluable lessons on how best to approach the current market, especially when it comes to investments in technology.
As a whole, the industry seems to agree that technology is the best way to drive down the cost to originate and gain much-needed efficiencies. Yet, there never seems to be a “good time” to put in the thought and effort required to realize those benefits.
When business is booming, as was the case in 2005 and 2006, there was simply too much volume to talk about new technology. There were bigger fish to fry. However, when business slows, such as during the dot com bust or the economic crisis, lenders’ heads are in survival mode. Regardless of market conditions, mortgage innovation routinely lags behind and gets pushed back in favor of more immediate concerns.
Though conditions aren’t nearly as dire as they were during the meltdown, the mortgage industry is facing another period of decline that threatens to put some lenders out of business. As such, many small and mid-size lenders are desperately trying to figure out what their next steps are in order to survive. Cost cutting is certainly high on that list, but equally as important is competitive differentiation–how do lenders separate themselves from their competition in this market?
Regulatory requirements and investor overlays have all but rendered loan product differentiation obsolete. Every lender is offering the same loan, with some slight variances on price. These days, the things that truly set lenders apart from their peers are the number of referral relationships they possess and the level of customer service/satisfaction they are able to deliver. As one might guess, technology has a role to play in helping lenders achieve success on both fronts.
As a lender in a purchase market, establishing relationships with real estate agents and home builders is key, as these two groups can hold tremendous influence with homebuyers in the selection of a mortgage lender. Furthermore, top producing agents and builders are always looking for an edge, and any lender that can deliver that edge–whether it’s faster turn times, seamless, error-free closings or a phenomenal customer experience–will reap the benefits of referral business from those sources.
Of course, lenders will only benefit if they can, in fact, deliver these types of benefits to their referral partners’ clients. Enter technology, or, more specifically, enter remote online closings (ROC).
As the next generation of eClosings, ROC combines the digital execution of mortgage documents at the closing ceremony with a virtual signing room, video conferencing and remote online notarization (RON), allowing lenders to conduct fully digital closings anywhere, anytime. Unlike traditional closing ceremonies, ROCs are video-recorded for enhanced security, and signers are required to answer knowledge-based authentication (KBA) questions to verify their identities to prevent fraud.
What’s more, consumers love the convenience and ease of ROC transactions. As most ROCs can be completed within an hour, the consumer no longer needs to reserve an entire day to drive to a local title office and sign a stack of documents to complete their mortgage closing. Instead, the transaction can be completed at the consumer’s convenience, and the consumer’s loan officer, real estate agent, attorney or any other party that the consumer would like to include can join the closing ceremony with ease.
A key component to ROCs is RON, and thanks to several enterprising states, including Virginia, Texas, Minnesota, Michigan, Indiana, Nevada, Montana, Tennessee, Ohio and Vermont, notaries within these states are legally authorized (or will soon be authorized) to conduct RON for signers throughout the United States. With at least five other states considering RON legislation in 2019, it is highly likely that within the next year, at least 50 percent of the U.S. population will live in a jurisdiction with RON legislation on the books.
While regulatory activity is often viewed as a negative, in this case, the increase in RON-related legislative activity is only to lenders’ benefit. Although other regulatory and operational pressures have backed many lenders into a corner, there is hope in sight. For lenders looking for a competitive edge that can deliver real value to referral partners while delighting consumers, ROC is as good as it gets. As such, the question in 2019 becomes, “Who will be the ones to seize the opportunity that lies in front of them in order to survive?”