Lenders, realty agents and even borrowers stand to benefit from new mortgage technology innovations, according to a new industry study.
Two of the next big things in mortgage technology cited in the study are lenders’ increased adoption of alternative credit scoring products for marginal-credit home loan applicants and tying together parts of the lending process to create a more synchronized system for lenders.
Keeping pace with the rest of the mortgage industry on technology adoption is critical for lenders to maintain operational efficiency and sharpen a competitive edge. Mortgage technology also works toward faster real estate deals for real estate agents and consumers.
Alternative credit scoring such as Fair Isaac’s NextGen as well as alternative credit reports for mortgage applicants with less traditional credit will increase lenders’ ability to serve immigrant and emerging markets, according to the study, “Mortgage Technology: The Next Big Thing(s),” conducted by Needham, Mass.-based TowerGroup, a research and advisory firm.
“Fair Isaac shows (more than) 50 percent of consumers scored higher with NextGen than with the classic FICO,” TowerGroup Senior Analyst Craig Focardi said.
That means more consumers who previously did not qualify could be eligible for a mortgage while those who previously were eligible only for subprime loans could meet criteria for prime credit mortgages, which generally are less expensive, he said.
The refinance boom slowed industry adoption of the NextGen FICO score, which Fair Isaac introduced in 2000. But TowerGroup expects increased use of the alternative credit score as lenders attempt to increase their share of emerging markets because the newer method focuses on these borrowers.
“The NextGen credit score does represent significant improvement over the classic score, particularly in the area of helping lenders finance lower to mid-income home buyers,” Focardi said.
The credit score product also helps subprime lenders better evaluate the risks of those borrowers, he added.
The study also noted First American Corp.’s alternative credit-reporting initiative. First American combines information from proprietary national databases with tenant-screening and rental performance databases, subprime and finance company databases, utility payments and public records. This program helps financial companies increase lending to first-time and moderate-income home buyers.
Another “next big thing” in mortgage technology is the integration of all the process parts of the mortgage transaction into an end-to-end process across multiple distribution channels, according to the study. The practice is known as business process management, an innovation Focardi believes will have the greatest impact on the industry this decade.
“This is the (development) that will further reduce labor and costs in lending and get the consumer to the closing table faster,” he said.
Leading business process management vendors include Lombardi Software, whose mortgage clients include Pulte Mortgage and Wells Fargo Home Mortgage, and Staffware, the study noted.
Electronic loan closing systems represent another significant innovation in mortgage lending, the study noted. Electronic loan closing platforms use one centralized database and Web portal on which parties to a transaction can view and manage mortgage closing documents. These systems reduce file errors in loan closings, cut time spent at the closing table and speed up loan funding and mortgage investor delivery processes.
Lenders have the choice of buying a new electronic closing system to integrate into their current systems or building a customized closing platform. The broad choice makes it unclear how the product category will be defined going forward, the study noted.
The study mentioned BCE Emergis as one vendor that currently offers a complete electronic loan completion and closing system. The system includes settlement service ordering, electronic loan closing and document vaulting and archiving.
Automated underwriting systems, which represented the largest mortgage technology innovation in the 1990s, also will continue to make waves this decade as these systems approve a wider variety of loan products and loan applicants and link collateral assessment more tightly to the credit decision.
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