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The rise of digital technology ushered in a new era for the mortgage application process as borrowers took advantage of historically low interest rates and lenders embraced digital mortgages more than ever before.
A new survey on borrowing and lending by ICE Mortgage Technology finds that the pandemic has permanently changed the way consumers utilize technology, and those looking to buy or refinance a home are seeking lenders who offer online tools to complete their mortgage loans from home.
The overwhelming majority (90%) of lenders believe that technology can help improve the mortgage application process, citing benefits that include simplifying the entire process (74%), reducing time to close (70%) and minimizing data entry (67%).
“Last year brought our industry a perfect storm,” said Joe Tyrrell, president of ICE Mortgage Technology. “You not only had COVID, which required lenders to shift to virtual workforces, but you also had to continue to conduct business in a safe and socially distanced way with borrowers, all happening at the same time that we were experiencing a historical increase in loan volume.”
He added, “This caused many lenders to re-evaluate their technology partners, how they were leveraging technology, the systems that they employed, and the tools that they relied on. We heard many stories from our lenders across the country that had to completely and permanently shift the way they served borrowers.”
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According to the survey, the importance of lenders offering digital solutions such as online applications during the lending process increased for borrowers in 2020, with 58% saying it would likely affect their lender decision (up from 50% in 2018). While still important, the offering of a mobile app specifically was less likely to influence borrowers’ lender selection, with 47% saying availability of one would factor into their decision in 2020 (compared to 40% in 2018).
Homeowners who used an online application appreciated the simpler application process (55%), reduced time to close (53%) and resulted in fewer in-person interactions (49%).
Not surprisingly, decreased in-person interactions grew in importance in 2020, as just 37% of consumers in 2018 cited “no need to meet in person” as something they liked about their online application process. Whether they had been through the mortgage loan process or not, 64% of consumers surveyed believe that an online mortgage process would make buying a home or refinancing easier than an in-person process.
“From a borrower’s perspective, the pandemic has accelerated the demand for a consistent, digital first borrowing experience,” said Tyrrell. “Signing documents electronically is quickly becoming the minimum, and borrowers expect a seamless experience from start to finish. In 2020, many lenders cobbled together different solutions to meet borrower demands, but that often led to a more confusing, fragmented process. Covid highlighted the need for a single consistent digital experience for consumers.”
Currently, online applications and online portals are the digital tools most offered among lenders, with more than nine in 10 offering both options to borrowers (91%). Of lenders who offer online applications, 64% said more than half of all loan applications are submitted online, while 38% said more than 80% of their applications were completed online in 2020. However, traditional loan application methods may be more common at larger organizations. Half of large institutional lenders, or those with 200 or more employees, indicated that less than 50% of their loan applications were submitted online.
Borrower respondents who were offered online and/or mobile options by their lenders took advantage of those tools during the mortgage loan process. Sixty-one percent of borrowers used an online application in 2020, slightly up from 58% in 2018. Sixty-one percent also used an online portal for electronically signing and notarizing documents, compared to 56% in 2018.