Digital mortgages: What they are and why small lenders need to adopt them

The concept of mortgages is almost as old as the concept of private property. In fact, one of the earliest mentions of mortgage law is from the Code of Manu, an ancient Hindu script that condemned deceptive lending. Mortgages became more formalized with the advent of modern banking. And with suburban housing demand in post-World War II America, and backing from the federal government, they became the basis of a highly profitable industry.

The rise of the digital mortgage

Since then, mortgages have evolved to match prevailing consumer trends, which are now becoming increasingly digital products. A fully digital mortgage is a new type of product many lenders are aggressively moving toward adopting. As underwriting, disbursement, and storage takes place without any physical paper or manual processing, these loans aren’t possible without advanced SaaS platforms and automation.

Given the current level of proliferation of technology, we’re not far off from all mortgages originating online. And, as artificial intelligence automation improves, the mortgage industry can eliminate more paper.

Why lenders need to implement more automation

Legacy lenders and mortgage providers who still heavily rely on manual processes risk getting left behind in the industry if they don’t adopt automation quickly, but it’s far from the only reason. Some of the other benefits include:

Meeting consumers where they are

According to Grand View Research, the global market for digital lending was worth $4.87 billion in 2020. It’s expected to grow at a 24% CAGR through the year 2028. Consumers live on their phones, tablets, and computers, and are expected to manage more of their lives through online each passing year. Before long, lenders won’t be able to reach potential borrowers if they’re not offering online loan applications.

Approving loans more quickly

Fintech lending companies like Rocket Loans have an impressive 10-minute approval time between application submission and final notification. Of course, consumers are interested in getting the best interest rates and loan terms, but as these become more uniform throughout the industry, approval speed is becoming an increasingly important differentiator. Legacy lenders will only be able to compete with technology-forward competitors by automating processes through artificial intelligence.

Improving efficiency

Manual application review and underwriting are incredibly time consuming and labor-intensive processes — prone to error. Limiting the number of human touchpoints for each mortgage application drastically speeds up processing speeds and minimizes labor expenses. This in turn allows lenders to offer more competitive interest rates while still remaining profitable, attracting more borrowers and increasing the bottom line.

How to create digital mortgage processes

Most legacy lenders already employ some automation. Financial software can help underwriters calculate debt-to-income and loan-to-value ratios for faster processing, and many lenders use online forms to collect borrower information.

To further improve efficiency, lenders can integrate intelligent process automation platforms like Automation Hero to streamline workflows between various programs or even to use as a complete end-to-end solution.

Automation Hero uses deep-learning AI to offer the best capabilities of RPA, IDP, and OCR technology in one platform. With robust API integrations, it connects seamlessly with the software lenders already use, serving as a connective fabric between them to not only speed up data transfer but also use that data to develop better automations. As the AI collects more data about processes, it identifies bottlenecks and guides users on how to create more robust procedures.

Digital mortgages are here, and only becoming more popular — both for consumers, and the lenders competing to reach them. In fact, research by Ellie Mae found that 61% of borrowers used an online mortgage application in 2020. The faster that small and legacy finance companies roll out process automations, the better they will be able to compete with the fintech platforms moving into the market.