The future of digital in the mortgage market

Digital technology is changing the financial landscape but how will it impact on the mortgage market of the future? This was the subject under consideration at the latest Mortgage Finance Gazette Lunch Club in association with Sutherland UK

Left to right: Joanne Atkin, Editor, Mortgage Finance Gazette; Jeremy Law, Managing Director of Residential Lending, Shawbrook Bank; Charlie Morley, Director of Mortgages, Metro Bank; Sarah Green, Director of Business Development, Sutherland UK; Scott Slifer, CEO, Sutherland Mortgage Group; Maria Harris, Director of Intermediary Lending, Atom Bank; Chris Storey, UK Mortgage Director, Sutherland UK; Greg Willmott, Chief Strategy and Digital Officer, Yorkshire Building Society Group

The MFG Lunch Club met at Corrigans in London’s Mayfair to discuss how digital change for mortgage lenders can enhance the customer experience, improve intermediary relationships, increase efficiency and reduce costs.

Scott Slifer, CEO at Sutherland Mortgage Group who is based in the United States, introduced the topic by saying that digital is the most important and most impactful technological advancement for mortgage lenders. If lenders don’t have a clear digital customer experience strategy, he believes they are “absolutely missing the boat”.

Sutherland is a global digital design and business transformation company. It has around 50,000 employees in 25 different countries with operating centres in more than 70 cities. In the UK, the operating centre is in London in the Gherkin Building and there is a design lab in Covent Garden.

Scott said: “I think there’s a tremendous amount of opportunity in the UK market to leverage the design thinking world and how we apply technology and digital capabilities into the solution, as well as the end product that we deliver to our clients. We try to understand what our clients’ end goal is from a customer experience perspective, and then using our design lab and the digital capabilities we can overlay with process re-engineering, robotics and chatbots.

“Our digital and design work falls into three buckets. One would be a customer experience or customer journey.

“The second piece is around analytics. Looking at better ways to sequence processes, such as helping clients become much more competitive by building portfolio retention analytics models. We build predictive models, pulling from 70-plus different databases that range from social media sites to monitoring life events, such as a child about to go to college.

“The last piece we see a tremendous amount of activity and investment in is robotics – robotic process automation (RPA). We have just finished one exercise with a large US client where they had some 60 people looking at a closed loan book they were about to purchase. We put three robots in to scrape the data out of the lender’s system. We train the robots so they are able to read numbers and match roughly 400 data points; this could be something like middle initial, house number, etc, and we were able to match almost 60% of them. Those 60 people can then be redeployed into value add scenarios.

“So the customer journey, the analytics and the RPA have been a huge part of what we’ve been doing.”

Over to the floor
Many lenders are concentrating on the customer journey – the end-to-end experience – but are they doing enough and how will digital help that customer journey to improve?
Jeremy Law, Managing Director of Residential Lending, Shawbrook Bank: The mortgage market is one of the hardest places for lenders to tackle the customer journey, for two reasons. One is that it’s predominantly intermediated and the advisor plays a massive role in the customer journey. Secondly, it’s a complex process and no matter how much you sharpen up the front end you still have a journey to get through such as conveyancing. There’s so many third parties that it’s a really difficult journey to look at end-to-end.

Definitely technology is making progress and I think there is a point where technology will help us stitch all this together, for example, with open banking.

Charlie Morley, Director of Mortgages, Metro Bank: In the last two years, the industry has been looking forward and technology is going to change the market. Three out of four mortgages in the UK are written by an intermediary so we all need to go on a journey together that needs to embrace digital. I think lenders and brokers that shun technology or digitalisation will be shunned by the consumer. It will be a combination of utilising the technology with the best human skills – and those organisations will be the most successful.

There was a quote in the press, and I think it’s absolutely apt: most of the big leaps forward in mortgage technology have come because they’ve been demanded of the industry, not because the industry has demanded it. But I think for the first time that’s starting to change, which is positive.

Jeremy Law: There’s a massive nervousness about technology’s role; some brokers are embracing it, but they’re not all embracing it.

Greg Willmott, Chief Strategy and Digital Officer, Yorkshire Building Society Group: Once you get outside of the larger broker groups, the smaller brokers need to make an investment in their front end, which is a huge deal for them. Then there are the other parts of the real world – solicitors, conveyancers, valuers – that all needs to be digitalised as well if we want the whole customer journey to be seamless.

Sarah Green, Director of Business Development, Sutherland UK: The solicitor’s side of house buying does seem to slow things down, and many firms are still paper based. That’s frustrating for the customer and there doesn’t seem to be a whole joined up end-to-end process.

Greg Willmott: That’s right. There are too many third parties but the question for a lender is, do you invest and build as if that’s all going to fall into place soon or do you just address a particular point.

Charlie Morley: I think it will be a gradual process. It isn’t going to happen overnight but the journey will happen and it’s going in the right direction. When you look at digitalisation within the market one of the things that has happened in the last five years that has made a massive difference is scanning and uploading documents. When it came it in, seven or eight years ago, it was quite revolutionary. Everybody does it now.

Maria Harris, Director of Intermediary Lending, Atom Bank: The conversations we’re having now are about people doing something different. If you look at true digital disruption in other industries, the disruption is where somebody has designed a completely different customer journey to the one that exists, and I don’t think our industry is thinking about it in that way yet. What we’re doing is replacing the existing process with a new process; a better process, absolutely, and it might speed things up, but actually it’s not really changing or disrupting anything. So I think there’s a risk that if the industry doesn’t start from the customer journey point of view and remap what the customer journey should be, someone will come in with something completely different and the industry will change in a way that’s so radical it will be playing catch-up.

Jeremy Law: I completely agree with you. Out of all of the areas of banking, the mortgage industry has the most third parties so a lender can’t revolutionise in isolation. The silos can build individual components but they are not necessarily joining up and talking.

Chris Storey, UK Mortgage Director, Sutherland UK: If you got everyone in a room and asked them to design a process for mortgages, there’s a number of fairly straightforward steps. Start at the front end and work your way through to the back end, and the back end gets largely left. So it’s really flipping that on its head and asking what does the new style of customer want and how can we deliver it? But there are lots of barriers to the way that the current process works.

Jeremy Law: You could get a loan in seconds if everything is automated. The problem with a mortgage is the property asset which carries with it lots of legal challenges and valuation challenges so borrowers can’t get a mortgage for eight weeks because the asset is the problem.

Greg Willmott: That’s the point about radical solutions. So let’s imagine in the future there’s some sort of block-chain as an asset register for property. I’d say that’s an awfully long way away but that’s the kind of thing that will revolutionise the mortgage industry.

There are companies that produce detailed environmental reports. Do lenders look at environmental data or do they rely on the conveyancer, in the case of searches.
Maria Harris: The conveyancer deals with searches and that’s part of the problem in the customer journey. You have found your house, gone through the mortgage origination process, got your offer and think that everything is fine, and then it gets to the search stage. I think the stats are still quite high on how many purchases fall through when they reach conveyancing stage, because something has been found that’s an insurance risk or an environmental risk. But that data was actually available right at the beginning when the customer first looked at the house.

Greg Willmott: That information is publicly available and there are third party entities that compile this data and sell it to insurance companies.

Why don’t lenders buy environmental data?
Chris Storey: It’s not usually a lender’s policy to buy that information. But the house may have been sold a number of times before and searches will have been carried out if a mortgage has been granted on that property. So somebody somewhere has looked at that risk. Can we not learn from the fact that somebody has been there before and get their data and use it, rather than replicating the same process to get the same data?

Lenders look at borrowers and the risk of income and expenditure first and look at the property second. But actually if you turn that on its head and say, right, let’s look at the asset first then you could change the process.

Maria Harris: Some lenders are looking at that and whether you could pull the data that normally sits at the back end to the front as part of your AVM.

Jeremy Law: I think there are probably two reasons why lenders don’t buy environmental data. One is a cultural reason which is that banks believe they’re the best to lend money and take the risk on that asset. But the other point is our business processes aren’t set up for it. It’s not just a matter of buying the information but you then have to link it into your existing processes. It’s a pretty big step, and for each bank to do that independently doesn’t feel like a very sensible use of resource. The obvious place for it to live is in the valuation world.

Maria Harris: Other countries have done that with the Land Registry, where the Land Registries are held on block chain, and data about the house itself is updated with feeds from environmental reports. So all lenders have access to an irrefutable history of that property and what’s changed over time. You could get to a point where the customer might be looking at an online estate agent and clicking through to get that data as part of looking at a house before they even engage with a lender, which would be such a better customer journey.

Chris Storey: We are talking about something that might have happened 10 years ago – and that’s home information packs. Everyone rallied against those because they didn’t want the seller to have the extra cost of producing it, but in reality that would have solved a lot of this because you would have put that information right at the front.

Charlie Morley: I think the market is looking at how can you speed up the valuation process. How you look at the customer journey and how quickly you can do the valuation. The moment the information is collected can you give an instant mortgage decision?

In the United States are there similar problems with the conveyancing slowing down the house buying process?
Scott Slifer: One of the fundamental advantages that the US market probably has over the UK market is Fannie Mae and Freddie Mac – from the perspective of a standardisation of data. There’s a file format called Fannie Mae 3.2 and it’s basically 67 data points that every file which gets underwritten has. You start the process with a standard set of data that is in a manageable electronic file.

The other thing the US has on the servicing side is the trade association, the Mortgage Banking Association, which created MISMO – the Mortgage Industry Standards Maintenance Organisation. Basically, every servicing file has to have standard data points. So all of the origination systems, servicing systems and investor systems know what they’re going to be getting and what format it’s going to be in. There is also a universal Fannie Mae application form that every lender uses.

Maria Harris: In the UK every single lender has a unique application form – they’re not standardised. We have to build a completely unique valuation form for every transaction, and when we get to our conveyancing we all have to do our own version of that, even though lenders all have exactly the same checks. So not one bit of our process is standardised.

If we’re going to have those API standards for open banking and for customer data, why would we not apply that same thinking into our mortgages? If it’s in the customer’s best interest and it allows the customer to move between lenders because of remortgaging, for example, why would we not make that task easier?

Where do mortgages fit in with open banking?
Charlie Morley: Open banking from a mortgage point of view is going to be a slow burner. It represents a big opportunity but the end customer has to get comfortable with utilising third parties. What it can potentially mean is a lender’s offer comes out a lot quicker so it makes it easier for a broker and for a customer.

Jeremy Law: It can be really impactful and require way less documentation but it only helps the up-front mortgage process.

Maria Harris: Where open banking could have a really nice impact is for the next generation who don’t have a mortgage yet, because they will be accessing their data through whatever platform they use. They will have a level of control and awareness of their finances, to have the nudges that tell them this is how you manage your money well, and this is the impact of certain types of credit or certain types of behaviour and what impact it has on your credit score. You could get the next generation mortgage ready in a way that we’re not at the moment; you could set their expectation about what they can afford before they start looking for houses.

Other areas of digitisation include robotics, artificial intelligence (AI) and chatbots. How will this develop in the coming months and years?
Greg Willmott: Robots and AI can speed up processes that already exist. In the same way the production line robot in a car factory can do human tasks much faster and with higher accuracy. Things like underwriting or credit control are more difficult but there’s no reason why a machine shouldn’t do that better than a person. The deeper AI for complete decision making is an interesting area, and I don’t know whether people feel that’s happening. is it just about to emerge or is it too sticky a subject to really get into?

Maria Harris: We have automated decisions and can do mortgage applications offerings in 16 seconds, fully decisioned. About 5% of our applications go to referral for a manual check and we think that 5% could be fully automated, but that’s just tweaking what we’ve got now. Where I think AI could go would be to use the analytics for individual interest rates.

Does robo-advice have a future?
Charlie Morley: It’s about customer choice. There are certain people who want to do everything online, others prefer face-to-face. Some people want both; if people want to start online and finish face-to-face then let them do it.

Greg Willmott: That’s your basic consumer psychology. I think there will always be people who like or want or need human interaction. An endorsement is often what is wanted. Some people just need assistance and help, but there will be plenty of people who want a digital-only offering.

Jeremy Law: I can see in ten years’ time people clicking a button to buy their £10k car – it’s a biggish purchase but not massive. But a £1 million house with a £400k loan? No, because that looks scary.

Maria Harris: Our savings customers who are direct come to us via our app but they only ring us to check that (a) we’re a real bank, and (b) are they okay to use the app.

For our mortgage customers we are completely intermediated and we get very little contact from our customers during the process. It tends to be if there’s a glitch in the system or if they’ve got the mortgage offer and don’t know how to accept it, because a digital signature is all that is needed rather than a wet signature.

I don’t think customers or the technology are ready yet for a mortgage application app until you get to the point where open banking is really intuitive and you can pull data from all sorts of sources.

We have what you’d class as a fairly traditional portal for brokers and the customer sees everything in app. All of their documents are in the digital world and the app takes them through the process, keeping them up to date with progress.The only time they ever touch a piece of paper is with the broker and when they get to the conveyancing. So for us there’s no paper at all.

Is there any appetite among lenders for mortgage chatbots?
Scott Slifer: There’s a top ten servicer in the US who implemented the combination of chatbots, voice spot and an avatar and reduced inbound phone calls by 92%. It services almost a million loans so do the maths on that.

Charlie Morley: For many mortgage lenders, our customers are two people. The customer taking out the mortgage, and the broker who’s giving you the business; and often it will be the broker asking a simple question.

There are reasons why a broker would phone to ask a detailed question. For example, some of our mortgages are for high net worth individuals, therefore it can be a fairly complicated conversation. Whereas a broker could use a web bot or a web chat to find out, for example, the maximum number of storeys in a block of flats that we would lend on.

By analysing our most common questions we can use technology to make the intermediaries’ life easier, so that reduces the amount of inbound calls, which ultimately benefits the customer because they get a quicker response.

Maria Harris: For the newer banks like Atom, Monzo, Starling Bank, that technology is already in flight. They are building in the background such as teaching the machine what the question is and what the answer is. They are using natural language, where you have to train the machine and build its knowledge before you switch it on externally.

We will move to a point where the customer chooses. They can ask a question and get a response from a chatbot, web chat, face time or an app but it will always come down to giving the customer the choice of what channel they want to ask that question through. In terms of switching on that technology and making it public, that’s not far away at all.

Greg Willmott: At Accord Mortgages we decided on a proposition where the broker can call the underwriter, and the brokers like that. It does build costs into the process, but it enables us to have a service layer and a richer proposition for brokers.

Maria: With Alexa now, brokers can access our case tracking. So they could access their to do list in terms of digital mortgages at Atom Bank, and Alexa will tell them what cases are outstanding, what documents they’re waiting for, or who is doing a valuation today.

Scott Slifer: In the US we do social media monitoring – Twitter, Instagram, Facebook, and any negative commentary that comes out we can address the issue.

Charlie Morley: That happens in the UK too. Technology is going to fundamentally change the UK mortgage market over the next five to ten years so we need to make sure that our customer journey is very slick. I think the consumers will go on a journey, and so will lenders and intermediaries but how that’s going to pan out remains to be seen.

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