The mortgage industry has long stressed speed. Pre-qualification? You bet. Pre-approval? Even better for wannabe homeowners in a hurry and the wannabe lenders looking for smart risks. Get those documents now! And yet …
It’s tough in an age of 60-second mobile check deposits to shake the feeling that elements of the mortgage process—as in paperwork, paperwork and more paperwork—move at a glacial pace. But here’s a fast-breaking innovation: The industry is heading toward speedier approvals. The painful process governed by piles of paper and the endless search for a working fax is changing by the second—perhaps, some say, toward a world where a loan is approved in 30 seconds via smartphone.
Banks large and small and credit unions have long dominated the loan market. But online competition to bricks-and-mortar lenders now comes from places such as Quicken Loans, with its now-famous “Push button, get mortgage” Super Bowl ad for its RocketMortgage product: “What if we did for mortgages what the Internet did for buying music, and plane tickets and shoes?” (Cut to someone using RocketMortgage on their smartphone.)
What’s more, new FinTech players such as SoFi, Sindeo and Clara are entering the market as lenders—and disrupting it by using technology to speed up the famously clunky process.
SoFi, in business since 2011, has raised $1.43 billion in funding. (It’s now worth more than $4 billion, making it the most valuable of all FinTech startups.) In mortgages, it does not do anything like a low-documentation loan, said Michael Tannenbaum, senior vice president of mortgage at SoFi. Rather, it underwrites based on free cash flow, using 100 percent income verification, with ability to repay, and getting borrowers pre-approved quickly, early in the process.
About 65 percent of SoFi’s mortgage customers are first-time borrowers, many of them early-career professionals: “Borrowers across all ages have that millennial mindset and are interested in the seamless experience we offer,” he said.
But aren’t early-career professionals a higher risk? Tannenbaum says SoFi’s processes are safe. For example, he said, mortgages are granted based on a buyer’s ability to repay: Will she or he have the cash? He says SoFi used these standards beginning in 2012, while others – including banks – were relying more heavily on a credit score. Ability to repay, he noted, was established by the Consumer Finance Protection Bureau in 2014 as the major standard for granting a loan.
Sindeo was founded in San Francisco in 2013 by Ori Zohar and Nick Stamos, both outsiders to the industry. They saw what Zohar described in an interview as “a huge opportunity” because of “low service levels, a massive industry where there was a ton of money moving around” as well as “low satisfaction and low technology,” and a shortage of unbiased information.
To fix these problems, he said, Sindeo does three things differently. First, by acting as a marketplace to offer loans from 45 lenders, Sindeo makes it possible for people to “come to us and shop their rates” and clarify what they want from a lender. Second, Sindeo offers expert guides—licensed mortgage advisers to help customers navigate the process. Third, he said, Sindeo uses technology to create “a fast, smooth and transparent path from quote to close.”
“Most loan officers are paid a commission based on the size of the transaction, meaning they get paid more for bigger loan,” Zohar said. “Our advisors are paid a salary plus a potential quarterly bonus when they get top marks when reviewed by our customers when the loan closes. Sindeo’s approach aligns our advisors’ compensation with happy customers.”
A key to the business, Zohar said, is understanding low-value versus high-value work. High value is explaining to a borrower how to find the best loan for his or her circumstances so both borrower and lender are well served.
Low value is multiple trips to a fax (or loading the empty fax machine with paper).
For example, he said, consumers are typically required to produce two months of bank statements. If an application runs into a new month, another month of statements is required—often resulting in multiple bank trips, faxes that go astray and endless sojourns into telephone voice-prompt hell.
Sending records electronically and seamlessly ends all that. In fact, Zohar predicted that people will soon own a digital passport with all their core documents available for access in an organized fashion.
“People will demand this, and will put their business toward institutions who offer these paths, rather than the big players,” he said. “The question is, can these big players start embedding these technologies—either themselves or through service providers—and then rely on their own knowledge to provide the financial backing” and underwriting expertise to serve customers.
Meanwhile, it seems new players and service providers outside traditional banking are springing up by the second:
- At Lending Home, property investors, homebuyers, mortgage brokers and investors in mortgages can find services.
- Loan Depot is an online direct mortgage lender for residential home purchases and refinancings, licensed in all 50 states.
- Blend Labs provides technology for information-gathering to speed the process and reduce costs.
- Roostify is a producer of automated mortgage transaction technology, selling its services to banks and credit unions to speed the process.
Yet with all this talk of fast mortgages, shouldn’t we worry? Isn’t the industry forgetting the recent unpleasant events associated with fast lending?
Anthony M. Davenport, president of Regal Financial, a New York City credit management firm, remembers the financial crisis all too well. With a mortgage, “We’re talking about an instrument tied to your largest investment. It should be a more thorough process.”
There’s definitely room for innovation, he said. But any 30-second loan approval suggests that humans are being squeezed out of the process. “Humans are called underwriters. They’re the ones who can say ‘This doesn’t smell right.’ With these 20-second approvals, they’re removing that.”
What’s making the process faster is the automation of document transfer and the other things that happen behind the scenes. But appraisal, underwriting verification and so on cannot and will not be rushed, said Leo Loomie, vice president at Digital Risk. “There’s no such thing as a mortgage loan that can be done in a day, and there won’t be even 10 years from now”—even if paperwork can now be photographed and uploaded to your account via smartphone.
But one thing that will disappear in the next five years, he predicted, is email. “It’s not as easy and frictionless as other applications,” he said. “You’ll see everything being done over chat, in real time. All the banks are opening direct customer interaction. The communication channel is the key to all that.”
Meanwhile, experts say some aspects of the mortgage process will remain timeless—at least in terms of the current level of federal regulation.
“Quicken and all the others will still be audited deeply by every regulator you can imagine,” Loomie said. “But it just happens faster because the technology allows it to happen. There are many more controls: that eight-minute loan will still be audited at the same depth as one that takes eight weeks.”
Jeanne Pinder is the founder of ClearHealthCosts.com, an award-winning startup bringing transparency to the health care marketplace. She was an editor, reporter and human resources executive at The New York Times for close to 25 years, and has also worked at the Des Moines Register, Associated Press and Grinnell Herald-Register.