When it’s time to buy a house, would you rather drag yourself to a traditional bank branch and meet with a mortgage officer, or do everything from your phone or computer? You’d probably rather secure a mortgage online, which is one reason online mortgage lenders like Better.com, SoFi and Reali have changed the landscape of mortgage lending. Especially given how many online lenders offer the best mortgage rates, lower fees and easier qualification, more and more homeowners are picking online lenders over traditional banks.
“It’s the ability for some of these online lenders to more effectively interact with technology — and there are times when I don’t care to get a phone call or meet someone face-to-face,” says Craig Martin, director of wealth and lending at J.D. Power. “They’re ahead of the curve in a lot of respects and they’re reliant on the traditional methods or mechanism, but with customer experience, they’re a lot more flexible.”
However, J.D. Power’s 2019 customer satisfaction study shows that digital tools in mortgage lending are not keeping pace with other digital tools in retail banking. While 60% of customers are using a lender’s website to access their information, only 31% are accessing it on their mobile devices. In spite of this, overall satisfaction in mortgage lending is highest among customers who use digital self-service channels.
Real estate broker firm, Reali, took control of the home buying and lending vertical with its mortgage and escrow arms, Reali Loans and Reali Escrow. Through these products, Reali is able to act as a one-stop-shop for homebuyers. Reali Loans CEO, Jason van den Brand, explains the advantage that vertical integration gives the company. “We’re bundling all these services together as a group to provide value and convenience to the customer,” he says.
But with the tough competition among online mortgage servicers, some new homeowners, or even those looking to refinance might find better rates and lower closing costs. Additionally, overhead is diminished by the lack of physical branches and offices, so online lenders’ margins are wider for profit.
“If we think about homeownership as an entire experience, it’s more than just the loan, it’s finding the home. And to do that, what app are you using to find the home of your dreams, and when you do find the home of your dreams, what agent is representing you, and after they do represent you, you’re paying for it, however you slice it,” van den Brand says. “So we’ve set out as a group where you have real estate, we have escrow, we have mortgages that are simple, stress-free and affordable. And we do that by being part of every single piece of the transaction, not just the mortgage.”
Just like the transition from letters to phone calls to texts, it’s entirely possible that traditional mortgage servicers will have to adapt to online-only applications and even integrate home shopping in order to stay in the game.
That’s not to say that traditional brick-and-mortar routes will be completely obsolete. Just as some people still prefer flip-phones over touchscreen devices, there will always be an audience for traditional mortgage lending. “This is a high-stress transaction and high-stress experience, so there’s a lot of desire for hand-holding and education and validation,” Martin adds. “For an online lender, it’s more of a challenge traditionally to build that level of trust or level of confidence. Face-to-face contact allows you to do that … when they’re face-to-face, they can determine if someone is worried or concerned or has questions or is confused.”
Reali Loans also addresses this aspect of the homebuying transaction with a staff of dedicated, licensed mortgage officers for its customers. Even if new homebuyers — which make up about 35% of its customer base — have questions or need assistance, they can be connected with an expert quickly, while the process is still contained in the online portal. “We take a hybrid approach where most people, even if you do talk to a loan officer and you get comfortable, the best place to go after that to make it faster is just to go online,” van den Brand explains.
It’s not just the convenience and the customer service capabilities that could make traditional lenders sweat. The rates really are competitive, and mortgages usually come with some monetary bonus. For example, SoFi offers mortgages with as little as 10% down required of the customer. Better.com advertises no commission or origination fees for borrowers, effectively reducing their homebuying expenses by 6% to 10% while offering APRs under 4%. Reali Loans will send customers a check for the commission within 10 days of the closing date and will put a cash offer on the home for customers if they’re concerned about being beaten by other competitive offers.
It’s digital lenders like these that will push the industry further into the digital age and help lenders better cater to consumers — and we should expect to see that in the future. “If changes in that industry are occurring in a ten to 15 year period, then it’s going definitely be a different world,” Martin says.