SHARE THIS BLOG

Powering Up the Borrower Experience

I feel blessed to be able to write our first blog post in Innova Financial Services. This is a deeply personal journey for my business partner Frank and I. A few years ago Frank told me about his idea to empower small businesses with the latest and best technology to help them grow and prosper. It was a profoundly appealing message for me since I am the son of small business owners, and I grew up working at my parent’s pharmacy throughout high school and university. Both Frank and I come from successful technology companies.

Over the course of the next few years, we kept in touch, and Frank developed a very rich technological platform that manages every aspect of a small business while he was based in Miami, Florida. In early 2022 Frank moved with his family to Minnesota, which turned out to be one of the best decisions. While buying his house near the Twin Cities, he met a very successful Mortgage Broker who was struggling to get quality support for his loans, including Frank’s. Curiosity got the better of him, as always happens, and he started to go deeper into the reasons for his struggles. It became apparent the process was inefficient and suffered from some real challenges.

To see why let’s start by understanding how this process is done today.

What is Mortgage loan processing?

Once you have picked out the house you’d like to buy and have either been pre-approved for a loan or are applying for one, you kick off the final loan approval process to close the transaction and secure your new home – this is Mortgage Loan Processing.

There are some excellent articles on this topic, such as from Rocket Reach. The relevant steps of this process are:

The first step is for the Loan Officer to initiate the loan process through their LOS or pass the files manually to the loan processor.

Next, you start a process of determining and gathering the required documents depending on the loan type documents to be shared with your underwriter and the title company in the end with the closing documents. This includes, depending on the type of loan:

• Employment – may be gathered directly from the employer.
• Borrower Income, Assets and Debts – gathered from the borrower.
• Credit Reports – gathered from credit bureau
• Property Information – gathered from real estate agents and housing association
• VA certificate – from the VA office
• Appraisal, Title, and Insurance Report – from the Appraisal, Title, and Appraisal company, respectively.

Some of these reports will need to be ordered and paid for in advance of closing, such as the appraisal and credit reports.

Every document must be validated and added to the loan package sent to the underwriter.

The Underwriter will review all the documents and either will approve the loan outright or will ask for extra specific conditions or clarification to be made.

The extra specific conditions and clarification are communicated to the borrower and gathered from the relevant party.

They are then sent to the underwriter for final loan approval, where the interest rate on the loan is locked.

All offer contingencies are met, and title insurance is ordered with the pre-closing pack prepared and sent to the title company in preparation for closing.

Finally, closing happens in the Title Company, where all costs are paid and the title executed.

What are the main skills and challenges of the Loan Processor

When we started thinking about the Mortgage Loan Process, we sought to understand the role of the loan processor in it. Beyond following the process, what skills should she have? What behaviours make him successful? What challenges do they face? 

Skills

At the beginning of the process, the parties provide a target closing date that should be met. We then define the five tasks that the loan processor must do and the associated skills:

Communicate: loan processor must have exceptional communication skills to keep all stakeholders, counting about 8 in most cases, informed and expectations managed throughout the process.

Validate: be very proficient and detailed oriented to validate that every document is valid and contains the right information required by the underwriter. Any error may delay closing or even void the loan approval.

Educate: the loan processor must educate the borrower to ensure she understands the process and what is required of her clearly and simply. This requires a high degree of empathy and clarity of communication and thought. Buying a home is uncommon for people, and the enthusiasm and anxiety that goes along with it makes it even more likely that you’ll need clear explanations and expectation-setting.

Sequencing: the loan processor must ensure that the process is followed and stakeholders have what they need at every step in the chain. They need to ensure that each step is done on time to achieve the fastest closing time. This requires attention to detail and a prodigious memory, especially when you are processing more than ten loans a month.

Resolve the loan processor needs to resolve any issues, special underwriting conditions, or any misunderstanding or misalignment along the way. This requires predictive thinking to see problems ahead, react quickly, and be knowledgeable to clear the path ahead.

Overall, the loan processor needs to own the entire process and make sure that the expectations of the borrower are met so the experience of buying their dream home is enjoyable and efficient.

This objective, we realised, was the key metric of success for loan processing. And there were significant challenges preventing it from being met.

Challenges

Managing roles and teams is complex and inefficient.

1. Loan Originators doing loan processing: 

• • Cost and opportunity revenue is a challenge. The loan officer is an expensive resource, and she should be focused on forging relations and getting new business rather than dealing with loan processing.
  • Combining operation and revenue in a single person limits completed loan output per loan officer hitting revenue as well.

2. Internal loan processing teams 

• • For Independent Mortgage Broker in particular – the cost of loan processing can’t be recovered from the borrower.
  • Demand is not stable – it’s seasonal and economy-dependent, and recruiting becomes a challenge.
  • Retention is an issue since the job tends to be entry-level and often part-time due to the above reasons.
  • Training and competency – Knowledge of the loan process is gained through experience and resides in individuals. Some loan origination systems help with document management, but sequencing is still left to the processor.
  • HR costs of management, training, control, and people issues from managing an internal team.

3. 3rd party loan processors 

• • Variable quality – most 3rd party processors are independent contractors who individually or through associated deliver the service. Vetting, support and experience levels vary greatly.
  • Lack of transparency – the loan origination system is not setup to guide the loan processor on its step-by-step tasks. It’s difficult to see what the loan processor is doing, how he performs, and the processing state of any specific loan. There is no way to see the performance of all loans being processed easily.
  • Lack of control of borrower experience – there is limited to non-existent ways to manage the overall borrower experience that the loan processor is giving. When complaints hit the loan officer or loan origination firm, the perception is that it’s more difficult to manage a 3rd party than your own employee.

Quality of Loan Processing

The quality of the loan processing is variable. Why?

• Errors, misunderstandings, or omissions due to lack of coordination, follow-up and attention to detail.
• People are best at empathy and creative problem-solving….but have limited capacity to remember and focus on repetitive tasks.
• High staff rotation and poor onboarding and training.

Compromised Borrower and Stakeholder Experience

Document gathering frictions from borrowers – we need to give them all the options from document upload to email or in-chat document retrieval.

Poor communication and expectation setting Asking for the same documents four times, confusing borrowers by what is being asked, contradicting statements, or frustrated borrowers being asked to resend something many days after she shared it are just a few examples of this issue.

Lack of transparency Mortgage Brokers tend not to use or stop using 3rd party loan processors due to loss of control over the borrower experience and their partners too. Not knowing when something is not right is the worst possible outcome for a Loan Originator.

Powering up the borrower experience

Once we understood the problem and the metrics for success, it was time to define our mission.

The borrower’s experience should sit at the heart of loan processing. Everything we do should strive to make sure they have a 5-star experience exceeding their expectations. We should partner with independent Mortgage brokers and Retail Lenders to empower them to deliver that experience to their clients.

Second is the success of our partners – we want to enable hundreds of thousands of independent and small financial brokers with leading-edge technology and services to deliver great mortgage experiences for American families. And that meant giving them control over how the loan process is executed.

Having a clear mission, we got to work. How would we power up the borrower experience?

We would use the best of what a loan processor can achieve and empower them with technology to amplify those skills. At the same time, we would use technology to assist them to overcome the challenges we saw.

We would introduce the following enhancements:

Validate: the platform should help ensure the right thing are checked, using AI or guidelines per document type, raising efficiency by more than 50%.

Educate: The Loan processor guides and educates the borrower by employing empathy.

Sequencing: the system drives a workflow preconfigured with every step, deadline, and milestone to achieve the close date. Alerts and Notifications should move the process forward. It reports if any milestone is missed. It never relies on human memory and should be able to be adapted for specific loan originator needs.

Resolve: The loan processor gets flagged for any issues, extra underwriting conditions, etc, to resolve creatively, recording status on the system.

The Borrower would:

• Have many options to deliver their documents
• Have an empathetic and communicative loan processor available to guide them through any questions, concerns, or issues.
• Trust their documents are valid quickly in hours with our current software and in minutes with our next version of the AI-enabled platform.
• Enjoy their home when they want it, always closing on time.
• At any time, the borrower would know the status and next step of their loan process.

Next Generation Loan Processing Technology

We created two propositions to address different needs: outsourcing or augmenting loan processing or empowering an existing loan processing team to overcome the challenges we have laid out.

Next Generation Loan Processing Technology

We created two propositions to address different needs: outsourcing or augmenting loan processing or empowering an existing loan processing team to overcome the challenges we have laid out.

Conclusion

We have tested with some leading loan origination partners over the past year. You can see our case study here.

We are super excited by the results and ready to quickly expand with a new set of partners to power up their borrower experience.

SHARE THIS BLOG