Since Quicken Loans launched its Rocket Mortgage platform five years ago at Super Bowl 50, the industry has generally sought to emphasize a speedy, high-tech experience when funding homebuyers’ time-sensitive loans.
Flash forward to the present day, when the need to work remotely during a pandemic is testing the industry’s digital operations. Even with plenty of technology at hand, lenders on average saw closing timelines lengthen far beyond the traditional but increasingly scarce 30-day contract in 2020, as rate stimulus pushed volumes to record highs.
The industry average for the application-to-funding process was 56 days in December, up from 51 a year ago and 49 the previous month, according to ICE Mortgage Technology.
“That’s crazy. If you are a lender and you are not closing loans in 30 days, you are losing business,” Mat Ishbia, CEO at United Wholesale Mortgage, said in an interview. “Time kills deals, so you have to look at how you can control that.”
Purchase loans that take longer than 90 days do measurably hurt customer referrals, according to Garth Graham, senior partner at the Stratmor Group. When these rose to 7% in the fourth quarter of 2020 from 5% 2Q20, net promoter scores dropped from 73 to 67, Stratmor found.
That’s why lenders are investigating where an otherwise speedy pre-closing loan process is getting jammed up. This is what they found.
A need to automate and communicate with referral partners
Upon flagging a small uptick in purchase timelines in its metrics, UWM looked for causes beyond the sheer volumes flowing in. They found that a lot of the delays had more to do with the home purchase than the mortgage funding, Ishbia said.
“We’ve assumed a lot of the purchase timelines being slower was tied to things like sellers that didn’t want to move out, we understand that happens. When we did a little research that was 70% of it,” said Ishbia.
UWM since 2015 has had a proprietary technology platform called UClose, which it uses to work with real estate agents and loan brokers. Using the platform and reaching consensus on shorter contract times with real estate agents has helped to rein in timelines, he said.
Use of such platforms, either proprietary or from a vendor, has risen in the past three years from 21% to 42%, Graham said. However, only 20% of the companies using them have a high adoption rate, defined as being used for more than 75% of eligible transactions, which suggests that it’s a technology lenders should urgently adopt before the spring.
“Generally, we see that increased volume is the biggest contributor to longer close times, but we have also seen lenders really adopting technology that improves … communication,” said Joe Tyrrell, president, ICE Mortgage Technology, in an email.
While it’s difficult to calculate the cost-savings found in automating communications with real estate agents, loans tend to encounter fewer obstacles when all parties use a system that reinforces coordination, Planet Home Lending’s senior vice president of operations, Michele Kryczkowski, said.
“For us, it’s not necessarily solving a specific loan-level issue, it’s solving a larger issue,” she said. “It allows you to see if you can deliver earlier, regardless of whether you’re working with a Realtor or builder.”
Shrinking the appraisal process
Another opportunity for shrinking loan timelines may lie in the appraisal process, especially since there’s new flexibility this year. Appraisals are the second largest cause of delays at UWM, Ishbia said last week.
“The biggest risk to turn time is the receipt of appraisal,” Graham said. “The turn times for appraisals are significantly worse than in previous years, although there is a wide range based on local market conditions. Any technology that makes it faster saves you time. So a portal, or online platform to share that data, is key.”
UWM’s approach to the appraisal timeline concern was to offer a guarantee this year that consumers will get their money back if a deadline in this area isn’t met. Its appraisal providers are on board with it as their interests in serving customers are aligned, Ishbia said.
A number of appraisal alternatives are another option. While traditional appraisals have been taking 14 to 28 days, depending on the region and appraiser availability, use of a hybrid appraisal method that doesn’t rely on a live visit by the appraiser has taken five days on average, said Katie Brewer, a senior vice president in Radian's valuation services division.
“I know there’s been some hesitancy to use them, but they do allow for a significant compression of the timeline at less than half the cost of a traditional appraisal, where appropriate,” she said.
Use of
That’s because it’s difficult to establish valuations based on historical data for a new purchase. However, bank regulations generally allow use of
When an appraiser is needed, however, one method isn’t necessarily guaranteed to be quicker than another, and given the talent shortage in the market. So a lender might be better off being willing to be open to various forms of valuations when possible.
“We have appraisers who won’t embrace the exterior-only appraisal, you could run up against that, so having all options on the table is going to expand the opportunity to meet any deadline,” said Jan Buchele, senior vice president of residential services at the William Fall Group.
But while delays can be minimized, lenders likely can’t remove them altogether, and they want to be particularly careful about putting a rush on appraisals. Following the Great Recession, there was some backlash against fast closings, as they were associated with the loose underwriting that preceded it. Underwriting has been much tighter since then.
“We don’t want to do anything that slows down the process for the lender, it’s really important for them to be able to manage their pipeline,” said Dart Appraisal President Michael Dresden. “At the same time there’s a responsibility to make sure there’s enough collateral there to support that loan."
