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Lending, Open Banking

Why are Digital Lenders Crushing it?

For the past six quarters, more lenders have had a negative profit margin outlook than positive. For the past five, competition has been cited by 78 percent of lenders as the main cause for that negative outlook.

Conversely, only 17 percent of lenders had a positive profit margin outlook. That 17 percent also hold the key to lender growth in today’s competitive, slowing mortgage market.

Their reason for a positive outlook? Operational efficiency or technology – also known as digitization! The improvements that come from simplifying manual processes through digital automation make all the difference in today’s mortgage market. Those that race to a digital experience will survive and thrive.  Those that don’t? Well, let’s just say I won’t be betting on that horse.

Look no further than Quicken Loans and Rocket Mortgage for how this is actually working. In the first quarter of 2018 there was 5 percent less mortgage volume than in 2017. Still, Quicken Loans originated 5 percent more by volume ($20.5 billion total), which was $4 billion more than the next closest lender.

How’d they do it? By significantly investing in technology to get to a true digital mortgage. Quicken Loans said their technology allows for approvals in 8 minutes and closing a refinance in 8 days and purchases in as little as 16 days. That’s almost three times as fast as the average purchase and four times as fast as the average refinance. That also means they have 3-4 times the output available as today’s average lender.

So digitize.  And do it quick. It’s relatively easy to start and can be done in steps. Some pieces of the origination process will always take time, but moving manual processes into an automated digital process frees up resources for everyone.

A loan officer is no longer required for a pre-approval that borrowers can now get online in minutes. Digital verification reports have replaced bank statements, pay stubs, and other financial data that had to be sent from a borrower one way or another, taking nearly 2 weeks to get everything in order. Quicken Loans even demonstrated a complete digital mortgage process, including the borrowers closing online. Everybody doesn’t have to be in the same room any longer.

All of this means digital lenders can originate and close more loans in a shorter amount of time, while freeing up their loan officers and brokers to handle a higher volume.  And the customer experience doesn’t suffer, in fact it can be greatly enhanced.

None of this should be a surprise. Digital lenders have consistently increased their mortgage volume. Over the past 6 years, they have grown by 30% annually. Since introducing Rocket Mortgage during the Super Bowl in 2016, Quicken Loans has set a record for their most volume in a year and has continued to grow. Over the past 6 months, they’ve become the nation’s top lender, not just the top digital lender. They have adopted a digital or bust attitude and it’s paying big dividends.

While the market may continue to give lenders pause, there is a way to stand out and have a positive view on your profit margins. Get started digitizing. Start with verification reports that can cut up to 6 days off verifying assets, 8 days off verifying income, and up to 12 days off verifying employment. Digital verification can account for taking almost two weeks off the typical origination. Even a simple, verification of asset report can save almost a week.