Takeaways:
- Unfortunately, verifying a borrower’s employment could take days and weeks, but it could be automated so that creditors tap one system or a network and get an answer instantly.
- You can get a car insurance quote and buy a car in about 15 minutes, so it would be ideal to be able to do so for title, mortgage and homeowners insurance.
- Loan origination systems have highly connected networks of service providers, but problem is, they don’t play nice with one another.
Yesterday, we started discussing the idea that getting a home loan should be as easy as booking a vacation. We talked about whether consumers would be ready to do their own loan, if humans would still be needed at the lenders.
We also covered the first five innovations required to make this vision possible. Read “10 things that need to happen for mortgages to be a click away: Part 1.”
This idea would allow you to search for loans from many different lenders, get a list of real loan approvals in seconds, pick one and close it entirely online in about 30 minutes.
Of course, in a purchase transaction especially, you need a willing and able seller to cooperate. Here, we’ll talk about direct mortgage financing related functions and not waiting between steps.
How can we make this happen?
Below, are the final five innovations required to make getting a home loan as easy as booking a vacation:
6. Instant verification of employment
When a lender issues credit, it’s critical to know whether the borrower is employed. Unfortunately, verifying a borrower’s employment could take days and weeks. It’s still mostly a manual process that requires a processor to submit a request in writing to the company the borrower is assumed to be employed by, and then a manual verification process starts.
This could be automated so that creditors tap one system or at least a network of many systems could be created to get an answer instantly. Many companies utilize some type of third-party human resources system such as Zenefits — please build in a portal for creditors to tap into.
7. Automated insurance underwriting
There are three key types of insurance common to a mortgage loan: title, mortgage and homeowners insurance. In all cases there is some level of automated rules engine, but the final underwriting decision is still manual.
But this isn’t the case for all types of insurance. Take automobile insurance, for instance. You can get a quote and purchase your car insurance in about 15 minutes (and save 15 percent). We need the insurance companies serving the mortgage industry to bring this same level of speed and accuracy.
8. Better credit reporting
Mortgage lenders rely on a consumer’s credit report to analyze one’s credit history. If an error is spotted, a process has to be followed to correct the credit report, and in the meantime, the mortgage is waiting in the wings.
Shouldn’t correcting credit reports be easier and faster? And better yet, shouldn’t we be able to accept the credit report at face value? This is after all, what they do.
9. Automate appraisals
In the late 1990s, institutional investors started using AVMs (automated valuation models) to determine real estate values. Today, AVMs are used widely by mortgage lenders and investors.
They serve as a second layer of due diligence to validate the appraised value of an appraiser. Sometimes they’re spot on, and sometimes they’re way off.
On the other side, appraisals are still required by Fannie Mae and Freddie Mac. It’s also a good idea to have an independent professional not only determine value but also to make sure the home is actually there and in a condition that is acceptable as collateral.
There’s no easy way around this, but could the two be merged somehow? Could appraisers become “data scientists” rather than site inspectors?
10. Coopertition
Merge cooperate and competition together, and you have “coopertition” — a philosophy that even though you compete, you can still work together. To originate and close a loan requires more than 15 different vendors to directly contribute.
Credit reporting agencies, appraisal companies, title, homeowners insurance, mortgage insurance, pricing engines, underwriting engines, document providers and signing — it’s a complicated weave of data with different cultures and agendas.
Today, LOSs (loan origination systems) have highly connected networks of service providers, but problem is, they don’t play nice with one another. We need an open spirit among competitors — one that works for the consumer and the betterment of the industry.
We’re looking at a major collaborative effort with everyone focusing on the same end goal. I do believe it’s possible. Call me a dreamer, but if we can go to the moon, surely we can make getting a home loan as easy as booking a vacation.
What else would be required? What other challenge would we face? I’d love to hear your thoughts in the comments section below, and don’t forget to check out Part 1.
Tim Nguyen is co-founder and CEO at BeSmartee, a do-it-yourself mortgage marketplace where you can get a home loan almost as easy as booking a plane ticket online.