Wholesale lending is projected to grow over the next two to three years to account for approximately 33% of all loans originated, taking market share from retail lenders. This unprecedented growth makes it more important than ever for wholesale lenders to focus on and build scalable, digital technology ecosystems for their third-party originators (TPOs).
Traditionally, consumers went directly to a bank or its website to check mortgage rates. But buyer behavior has changed, accelerated by the pandemic, such that most home buying journeys typically begin on sites such as Zillow, Realtor.com or Redfin, where buyers are introduced to real estate agents and mortgage brokers. Local mortgage brokers who have close relationships with agents are often the first choice for consumers. This low cost of consumer acquisition for mortgage brokers, coupled with historically low interest rates, has created a race among wholesale lenders to capture market share as rapidly as possible, evidenced by recent IPO and M&A activity.
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Historically low mortgage interest rates, and an unprecedented pandemic, has led to rapidly increasing prices, with existing home sales projected to reach an all-time high in 2021.
For TPO lenders, the ability to scale loan volume while maintaining a low cost of origination is key. However, legacy origination systems typically involve multiple, disconnected platforms making loan origination onerous for TPOs. These platforms often lack the digital capabilities that have become second nature for consumers in nearly all aspects of their lives, from banking to shopping.
To keep pace with rapidly changing market expectations, wholesale lenders need to upgrade their origination platforms and build end-to-end ecosystems using application programming interface (API) integrations to enable TPO lenders to originate any loan that they want quickly and cost-effectively.
Originating a home loan requires an enormous amount of data to be collected from consumers, title companies, closing companies, real estate agents, insurance companies and income and expense sources. This data comes in various forms — from documents to data sets, and in different formats and modes of delivery. The complexity of this data collection and assimilation combined with intricate functions like underwriting and regulatory compliance, which varies by geography, makes the process complicated, expensive and prone to errors.
Securing a home loan is often the largest financial transaction that consumers make, and the process is at best tricky to navigate. But new borrowers expect a seamless, rapid digital experience regardless of whether a transaction is fulfilled by a TPO or lender-direct.
Working with mortgage lenders leads us to recommend two distinct strategies to modernize wholesale lending platforms and positively impact user experience, scale and flexibility.
Regardless of which option lenders choose, having solutions in place that offer great user experiences and can scale quickly will help reduce the cost and speed of loan origination. In our experience, upgrading wholesale lender platforms to ensure that they include easy-to-use features that consumers expect enhances experience and drives web traffic. In addition, seamless integration with home buying ecosystems such as home search portals, title and closing processes benefits both TPOs and consumers by simplifying what is an inherently complex process.
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When evaluating TPO platforms, we recommend that wholesale lending companies focus on the following five capabilities:
Wholesale lending platforms that can organically generate leads and allocate these leads to TPO partners quickly through customizable/white-labeled broker portals are hugely valuable to TPO partners.
One of key drivers for origination efficiency, in terms of speed and cost, is easily collecting the right documents, extracting data from them to help drive processes and ensuring documents are indexed and shared with all stakeholders.
Collaboration portals ensure that TPO partners and the mortgage lending company are using a common platform. These portals need to deliver marketing material, training guides and loan visibility, and communicate with underwriters and other processors.
Delivering dynamic and personalized product and pricing information to TPOs allows them to provide it to consumers.
These capabilities help speed up and enhance measurement of a borrower’s basic credit components and assess risk instantly, accelerating approvals and mitigating risk.
As wholesale lending expands, the technology to power TPO platforms is sadly lagging. These platforms need to offer best-in-class collaboration and rapid, configurable decision-making. Wholesale lenders need to build and enable TPO platforms that have native, digital capabilities for consumers and TPO partners to eliminate friction in the process and reduce the time and cost to originate a loan.
This article was written by Renuka Kambli, a Director within Cognizant’s Banking & Financial Services Consulting Practice.