How software already built into a broker’s workflow could improve speed and cost
While mortgage loan origination costs decreased in Q2, according to the Mortgage Bankers Association, those costs remain higher than anyone associated with the transaction wants.
Independent mortgage banks spent an average of $10,936 to close a single loan in the second quarter of this year, according to the MBA, down slightly from $11,898 in the first quarter.
One area that has received the most attention from the broker community is the soaring costs of credit reporting. However, it’s not the only cost that has been increasing.
Another meaningful expense in the mortgage process is the cost of verifying customer income, employment and assets.
One technology executive says the way that step has traditionally worked is part of what is keeping origination costs elevated.
John Hardesty (pictured top), chief revenue officer at Argyle, said legacy verification providers built their business around a model that has not gotten any cheaper over time.
"The credit side and the verification side both kind of are challenged with the same problem, which is very expensive legacy ways to do it, where you're hitting a credit bureau to get data, and to get that data, it's $100," Hardesty told Mortgage Professional America. "What we said is, why can't a consumer share their data and leverage the consumer's rights to do it?"
Reducing costs and fraud
According to Hardesty, letting a borrower connect their own payroll or banking accounts rather than routing a request through a bureau is what allows Argyle to charge substantially less for the same underlying verification.
"That brought our cost basis down to 80% against what the cost is to get a verification versus a legacy competitor," he said. "Instead of that $100 to $200 verification charge, now you're $30 to $40. That broker is now deploying technology that helps them be competitive, but also is saving them costs, and ultimately could be saving their borrowers on a closing."
He said the savings extend beyond the verification fee itself. The speed of completing the verification also increases with improved technology.
"It's all public points now where our lenders are seeing 10-day faster cycle times," he said. "They’re getting a person’s verification income and employment report. We’re giving them that, plus pay stubs and W-2s, actual documents from the source. So fraud goes out the door, and it's a cleaner process overall."
Giving brokers an alternative
Fraud has been a growing concern, especially as non-agency lending has increased. According to Hardesty, that same direct-source approach applies to borrowers who fall outside traditional agency lending.
"That non-QM segment has been a very growing segment in the last year," he said. "We heard our lenders say these non-QM buyers basically need to see actual bank statements. So now you can connect into your bank account, and we'll pull back the bank statements direct to source."
He said that same connection works for borrowers with income that does not come from a traditional employer at all.
"Now we service the gig area, like DoorDash, Uber; all of these during the COVID boom really took off," he said. "We have mortgage customers where you'll see them connect to Walmart, and then you'll see DoorDash in there."
The speed of that verification with Argyle, according to Hardesty, is starting to change how some brokers approach the earliest part of a deal, before a borrower has even settled on a lender.
"For a long time, brokers have been taking documents and shipping those documents as they fund the loan," he said. "You'll see brokers leverage the technology to help them prequal faster, to be more competitive, because you're leveraging a low-cost alternative way to do it with the same gains of a typical credit bureau verification report."
He pointed to one brokerage already testing a version of that approach with real estate agents in its referral network.
"That referral strategy is in motion by one of our larger brokerages right now, where we can create a URL they can share," he said. "If you want to get pre-qualified, here's a two-step way to do it, and within a minute, verification report, pay stubs, W-2s, and assets are done. I can get you a pretty solid prequal at that point."
Hardesty said the eventual goal is for a broker to have little reason to fall back on a traditional bureau pull at all, regardless of how the loan is otherwise being financed.
"We want to continue to create ways that, whether it's banking, payroll or documents, we can have this three- or four-step waterfall before you even need to think about a $70 to $100 alternative," he said. "Once we do that, that cost to originate will have to come down, because all of those sources are much more affordable."
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