Online mortgages are here to stay

Banks and lenders are catching on to why digital mortgage processes are better

Traditionally, from the moment a borrower begins a mortgage application to the time she closes, she’ll have filed more than 500 pages of paperwork and waited around 50 days. That means that lenders, too, devote the time and resources to process 500 pages per applicant, which ends up costing the lender around $8,000. The duration and tediousness of the process is excruciatingly anachronistic in today’s on-demand world.

But as more and more people rely on the digital sphere to make their housing decisions, forward-thinking lenders are beginning to catch on, too. More than 90 percent of homebuyers now look online for houses, and as an increasing number of millennials are aging into the market, they are demanding that the rest of the process is equally digital or mobile. In fact, companies that already offer digitized options are being rewarded with more applicants, satisfied customers, and a less laborious process on the part of the lender, which leads to bigger profits. In response to this increased demand, the financial ecosystem is investing in technology to meet consumers’ needs, with the aim of moving towards an increasingly digitized mortgage process.

An end-to-end digital mortgage would entail an online application; access to bank statements and other financial documentation either via direct access from banks and other institutions or through electronic uploads; an algorithmic approval process; and a digital closing and signing.

The advantages of digitizing the mortgage process are many. Not only is the entire process faster, smoother, and easier for both borrowers and lenders, but it also saves lenders money, for instance on manpower, paper, ink, and postage. Moreover, when tax returns, bank statements, and pay stubs are accessed automatically, this digitally-accessed data can help eliminate mistakes caused by the under- or over-reporting of income and make fraud and identity theft more difficult. Because interactions with people are limited or nonexistent, lender bias can also be eliminated. In addition, having the option to apply online also opens the process up to more people, for instance those who can’t get to a bank during business hours.

Startups like Blend Labs and Better have emerged specifically to bring the mortgage process online by letting borrowers easily fill out online applications, access the necessary financial documents directly, and track the entire process from start to finish. They also allow borrowers to seamlessly link their bank accounts, thus granting lenders reliable and timely access to their financial information for validation and eliminating the need for document uploads in some cases.

Other companies like Quicken Loans, a major mortgage originator, have expanded their focus to include online mortgages. Quicken Loans’ Rocket Mortgage, for example, has an application that takes just a few minutes to complete online and allows for transparency—which is not often available in the traditional mortgage process. These are major improvements over the old-school ways of mortgage lending, where different parts of the application are handled by different people on the lender’s side, and the borrower is often left in the dark as the paperwork is passed from one employee to the next. Digitizing the process allows borrowers to complete the approval process efficiently and on their own time, often without having to interact with a person at all. In its first nine months, Rocket Mortgage funded more than $5 billion—which would make it a top-30 lender if it were a standalone company.

Finally, banks themselves are also getting in on the game. For example, Wells Fargo’s yourLoanTracker tool lets users upload documents, monitor loan status, and access online support.

A recent study found that borrowers are increasingly looking toward nondepository lenders for mortgages, who have nearly doubled their market share in recent years. Nonetheless, rather than “disrupting” the banks, the proliferation of digital mortgage software provides a unique opportunity for banks to expand their roles and digitize further. After all, banks play a vital role in the process, and establishing partnerships between them and lenders to further streamline mortgages can be key as automation progresses.

And the way things are going, few people will be filing 500-page applications and waiting 50 days any time soon. The Consumer Financial Protection Bureau found that borrowers who closed their mortgages on an electronic platform felt that they understood the mortgage process better than borrowers filing on paper, they felt more empowered, and they deemed the process to be more efficient.

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