Geoff Williams
Geoff Williams Apr 20, 2018

Writing a non-friction book: Towards a seamless bank lending process

When Corey Vandenberg worked in retail banking—for 17 years, in fact, before he set up shop as mortgage banker in Lafayette, Indiana—he was always stunned at all the paperwork customers had to furnish to show proof of income to buy a house.

“A traditional bank requires two years of tax returns and more proof to prove income,” Vandenberg says. “A mortgage banker or broker has home mortgage loan programs with just 12 to 24 months of bank statements—showing deposits—as proof of income. You would assume that a bank would do the same, but they don't.”

In general, Vandenberg recalls that the bank was very rigid when it came to lending, which will come to a surprise to, well, no one. Banking customer satisfaction surveys are generally up, with even big banks faring well, but it’s hard to argue that banks are known for lightning speed when it comes to lending money.

Still, banks are trying—with increments of progress and signs of success.

Facing the obvious obstacles

Some banks are good at offering relatively small loans. Since 2015, Citizens Financial Group, based in Providence, Rhode Island, has worked with Apple to offer 24-month installment loans for new iPhones. It’s a fast loan, where all the consumer needs for approval is a working credit card. Of course, a house or a car is a bit more expensive than an iPhone—and if you’re wondering what holds banks back from offering loans without a filing cabinet’s worth of paperwork, we can trot out some of the usual culprits.

The Dodd-Frank Act and its numerous regulations have tied the hands of executives at small banks, making it harder for them to give mortgages to deserving customers. “Since someone goes over their docs to assess their appetite for risk, bankers tend to be risk averse,” Vandenberg says.

Meanwhile, banking culture doesn’t help either, says Mike Horrocks, based out of Carmel, Indiana, and vice president of marketing at Baker Hill, a cloud-based loan origination software provider for bankers.

“Banks are not slow to the punch because of a lack of technology capability,” Horrocks stresses. “It has much more to do with credit culture and the risk appetite that they feel comfortable executing.”

For instance, Horrocks says that when Baker Hill has pushed the idea of taking on new technology in lending—where a consumer will apply for and receive a loan without any human interaction—bankers have looked aghast. But after all, they’re only human: Bankers fret over the risk associated with not directly engaging the consumer.

The reassurance of branches 

Further, those bankers may have a well-reasoned argument when you look at the branch equation. Customer satisfaction is considerably higher among those who visit a branch opposed to those who didn’t. And branch bankers, among other things, can guide customers through all their confusion and questions surrounding the loan process.

Yet the history of many banks—the “we’ve always done it this way” mentality—increasingly works against them, according to Daniel Levine, a global trends expert, public speaker and director of the Avant-Guide Institute in New York City.

“The new, smaller startups … aren’t burdened by the legacy operations of traditional banks,” Levine points out. “And they’re appealing to younger borrowers who expect immediate gratification in every part of their lives.”

That is: Non-banks focus on service and lending quickly in part because they have to. “Private-owned mortgage banking firms have to be fast to adapt and compete,” says Whitney Fife, a regional sales manager with Angel Oak Home Loans, a non-bank mortgage lender based in Atlanta.

And because they offer efficient lending, he says, investors are more likely to invest in these non-bank companies—enabling them to more quickly roll out new technologies to improve their client experience to meet customer demand.

Jargon be gone

But even if many banks remain skittish about trying new ways to improve the lending process, they are also working on ways to improve, at least around the edges. Levine admires Halifax Bank in England for creating a “Jargon Buster” program people can use if they have the Google Assistant chatbot.

Jargon buster. Hmmm. That might seem unnecessary, until you ask your coveted customer whether “the amortization vis-à-vis deferred payment and escrow holdback significantly impacts the IRS 1098 or the loan-to-value ratio, or attention must instead go towards a comprehensive PAF that in theory could pre-empt a right of rescission in the absence of a subordination agreement.”

For several years now, Halifax’s Jargon Buster “easily explains the baffling banking language like ‘property ladder,’ ‘conveyancer’ and ‘gazumping’ that can confuse home buyers,” Levine says.

Meanwhile, there is reason to believe that banks will clear some of the lending hurdles they face. The current administration wants to ease banking regulations; meanwhile, banks benefit from having newer, more nimble competitors, says Jennifer McDermott, a consider advocate with the financial website Finder.  

“Increased competition through alternative lending has seen a trend towards banks offering lower interest rates and a broader spectrum of package options, as opposed to just loans,” says McDermott, adding: “Banks are also leveraging the advantage gained from having a physical presence, something most alternative lenders don’t provide.”

So if banks can make their lending faster and more efficient, they may fare very well in the future. After all, they have that one advantage non-banks don’t have, and likely never will: Human bankers you can meet in person at actual bank branches—guiding the lending process, gently, with less jargon in the bargain and the speed clients need.

 

A contributor to Reuters, U.S. News & World Report, CNN and AOL’s WalletPop, veteran journalist Geoff Williams is also the author of two books, "C.C. Pyle's Amazing Foot Race" and "Washed Away."



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