Digital Mortgages and eClosings Will Save the Real Estate Industry $1 Billion Each Year
United Wholesale Mortgage CEO Mat Ishbia believes that by the end of 2019, the majority of home closings will be done online. The market is moving in the right direction, but what if we took it one step further and imagined a world where the entire home buying process is completed online.
We believe this fully digital real estate experience – from instant mortgages to online closings – will unlock more than $1 billion in savings for companies across the country.
And that’s being conservative.
From title agents looking to differentiate their business to lenders seeking relief from rising origination costs, let's dive into every aspect of the home buying process and identify the potential for savings.
Loan Origination Fees Will Dramatically Reduce
Independent mortgage bankers saw loan production expenses swell to $8,174 per loan in the third quarter of 2018. Most of this cost is tied to people and shipping. Fannie Mae believes online closings and eMortgages could save $1,100 per transaction, and with roughly 5.3 million homes sold in 2018, that’s $5.9 billion in potential savings from adopting digital solutions.
However, not all of these transactions are currently happening online. If we see one-tenth of the market move to fully digital mortgages in 2019, the industry will save $588 million.
Loan Quality Will Increase Through Efficiency
Let’s say there are no shipping hiccups, and your documents are delivered and returned in a timely manner. This doesn’t mean you’re in the clear.
The demand for faster closings without an investment in technology to support them heightens the potential for human error. This can be everything from spelling errors to miscalculating escrow payments for property taxes. Humans are human, after all.
A report from Independent Banker found hefty consequences tied to weak loan processing systems. The report surveyed institutions with less than $1 billion in assets and asked if the following incidents happened 10 or more times a month:
- Missing borrower documentation - 50%
- Inaccurate borrower documentation - 48%
- Failure to follow up with borrower - 34%
- Missed documentation expiration dates - 29%
- Failure to follow up with underwriting - 29%
- Missed rate lock expiration dates - 24%
- Failure to follow up with closing department - 23%
Nearly one-fifth of these respondents estimated the collective cost of these errors to be $100,000 to $1 million and above. These errors can delay the home buying process, hinder the productivity of loan originators and title agents, and cost buyers and sellers more at the closing table.
Investing in an automated mortgage process is as close as one can get to investing in a mistake-free service.
Computers don’t skim over spots to initial or misplace key pages on the way to the post office. Technology puts guardrails in place that ensure information is accurate and complete, which yields a higher-quality loan.
Shipping Will be Digital and Instant
We’ve chatted with some of the top investors and banks around the world, and we learned that most of the time and money spent in the secondary market surrounds shipping.
Millions of dollars go towards shipping documents in the real estate space, which is built around a 46-day home closing. Given that the average closing package is 280 pages, most title agents and lenders today rely heavily on FedEx or UPS. That doesn’t even include the stacks of paper dedicated to refinances or HELOCs.
If every home closing, refinance, or HELOC in 2018 had a $10-20 shipping fee attached to it, it’s easy to see how digitizing the shipping of documents has the potential to save tens of millions of dollars.
And that figure doesn’t even include the cost of a mobile notary for some closings, or costs incurred because of delays. If you’re driving down the highway and see a broken down FedEx truck, there’s a good chance a $300,000 promissory note is sitting in the back. A flat tire or minor accident could affect the bottom-dollar for lenders, title agents, and consumers alike.
It doesn’t have to be this way any longer.
Rate Lock Periods Will Decrease
If prospective homeowners can get approved for a loan and close in the same week, they can take out shorter rate locks. The average rate lock is between 30 and 60 days. When a borrower takes out a lock, the interest rate is contingent on time. For example, a 30-day rate lock on a loan may pay a 5% rate and zero points, and a 60-day rate lock may cost closer to 1 point, or 1% of the loan.
No Time Like the Present
Digitizing the mortgage process stands to benefit every member of the mortgage transaction. Lenders can increase their profits by decreasing production expenses; title agents can ensure accuracy, promotes greater volume, and strengthen their competitive edge; and homebuyers can close on their homes sooner with greater ease and fewer fees.
Saving more than $1 billion annually will unlock potential across the real estate industry. Companies will be able to reinvest those savings into growing their business, tending to high-touch transactions, and building a world-class customer experience.
This doesn’t have to be an all-or-nothing investment. There are small moves you can make in the short-term – such as adopting online closings – that will have significant impacts for your company in the long run.
By reducing loan origination fees, rate lock periods, shipping needs, and human error, we can build a home buying experience fit for the 21st century.