Why Automated Mortgages Do Not Work……Yet
Failure to Launch
Rocket Loans are all over TV, radio, billboards, and it seems like everywhere you look.
Expect to see millions more spent in 2017 to promote the idea that a mortgage approval can be completely automated. Expect to be disappointed.
The premise is that you enter information into a website, and that you are instantly approved to borrow hundreds of thousands of dollars for a home loan.
Don’t get me wrong, I’m not saying that automated mortgage approvals are not the best thing since sliced bread. Anytime you can make it easier for consumers, that’s a good thing.
The purpose of this article to dig into the mission to automate mortgage approvals so that you know what is fact, and what is advertising.
Armed with this knowledge, you have the ability
What’s Right With Automated Mortgages
Technology has come a long way, and there are some very effective pieces of the automated mortgage process that are going to change the process of getting approved for a mortgage much easier.
The biggest breakthrough in mortgage automation technology is currently the ability to reduce the need for borrowers to have to gather so much paperwork in order to get a pre-approval decision.
Automated Bank Statements
We now have technologies that will allow you to simply enter your bank account information, and we can pull copies of past bank and asset statements automatically.
Automated Income Verification
Technologies also exist that allow lenders to automatically verify your employment and income if your employer participates in the programs that make this possible.
Streamline Document Management
Convenience savvy lenders are also employing technologies now that make it easier to have a single place to upload and approve documents needed throughout the mortgage process.
These document management portals allow you to submit documents, and have them reviewed and approved by your loan officer. This eliminates the need to email documents back and forth throughout the process.
What’s Wrong With Automated Mortgages
There is not anything necessarily wrong with the concept of automating the mortgage process. Lenders have been using automated underwriting engines for many years.
Fannie Mae’s Desktop Underwriter (DU) is the most well known and most common automated underwriting system used today.
It’s not the automation that’s the problem, it’s the people that are still involved in the mortgage approval process that far too often results in folks being told that they qualify when they don’t. Or worse, you are told that you do not qualify for a mortgage, when in fact you do.
Anytime you are dealing with numbers and information it comes down to one simple rule…Input equals output. If you are not accurately inputting information, you are not going to get back accurate results.
While there are many automated pieces of the mortgage approval process, it depends heavily on the accuracy of the information being put into the system.
Most consumers have not read the 1,800 + page Fannie Mae Seller Guide that describes the many different ways to analyze and interpret the information required to qualify for a Fannie Mae, conventional home mortgage.
These same consumer have also not read the over 1000 pages of the HUD FHA manual that describes the many different ways to analyze and interpret the information required to qualify for a Government Insured FHA loan.
Until these guidelines can be integrated into the automated underwriting systems like DU, or Freddie Mac’s Loan Product Advisor (LP), it will still require that a human make decisions about whether or not the bank will lend you money.
Follow the Money
This is perhaps where I have the biggest challenge with Rocket Loans and other automated mortgages. There have been millions of dollars spent on advertising and technology to drive business to the companies that offer these programs.
Simple economics dictate that these advertising budgets need to be paid for somehow. Sure, there are millions of folks that go to those websites and submit their information. That’s one way that these advertisements can be paid for.
The other way these advertising campaigns are paid for is by cutting costs. And this is where my beef lies with this business model.
Veteran financial professionals like myself that have been in the industry for 20 years are not the people that these companies are hiring.
Because everything is “automated”, where you would normally have an experienced loan officer that you can discuss your specific needs, wants and financial goals, you now have a customer service person that is pushing buttons and having conversations with consumers based on the minimal experience required of a McDonalds cashier.
Mortgages are not McDonalds, and they never will be.
Don’t Take No For An Answer
Automated Mortgages are a fantastic goal. I fully support the vision of taking a different approach to analyzing risk and lending money to homebuyers and homeowners.
I am really excited about the fact that this goal is aggressively being pursued by the lenders that have the vision and money to aggressively push this concept, and continue to develop the technology and processes for making this happen.
Currently, there are still too much of a disconnect between the automation piece and the human element in applying for, and getting approved for a home loan.
Until we can bridge the communication gap, and develop better risk assessment models that make lending decisions on a broader data set than what we are required to use now, there is a high likely hood that the answers you receive from an automated mortgage is not an accurate reflection of your actual ability to qualify.
The moral of this story is essentially, don’t take no for an answer. If you are turned down by an automate mortgage company, it doesn’t mean that you don’t qualify for a mortgage.
Being declined for an automated mortgage only means that you don’t fit into the box that has been created by the technology.
In 2017, even though there are great efforts being made to automate the loan approval process, at the end of the day, there is still a human being making the final decision about whether or not you are going to be able to complete the loan process.
With lenders that save money by hiring less experienced people to make these decisions, or restrict the type of loans that they can offer based on the limitations of their automation and the experience of their staff, you cannot always trust the results.
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