Publications & Resources

August/September 2007
Focus: Technology

Big Benefits
How Today’s Community Banks Are Using Online Technology to Make Mortgage Lending Faster, More Efficient, More Profitable

By Scott T. Happ

Overview: This article describes the business benefits that banks across America are gaining as a result of deploying Internet-based mortgage-origination technology.

In 1997, most bankers were unconcerned about mortgage lending over the Internet. But things have changed dramatically in the last decade. According to a study conducted by Forrester Research in 20061, the number of U.S. consumers shopping for mortgages online increased by 17 percent between 2003 and 2005.

Today—despite a cooling market—the Internet is the fastest-growing mortgage channel. Which begs the question: How can community banks tap into this expanding business channel?

Advancements in Alaska

That was one of the questions facing First National Bank Alaska ( Anchorage , AK ; assets $2.2 billion) when the organization decided to offer Alaskans the option of applying for mortgage loans via the Internet. The bank needed a direct-to-consumer system to improve staff efficiency and help reduce data-entry errors. Also, the new technology had to take mortgage applications directly from the Internet without requiring First National staff to manually re-enter borrower information into the bank’s loan-origination software (LOS) system.

In 1960, First National was the first bank in Alaska to computerize its operations. And according to Sue Benedetti, vice president of residential lending, the bank’s tradition of embracing innovative technology is still strong—as long as the technology can be made safe and secure. So after evaluating a variety of solutions, the bank selected an interactive, real-time front-end system that could be interfaced directly with its LOS.

“Today we feel that doing business on the Internet is essential to staying competitive,” Benedetti said. “And our online, front-end system keeps us out in front. Now loan-application data flows directly from the borrower into our LOS; and because we’re not re-keying data, we’ve reduced errors and improved our productivity. Our loan originators can spend their time discussing mortgage products with applicants, rather than taking valuable time to collect personal data like addresses or asset and liability information.

“Our online lending system not only makes us more efficient,” noted Benedetti, “but it gives our customers secure, ‘24/7’ access to our mortgage products. Now we can easily and quickly pre-qualify borrowers before they see a real-estate agent, which helps give us an advantage.”

Transformations in Texas

American National Bank of Texas ( Terrell , TX ; assets $1.6 billion) decided to pursue an “enterprise-wide” strategy to handle mortgage applications. In other words, the bank implemented a front-end lending system that could be used not only by online borrowers, but also as a point-of-sale (POS) tool for loan officers.

According to American National Bank of Texas SVP Diana Meadows, her organization’s 14 loan officers are now completely mobile. They can take applications for first mortgages, home-equity loans, refis, land purchases, and construction loans—and they can do it anytime, anywhere they have Internet access.

American National Bank’s loan officers now have one streamlined origination process for all mortgage loans. They can pull credit reports, resubmit loans to automated underwriters, negotiate pricing, and immediately provide borrowers with disclosures. They can even call up partially completed online applications and personally help borrowers finish them. The result is a solid upturn in lending productivity.

“By the end of 2007, we expect to be getting at least 10 percent of our loan business from the Internet,” said Meadows.

“This kind of robust POS technology—which can be used by both borrowers and loan officers—is redefining the lending process by reducing cycle times, enhancing customer service, and helping increase lenders’ overall profitability,” said James D. Jones, President of First Wellesley Consulting Group, Inc., a national banking-management consulting firm headquartered in Wellesley, Mass.

Process Improvements in Pennsylvania

In 2003, First National Bank of Pennsylvania (Hermitage, PA; assets $6 billion) faced several mortgage-lending challenges. Though the bank provided mortgage loans through its more than 150 branches, many branch employees completed only a few applications each year, which required the bank’s back-office staff to support hundreds of employees.

“We wanted to improve the professionalism of our many branch lenders, who were brought together in recent years through various acquisitions—and who had varying levels of mortgage experience,” said FNB Pennsylvania VP Ed Brant.

To improve efficiency and enhance customer service, the bank decided in 2004 to implement an online, direct-to-consumer lending solution to automate its mortgage business throughout its entire branch network.

The online solution quickly produced tangible proof of its time- and cost-savings. For example, application errors plummeted to almost zero. Now disclosures are presented to customers at the point of sale and application data is electronically uploaded directly into the bank’s LOS with no redundant data entry. Average approval time has been cut to 1.5 days (an 85 percent reduction) and many loans are now ready to close in 14 days (53 percent faster).

“We needed to achieve these objectives to gain the benefits of increased market share, better customer service, improved disclosure compliance, and cost reduction,” observed Brant.

Compelling Conclusions

According to the 2006 Forrester Research report, more than 25 percent of mortgage shoppers now do so completely online. And in an age where privacy, fraud, and identity theft are of concern to every consumer, industry experts advise caution when shopping for mortgages online. For example, the Home Buying Institute (www.HomeBuyingInstitute.com) specifically recommends that online borrowers do business only with lenders they “know and trust.” This means that reliable, trusted community banks are ideally positioned to benefit from expanding their mortgage-lending business onto the Internet.

As bankers from coast to coast can testify, all that’s needed is a vision for the future—and some innovative technology—to start reaping the big benefits of Internet-based mortgage lending.

Scott Happ is co-founder and CEO of Mortgagebot LLC, of Mequon , Wisc. He can be reached at scott.happ@mortgagebot.com.