PERSPECTIVES

Wholesale Loan Originators: Modernize and Prosper

2021-06-24


To stay competitive and in sync with consumers’ digital expectations, wholesale lenders need to quickly transform to new-age loan origination systems. Here’s our timely advice on how to navigate the way forward.

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.

Build or buy?

Working with mortgage lenders leads us to recommend two distinct strategies to modernize wholesale lending platforms and positively impact user experience, scale and flexibility.

  • Buy it. The fastest way to success for small- and medium-sized lenders is often to license state-of-the-art origination platforms offered by new and innovative fintech companies. These platforms have the digital capabilities that consumers and other stakeholders need to originate and even service loans, including configurable, ready-to-deploy features for point of sale (POS) and loan origination systems (LOS.) Natively designed user interfaces and system integrations offer a superior customer experience using automation and personalization to streamline the process. This approach enables speed-to-market, complete flexibility and rapid scalability, so wholesale lenders can enable TPOs to complete the end-to-end loan process using a single platform.
  • Build it. For lenders with large origination volumes and mature origination systems, building modern capabilities on top of existing origination platforms will lead to more successful outcomes. Lenders need to build/integrate consumer-facing digital features into existing platforms, such as document capture and management systems. Successful wholesale lending platforms need configurable and dynamic product and pricing components that enable instant and easy access to information, such as product availability and interest rates, critical to the origination process. Infusing artificial intelligence (AI) and machine learning into these platforms accelerates transactions using automation to resolve conditions or issues and improve decision-making to get loans closed. It is important to integrate data between the customer portal, where the lender provides data, and the POS, where the TPO enters data. Tight integration enables the loan process to seamlessly go from portal to POS to LOS where the loan is closed.

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.

What to look for in a TPO platform

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When evaluating TPO platforms, we recommend that wholesale lending companies focus on the following five capabilities:

1    Lead generation capture and allocation

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.

2    Document management

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.

3    Configurable broker portals

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.

4    A configurable, dynamic rules-based engine

Delivering dynamic and personalized product and pricing information to TPOs allows them to provide it to consumers.

5    Artificial intelligence/Machine learning

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.

To learn more, please visit the digital lending section of our website or contact us.