Lender Tech Priorities

National Mortgage News presents findings from our latest survey to mortgage lenders will take a deep dive into their short and long-term technology priorities and challenges, and examine how technology is being used to improve operations and client service.   In this session you will learn who's making buying decisions and the factors shaping those decisions and research future budgets providing you with a peer-based perspective to help them build business cases for investment while providing marketers the insights needed to inform messaging and go-to-market strategies.


Transcription:

Janet King (00:09):

Hi everybody. Thanks for sticking with us. Networking is coming up so everybody will get a chance to do that. My name's Janet King. I'm the Vice President of Research here for National Mortgage News in our parent company Arizent. In joining me today is Erin Langevin, who is the SVP of National Retail Operations at Guild Mortgage. Welcome, Erin.

Erin Langevin (00:33):

Thank you, Janet. I'm happy to be here.

Janet King (00:35):

It's exciting to have you. Just to provide the audience with a little bit of context, can you just tell us a little bit about Guild Mortgage and your role in the organization? That'd be helpful I think.

Erin Langevin (00:45):

You bet. So Guild Mortgage is a nationwide IMP. We're a larger lender with our volume through Q2 of this year at about 10 billion, and we have been in business and servicing loans since the beginning in 1960. We currently service around 360,000 loans for about 89 billion in portfolio volume. For me, I've led production operations at Guild for the past 10 years and manage the LOS tech stack and its ancillary products for about 15 years. As part of my role within the company, I also participate in several association and networking groups where we have lender round tables, networking with other lenders and vendors as well to really keep our ear to the ground as to what's happening in the industry and also collaborate with other lenders on how to solve the problems that are facing us, which this survey really illustrates.

Janet King (01:43):

I'm excited about that. I'm excited to get your perspective not only as a leader in the industry, but also having all those peer-based discussions I think is going to be really helpful and insightful. Just a little background on what we're going to be chatting about today. So as a context for our discussion, we're going to be talking about some new research that we just completed at National Mortgage News to better understand the tech priorities for the mortgage industry. More specifically, we were exploring the strategic business priorities driving those investments and where lenders are really placing their tech bets for the next few years. Our hope is that we're going to leave you with a peer-based perspective that you can take back to your own organizations, your own roles to better understand how you guys compare to others in the industry and what you should be thinking about as you think about your own technology investments in the coming years.

(02:39):

A little bit of context on who we surveyed. So all of the professionals in this research are participants in their organization's technology initiatives. So they're either the executive sponsor or a leader of those initiatives or an active contributor or participant, and they are employed in a variety of organizations that are doing business in the mortgage sector. So we have leaders and professionals from banks and credit unions from non-bank lenders and servicers from mortgage brokers, and we did have a handful of title or mortgage insurance companies in there as well. And just for a little bit more additional context, if you just isolate the banks and credit unions and the mortgage originators and servicers, those folks, about 40% of those folks had loan origination volumes of a billion dollars or more last year. That just gives you some context of who these guys are.

(03:35):

Okay, so before we dive in and really dig into the spending priorities, I wanted to take a minute to really look at the strategic business priorities that mortgage executives and leaders are focusing on for the next two years. And you can see just by the large number of items on this chart that they have a pretty full dance card, right? They're looking at a lot of different investments, but the things that are topping the list are really maintaining regulatory compliance, building a pipeline of new customers, enhancing their cybersecurity and data protection and expanding market share. And if you take that one step further and just look at that combined percentage of critical and high but not critical priority, you can see that coming in at number five is optimizing usage of technology. 78% said that was a higher critical priority. One interesting thing before I get to the question, Erin, is that improving customer experience is still important, but it's definitely lower on the list than what we were seeing when we were doing comparable research pre pandemic and early pandemic when origination volumes really spiking, right? And there was a lot of focus on innovating in the customer experience and we've kind of are now looking more around ROI and things like that.

(05:00):

So Erin, do these priorities map to your areas of strategic priority at Guild and where do they align and where do they maybe differ?

Erin Langevin (05:10):

Yeah, I would say they definitely align. I think for all lenders, compliance is a top priority. Cybersecurity, data security also a top priority. And just speaking for other lenders that I'm in touch with, their discretionary spending has had to shift. And so I think that is part of what's resulting in seeing these numbers particularly take the lead because these are things that we have to do. We have to invest in this area, we have to be strategic in this area and where the discretionary spending lies, that's where we've seen a bit of a shift to your point. So during this down cycle, lenders have shifted their technology investment and we've shifted ours a little bit from really innovating that customer experience to growth and efficiency. When there are fewer loans for all lenders to have, we really need to invest in what's going to gain market share and then also innovating new ways to reach customers that we couldn't reach before.

(06:16):

So that's going to be crucial so that when the market starts to stabilize, when we get business back, all of us will grow in that market share. On the efficiency side, I find it interesting that optimizing the use of technology is higher than reducing operating costs. And I think that's because we all worked really hard to reduce our operating costs over the last year and a half, two years, and now that's leveled out a bit and you can only cut so much and renegotiate contracts so much and now we're looking to make the most of our investments. So I think the question that lenders are really asking here is, which technology can I get a higher ROI from?

Janet King (07:00):

Yeah, I totally agree with that. And I think as you look at this list of priorities, what do you see as the importance of this to lenders in your peers in the industry who are thinking about where to invest their technology budgets? How if at all, might striving to advance these objectives change people's approach to technology for the next few years?

Erin Langevin (07:24):

Yeah, I think starting with that number one, compliance and cybersecurity, those are budgeted items and we have to focus in that area. And the next is expanding the market share and finding those new customers. So things like creative attainable housing products, how can we go into new markets where we don't exist today? There's still a lot of movement going on in our market even after such a long season of movement. So there's a heavy focus on this surviving through 25 and then waiting until those markets and rates normalize. So I think after we get to that place and then there'll be this phase of competitive margin compression when we get on the other side of that and the lenders who are left standing, we're going to then need to make a decision of where we invest next. We've invested in the market share, we've now grown. And so now are we going back to really innovating that customer experience and then perhaps with AI being developed a bit more in the lending space, how do we now apply that AI to the customer journey?

Janet King (08:34):

So let's take a look at what the appetite is for tech spending over the next couple of years. What we see is that despite that economic downturn, right, we generally see a pretty positive outlook for continued investment in the industry. So you can see here that 61% expect to increase spend over the next 12 months, the latter half of 24 into 25, and banks and credit unions and non-bank mortgage lenders and originators. They're pretty much in lockstep with that perception, but mortgage brokers are a little more conservative. Only 48% are increasing spend in 26% are staying the course with 19% expecting some sort of a downturn. So given the challenges that the industry's faced in recent years, does that generally positive outlook for continued investment in tech surprise you at all?

Erin Langevin (09:29):

Honestly, no, it doesn't and I wish that it did, but I think that from my perspective anyways, we're far enough along in the digital mortgage solution and technology that I think increasing our tech spending year over year is here to stay. Even if we maintain the status quo and keep up with compliance vendor changes and table stakes, I think it's going to require that continual investment for innovation. But as again, the market normalizes, I think that we'll see potentially a higher percentage of spend increase and then that band in the middle will probably move up where we're increasing by a bit more than we had before. At Guild specifically, we do increase our technology investment. That is a key strategy for us is investing in our technology and our people to help grow market share and increase our servicing portfolio.

Janet King (10:33):

Which leads me to the next question because Guild is known for having a large servicing portfolio. So how does that come into play here?

Erin Langevin (10:41):

Well, it's been very helpful and I think lenders over the last several years, including in the boom, really were looking at should I go into servicing? Should I not go into servicing? What does all that entail and what does it really mean to me? How will it help my organization long term? And so they have to decide what's right for them. Many started into servicing, many exited out of servicing, and several lenders sold portions of their portfolio in order to survive till 25 and fund through this down cycle. For us, we've been doing it since 1960, we've retained our servicing and it is a natural hedge against a downmarket, and it's really proved itself as a protector for having a much higher retention ratio and supporting our investment through this cycle.

Janet King (11:30):

That's great. And what I think is really interesting is that the generally positive outlook for spending for many lenders, it's good news. I think it's a positive indicator for the industry and maybe it's a reflection of the commitment to digital transformation that's been made over the last five to 10 years. But what we also see is that tech buyers and influencers are really evaluating those tech investments against a number of criteria before partying with those dollars. And so this is just the top factors that folks told us were influencing their buying decisions. But what you really see is a real impact on things like productivity, compliance, cost pressures, ease of integration, things. I think that collectively suggest a really heightened focus on ROI. But to your earlier point, the data suggests that when you ask lenders, how effective is your organization at aligning your technology investments to successfully advance these key outcomes?

(12:36):

And a lot of these outcomes were the things that we saw in that very first slide. What are the priorities that they're really focusing on? At the very bottom of the list is reducing operating costs, right? Only 38% think they're highly effective at using technology to do that. So it's bottom of the list. And I'm curious, Erin, what you're hearing from lenders you're on round tables with, you mentioned that in your introduction that you spend a lot of time keeping your ear to the ground, talking to other people in the industry. So what are you hearing from those folks about what's working and where are people still really challenged to maximize the ROI from their tech investments?

Erin Langevin (13:14):

Yeah. Well, this is a conversation at nearly every single lender round table is how do we reduce those costs? And it doesn't surprise me in the least that four out of those six drivers for making a decision. Were ROI based. Really when you combine that with this particular stat here, it's a little shocking to see that lenders rate themselves the lowest in reducing operating costs. And so when you take and put those two together, it's a puzzle that we're trying to solve. How do we increase our tech spend and leverage our technology in a way that increases that ROI in one form or another? And so lenders have been making changes and us as well, but one of the big things lender had to do to reduce spend, we see what is the discretionary spend here, and we saw this in the area of automated verifications of income and employment over the last couple years.

(14:10):

They were really promising when they came out, we were really pushing it to the front end of the origination cycle of the application path, pushing our loan officers to leverage it, talk to their customers about it. But then as we've walked through this market, a lot of lenders have had to figure out how do we pull back? So they're leveraging business rules to limit when it's ordered. They are making it go through only a certain path, who verifies that it's required before it's ordered or they've put into place lower cost alternatives. But I think that is a far swing back from when we were really pushing it with every customer upfront in the beginning. And then there's always this struggle with regulatory changes every year. We know it's coming with budget for it, but then there's still a lot of pressure, especially when there's a short turn time to get it done.

(15:01):

And lenders are struggling right now with an industry change from a vendor. We are forced to ship a technology in a pretty short period of time. And so lenders are working through how do we change this? We need to stand up a new vendor, get everybody new access, create manual processes on something that was maybe automated previously. And so it's going to be manual at least for a period of time. And so it makes us shift our priorities and focus on this other project at hand that's going to make us less efficient. So we're doing all these things to try to get more efficient and reduce our operating costs. These external sources come and place that pressure on us where it feels like two steps forward. One step back sometimes when the question is what is working right now,

(15:48):

I do not have a magic wand, so I wish I did. And what I would say is that lenders and vendors are both working to solve that question right now. And it is a topic of every conversation. There's no silver bullet that we have right now. So that's where I as a lender would make a plea to every vendor in the room and in the industry, which is to help us understand how to leverage your technology better, help us understand how to gain more adoption for what the technology was intended to do, to give us the ROI, that's what we're going to need to continue forward.

Janet King (16:26):

That's a great plea. And we didn't include it here, but we did ask in this research too, how lenders felt about the level of innovation and support they were getting from tech vendors. And there was some interesting data there that generally they see progress, but there was also this sort of what we need more, we need more support, we need more help, we need more use cases and case studies and things like that. So thank you for calling that out. So let's take a look at where those tech dollars are actually going. So just to orient you guys to the slide, everything in that sort of pink color is an active priority for the next two years. Everything in sort of the darker green is stuff that people are exploring that lighter green is, it was a priority, we're pausing it, right? And the others are not really a priority for us at this moment.

(17:11):

So you can see that there's a lot of active priorities right now, but really topping the list is enhanced security, digital platforms, process automation, data, data, data, data, identity verification and authentication, all coming in close to 50% or higher. And then if you look at the technologies that are most often being explored, it's no surprise way over on the right to see 43% say that they're exploring artificial intelligence, including generative AI. I think that's important. Also, things that are popping on the exploration, our APIs and API integration. So really trying to integrate the tech stack and obviously help with automation. Core systems modernization is another one that's popping on that marketing automation, which ties directly to some of those priorities around trying to get more customers into your pipeline and then data. So I think if you look at all those things in combination, those first two, and especially it kind of paints a picture of where lenders are placing their tech bets for the next few years. So how does that align with what you're hearing from lenders and experiencing yourself at Guild?

Erin Langevin (18:23):

It absolutely aligns. I think unless a lender is innovating in a new area, adjusting their model or adding a new channel, the investment is on those core costs, right? You have your compliance and security, but then continuing to automate and digitize your production costs so that you can focus on reducing those costs.

Janet King (18:48):

So in general, do you think that we're prioritizing the right things? I mean, is there anything that you think we should be placing a particular emphasis on as an industry moving forward?

Erin Langevin (18:57):

Yeah, it's difficult to say it or speculate if we're focusing on the right thing for any given lender in their particular situation, but I think that this data makes sense for the market that we're in. We had such a focus in the lower rate market on the digitizing the customer's journey. And right now I think it makes sense that the data is showing that lenders are focused on housekeeping and digitizing things that can help reduce their cost to produce. And they're not digging deep into investing in technology they don't need in the next year or two until the market becomes more normalized and profitable again. And then lastly, I think those who are watching ai, we need to watch AI dip our toe in the water. And I'm speaking to generative AI mostly right now, but we need to keep tabs on when is the inflection point where it can bring a material ROI or become table stakes and we have to adopt.

Janet King (20:02):

Yeah, we're going to talk about AI in a few slides, but I do think it's interesting. It's not necessarily that we're pausing or that we're not innovating anymore, but we're keeping that sort of foundational technology in place to allow innovation to continue when market conditions improve. So that's really interesting. So let's talk about cyber, because cybersecurity was a key priority. It came up as number one actually. And you can see here that nine out of 10 mortgage professionals that we spoke to are concerned about cybersecurity and fraud in the industry and with good reason, right? We just recently had a story in National Mortgage News that cited some stats from IBM's cost of data breach report. I don't know if anyone follows that, but that was just published. And it talks about how financial companies are spending almost 6.1 million on average this year to respond to security incidents compared to 5.9 million last year.

(20:58):

So the cost is up and the impact on any one company can be even higher. So I don't know if anyone saw that recent disclosure by Loan Depot, which revealed 68 and a half million in expenses in the first half of 2024 related to its January hack, and only 15 million was offset in cyber insurance reimbursement. So the stakes are high, and in response, lenders are taking a number of steps doing a number of things to mitigate those risks. Erin, I wanted to talk to you specifically about employees because employees can be a critical part of that defense, but what are you guys doing at Guild to better educate employees and better equip them to help support bad actors?

Erin Langevin (21:38):

Yeah, this is such an interesting and a really tough topic based on those numbers you shared. It's really concerning for any lender and vendor, and we all in this space have to take it really seriously. So our employees in particular are a critical line of defense within the organization. And I think it's interesting because when we're always talking about technology, it comes along with talking about adoption of optional technology and how difficult it is to get people to adopt technology. And in this case, we're talking about getting our humans to adopt and really understand and really get it when it comes to cybersecurity, all the ins and outs of the ways in which they need to be alert and helping protect the organization. And so if it's a struggle to get them to adopt technology, it may be a struggle to help really have them get it.

(22:34):

And so I think that we have to be diligent about training them properly. And we can't just rest on a recorded training with a couple of test results and say, okay, they're now trained. We have to hit it from multiple angles and throughout the year. So we just need to beat this constant drum of awareness. So talking about it in staff meetings, talking about at the manager level on a regular basis in town halls, whenever we're face-to-face with people, reminding them of the importance, having them share their friends. I like asking people if they got caught in a Phish test recently. It was like, did you get the big red X or did you get the green check? So those IT phishing attempts where they can give instant feedback to people are important as well. And then I think we have to be creative.

(23:28):

And so one of the fun things that Guild does is we have a subscribed to a series that I think anyone can get called the Inside Man, and it's a drama about these folks who are trying to infiltrate organizations and have cyber breaches against them. And it's a really fun drama show, and it's maybe 8 to 10 minutes for an episode, but when an episode comes out, it creates water cooler talk for our employees. So they watch that instead of a less exciting training, and they get the messages of what we're trying to convey, but in a fun way. And then they all talk about it. So it's kind of fun buzz when a new episode comes out and they're like, Ooh, did you see what happened with her dad on Inside Ban? And so that's been something creative. But I think the bottom line is that as lenders and vendors, we have to really make sure our people are informed and that they care and that they're being diligent about all of the steps.

Janet King (24:32):

Well, I was fascinated to learn about Inside Man, has anybody here seen this series for security? Alright, well it's on season five now. So we've got a lot of, I mean we've all sat through those company trainings and videos, but this is worth checking out. This could be a game changer for you guys. So inside, man, check that out. Okay, so let's talk about AI because we saw on the investment slide that AI is going to be a core focus, especially generative AI of things that people are exploring over the next few years. We've done a lot of research on this topic at National Mortgage News and rza, and we're seeing that sort of high level of interest permeate most financial services industries. What we saw here is that nine in 10 have already adopted or planning to adopt AI over the next couple of years.

(25:19):

Four in 10 are the ones who are active adopters. Five in 10 are the ones who are exploring or testing. And the folks that are already using are largely driven by those larger organizations. And if you kind of scroll forward and look at what are some of the early use cases, what we see is that it's data verification, underwriting, marketing, outreach, prospecting, lead qualification, and that's really interesting. And reporting from National Mortgage News also reveals, and we've written about this so you can check this out, that many lenders have implemented use of ChatGPT, like copilots that they're using to help their internal folks access information about the company's products and compliance issues to improve workflow. So if you go back to that process automation, that could be a key piece of reducing friction in the employee workflow. But yet, despite the high interest, what we see is that a lot of folks in the industry do express some discomfort with this concept of having AI be mostly or wholly responsible for key parts of the mortgage lending process.

(26:28):

You can see some interesting quotes, right? Someone said, I have some concerns about the responsible use of AI and would want to make sure it doesn't contribute to discrimination or unfairness in the lending process. And the second quote is a sentiment that we hear a lot, which is just worried about the lack of a personal touch and whether the rules established by people where decisions would become more cut and dry and you'd miss out on having a more personal connection with your customers. So Erin, a has been around for a long time in various forms, but gen AI has certainly opened new opportunities and challenges. What do you think the industry should be thinking about here?

Erin Langevin (27:04):

Yeah. Well, my colleague, Gemma Courier, who's leading a panel or part of a panel this afternoon on AI was sharing with me about thinking in AI, these three buckets, if you will, let's call it the first bucket, automation, which is really precise, predictive, dependable, and then you have generative ai, which is more creative and iterative, and then in the middle you have machine learning. So you wouldn't want to put credit risk decisions with the creative AI model that belongs back here with the precision and automation, something that takes dependable objective data and utilizes that to output calculations, analysis, et cetera, which we have several wonderful vendors in the market who do that today on the generative AI side, where we're looking to utilize that are on things like improving conversations, so giving people feedback and guidance on how to handle a difficult conversation or on creative, creating an effective marketing campaign for a specific market, for a specific type of customer, and to help create steps that we can follow to be effective in that market.

(28:27):

So there are things that the creative AI can do, including, like you said, act like a copilot. And we have a really fun use case around that that's been effective and we're getting ROI from it that Gemma is going to share about on the panel later today. But I think stepping back a moment, as a lender, I think that we need to understand what is responsible AI and we need to put the foundations in place to be able to have responsible ai. We need a secure AI model that's within our system so that we're not risking our customer data, and we need to make sure that our employees are educated about how to leverage these tools responsibly going forward and then keep our eye on investing for the future. And each lender is going to be in a different place with how comfortable they are stepping into generative AI.

Janet King (29:19):

We'll definitely check out the AI content throughout these next two days. But that particular session, because you and I talked a lot about this new tool you guys have in prepping for this, is it 425? So where's the ROI in generative AI? So check that out. Okay. We've got just a few minutes left. So I want to say thank you for joining, but before we sign off, do you have any closing thoughts for lenders that are looking to maximize the ROI from their tech investments?

Erin Langevin (29:45):

Yeah, I think I would say anytime that we're looking to understand what our business needs, an important thing we need to do is listen to our people. Our people are really where the value comes from. And so we need to listen to our employees, listen to their pain points, understand their process and change or remove procedures or technology that are no longer necessary or could be improved. And then on the second side of the coin I've talked about earlier is really working with your vendors to say, Hey, with this technology, I already have these products. I have, how can you help me optimize the ROI leveraging your product? I want to get more out of it and let's work together to go deeper in our relationship with our vendors.

Janet King (30:35):

Perfect. Well, thank you all very much for sticking with us. Thank you, Erin, for doing this with me. We're going to be, I think moving to a break.