Lender Consumer Loan Origination

By Nick Thomas, Executive VP

At the end of last year, The Financial Brand did a survey to determine the top 10 trends for retail banking in 2017. The number one concern for industry leaders and experts was reducing friction from the customer journey (54%), the next was using big data, AI, advanced analytics and cognitive computing (53%)…and one of our favorites came in at number 4, open APIs (32%).   Why is this important?  Because it speaks to the ongoing digitization of banking processes.  And as far as mortgage lenders are concerned, the big question is how can they harness technology to embrace digital lending? Digitizing the lending process, not only speeds it up, but also provides better insights, increased efficiency, decreases fraud, and it can actually create a larger credit pool,

First step – verification solutions

One of the most significant opportunities is digitizing the verification process. The first two solutions which dramatically improve the loan origination process are Verification of Income (VoI) and Verification of Assets (VoA). Both of these solutions utilize borrower-permissioned financial transaction data. VoI allows lenders to confirm a borrower’s income for up to two years.  When done right, it utilizes data intelligence to identify, track and extract sources of income from an account’s data. VoA offers similar functionality for the borrower’s assets by accessing checking, savings, retirement and brokerage account information to create an accurate and real-time picture of assets.

Benefits to lenders

We explored the ways our VoA solution enhances the borrower’s experience of applying for a mortgage in this post. So here’s a closer look at how both solutions improve the process of originating loans for lenders.

Increase efficiency

Manually inputting and verifying documents is time-consuming and labor-intensive. Automating these activities increases the speed of loan origination by up to eight days in the case of one mortgage provider. Lenders also make better decisions, as they have access to deeper and more accurate data. Improving speed and accuracy frees up loan capital which can be deployed elsewhere. Then there’s the regulatory regime to take into account. With the requirements imposed by the Home Mortgage Disclosure Act set to become tougher in 2018, VoI and VoA solutions can help lenders remain compliant by automating the reporting process.

Reduce costs

Becoming more efficient doesn’t only save time, it saves money too. This is a serious consideration for lenders, as the cost of loan origination is rising. According to the Mortgage Bankers Association, it jumped from $5,779 in 2013 to $7,845 in 2016. Meanwhile, the net income per loan dropped from $1,772 to $8252. So lenders can also use VoI and VoA solutions to cut costs and boost their bottom line.

Lower the risk of fraud

One of the biggest problems with the manual process, where a borrower provides paper (or .pdf, etc) copies of documents to support a loan application, is that doctoring them is easy. According to CoreLogic’s latest Mortgage Fraud Trends Report, 12,718 mortgage applications were considered fraudulent in the second quarter of 2016 alone and the risk of income fraud rose by 12.5% from a year earlier. Lenders can combat fraud by using VoI and VoA solutions, as these pull data straight from the financial institution.

If you’d like to discuss how Finicity’s solutions can help your company cut costs and streamline the loan origination process, please let us know.

At the end of April, Nick Thomas, Finicity’s President of Data Services, and Jessie Morris, our Software Development Director, presented at FinovateSpring 2017, one of the most prestigious events in the Fintech calendar held at the heart of the tech scene in Silicon Valley.

Finovate showcases the latest in banking and financial technology innovation, with presenters demoing their product before an audience of around a thousand venture capitalists, journalists and execs representing some of the biggest names in financial services like American Express, Wells Fargo and Fannie Mae.

Each presenter gets just seven minutes to convey the key benefits offered by their product. As you’ll see from the video below, Nick and Jessie did a great job showing how Finicity’s Verification of Income and Assets solution transforms the experience of applying for a mortgage, making the process quick and painless for borrowers and lenders.

Check out the video below, and get in touch with us if you’d like to learn more.

Today marks a major landmark for Finicity, and frankly for the lending marketplace.  Today we announced a solution partnership with Experian, the world’s largest credit bureau and a notable market innovator, to reimagine the lending experience through digital transformation.

We live in a time of incredible change, and that change is occurring at a pace never before seen.  And it’s largely driven by the technological leaps we’ve recently experienced.  Cloud.  Mobility.  Big data.  With these advancements we’ve experienced dramatic shifts in how we shop, travel, consume entertainment, and even order pizza.  And yet, the lending space hasn’t experienced quite the same transformation.  Until now.

Finicity has long been in the business of providing financial insights through state-of-the-art aggregation of financial transactions and records. Now we’re applying that know-how to the credit decisioning process, starting with verification of assets and income.  This verification process has remained virtually unchanged for decades.  It’s essentially a paper chase.  Borrowers still have to track down verification of income and assets by compiling a series of financial statements and pay stubs.  I’m pretty sure my parents had to do the same when they bought their first house.

Together with Experian, we will provide a digital experience, integrated into the loan process.  For borrowers, they are now able to harness the power of data by simply permissioning access to transactions in the accounts of their choosing. There’s no more looking for statements, downloading, printing, emailing, scanning, calling, etc.  For lenders, the process is faster, efficient and more accurate.

Becoming more efficient doesn’t only save time, it saves money too. This is a serious consideration for lenders, as the cost of loan origination is rising. According to the Mortgage Bankers Association, it jumped from $5,779 in 2013 to $7,845 in 2016. Meanwhile, the net income per loan dropped from $1,772 to $825

Another advantage for lenders? Finicity is currently piloting its asset verification report solution with Fannie Mae as a final step toward receiving Day 1 CertaintyTM report supplier approval. Fannie Mae’s new Day 1 Certainty initiative is a landmark advancement within mortgage lending in which lenders can validate loan application data upfront. The benefits include freedom from representations and warranties, more efficient risk management and a streamlined process.

Our relationship with Experian is really a series of first.  We are the first core aggregator to work with a major credit bureau to deliver such solutions and to pilot with Fannie Mae to become an eligible asset verification report supplier for the DU® validation service, part of Fannie Mae’s Day 1 Certainty offerings.  Experian is the first credit bureau digitizing the loan asset and income verification steps of the underwriting process for consumers and lenders – delivered through their Decisioning as a Service platform.

And yet, while there are many firsts, we don’t expect this to be the last you hear from us.  The ability for consumers to use their transaction data and financial records to benefit in the lending process is just beginning.  As we move forward the power of data will, we believe, enhance credit inclusion and improve the financial well being of millions.

Again, we are very excited to work with Experian to meaningfully innovate an industry and empower individuals.

One of the major banking trends in 2017 is removing friction from the customer journey. So says Jim Marous, top Fintech influencer and publisher of the Digital Banking Report. The latest report suggests banks must harness digital technology to address customer pain points, such as streamlining the user experience¹.  

This mirrors a trend in the digitization of the service industry in general. After all, you can carry out numerous transactions from your mobile device these days, from ordering a pizza to booking a hotel. By 2020, PricewaterhouseCoopers claims an entire generation, which they refer to as Generation C (for connected), will have grown up in what is essentially a digital world².

Consumers expect the same level of convenience when dealing with the financial sector. According to Accenture’s 2016 North America Consumer Digital Banking Survey, 60% of respondents use online banking at least on a weekly basis, while 11% of those who switched banks moved to an online or virtual bank³.  

The survey also reveals that one of the most common reasons customers would look at switching banks would be to simplify the experience of buying a home⁴. This shouldn’t come as a surprise, considering how much of the loan origination process is still time-consuming and manual, for example filling in forms and photocopying proof of identification. So if a financial institution can offer a more digital lending experience to borrowers, it stands a good chance of differentiating itself from the competition.

That’s where Finicity comes in.

Verification of Assets solution

Our Verification of Assets (VoA) solution completely transforms the experience of applying for a loan. It enables borrowers to permission access to accounts that in turn provides lenders with a complete picture of assets that could affect the loan decision.  And they can do it from a variety of account types and from multiple institutions.  For borrowers, it simplifies the process and delivers the digital experience they’ve come to expect from other aspects of their lives.

Finicity Connect

To further simplify the experience we have created Finicity Connect, a web app or widget that allows the borrower to easily control and permission secure access to the account data they want considered in the loan process. It’s basically a three-step experience of providing personal identification information, selecting from an extensive list of financial institutions and then choosing which accounts to be used.  And one of the best parts for the lender is that Finicity Connect and the Finicity reports can be integrated with, or pushed through the lender’s platform.

Broader loan availability

Prospective borrowers who are thin-file or no-file are at a disadvantage when it comes to applying for a loan. However, they may only have a poor credit score because they don’t use credit – such as credit cards or have very little credit history.  Going forward,  we believe our VoA solution and a more digitized experience will provide greater insights into financial wellness.  This will allow borrowers to use permissioned data that in turn helps lenders to make a decision based on a wider selection of financial data, giving otherwise qualified borrowers a better chance of securing a loan.   

Dispute management and resolution

One other thing we’ve done to improve the experience for borrowers is register Finicity as a Consumer Reporting Agency.  This provides more transparency, and a communication channel- our dispute and resolution platform-  which borrowers can use if they receive an adverse action.  We want to ensure the best experience as well as the best data.

If you’d like to offer your customers a loan origination process that’s quicker, simpler and more convenient, get in touch.  

¹ http://thefinanser.com/2017/01/top-10-retail-banking-trends-2017.html/

² http://www.strategyand.pwc.com/global/home/what-we-think/digitization/megatrend

³ https://www.accenture.com/t00010101T000000__w__/gb-en/_acnmedia/PDF-22/Accenture-2016-North-America-Consumer-Digital-Banking-Survey.pdf#zoom=50

⁴ https://www.accenture.com/t00010101T000000__w__/gb-en/_acnmedia/PDF-22/Accenture-2016-North-America-Consumer-Digital-Banking-Survey.pdf#zoom=50

It feels as if we’re at the beginning of a seismic shift in the credit decisioning world. With the use of additional and/or alternative data in the credit decisioning process, how we apply for and approve a loan is changing.

The Consumer Financial Protection Bureau (CFPB) held a field hearing yesterday, and  announced a request for information (RFI) on the pros and cons of using alternative data for credit decisioning.

CFPB Director Richard Cordray’s comments were very thorough and well balanced. If you haven’t read them, check them out here.

The RFI covers four main issues:

  • Potential risks and benefits for consumers of using additional and/or alternative data to better assess their likelihood of repaying a loan.
  • How introducing new alternative data sources into the credit decisioning process might add to its complexity. For example, will it make credit decisioning more difficult for people to understand and will it impact their ability to control their financial lives?
  • How the use and interpretation of this data may affect privacy and transparency.
  • Whether reliance on some types of alternative data could result in discrimination against certain consumers.

These are all important issues to examine and discuss, which is why Finicity will be one of many voices to weigh in on the RFI. However, the way these issues are being portrayed underplays what I believe to be the empowering benefits of new data in the process and the positive impact for consumers.

At Finicity, our goal is to help individuals and organizations make smarter financial decisions. We believe this is done by providing a rich, real-time view of an individual’s or organization’s financial health through their financial transactions. Better information leads to better insight, which ultimately leads to better decisions. All the while, the account owner is in complete control of how, when and where that data is deployed, and their data becomes a powerful tool to be utilized in any manner they see fit.

In the CFPB field hearing, it was brought up that there are approximately 45 million people who are “credit invisible” (no credit history at all) or have credit histories that are too limited or have been inactive for too long to generate a credit score, leaving them unable to receive a loan in the current system. For these people, the ability to demonstrate loan suitability through their day-to-day account activities would be a great advantage. These transactions may include income deposits, utility bills, telecom payments, rent, and others.

We’re in the foundational stages of using account information within the lending process. Right now, we’re rolling out verification of assets and income solutions to dramatically simplify and improve this aspect of the loan process. And as we progress forward, we’ll see transaction information used in ways that further speed up the lending process, improve accuracy, expand credit to those underserved, and ultimately provide a better experience for all involved.

It will be important that all voices are heard on this issue. Identifying the key challenges and having a robust discussion will benefit everyone. And our hope is that these seismic shifts will benefit a broader group of individuals and organizations through the appropriate utilization of alternative and additional data within the credit decisioning process.