Technology that connects mortgage brokers and wholesale lenders has become as critical to lenders as their core loan operating systems, according to a new research report from The TowerGroup.
Mortgage brokers–an integral part of many lenders’ business–increasingly expect tools that connect them with lenders they do business with, and tools that offer other features such as reducing the number of steps in the process. Lenders need to offer those technologies in order to maintain and grow their market share within the broker community.
Lenders can build their own proprietary systems from scratch, license commercial systems from independent software vendors and customize them or license commercial systems with less customization.
Despite the different options and the importance of such wholesale technology, some lenders have not put forth much effort or money in the area, said Craig Focardi, senior analyst at The TowerGroup and the report’s author.
“While most large wholesale lenders have invested a lot of money in wholesale portals, there are still some wholesale lenders and many midsized lenders that have underinvested their spending in wholesale lending technology,” Focardi said.
Some may lack commitment to their wholesale lending business and believe they are too busy to take on such projects dealing with automation, he said. Others may have the money, but lack the resources to manage it.
The leading players, however, have been investing in this area for quite some time and continued to do so throughout the mortgage refinance wave. They are the ones in the most favorable position since lenders need to further automate their wholesale channels to retain relationships with mortgage brokers, Focardi said.
“Online wholesale lending is a dominant distribution channel, so midsize lenders that lack internal technology and broker connectivity will be severely disadvantaged,” according to the report. “These lenders cannot rely solely on relationships and loan pricing; they also need to obtain basic online wholesale lending technology functionality.”
And spending money on the business-to-business, or B2B, channel should be a priority.
“If you have to choose where to spend your dollars, the business-to-customer channel is less critical than the business-to-business channel for most organizations,” Focardi said.
That’s because – on a relative basis – the return on investment is greater for B2B channel upgrades than it is for business-to-consumer ones, he said. The business-to-consumer channels generally have a lower market share overall and mortgage brokers expect the wholesale lenders they deal with to have that basic technology in place.
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Basic systems should allow brokers to review, validate and report on the completeness and accuracy of a loan submission, among other features. The best-in-class systems reduce the number of steps brokers must complete to submit the loan file from 10 or more to five or fewer, the report states.
The next step in that technology, however, will allow brokers to do things such as more easily extend an existing rate lock or re-lock a new loan program for an existing loan applicant, according to the report. Through the technology, lenders also will be able to pass guaranteed closing costs for the loan applicant through the mortgage broker and provide selected online loan status information to loan applicants, real estate agents and other parties involved in the transaction.
“All wholesale lenders must have basic functionality to maintain current market shares,” the report states. “Lenders with best-in-class and next-generation wholesale functionality will have the technology foundation to deliver faster processing times and improved service for their mortgage broker clients. This will lead to increased lender market share.”
Multilender B2B exchanges were all the rage about four years ago, but instead of succeeding, they all failed “because of a weak business model, a poor value proposition for lenders, and the 2001-2003 refinance wave that eliminated the need for wholesale lenders to source loans through exchanges,” according to the report.
Wholesale lenders instead built their own single-lender online wholesale mortgage Web portals for their mortgage broker customers. They already had relationships with those mortgage brokers did not find the exchange concept necessary, the report states.
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