STRATMOR Insights: Connecting the Blocks: Practical Applications of Blockchain for the Mortgage Industry; Diversity in the Borrower Experience
- Faced with slow industry growth, increasing costs to originate a loan and compressed profit margins, pressures within the mortgage industry to implement new technologies that change how mortgage lending is done continue to rise. Blockchain may be that technology.
- STRATMOR believes that Blockchain technology offers mortgage lenders an opportunity to improve data security, operational efficiencies and origination turn-times, all resulting in an improved borrower experience.
- Lenders that are early adopters of Blockchain technology are likely to realize a significant — albeit temporary—competitive edge that can fuel longer-term, sustainable gains in market share.
GREENWOOD VILLAGE, CO. — July 26, 2018 — In the mortgage industry, one of the most talked about technologies of the last twelve months is Blockchain. In the July issue of STRATMOR’s Insights report, STRATMOR principal Andrew Weiss analyzes Blockchain’s potentially disruptive impact and its practical applications.
In his article, “Connecting the Blocks: Practical Applications of Blockchain for the Mortgage Industry,” Weiss explains Blockchain through mortgage-related examples, including one that pictures the competitive landscape in 2026 if Blockchain is widely adopted. He illustrates this example with a graphic showing a future Blockchain origination workflow.
“Proponents of Blockchain tell us that its potential to disrupt current mortgage business processes is just about limitless,” says Weiss. “For the mortgage lender, it presents four primary opportunities. It can improve data security. It could improve lender operational efficiencies. It could help lenders improve the borrower’s experience. And, for lenders that are early adopters, it could gain them a significant competitive edge through gains in operational efficiencies and cycle times.”
“The mortgage industry is filled with inefficient and arcane processes to collect, verify, and securely transmit the information that makes up a mortgage,” says Weiss. “Today, the average loan takes 45-50 days to close from initial application by the borrower and an additional 20 days to be fully accepted and funded by the investor. Each added day in this process increases costs and the risk of a failed transaction; and these costs are ultimately passed on to the borrower in the form of higher interest rates and closing fees.
“While technology is often employed to streamline and increase the productivity of the mortgage origination process, the nature of the existing collection and verification of all the required information has made those attempts fail. In fact, the cost of origination has more than doubled in the last ten years, while productivity has significantly diminished,” says Weiss. “Especially, in a slow growth environment, as the cost to originate a loan goes up, profit margins compress and the industry pressure to implement new technologies that change how we do business continues to rise. Blockchain may be that technology.”
Because Blockchain is a potential disruptor, “mortgage executives need to know where to place their bets,” says Weiss. “While the upside payback potential for an early investment in Blockchain is real, such an investment is not without its downsides” and Weiss points out potential risks with the technology. These risks include “mustering the cooperation of participants, the potential for hidden flaws that typically exist in any relatively-new technology and the possibility that a new and better technology may come along relatively early.” “Nonetheless,” say Weiss, “there is also a real opportunity cost for watching Blockchain development from the sidelines; namely missing out on gaining a potentially large competitive advantage.”
In a second article, “The Borrower Experience: Ethnic Diversity Matters,” STRATMOR Senior Partner Dr. Matt Lind draws on data from a variety of sources, including STRATMOR’s MortgageSAT National Benchmark data, to offer lenders growth strategy ideas that center on borrower diversity in relation to the borrower experience. “Improving the borrower’s experience and creating an origination strategy that includes targeting emerging markets such as ethnically-diverse groups is a winning growth opportunity for lenders,” says Lind. To capitalize on this opportunity, Lind offers lenders six ideas for improving connections with borrowers.
About STRATMOR Group
STRATMOR Group is a leading mortgage industry advisory firm that provides a range of programs and services designed to counsel lender CEOs and senior executives. STRATMOR serves more than 250 companies annually, providing strategies that increase growth and improve profitability in sales, marketing, technology, operations and mergers and acquisitions using comprehensive, propriety data and key insights gained through extensive experience in the mortgage industry. The company is well known for its financial models and its collaboration with the Mortgage Bankers Association in the PGR: MBA and STRATMOR Peer Group Roundtables program.Lisa Grote