Is an Amazon-like experience coming to the mortgage industry? Not surprisingly, the answer is yes.
Digital technologies like AI and analytics are on the cusp of giving increasingly savvy aspiring homeowners more of what they want: transparency, simplicity, and driver’s seat control.
These types of advanced technologies are also helping lending organizations not only engage borrowers with personalized product and service offers, but also lower their cost to serve, generate higher profitability, and deliver more flexible pricing.
So, how is digital changing the face, shape, and flavor of the mortgage industry?
During this podcast, Daryl Grant and Teresa Blake, both managing directors in KPMG’s Financial Services Solutions group, sat down to discuss:
Stan Lepeak: Welcome to this addition of Advice Worth Keeping - KPMG's podcast series where we interview firm executives and thought leaders, as well as third-party industry luminaries and experts on important trends, topics and leading practices. My name is Stan Lepeak, and I lead global research for KPMG's Management Consulting services group. I'm pleased to have with us here today, Daryl Grant and Teresa Blake. Both Daryl and Theresa are members of the US firm and they're managing directors within the KPMG Financial Services Solution Group. Daryl and Theresa, thanks for joining us here today on Advice Worth Keeping.
Stan Lepeak: Our topic today is a very interesting one. It's the state of the digital mortgage market and in particular the impact of advanced technology such as automation and analytics on the digital mortgage market. But before we get into the meat of this podcast, maybe Daryl and Teresa, if you both could provide our listeners a little bit of background on what you and your teams focus on in this area as part of the financial services solution group.
Daryl Grant: Hi, this is Daryl Grant. I'm a Managing Director within KPMG's Financial Services Solutions Group. Within our practice, I have a specific focus around helping both lenders and servicers to define and execute business model improvement initiatives that are really specifically designed to take advantage of a wave of new digital technologies and new client expectations.
Teresa Blake: Hi, my name is Teresa Blake. I'm also a Managing Director within KPMG in the same group as Daryl. My team's focus is really centered around three key pillars, mortgage technology selection across point of sale, origination and servicing, as well as implementation and optimization. Our approach and our team's approach when working with lenders and servicers is focused on enhancing the customer experience while reducing friction at every turn.
Stan Lepeak: Thank you both for that background. That's very helpful. Maybe to start out with and let's start with you Daryl, what do you see as the single piece of technology that will continue to have a great impact and revolutionize the mortgage market, in particular digital mortgages?
Daryl Grant: I'd say that I'd say that automation and analytics technologies have started to, and will continue to revolutionize the mortgage industry. It's really the combination of advanced process automation with cognitive tools like natural language processing and machine learning AI that I believe will begin to transform how lenders interact with perspective and existing borrowers. We're having conversations with clients today about AI based client interactions for loan product selection where the machine listens to the prospective borrower, understands her intent and sentiment and then interacts with a natural dialogue flow to effectively bring the prospect into a good digital application process.
Daryl Grant: We follow through on that interaction with automation of downstream underwriting and fulfillment processes for seamless integrated digital experience. Lastly, let me add that this vision for what's essentially a virtual loan officer is really just one of many potential AI based use-cases that I think will impact mortgage business models and begin to differentiate industry leaders from the rest of the pack.
Stan Lepeak: So Theresa, your thoughts?
Teresa Blake: Artificial intelligence has already had a huge impact on our industry and I believe it will continually fundamentally change how lenders process mortgage loan applications. AI is already shaking up income assets and insurance validation. The loan file set up function is really no longer needed. And then finally, the process of evaluating documents and duplicate documents is really a dinosaur. We'll continue to see the evolution of AI and mortgage, but it's here and it's actually eliminating key process steps that were non-value-added in the beginning.
Stan Lepeak: So Teresa, maybe to continue that thought, what are the areas of the mortgage process that you feel need the most continued innovation and how are these technologies going to help to drive the innovation into these different segments of the mortgage process?
Teresa Blake: Actually that's a great question. Both closing and appraisal are in dire need of a revolution. When I think about the areas of the mortgage process that are most impactful to the borrower, borrowers are still shocked with last minute fee changes and needed cash to close can change three times before they even show up at the closing table. It's a horrible customer impact. I feel that our industry is really not focused on fixing or solving those things. I also read that an appraiser retires every hour in the US. No one's jumping into that field and I suspect we'll continue to need to close the shortfall with AI or other tools. Those processes need to be fundamentally changed.
Stan Lepeak: So Daryl, if we look at the digital mortgage process today, what are some of the key benefits that can enable, for example, borrower self-service, better pricing, more control? What are the real benefits that are being delivered through making this process as digital as possible?
Daryl Grant: I'd say that those lenders who have fully embraced and deployed the digital application experience and those experiences that move beyond simply capturing information provided by a borrower online or through a mobile app, but to really also automating the capture of income, assets, employment information, those lenders are simultaneously improving borrower self-service and control. The same is true on the servicing side where we've seen significant investments being made today around improving the client experience through deployment of consumer friendly mobile apps that allow for a whole range of self-service transactions, while also providing the lender with really... an excellent opportunity to monetize those interactions and what they know about those borrowers to effectively engage them in a personalized way with new product or service offers.
Daryl Grant: I think all of these advancements will ultimately reduce costs to originate and costs to serve, which promises a greater profitability and flexibility in pricing.
Stan Lepeak: So Teresa, your thoughts?
Teresa Blake: Borrowers, I believe truly just want to be informed and candidly will continue to demand self-service. They want that Amazon-like process. They want to feel like they are owning the process with the lender and they want transparency, not just into the process, but into fees, probably more than ever before. If they apply with two lenders, they can get those loan estimates electronically on the same day as their application and see who charges an application fee or who has maybe a slightly higher APR. All of those factors are interrelated and digital applications, especially those that dynamically adapt as the borrowers are filling them out, make the process simpler. The borrower just wants to be in control and in the driver's seat.
Stan Lepeak: Continuing on the theme of process, Teresa, where have you seen in your travels the greatest level of process improvement or perhaps technology advancement across the entire mortgage value chain?
Teresa Blake: I love that question as well. Across the origination, data aggregation has been by far the most significant advancement for both the lender and the borrower. Fannie Mae's Day 1 Certainty products or Freddy's LAS Suite have changed how lenders manage verifications and evaluate the borrower's credit worthiness. Property inspection waivers have also been significant. It's funny though, those are all technology solutions and options. With all of that said, you still can't beat a well-executed welcome call script. The human element and the kind and thoughtful communication about what a borrower needs to provide is still so very critical to the success of the transaction. We feel you have to focus on people, practice and technology to be successful in this environment.
Stan Lepeak: So Daryl, what are you seeing?
Daryl Grant: Completely agree with Teresa's assessment there. I just add from a mortgage servicing point-of-view that we have spent a fair amount of time with services who are really aggressively attacking manual people intensive processes like claims processing or various loss mitigation processes by simultaneously re-engineering those areas while integrating more advanced automation capabilities, like natural language processing based document classification and data extraction. But really, the ultimate goal is significantly reducing the related ongoing operational costs. I was recently with the head of mortgage servicing for a large global bank. We were talking about this exact point. He emphasized that while the fault rates are relatively low now, he's making investments in process automation across his default services organization in preparation for an eventual credit downturn. He's investing now to build a more scalable platform to avoid simply adding armies of people to deal with another potential credit crisis.
Stan Lepeak: To wrap up then, let's start with you, Teresa, in your travels and work with clients, what have been the most typical challenges you've encountered in implementing digital capabilities into the mortgage process? And an equally or more importantly, how are organizations overcoming these challenges?
Teresa Blake: The digital transformation is still a large transformation, which requires tremendous focus across people, process and technology. A lender can't implement digital and then drag the borrower through duplicate data requests. Well, they could, but the borrower won't stand for it. In today's hyper competitive marketplace, borrowers have more choices than ever. They're more educated than ever on what those options are. Lenders need to ensure each transaction closes on time and with no surprises. While digital can help them solve that, there's a fair amount of work to make sure that that is successful and planned and executed well.
Stan Lepeak: Okay, Daryl?
Daryl Grant: I actually asked a room of mortgage executives this very question in a live survey at last year's Digital Mortgage Conference. Their responses were very much aligned with what Teresa and I see routinely working with our clients. I'd say it's largely still true today, right, the number one challenge by a wide margin was execution challenges, which includes governance and decision making, as well as addressing talent gaps. Now, I believe in an environment where the pace of technological advancement and borrower's expectations is accelerating, mortgage players will likely continue to struggle with effective execution, particularly if they fail to properly ground their digital transformation in an overall business model strategy as opposed to making it an IT focus pursuit.
Daryl Grant: Also, I think having a strategy and approach for effectively leveraging the plethora of ecosystem partners available in the marketplace will help address the fierce competition that we see for talent in emerging areas like data science.
Stan Lepeak: Daryl and Teresa, thank you very much for your time today – very insightful – obviously a very key topic, and a complicated topic in the market. And one that certainly is a huge deal to lenders, but also something that will impact a large majority of the population as borrowers. So, thank you both for your time today. And for our listeners, we also suggest you take a look at a couple up-coming events – there’s Digital Mortgage Conference on September 23rd, and the Mortgage Bankers Association’s annual conference on October 27th through the 30th. Now on the landing page for this podcast, there are links out to both of these events. So take a look at that, and if you got to this podcast via iTunes or another podcast service, just google the podcasts on the KPMG site, and you can find those links. But, Daryl and Teresa – great stuff – thank you again for your time today. And you can find the links to the items we referenced in the show today below the podcast if you’re online, of course, and the URL for that is kpmg.com/us/podcasts. That’s a wrap, thanks for your participation!