Wells Fargo is the US’s largest mortgage originator, and its home loan business blossomed in the post-recession low interest rate environment.[i] The competitive advantage for Wells and other mortgage banks had, until recently, been their ability to make riskier loans and access cheaper funding through securitization markets.[ii] Under new lending regulations, however, mortgage fulfillment costs are up (from $5,137 per loan in 2012 to $7,046 in 2015), and Wells must now look toward digitization to reduce operational costs, drive speed and efficiency, and optimize the customer experience.[iii]
At the same time, upstart online mortgage originators – like Rocket Mortgage and SoFi – have given customers a viable alternative to the old brick-and-mortar process, with online applications and an expedited cycle time from application to closing. Moreover, other traditional originators have partnered with third-party software vendors that provide white-labeled web portals for mortgage applications.[iv] In light of these developments, Wells needs to adapt its technology to protect market share.
In August, Wells CEO Tim Sloan announced plans to launch a digital mortgage application by the end of 2018 to serve its 28 million digital users, who right now must apply through one of its mortgage branches.[v] The web and mobile mortgage applications will seek to enhance the customer experience and accelerate application timelines by minimizing the information that must be provided by the applicant herself. For example, if the applicant is an existing Wells customer, much of her information will be automatically populated into the mortgage application. Moreover, they will allow for the uploading of files digitally, and will integrate directly with data aggregators via API (i.e. the IRS for applicant tax documents, credit bureaus for credit information, and employment verification firms for paystubs).[vi] Self-service and ease of use are central to the system.
While Wells’ foray into digital mortgage lending with an online application is a solid first step, it’s imperative that they quickly create an end-to-end digital mortgage experience. This would first require investment in software solutions for the other stages of a full loan origination system: underwriting, processing and closing.
Specifically, Wells should automate the underwriting process. Pattern recognition technology would eliminate the need for humans to extract data from documents, instead automatically populating credit risk models. Moreover, automated pricing models could quickly be developed using machine learning on Well’s robust historical mortgage datasets. Once these features are integrated with the online application, conditional approvals and rates could be offered instantaneously to applicants at the time they hit submit, which would alleviate anxiety for the applicant, seller and realtor.[vii]
To round out the fully-digital loan origination system, Wells should evaluate investments in software that can enable fast and transparent mortgage closing. eClosing eliminates the need for long, multi-party in-person closing meetings. Moreover, digital loan trackers keep applicants, sellers and realtors apprised as the process progresses and triggers automatic mobile or email notifications if additional information is required.[viii] Taken together, these steps could expedite the mortgage origination cycle time weeks to hours or minutes.[ix]
On a longer horizon, Wells should look into how they can use digitization to streamline the servicing of its $1.5 trillion mortgage portfolio.[x] Direct mortgage servicing costs increased 14% annually from 2009-2014, primarily driven by increased personnel costs due to post financial crisis regulatory requirements.[xi] Wells should investigate software that digitizes paper-based servicing processes, enables borrower self-service through well-designed portals, and proactively reaches out to delinquent borrowers or borrowers showing signs of financial distress.[xii]
To support these technological investments, Wells should work with investors and guarantors (e.g. Fannie Mae and Freddie Mac) to get them comfortable with the use of new third-party technology vendors enabling online mortgages.[xiii] Secondly, Wells should consider other digital products they can create to cross-sell with online mortgages – like digital homeowner’s insurance and pre-approved renovation loans[xiv]
Concerns remain around how Wells will respond to new online competitors in the mortgage space. First, how quickly and seamlessly will Wells integrate its initial front-end application with the back-end underwriting, processing, and closing systems; will its legacy platform hold it back vis-à-vis start-ups that can build a new technology from scratch? Second, can Wells get its customers comfortable with providing required credentials over the internet so that Wells can directly aggregate customer data from other sources (e.g. the IRS, other banks, credit bureaus)?[xv] And finally, which pieces of software should Wells license or buy, and which should they build themselves?[xvi]
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[i] “Riding High: The Big Winner from the Financial Crisis,” September 14, 2013, https://www.economist.com/news/finance-and-economics/21586295-big-winner-financial-crisis-riding-high, accessed November 2017.
[ii] Gebre, Biniam, Ahmet Hacikura, Sushil Raja, Kenan Rodrigues, Cosimo Schiavone, “Digital Mortgage Nirvana: Cheaper, Better, Faster,” Oliver Wyman, February 2017, p. 18, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[iii] Gebre, Biniam, Ahmet Hacikura, Sushil Raja, Kenan Rodrigues, Cosimo Schiavone, “Digital Mortgage Nirvana: Cheaper, Better, Faster,” Oliver Wyman, February 2017, p. 18, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[iv] Ryan Lawler, “Mortgage technology provider Blend raised another $100 million led by Greylock,” August 24, 2017, https://techcrunch.com/2017/08/24/blend-100-million/, accessed November 2017.
[v] Peter Rudegeair, “Wells Fargo, U.S. Bancorp Turn to Startup to Speed Up Mortgage Applications”, August 24, 2017, https://www.wsj.com/articles/wells-fargo-u-s-bank-turn-to-startup-to-speed-up-mortgage-applications-1503572580, accessed November 2017.
[vi] Gebre, Biniam, Ahmet Hacikura, Sushil Raja, Kenan Rodrigues, Cosimo Schiavone, “Digital Mortgage Nirvana: Cheaper, Better, Faster,” Oliver Wyman, February 2017, p. 20, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[vii] Gebre, Biniam, Ahmet Hacikura, Sushil Raja, Kenan Rodrigues, Cosimo Schiavone, “Digital Mortgage Nirvana: Cheaper, Better, Faster,” Oliver Wyman, February 2017, p. 21, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[viii] Gebre, Biniam, Johnathon Liu, Kenan Rodrigues, “The Future of Technology in Mortgage Originations,” Oliver Wyman, August 2016, p. 32, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[ix] Gebre, Biniam, Johnathon Liu, Kenan Rodrigues, “The Future of Technology in Mortgage Originations,” Oliver Wyman, August 2016, p. 32, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[x] Trefis Team, “Wells Fargo’s Mortgage Servicing Portfolio To Grow Thanks To Deal With Seneca,” September 8, 2017, https://www.forbes.com/sites/greatspeculations/2017/09/08/wells-fargos-mortgage-servicing-portfolio-to-grow-thanks-to-deal-with-seneca/#5cfc3c712d80, accessed November 2017.
[xi] Gebre, Biniam, Ahmet Hacikura, Vivian Merker, “A Model for Efficient Mortgage Servicing,” Oliver Wyman, December 2016, p. 36, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[xii] Gebre, Biniam, Ahmet Hacikura, Vivian Merker, “A Model for Efficient Mortgage Servicing,” Oliver Wyman, December 2016, p. 41, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[xiii] Gebre, Biniam, Ahmet Hacikura, Sushil Raja, Kenan Rodrigues, Cosimo Schiavone, “Digital Mortgage Nirvana: Cheaper, Better, Faster,” Oliver Wyman, February 2017, p. 19, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[xiv] Gebre, Biniam, Ahmet Hacikura, Sushil Raja, Kenan Rodrigues, Cosimo Schiavone, “Digital Mortgage Nirvana: Cheaper, Better, Faster,” Oliver Wyman, February 2017, p. 26, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[xv] Gebre, Biniam, Ahmet Hacikura, Sushil Raja, Kenan Rodrigues, Cosimo Schiavone, “Digital Mortgage Nirvana: Cheaper, Better, Faster,” Oliver Wyman, February 2017, p. 23, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.
[xvi] Gebre, Biniam, Johnathon Liu, Kenan Rodrigues, “The Future of Technology in Mortgage Originations,” Oliver Wyman, August 2016, p. 34, http://www.oliverwyman.com/our-expertise/insights/2017/apr/a-new-age-in-mortgage.html, accessed November 2017.