Consumer-direct: It's not just for refis anymore

The mortgage workforce is transforming. Dramatic shifts in consumer demand for home loans and expectations about the borrowing experience are requiring lenders to take a hard look at how they staff their operations.

Gone for the foreseeable future are the days when applications were dominated by easy, low-cost refinances. In their place are more complex purchase mortgages that call for additional loan officers, underwriters and processors to help shepherd loans through the origination process.

At the same time, borrowers increasingly prefer to use automation when shopping and filling out applications.

"The biggest reason people do not get a loan is inertia," according to Garth Graham, senior partner at mortgage industry consultancy Stratmor Group. Lenders that want to sustain sales momentum are ensuring that consumers who want to engage online can, and do.

While purchase lending has historically required more investment in staff than refinancing, consumer-direct channels that are less personnel-intensive and less costly are making inroads with both types of loans.

This is in part because technology-based borrower communications are more in demand — more than 50% of refinances come through consumer-direct channels, compared to almost 20% of purchases, according Stratmor. However, consumer-direct purchase originations have grown significantly from 2010, when they represented nearly 12% of all homebuyer mortgages.

Consumer direct, which includes phone as well as online and mobile sales, lowers costs for lenders; and in the past year or so. Last year, BankUnited of Miami Lakes, Fla., and Ditech Financial, a subsidiary of Walter Investment Management in Tampa, Fla., shuttered their retail channels, citing relatively thinner retail margins and competition for volume from other channels.

But Graham is skeptical that traditional retail lending is in danger of becoming extinct. "I wouldn't read too much into that, that the retail loan officer is being not highly prized."

An effective loan officer with a local presence continues to be valuable to lenders, particularly if the loan officer is a top producer or in the next tier down, which tends to be harder to retain, he said.

However, the consumer-direct channel's increasing influence is changing the loan officer's role.

With a larger percentage of both purchase and refinance loans originating consumer-direct, loan officers need to be ready to use and communicate with borrowers through various evolving technologies, as well as by phone.

While there are exceptions, the mortgage industry generally has been slow to develop "customer engagement" technologies. The industry's traditional loan origination systems "create loans, but are not great at managing customer interactions and engagement," said Graham.

Lenders are increasingly using their origination systems in concert with supplemental technologies that are more effective in engaging borrowers, like automation that facilitates information sharing during the sales process.

These technologies "engage with the consumer and built trust," as well as "educate them on the benefits of the process," Graham said.

Some loan officers are comfortable using a broader range of technologies to communicate and others are resistant, according to George Baker, president of Talkuments in Washington, D.C., which sells automation aimed at helping consumers understand mortgage disclosures.

For more entry-level loan officers, it's particularly important to be able to navigate the latest borrower communication and origination technologies. This helps them advance in an industry where the average loan officer is 54 and already has an established referral base, Baker said.

"It's their competitive edge," he said.

Technology-enabled borrower communication and education also can help a lender distinguish itself from competition.

In a recent Stratmor loan officer survey, less than 20% said their companies provide technology for borrowers to efficiently convey asset and income data that must be verified during the origination process.

One of the reasons such technologies aren't widespread is that their efficiency gains haven't quite been proven yet on a consistent basis.

"I think the key is that the trend towards digital has the promise of a more efficient process, but not yet generated substantial results industry-wide," said Graham.

It's particularly tough to find efficiencies in a harder-to-process purchase market where origination support staff as well as loan officers are in demand, particularly during month-end closing periods.

The rise of the purchase market isn't stopping the increasing interest in technology-assisted consumer communications and electronic mortgages, though.

Even as purchase originations are picking up, companies large and small continue to experiment with strategies designed to allow borrowers to walk themselves through the as much of the mortgage process as possible using technology.

Nonbank lending giant Quicken Loans is moving ahead with Rocket Mortgage, a system designed to allow borrowers to start and finish the entire origination process online.

Quicken has marketed Rocket Mortgage to purchase borrowers and has seen more adoption among home buyers than refinance borrowers, public relations manager Chris Smith said.

"Rocket has been significantly stronger in purchase than refinance," he said. "You can complete the entire process online at any point, or stop and speak with a mortgage banker. Some people want to talk to someone on the phone."

Large companies aren't the only ones testing the market's appetite for online-only originations.