Decades ago, when you needed a home loan you'd walk into your local bank and chat with your family banker. It was your lay of the land business transaction. But as with every industry, technology has changed the game.
Consumers now have instant access to rates and nearly instant approvals for mortgages or refinancing. Thus, online mortgage lending companies are growing at exorbitant rates to meet the demand.
Now versus Then
The Federal Consumer Financial Protection Bureau recently acknowledged the trend in online mortgages. It steered a pilot program to test online mortgage closings and the findings are promising. In fact, the study revealed borrowers "can benefit" from electronic closings.
To learn more about using technology in the home loan sector, I spoke with Tri Nguyen, Founder and CEO of Network Capital.
Network Capital lent out over $1.2 billion in loans last year and has grown by 70,000% since the company was founded 2002. One reason for that is how they process their loans in less than 15 days using technology platforms that expedite the process.
Tri said the changes in the recent CFPB study are intended to discourage past banking practices, such as robosigning and poor-quality loans, that played a part in the financial crisis starting in 2007, in which millions of Americans lost their homes to foreclosure. You may be familiar with the recent Quicken Loans 'Rocket Mortgage' Super Bowl commercial that received backlash as many felt it perfectly explained the aforementioned crisis.
Have we fully recovered from that credit crisis? Tri says yes, with an asterisk next to it, explaining that the housing values should have not been as high as they were. "I think the values today are more realistic of what people can afford. Home values today are based off real borrowers and real income," he says.
10 years ago, almost anyone could qualify for a loan and many with no money down. This meant they only needed to make payments for a short period of time before the values increased, allowing them to pull cash out. But with technological check and balances in place, the market has returned to normal.
I asked Tri about the temptation to lower standards that lurk everyday, which was outlined in the blockbuster hit, The Big Short. "It's imperative consumers and loan entities extinguish any thoughts of undercutting their standards because the value for customers lies in the long term and big picture. We steer clear of exotic loan programs and features that don't make sense to avoid potential risks. By doing that, we're seeing some of the most qualified clients in our company's history with the lowest default rates," Tri explains.
With technology partners such as Oracle, Redhat, Microsoft and Cisco, Network Capital's developers are able to expedite the loan processes, which means closing loans in as little as 10 days.
"Unlike a decade ago, we're able to expedite our approval process through mortgage software that securely verifies credit and aggregates personal data in tandem with the approval process to minimize the paperwork process," says Tri. This gives online home loan companies an edge in processing and refinancing, allowing approvals to be granted in sometimes less than an hour.
My take away?
The key for consumers is to settle for nothing less than transparency. Although temptations are abundant, lenders should seek a loan company that concentrates on thorough review of packages available to you and takes their time to answer your questions. In the day of technology overdrive, companies must be customer centric and if they're not, move on.