Moor Insights and Strategy industry analyst paper: Driving efficiency in mortgage and loan processing

Situation analysis

As with every industry, the financial services industry (FSI) has seen a surge of digital upstarts challenge the norm. Securing a loan or mortgage can now be as simple as downloading an app and filling out minimal information.

Speedy, frictionless customer experiences are what digital transformation is all about. Time to value (TtV) is a key metric for businesses playing in the modern economy, and greatly simplifying the complexity (and time) for customers is a key TtV metric.

However, simplified customer interaction is merely an abstraction of a complex and highly automated document management process that heavily regulated sectors such as the FSI must follow.

Whether the customer experience is rooted in paper or a screen, compliance, auditability, privacy, governance, and many other factors make the precise (and accurate) control of loan and mortgage processing a must.

The key to success in this once-staid market disrupted by cloud-born startups is digitisation designed around workflow automation.

This brief will examine mortgage and loan processing in the FSI, including how solutions from companies like Iron Mountain are crucial to driving intelligent document processing and workflow automation in established companies undergoing transformation projects.

The financial services industry is digital

While digitisation began for many industries throughout the 2010s, the onset of the COVID-19 pandemic in March 2020 drove rapid transformation in the mortgage processing industry. During this time, a new breed of lenders emerged with the aim of faster, frictionless mortgage processing.

Today, four of the top five and 15 of the top 25 lenders are non-banks. The top retail lender, Rocket Mortgage, accounted for over 464,000 loan originations in 2022, a total value of $127 billion.

This new market dynamic saw a fast shift in business operations from the top traditional players. While some lenders chose to exit the market to focus on other opportunities, most organisations quickly implemented transformation efforts. What we have witnessed in the market is perhaps the truest form of Darwin's Theory in the business world. Business lines adapt and change to stay competitive in an ever-evolving marketplace or close.

Digitisation has majorly impacted the mortgage processing industry. Competition from cloud-based players has been healthy for the establishment, forcing a business and culture shift that has led to an enhanced technology-based user experience. And unlike these new entrants in the mortgage industry, established players have decades of experience delivering services and supporting customers built on consumer trust and confidence.

The digitisation of the mortgage processing model isn’t simply a few web pages or an app that simplifies the experience for the user. It’s a digitisation of the process itself, where applications – regardless of origination – are routed and managed through workflow automation. This workflow automation dramatically reduces the time it takes for consumers to get closure, from weeks – or even months - to mere days.

The challenges in the mortgage and loan industry

Despite recent advancements in transforming business operations, mortgage and loan industry processes are still manual, tedious, and largely paper-dependent. The amount of content collected from customers is overwhelming, and several professionals analyse this document-sourced data throughout the loan approval process.

Moor Insights & Strategy (MI&S) sees the following areas in particular as challenging to business and technology executives in the FSI:

• Document and paperwork management and overload. Though mortgage applications have slowed due to rising interest rates, the data generated per mortgage loan processed is significant. Generating, managing, and archiving this data can be a big challenge for financial institutions that have transformed from legacy business practices to digital execution.
• Compliance and regulatory requirements. The number of regulatory bodies (and regulations) with which mortgage lenders must comply is seemingly limitless. Additionally, many US states have requirements and obligations that can cause additional workflow automation challenges for lenders.
• Data security and customer privacy. Rooted in compliance and regulatory challenges, maintaining customer privacy can be challenging for many lenders. This challenge is more difficult for those who have had (or continue to utilise) a paper-based approval process. Digitising, managing, and archiving these records can be time-consuming and rife with errors.
• Streamlining operations in a slowing market. A housing market that has been white hot for several years has slowed considerably due to rising interest rates and resulting shrinking inventory. This dynamic has impacted the mortgage lending industry, with banks and mortgage companies forced to deal with tightening budgets.

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