Core modernization: Mortgage lending

Introduction

You're listening to Core Modernization with KPMG, a banking podcast series dedicated to helping banks become future ready with digital transformation strategies that work and executions that deliver.

Teresa Blake

Hi team. It's Teresa Blake here from KPMG. Thanks for making time for us today. I've got Michael Herman and Mark Braden here with me. We're going to talk about all things, digital and transformation; a couple of great topics. And I really want to spend time on how our lender clients are really helping accelerate their digital transformation journey and focus on the things that are really going to change their business, as their borrowers continue to change and evolve. Michael, I want to talk about Salesforce. I'm a mortgage geek. I love this space. But refinance volume is drying up at a pace that we just expected, but it's become a purchase-market. How is Salesforce really helping their lender clients get those leads converted into applications?

Michael Herman

That's a great question, Teresa. And everyone loves talking about leads in any market, right? But I would say the first thing is really making sure that whether it's a slow market or a really kind of high volume market, that there's a discipline process in place. And it starts with targeting correctly. It follows up with really engaging with that target segment. Then really adding a scoring engine to really figure out the profile of those people that you're engaging with. And then once you understand what those scores are, putting them into the right distribution channel.

Do we make sure that we have it to the right folks; we send the lease to the right folks? Then making sure you have a good plan of action, and then really importantly, learning and informing your marketing and campaign team, so you continually refine that engine. And when we do see the market slowing down a bit, where when interest rates are super low and it's just pure mayhem, when it's a slower market, we really see some hyper-focus in that target area around really defined and discreet segments. So for example, certain clients that have a certain loan or rate exposure, for example.

When we go to engagement, because we're not dealing with such significant levels of volume, how do we really have a personalized engagement, so that you really stand out and service stands out where potentially paying a little bit more might not be as big of an issue because you are getting or receiving such amazing service. And then on the scoring, we actually see the opposite. We see a little bit less restrictive of an aperture around who and what is a qualified lead.

And we tend to be a little bit more open to that. And then what we also do is because we're not getting as many leads in here on the distribution side, how do we make sure we're funneling those leads that actually come through to the right person? Is he or she that loan officer the best match for that lead, so we have the highest percentage of conversion rate?

And then when we act on those leads, we have to really make sure that because it's a sensitive market, not only are we just claiming victory and putting the flag up when we close and convert those leads, but that we have personalized nurturing campaigns, so that we stay with these folks, continue their fantastic service, so that they buy the brand, not the rate. And we're able to bring those dollars into the machine. So that's what we're seeing when we're looking at the environment that we have today.

Teresa Blake

That's super cool. Michael. I was going to say, I think it's really important that we help our lending clients get super focused. How do you help those lenders who have really great servicing data, maybe on another product. Maybe they're doing the servicing for an auto loan and the lender doesn't have their mortgage or their home equity. How do you help them as they're thinking about their next big transaction? How can Salesforce help there?

Michael Herman

So Salesforce does a really nice job, and Salesforce with some of the tools in the ecosystem as well and collecting data and analyzing data and turning that data into insights that are actionable. And what happens quite a bit is in a financial institution, the data that Salesforce analyzes tends to be only data within the four walls of that organization. And you know what they say, you know what you know, and you don't know what you don't know. And there's data outside that actually could be beneficial around trends. All things that you could use to understand where that individual is, not just in their mortgage world, but as a consumer. As a retail consumer. And that data combined with an AI engine, looking at those profiles and those trends, where we see based on a person with that profile, here's where they land next. And then taking that information and that same framework we just talked about leads, and putting it in the hands of the right person with an understanding of what's the next best action, not product, but action, because sometimes you might need multiple actions before you get to a transaction. So that's where we see Salesforce doing a really good job at is aggregating that data, harmonizing that data, using AI to really drive insights out of it. And then putting that insight in the right hands of the right person at the right time to really optimize that engagement.

Teresa Blake

That's cool because Salesforce does that well. And when I think about how lenders are investing in technology, they're spending money on Salesforce, but Mark, they're spending a ton of money on loan origination systems. What's changed? Like, is it really now a good time to invest in an LOS if you haven't spent the money previously?

Mark Braden

Teresa, that's always the great question that we've had for years in our industry is you have these massively busy years that we've had over the last few years and your lenders and their BAU models are so busy just getting the loans through the channel of their environment, that they tend to not be able to implement strategic initiatives. And then we have to drop off, as Michael just mentioned. So, now they're looking at how to right size organizations to be able to manage the new environment. What we find is those that are really long term oriented work past both of those. And they look at the loan origination system, Michael mentioned the ecosystem, And in the mortgage side, on the origination side, is the LOS is the center of that ecosystem. Or as we always have termed, it's kind of like the heart in the body. And we look at organizations now. We got several that we're talking to about what is a good time for us to really make that change. And so we walk them through series of steps to be able to look at their current environment. Are they having regulatory challenges? Are they having process challenges, and such? And really, to build out that foundation for where we believe they need to be for digital. And it's not for 2022 or 2023. We look at like 2030.

So if you've got a long term orientation around your business, and you recognize that we're not going to be in this paper mode for really a whole lot longer. We learned a lot through COVID, that loans can be done remote. They can be closed remote. And I believe those that are really looking at the future, Teresa, are right now saying we need to reinvent our processes and bring in a loan origination system, as well as products around the ecosystem to be able to get purely digital.

Teresa Blake

That's awesome, Mark. I would say actually a down market's a great time to put in new tech. If the lender has just recently put in a new LOS, or they've spent money, what are lenders bolting on to their loan origination system to get the most bang for their buck? A down market, you got to look at efficiency, right?

Mark Braden

That's absolutely correct. So they're looking at a few key areas. They have been looking at for years, but they're really starting to really take shape around intelligent interactions as a key one around the ability to not only bring data in from documents or unstructured documents but to really make that data take action in the process so that you can eliminate processes for your business versus just make the process better. Tying that along with good AI technology, so that you're able to truly underwrite the loan, not with an underwriter, but underwrite the loan intelligently so that your underwriters are really only working on the areas of the loan that they need to work on versus the whole 100% of the loan. And then, you know the areas of data and analytics? They're flat out just continuously growing and really enabling to feed into the lead models that Michael was talking about earlier. Leads are going to continue to be there, whether it's in a purchase market or not, that part's continuing to grow. And we're seeing RPA robotic process automation starting to pick up as people start to really recognize how they can leverage it in components of their systems to really look at different functions within the process and enable a better maybe compliant environment or an ability for documents to be generated in a much more effective manner

Teresa Blake

Yeah, that's awesome, Mark. I was going to say, AI and robotics have been the name of the game. And I just feel like there's still so much more that we can do. Michael, one more back to you, if you could build the perfect Salesforce engine to bolt on, what would you spend money on?

Michael Herman

Yeah. I would actually spend it on an end-to-end engagement model, which would start with a digital front end, right, that makes it real easy and simple for clients to come in, authenticate themselves, upload and validate their documents.  Be able to either connect with an agent in person or digitally. And then integrate into onboarding. And then have a service center on the back end that, helps them self-direct should they have any issues, but also if there is a personal issue that needs to happen, that data automatically comes over to that CSR and they know exactly why that individual's calling and have two or three really good answers for some potential service questions and even a potential opportunity or two to cross-sell and upsell the book of business.

And if you can do that on one platform with one data model and really thinking about it from an end to end experience, which would be personas, journeys, processes, and data, I'd be a real happy camper. And I think all the borrowers would be real happy. And I definitely think all the mortgage banks would be super excited as well.

Teresa Blake

Yeah, no, that's awesome, Michael. And I have to tell you, there's no better time to be in mortgage with the combination of the new technologies that are available and how much we understand about the borrower and human behavior during the process. Mark, I was thinking about it though. We still ultimately do a fair amount of optimization work, right? Someone's not going to spend a ton of money on technology, but guess what? We can always find ways to make those processes better. What do you think's been the most effective if maybe there's not a lot of dollars to spend on the tech stack?

Mark Braden

Yeah, so Teresa, what we find is, even people that have gone through an implementation, and six months later, they look at it and say, "Are we getting the bank for a buck on it?" recognize sometimes that they've made the mistake and implemented their existing processes instead of gone through the process and really built in a whole new model or whole new digital type framework. But what we do see when we go into clients and we have a fair amount that have this interest is, come in and say, "Hey, you know what? We're feeling like something's not right." Our underwrites per day aren't at the level that we hear competition's at, it's to us a really long time to get a loan from inception to funding. And so we come in and we have what we find most effective is really shadowing their existing processes, sitting down really with the end users, not the management team, but the users that are actually doing the work, walking through, watching what they do and finding that, they're in the LLS a little bit, but then they've got these other spreadsheets that they're building off of. And so we do a lot of measurements against those capabilities, against what the actual platform offers that they're on, whatever LLS system and other bolted-on technologies.

And then come in and adjust their processes so that they're actually leveraging what they've already made their investments in versus using the more manual type processes outside of that. And then in some cases, as we go through that, there's a recognition of various technology solutions that might make big leaps versus small leaps. And it may not be the full LLS. As we talked about earlier, it might be bolting on a data and analytics component. It might be bolting on Salesforce on the front end, as Michael's talking about because just their whole lead generation and the whole front end part of how they onboard transactions is really clumsy and causing big errors in the process. So it's numerous areas that we find out of it, but we do find shadowing and just really getting to the brass tax of how are they doing their work, not necessarily what they have documented, but how are they actually going about the work itself?

Teresa Blake

Yeah, Mark, I have to tell you the number of times that we find that there's processes that are being done completely outside of the system that aren't needed has really been eye-opening for me over the last couple of years. And I have to tell you, technology solves a lot, but there's also a lot to be said for really understanding what happens behind the scenes. Well, I really thank you, both, Mark and Michael for spending the time with me today. I hope the listeners found this educational and vibrant. Have a great rest of the day.

Closing

Thanks for listening to this episode of Core Modernization with KPMG. We look forward to future episodes where we'll dive deeper into the core infrastructure.