Despite the U.S. mortgage industry’s prominence — it serves more than $13 trillion in debt across about 86 million mortgages — it remains one of the most complex and inefficient financial sectors in the nation’s economy. This is largely because it hasn’t fully embraced the digital transformation that has made other sectors like banking, payments and insurance more structured and consumer-friendly.
As a result, the entire home lending process, from origination and servicing to closing, continues to rely on disconnected systems, manual data entry and outdated workflows. This results in higher costs and greater frustration for customers.
According to the Mortgage Bankers Association (MBA), lenders spend approximately $12,500 to originate a mortgage. These costs are often passed on to customers, making mortgages more expensive and putting homeownership out of reach for many Americans.
The current lending dynamic is also negative for mortgage companies. Even though new originations are estimated to be worth roughly $2 trillion per year, according to LoanLogics calculations on MBA data, lenders are only earning about $2.7 billion in net revenue on that amount — a roughly 4% profit margin.
A mortgage revolution is long overdue. Fortunately, the technology needed to make the industry more efficient and profitable already exists.
Disconnected and risky systems
The mortgage industry today is a complex web of participants across different systems, data standards and workflows. While much of the industry has already invested in sleek borrower-facing websites and apps, little movement has been made to improve the infrastructure underneath these platforms. There’s lots of style, but little substance.
In fact, mortgages mostly still rely on loan origination platforms that were built decades ago with limited application programming interface (API) capabilities, and integrations that are bolted on, not natively designed. It’s like buying a $250,000 sports car and driving it on a 30-year-old road riddled with potholes. It’s difficult to accelerate with bad infrastructure underneath, no matter how much horsepower you have.
Worse than the slowdown is the redundancy. These different systems are often incompatible with one another, meaning that information gets entered multiple times, converted into multiple formats and passed along from company to company. As a result, much of the mortgage process still revolves around document management rather than structured data exchange. The important data in a loan file is held captive in static formats: PDFs, emails, Word documents and even faxed forms. Every time the data changes hands or formats, it must be manually replicated across multiple systems.
This redundancy adds cost and complexity and increases the likelihood that mistakes will arise as data is ported from system to system in a long game of “mortgage telephone.” A single loan file is typically touched…
Read More: How smarter tech can be used to usher in new industry standards
