The 21st century affords technological advances like no other. Video-conferencing, artificial intelligence and electric cars proliferate as myriad industries struggle to stay relevant. While accelerating automation does cause some economic disruption, it can also stimulate business volume and improve customer service immensely. The business of mortgages is one such example. From the start of the application process to the final settlement, hi-tech computing and telecommunications make the entire proceeding go faster and be more responsive to borrowers, at least compared to 20 years ago. Although glitches in electronic systems are inevitable, technology is a boon to home finance overall.
Application and Originations
Many lenders, perhaps most of them, offer some form of online application today. Mortgages were slower to the party than their cousins in retail businesses but they now enjoy the fruits of doing business in cyberspace. The Washington Post reported on a fourth-time home buyer who marvels at the reduction in time the entire process consumes: Sammie Jones told the paper, "“I would do digital every time. It was that profound a difference. It made the mortgage process kind of enjoyable.” With online applying, prospective borrowers can upload supporting documents securely and can sign the application digitally.
Processing and Document Collection
Lenders who operate completely online are known as FinTech lenders, according to a paper released by the New York Federal Reserve Bank. These businesses do not, by the way, operate in every state. Nevertheless, the Fed determined that the time it takes to process a loan application -- i.e. gathering supporting documentation, employment verifications and appraisal reports for home values -- is reduced by 10 days when performed by FinTech enterprises as compared to more rigorously regulated banks. Moreover, FinTech loans were judged no more risky than loans submitted on paper to brick and mortar financial institutions.
Underwriting and Loan Decisions
Automated underwriting is now a fact of life among banks large and small, among traditional and FinTech lenders. In and of itself, underwriting is an estimation of the risk involved in making a mortgage loan. Weighing, credit history, income, assets, debt, home values and other factors against one another, underwriters have traditionally relied on their own judgments -- in accordance with lender, investor and government guidelines -- on whether to issue credit or not. While human knowledge and acumen are still significant traits for credit analysts to possess, many conventional loan applicants who meet the standard parameters for approval will see their applications go through automated underwriting.
A loan decision that once took weeks to arrive can now be determined nearly instantly by means of the latest underwriting software. Of course, there are many applications where prospective borrowers fall on that fine line between approval and decline. In such cases, the tried and true manual underwriting methods must then be applied.
Closing and Settlement
Every borrower looks forward to the day the money is issued. When a purchase loan closes, that is the day documents are signed; when a property is refinanced, the funds are disbursed three business days later. Either way, the standard settlement always involved borrowers and lawyers and closing agents sitting at a table signing hard copy documents. Enter e-closings, where those same "papers" are executed digitally. Electronic signatures are unique encrypted messages that link a signer to a document. While they are recognized in every state, electronic notarizations do not enjoy nationwide sanction. More states are recognizing remote online notarization (RON), however, and the expectation is that e-notarizations will soon follow e-signatures in legal respect in every state.
