It’s a unique time for mortgage originators.
Despite loan volume that is either stagnant or declining, the costs of originating loans are consistently rising. This was evidenced by Freddie Mac’s 2024 Cost to Originate Study, which reported that origination costs rose 35% over the past three years (approximately $3,000 per loan).
The steep overall rise in origination costs also illustrates a substantial discrepancy between the most efficient mortgage originators and the least. In the same study, Freddie Mac shared that the average cost to originate a mortgage is $16,500 for the bottom 25% of performers, but only $6,900 for the top 25% of performers.
Origination costs are rising due to a wide range of complex factors, leading mortgage originations to rethink how they do business as we transition from a semi-historically high rate environment to a now-declining rate environment.
Recent cycles saw extreme variability in demand, production, and productivity. Observing the dependencies on people and the resources required from these people to meet demand, originators are evaluating how business processes can be structured in the future to avoid repeating the same issues.
The benefits of digitization matter now more than ever given the changing macro environment and the unquestionable relationship between origination costs and efficient business practices. Our Chief Strategy Officer, Angel Hernandez, recently joined National Morgage News to discuss how digitizing the mortgage lifecycle can help safeguard profitability. In the podcast, Angel shared how digitization can help lenders reduce costs and retain profitability now and into the future. Here are three key lessons learned from the discussion.
Given the rising costs of originating mortgages, all lenders want to maximize profitability per transaction. There is a significant challenge in measuring different cost components across the loan manufacturing cycle because of the ongoing reliance on manual processes that aren’t easily replicable. Optimizing a manufacturing process is more difficult when there’s so much variability. Digitization can help reduce or eliminate some of the inefficiency created by manual intervention.
In addition, customers expect a high degree of efficiency and ease with little friction in every transaction. However, this isn’t how the loan manufacturing process has traditionally been described. There is plenty of buzz around designing and delivering frictionless customer experiences, but the mortgage industry in large part has yet to deliver on that promise. This is compounded by the fact that baseline expectations for ease and convenience are only climbing as younger generations enter the market and reach home-purchasing age.
Finally, there has been quite a bit of consolidation across the industry among lenders, servicers, and vendors. Whenever there is consolidation of this magnitude, there is an accompanying need to standardize. There’s also the opportunity for lenders to obtain intelligence from the consolidating enterprises, empowering them to rethink and optimize business processes by drawing on these real-life experiences.
To a large extent, the mortgage industry continues to rely on pieces of paper as the primary medium of exchange for what is truly needed: trusted data.
Most digitization efforts in the mortgage industry have focused on replacing paper-based manual processes with a digital equivalent that falls short of full automation. For example, replacing paper-based communications with email or messaging through a portal, but not transforming the complete lifecycle to uplift the entire customer experience. When a paper-based process is replaced with a digital equivalent or a PDF, many business processes within loan manufacturing and mortgage servicing remain siloed. This forces a continued reliance on document handoffs to exchange what is truly desired, which is trusted data.
In addition, there are practical concerns with paper-based processes. Paper and static documents like PDFs are subject to the risk of being produced, signed, and transferred asynchronously. Whenever there is asynchronous execution, there is an increased risk of errors. Add to that the risk of misplacing or transferring documents to someone who shouldn’t have access, and safeguarding that data becomes even more challenging.
There is already a baseline familiarity with SMART Docs® thanks to the adoption of eNote.
SMART Docs® is a standardized specification set by MISMO®. It refers to electronic documents that are multi-layered and embedded with MISMO®-compliant XML data that responds directly and precisely to the information in the document. SMART Docs® also contains security features that enhance compliance and automate quality checks, including tamper-evident seals and a full audit trail. This standard enables users to validate data against a third-party source directly rather than physical stare-and-compare or its digital equivalent.
At Stavvy, we’re extending the benefits of the latest version of SMART Docs®, V3, beyond eNote and throughout the entire closing package. This will ensure that data is consistent and validated throughout.
V3 SMART Docs® benefits borrowers by creating customer experiences that enhance the assistance they receive throughout the mortgage lifecycle. While much investment has been made in the initial customer experience through POS systems and mobile-friendly interfaces, V3 SMART Docs® extends this through the entire process including the closing. A significant percentage of borrowers still prefer in-person transactions and don’t want to use electronic closing. V3 SMART Docs® enables the implementation of a digital closing no matter the customer’s journey. It gives lenders the flexibility to deliver tailored closing experiences whether in-person using IPEN or a fully digital eClosing experience
Listen to the full podcast, including Angel’s thoughts on the next phase of digital transformation. He explores the future role of generative artificial intelligence in the mortgage lifecycle and its dependency on trusted, secure, and accurate data. This is yet another use case for the consistent and reliable data delivered by V3 SMART Docs®. He also foresees the customer experience evolving into a predictive phase that identifies, based on historical trends, when a customer will need assistance and the types of assistance they will need along the way to help complete transactions.
Contact Stavvy to learn more about our approach to mortgage digitization.