U.S. Consumer Trends & Pain Points In Mortgage Application/Refinancing

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Some pain points that consumers face during their mortgage or refinancing applications include wait-time/length of the entire application process, credit analysis of the applications, and trouble in finding the right lender and loan. Some key trends that are impacting the mortgage lending and refinancing space include the increasing use of self-service portals and omnichannel capabilities, the rise in the number of refinance mortgage originations, and an increase in mobile-based mortgage lending. Additionally, some disruptive activities that are currently underway in the mortgage lending/refinancing space include the incorporation of blockchain technology in mortgage origination & servicing, leveraging MI and AL models across various mortgage functions, and growth of e-closing platforms. We have included a comprehensive summary of these trends, disruptive actions, and pain areas below and the top 10 mortgage lenders and their application process.

Consumer Pain Points In Mortgage Application/Refinancing

1. Credit Analysis of Mortgage Applications

According to a recent survey by CFPB and CNBC, credit analysis is the most problematic part of a mortgage application/refinancing for borrowers. The survey highlighted that almost 18% of borrowers felt that credit analysis was a major pain point of the mortgage application process.
This is primarily because that the credit approval process is not always transparent or predictable as lenders may apply stricter guidelines, known as “overlays“, than the official rules supplied by Fannie Mae, Freddie Mac, or government agencies backing FHA, VA, and USDA loans.
Borrowers feel that while automated underwriting software (AUS) provides very quick underwriting decisions, it is not completely transparent. It does not provide a comprehensive list of rules detailing how it renders a decision based on a unique combination of income, debts, credit, down payment, and assets.
Additionally, a majority of mortgage applicants are uninformed about the credit score requirements to qualify for a loan, which leaves them frustrated after being rejected. As per a Fannie Mae survey, nearly 50% of the borrowers are unsure about the credit score requirements to apply for a mortgage, 14% think that the FICO score needs to be higher than 680 to apply for a mortgage, and 32% think that it needs to be higher than 620. The minimum FICO score is actually 550.
Further, according to a report from the National Foundation for Credit Counseling, nearly 8% of American mortgage borrowers are concerned that credit checks are too expensive, while an additional 8% don’t even know how to check their credit rating. Nearly 36% think there is no reason for them to check their credit score, which leaves them uninformed about their eligibility to secure a mortgage loan. Hence, securing credit scores or reports can be a significant pain point for potential home buyers.

2. Wait-Time/Length of the Whole Mortgage Application Process

As per a Fannie Mae survey, nearly 12% of home buyers find wait-time and the length of the whole mortgage application process to be a significant pain point. This proportion remained consistent for first-time and repeat home purchasers. Also, as per a 2020 survey by Spruce, 45% of homeowners find the “time it takes to close” as the most frustrating part of the home buying process.
Many lenders still use manual and paper-based loan approval procedures that extend the entire mortgage application process and result in slower decision times than what many mortgage borrowers want. Manual processes also result in internal data management problems that create more work for lenders, thereby delaying the entire approval process.
From application to closure, the typical loan refinancing transaction took 42 days in 2020, up from 39 days in 2019. As a result, consumer satisfaction with the timeliness of the application process and the length of time between final loan approval and closure decreased year over year in the refinancing industry.
According to a survey by McKinsey, mortgage borrowers feel that their mortgage providers should prioritize providing accurate and unambiguous information about mortgage pricing upfront and clearly communicate the time needed to complete each step in the mortgage process so that they are not left frustrated in the end. They expect lenders to provide real-time application status to avert any delays in the decision process.
Consumers normally move fast with their mortgage decisions and find it really difficult and frustrating when the lending institutions are unable to keep up with them and delay the closing process. According to McKinsey, mortgage applicants usually choose a lender two to three weeks after beginning their study into mortgage providers and submit an application within another week. Furthermore, 35% of consumers in some categories, such as repeat home purchasers, choose a lender within three days of beginning their search. These home buyers look forward to completing the application quickly and want a quick conditional decision from lenders.
Due to the lengthy mortgage closing process being a major pain point, 50% of borrowers prefer to take out a mortgage loan from lenders who offer an online application or portal, and 47% of borrowers consider having access to an online portal for uploading documents as a key factor in their decision-making. As per the 2019 Ellie Mae survey, the top three reasons why mortgage borrowers prefer the online mortgage process include quicker time to close (66%), a simpler application process (61%), and information more readily available (54%).

3. Finding the Right Lender and Loan

According to the Fannie Mae survey, 13% of homebuyers regard finding the right lender to be the most difficult part of the mortgage process, while 7% of buyers consider finding the right loan to be the most arduous part of the application process.
Customers, who do not have subject matter knowledge, have a hard time identifying the right loan and lender for them as choosing the right mortgage lender and loan offer requires thorough research. Apart from the interest rates, the other key considerations that borrowers need to focus on while choosing a loan include closing costs, origination fees, mortgage insurance, discount points, and other expenses. This makes the entire loan selection process convoluted and frustrating, especially for inexperienced home buyers.
While selecting the right mortgage lender, borrowers need to consider different options like their bank, local credit unions, and online lenders, among others. They must enquire about interest rates, loan terms, down payment requirements, property insurance, closing costs, and other expenses, and then compare these information among lenders to make the best choice. Given the plethora of loan and lender options that borrowers have at their disposal, the selection process becomes a pain point.
Freddie Mac estimates that borrowers may save an average of $1,500 over the life of their loan by obtaining at least one extra rate quotation, and an average of $3,000 by obtaining five offers. Further, as per Fannie Mae, more than 33% of homebuyers who received multiple quotes were able to successfully negotiate lower interest rates with their lenders, and also lower their insurance costs, origination fees, and appraisal fees. However, nearly 50% of all homebuyers find the search process to be too complicated and do not rate-shop during their mortgage search.
As per Fiserv, some top factors that borrowers consider while selecting a mortgage lender include the best interest rate (76%), no or low fees and service charges (65%), customer service (54%), company reputation (49%), and knowledgeable staff (40%).
According to a 2019 survey by Freedom Debt Relief, nearly 58% of the homeowners regretted their lender and loan selection decision and felt that they should have “shopped around more for the mortgage”. Nearly 41% of buyers indicated that they were not aware of all their mortgage options at the time of selection, while 33% highlighted that they did not take closing costs into account when purchasing. Additionally, 29% of buyers indicated that they did not fully understand the terms of the mortgage at the time of purchase. These statistics corroborate the fact the loan and lender selection continues to be a key pain point for mortgage borrowers.

US Mortgage Lending Trends

1. Increasing Use of Self-Service and Omnichannel Capabilities

The increasing use of self-service portals and omnichannel capabilities by borrowers, especially during the current pandemic, is one of the key trends impacting the mortgage lending space. The customer contact centers of mortgage lenders have seen volume spikes of up to 2000% as an increasing number of borrowers are opting for mortgage moratoriums or mortgage holidays during COVID-19.
As a result of these increased interactions, lenders are beginning to increasingly leverage self-service tools such as interactive voice response (IVR) and chatbots, which enable them to provide a differentiated customer experience to the borrowers. Mortgage lenders are also leveraging chatbots to perform transaction requests, such as changing payment dates and amounts and updating payment details. The role of smart chatbots in the mortgage lending industry ranges from lead generation all the way to default management.
Borrowers may get money without visiting branch offices, and the whole loan process is automated with little to no human involvement. It also enables lenders to get rid of redundant work and enhance their employee productivity. Further, self-service tools allow borrowers to have access to loan products and their portfolios at all times and provide the capability to easily compare it against other similar portfolios.
As part of this self-service trend, most modern mortgage lenders are incorporating borrower portals for better customer satisfaction. Customers may use these portals to create their own pre-approval applications, check their credit score and credit line, and submit their files for automated underwriting, among other functions.
Apart from providing operational assistance and valuable information, some modern self-service channels also provide borrowers with access to educational tools, which allow them to educate themselves about various mortgage concepts and cut down their costs. Smart chatbots also function as a mortgage calculator that allows “home buyers to fully understand the available financing alternatives and the financial implications of changes in variables.”
Self-serve portals are significantly increasing the customer-centricity of lending companies. Additionally, digital lending enables omnichannel communication, which enables borrowers to interact with lenders through whatever channel they want, including the lender’s website, the lender’s app, text messaging, or even social media platforms.
According to Fannie Mae, some potential areas where the use of self-service tools such as chatbots is trending include loan production, especially loan application originations and verifying borrower information and documents, loan administration such as receiving payments from borrowers & responding to customer inquiries and helping borrowers in regulatory compliance.

2. Refinance Mortgage Originations On the Rise

Owing to an extended low rate environment, refinance mortgage originations have been on a rising trend in the US and form a bulk of the total mortgage lending. The refinance activity has continued to rise all through 2020 and reach historic levels.
As per the latest available data, lenders issued 1,955,668 residential refinance mortgages in Q3′ 2020, up 15.7% from Q2′ 2020 and 84.5% from Q3′ 2019. This increase in refinancing activity is also broad-based. As compared to Q2’2020, the refinancing activity increased in 183 of the 215 MSAs analyzed (85.1%) and rose by at least 25% in 56 metro areas (26%) in Q3’2020.
In Q2’2020, refinance mortgage originations secured by residential properties reached the highest level in 7 years. Additionally, the total dollar amount of refinancing in Q2’2020 increased by nearly 130% from a year ago and reached the highest point in almost 17 years.
Further, in Q2’2020, the refinance activity rose to represent nearly two-thirds (62%) of all lending activity and helped drive the total number of home loans up to 2.72 million, an 11-year high. In 158, or 74.9 percent, of MSAs with a population larger than 200,000 and at least 1,000 total loans, the number of refinancing originations doubled. Additionally, home refinancing mortgage originations rose in all but one of these 211 metropolitan statistical areas from Q2’2019 to Q2’2020.
As per data from Freddie Mac, the total mortgage refinance originations are estimated to increase by nearly 4 times by the end of 2020 as compared to 2018. They are expected to reach $2.2 trillion in 2020 as compared to $537 billion in 2018. In early 2020, the Mortgage Bankers Association (MBA) had doubled its projection for refinance originations in 2020 to $1.23 trillion, almost 36.7% up from last year.
However, the pace of growth in the refinance originations is likely to slow down in 2021, as per forecasts by Freddie Mac and MBA. Freddie Mac expects the refinance originations to be lower at $1.2 trillion in 2021, slightly lesser than the purchase originations of $1.4 trillion. Similarly, MBA anticipates mortgage refinance originations to slow down next year, decreasing by 46.3% to $946 billion, after a substantial 70.9% jump in the activity in 2020.

3. Increase in Mobile-Based Mortgage Lending

The use of smartphones in mortgage lending is another key trend that is fast gaining pace and resulting in the development of a mobile-first attitude as a major business model in mortgage lending.
According to a 2019 survey by Fiserv, 41% of consumers indicated that they would be comfortable using a mobile when applying for a home loan, compared to only 29% in 2018. Additionally, 65 percent of recent mortgage loan applicants stated that they used computers or mobile devices to complete at least a part of the application, up from 56 percent in 2018. This corroborates that mobile lending is fast becoming popular among home buyers.
As per data by Land Gorilla, borrowers are showing an increasing preference for digital touchpoints, and nearly 74% of all borrowers, in 2019, used an online portal to work with their lender. Additionally, almost 50% of all mortgage loan applications in the past two years contained some online or mobile component. An increasing number of lenders are taking cognizance of this changing trend and designing their operations from the ground up for mobility to compete with others in the lending space.
According to DataFacts, millennials, in particular, show a significant preference for mobile financing, with 57% of millennials stating that they would pick a digital channel if applying for a mortgage today. Additionally, 24% of millennials indicated that a lack of a mobile app was seen as a barrier to communicating with financial institutions.
Mortgage service providers are responding to this trend by releasing applications with different degrees of capability. These apps assist users in tracking the updated mortgage rates, complete the underwriting process online, make scheduled payments, sign documents electronically, seek pre-qualification and pre-approval, get real-time updates, and stay connected with their home loan team.
Additionally, US banks are increasing their expenditures in websites and mobile applications to reduce error-prone paperwork and make the mortgage application process simpler and faster for consumers, especially younger applicants. For instance, Bank of America recently released a mobile app that automatically fills in client information to streamline the mortgage application process. Over the last six years, the bank has invested more than $1 billion in digital banking, including a range of technology-focused mortgage products.
Wells Fargo and JP Morgan are also making investments in technology initiatives and launching digital mortgage products. Rocket Mortgage, a mobile mortgage app launched by Quicken Loans in 2016, has already gained a lot of traction, with over 98% of Quicken customers accessing the app at some point during the loan process. The app has played a pivotal role in making Quicken Loans emerge as one of the biggest mortgage lenders in terms of volume.

Fintech & Disruptive Activities in Mortgage Lending/Refinancing

1. Incorporation of Blockchain Technology in Mortgage Origination & Servicing

The use of blockchain solutions in mortgage lending and servicing is fast gaining ground, and an increasing number of fintech companies and disruptors are creating applications and platforms to leverage the same in mortgage originations.
Blockchain technology has immense potential in improving the mortgage origination processes and can assist in accelerating the loan approval process, tracking and managing loan payments, providing data on real-time transactions, connecting borrowers with private lenders, and giving borrowers more control over the loan.
On the origination side, blockchain is assisting mortgage lenders in getting quick access to the financial position of the borrowers through credit scores, bank information, earnings reports, tax returns, and asset holdings. It can also be leveraged to “validate information such as loan packages and third-party property evaluations, all in one place through the distributed ledger.”
It also allows for secured maintenance and transfer of documents and contracts such as proof of ownership, registration, and insurance. This results in the creation of incorruptible transaction records and a drastic reduction in the operational overheads of the lenders and consumers. According to Moody’s analysts, customers may save up to $1.7 billion annually as a consequence of blockchain-based application procedures.
Blockchain technology is also helping in creating and supporting smart contracts during the mortgage process. Smart contracts are “self-executing contracts that contain the terms of an agreement written directly into the lines of the code, and they work automatically without human intervention.” They are verified by electronic signatures from all parties. These contracts allow the loan status to be visible to all parties at all times, thereby bringing transparency to the lending process.
Certain municipalities in the US, such as the city of South Burlington, Vermont, have started to explore the use of blockchain technology in mortgage originations and are piloting title exchange digitally. Liquid Mortgage, a blockchain platform based in Denver, Colorado, is helping borrowers to track and manage payments and protect their data using encryption. It provides lenders with smart contract abilities and real-time transaction data.
Additionally, Synechron, a New York-based startup, has created a blockchain-based mortgage lending application that automates the mortgage origination, execution, and servicing processes for lenders, purchasers, and their designated agents. According to the firm, its application would save a typical mortgage lender $177 million on a loan book of $97.7 billion and decrease overall transaction time across the mortgage value chain by 25%, to 30 days from 40 days.

2. ML and AI Process Automation

Fintech firms are leveraging artificial intelligence (AI) and machine learning models (ML) to predict outcomes across all mortgage functions and improve inefficient, error-prone, and time-consuming processes in the mortgage lending and refinancing space.
Lenders have thus far been using AI and ML for basic mortgage data analysis and to undertake loan appraisals but advanced versions of AI and ML are now being used to analyze large volumes of data, find the hidden financial relationship of borrowers, and predict borrowers and loan book behavior. Apart from advanced mortgage data analysis and organization, AI is being used to automate the collection of that data as well.
In mortgage originations and refinancing, AI and ML are being utilized to identify the creditworthiness of the borrowers and fraud identification. AI helps lenders make sense of over 5,000 data attributes of borrowers collected during the lending process and develop an alternate credit scoring system, which serves as an alternative to the credit bureau data.
Fraud detection and mitigation is another area where MI and Al are helping mortgage lenders. According to the data from CoreLogic Research, nearly 1 in 123 mortgage applications in the US contains fraud information. The fraud can be in the nature of financial misrepresentation by borrowers, fake income/property documents, usage of false identities, and inaccurate appraisals, among others. Since AI systems are capable of analyzing decades of financial data and background information of the applicant in real-time, they are being used to flag loans that are at risk of having fraudulent elements. Such loans are then passed on to loan officers for another round of comprehensive review.
Some other mortgage lending areas where MI and AI applications are being built by fintech and other disruptors include default prediction, prepayment prediction, retention management, collection management, and servicing call prioritization. For example, AI and ML tools are being used to help predict customer behavior three to six months in advance and allow lenders to design customized discounts and offerings for individual borrowers. This assists lending and refinancing companies to enhance customer lifetime value and turn borrowers into lifelong customers.
Blend is a lending platform headquartered in San Francisco, California, that uses machine learning and artificial intelligence to automate the paper-intensive mortgage application process by collecting required information from applicants without human involvement and with fewer mistakes. Additionally, the Blend system is capable of evaluating supplied documents and user activity for indications of fraud. In another example, the US-based Citizens Bank is currently utilizing an AI-powered product called CollectEdge. The same is helping the bank in modernizing its collection process and ensure better risk segmentation of the mortgage borrowers.
Capacity, a Missouri based new kind of helpdesk powered by artificial intelligence, is another example of a disruptor in the mortgage AI space. Its AI-powered bot helps in borrower education. West Community Credit Union (WCCU) was able to reduce its call center costs by 20% and grow by 40% without adding any call center staff after implementing Capacity’s AI solution. The company’s NPS has also risen from 75 to 85, owing to the speed with which consumers get responses. Without human involvement, Capacity’s AI-powered bot is capable of accurately and quickly responding to 92 percent of all potential and existing borrower inquiries.

3. E-Closing Platforms

E-closing is a relatively new process and refers to the act of closing a mortgage loan electronically without or with minimal human intervention. When one or more mortgage closing papers are signed electronically, this is referred to as an e-closing. Several fintech firms have developed e-closing platforms and are working on constantly evolving the same.
According to data company ClosingCorp, almost 89 percent of house purchasers and 84 percent of refinancers will e-sign their closing disclosures or papers between mid-March and the end of August 2020. 82 percent of these respondents said that they preferred electronic signatures prior to closing, and more than two-thirds (66 percent) indicated that they would prefer an e-close over an in-person closing in the future. This indicates the growing preference for e-closing platforms.
E-closing platforms developed by fintech companies are helping lenders reduce the overall life cycle time for mortgage origination. They offer more flexibility to borrowers with a busy schedule, reduce the risks associated with operational errors, data quality, and validation, and allow borrowers to review all documents before closing.
Bank of America, Better Mortgage, Caliber Home Loans, Fairway Independent Mortgage, Freedom Mortgage, LoanDepot, Rocket Mortgage, United Wholesale Mortgage, and Wells Fargo are just a few of the major mortgage lenders that have begun to leverage the various fintech e-closing platforms in some capacity.
Pavaso, a fintech startup headquartered in Texas and a digital disruptor, provides a genuine full-service e-closing platform that enables paperless e-closings in as little as 15 minutes. The business utilizes a single collaboration platform to link all permitted parties in order to share information and documents, interact, and cooperate in real time during the closure process.
DocMagic, a California based fintech innovator, has also developed an industry-leading eclosing platform called Total eClose. It is a single-source, end-to-end platform that enables a paperless workflow for borrowers, lenders, settlement agents, notaries, and other relevant parties by seamlessly integrating every component of the closing process. Southeast Wisconsin-based Community State Bank has recently implemented the company’s Total eClose solution to transform the bank’s mortgage closing process and make it completely digital.
eOriginal is another example of a fintech company with an industry-leading e-closing platform called eNote. Fannie Mae, Ginnie Mae, Guild Mortgage, and MERSCORP Holdings are just a few of the industry heavyweights that are using eOriginal’s eNote technology to grow the digital mortgage market.

Top US Mortgage Lenders and their Mortgage Application Processes

We have provided an overview of the top 10 US mortgage lenders based on the total amount of home purchase and refinance loans in 2020 below.

According to the 2019 annual report released by CFPB, the top 10 mortgage lenders based on the total amount of home purchase and refinance loans in 2019 include Quicken Loans, United Wholesale Mortgage, Wells Fargo, JP Morgan Chase, Fairway Independent Mortgage, loanDepot, Caliber Home Loans, Bank of America, Freedom Mortgage, and US Bank.
Borrowers may apply for a mortgage online via Wells Fargo’s ‘yourLoanTracker’ platform or contact with a home mortgage adviser to discuss their home financing requirements and loan options.
In the case of Quicken Loans, borrowers need to apply for a new mortgage or refinance their existing mortgage using the company’s online mortgage application tool called ‘Rocket Mortgage’. In case customers do not want to apply online, they need to answer a few questions, and a company’s Home Loan Expert will contact them.
loanDepot is a private, independent retail mortgage lender based in the United States that specializes in home loans. Direct lending, affinity lending, branch retail, and servicing are the company’s current business channels. It is licensed in all 50 states and is an authorized seller/servicer with Fannie Mae, Freddie Mac, and Ginnie Mae, servicing the bulk of the loans it generates. It offers FHA, HARP, VA, and Jumbo loans.
loanDepot has introduced a smart mortgage loan called ‘mello smartloan’, which is a first-of-its-kind end-to-end digital home loan that provides a fully digital experience to the borrowers from application through closing. It saves borrowers time and money by skipping the voluminous paper work.