Closing speeds aren't meeting mortgage borrower expectations

As lenders handled record origination volumes in 2021, their clients came through the mortgage process largely satisfied with their experiences, but expectations are growing for a faster, more streamlined process, one which will require far more technology adoption, according to a new Arizent report. 

Closing speeds also stood out as a challenge leading to reduced satisfaction. Almost half of  borrowers surveyed said faster closings would have improved their mortgage experience.

Consumer expectations of how fast the closing process should be versus the current reality signals a wide disconnect. The same share of those who purchased or refinanced — 64% — thought a mortgage should close between one to three weeks. But in mid 2020, the average closing still took more than 40 days, according to data from Freddie Mac. 

Slightly more than 1,000 recent mortgage borrowers ranging across age groups took part in research conducted in May, with a similar share of baby boomer, Generation X and millennial respondents, and a smaller number coming from Generation Z. All participants had taken out a mortgage over the past 12 months, and the transactions consisted of an almost equal number of purchases and refinances.

The older the borrower, the more likely they seemed to approve of closing times. Approximately 64% of baby boomers indicated they were very satisfied with how long it took for their loans to close, but that number dropped to 52% of Generation X respondents. Among millennials, the share dropped to less than half, at 48%, while only 36% of Generation Z borrowers expressed the same level of satisfaction. 

The digital capabilities of some lenders can't keep up with borrower expectations yet, according to Daryl Jones, senior director, lending and operations practice leader at Cornerstone Advisors, a mortgage and banking industry consultancy serving community banks and credit unions.

"I think some of the capabilities and some of the platforms out there have gotten a little stale," he said. The mechanics surrounding loan processing, particularly, remain cumbersome at some lenders, who don't see the value in extending the digital experience beyond the initial application, he said. When a problem needs to be addressed, quick resolution is hard to come by due to slow communication methods being used.  

Much of loan processing, too, still tends to be manual after a digital application is accepted. "There's just too much back and forth in a nature that isn't similar to what borrower expectations are in other industries," he said. 

Better lender transparency, particularly regarding the complications involved in closing a loan, could help especially when dealing with first-time buyers, according to mortgage industry consultants.

While 64% of baby boomer survey respondents said they were very satisfied with lender transparency, the level dropped to 57% of Generation X, 50% of millennials and 51% of Generation Z.

"Borrowers get frustrated because it's an inordinate amount of documentation. Oftentimes, unfortunately, lenders have to request it multiple times," said Matthew Moosariparambil, director of banking, insurance and capital markets at management consulting firm Guidehouse. Many of the requests have to do with ensuring compliance.

"Part of their frustration is they don't understand the regulatory regulations," said Woody Fowles, vice president, operations services at Mphasis Digital Risk, an originations and compliance solutions firm.

"Sometimes they might think, 'OK, I signed it. I need the keys right now.'" But much of what may seem to be delays are designed to protect the borrower, he said. 

"There's a lot of scrutiny that's come around that to make sure that the customers understand what they're signing," he said.

Still, despite the large increase in loan applications in 2021 — approximately $4.4 trillion worth, according to housing data analytics provider Black Knight — 94% of the respondents in Arizent's survey expressed overall satisfaction with their experience. Close to 57% of buyers and 66% of those refinancing expressed even greater satisfaction, saying they were "very satisfied."

When discussing individual components of the loan process, borrowers seemed less enthusiastic, with the percentage of very satisfied consumers falling off to 50% to 60% among all age groups. 

Better communication and follow-up would not only ease some of the sore points, it would increase borrower satisfaction with the company they choose to work with. Even as the process becomes more digital, borrowers — particularly younger consumers — said they highly value the personal, one-on-one interactions they have with their lender. Four-fifths of respondents ranked it as a very satisfying means of communication, ahead of mobile app chats and phone calls at 74% and 73%, respectively. 

That ability to continue providing the personal service must be a part of mortgage lending's future as well, almost as much as the technological innovations that will speed the loan process, according to Moosariparambil. 

"The market is evolving, right?" he said. "The lender of the future has to be nimble, has to automate, has to be able to anticipate."

Discover more in Arizent's research report, The Future of Mortgage Lending, which takes a look at consumer sentiments toward the impact of technology, customer service and interest rates on today's borrowing experience.