This article originally appeared in the December 2024 edition of MortgagePoint magazine, online now.
Few, if any, industries in the world have experienced such dynamic shifts in recent years as the mortgage industry. Within that rapid evolution, the landscape of credit and verifications has also experienced a fundamental shift. Mortgage lenders are no longer restricted to traditional and often time-consuming processes that have historically bogged down the loan journey. From pre-application through post-closing quality control (QC) reviews, lenders are increasingly recognizing the need to update their verification workflows to assist in enhancing operational efficiency, cutting costs, and maintaining compliance.
This shift requires not only technological adjustments, but also a top-to-bottom cultural transformation within lending institutions and their missions. It goes without saying that such a change will require a mindset overhaul when it comes to how industry verifications are handled, but it can–and should–be done.
Why Update Your Credit and Verification Workflows?
Updating verification workflows is not merely an understandable reaction to new technologies, but a necessity driven by market conditions, regulatory requirements, and customer expectations. The mortgage market is more competitive than ever. And as margins tighten, lenders are under immense, ongoing pressure to cut costs without sacrificing the quality of their processes.
This means that the entire loan cycle is undergoing constant scrutiny and re-evaluation to identify outdated processes and blind spots. One key area in which lenders can implement cost reduction is verification services. Mortgage lenders often find themselves in relationships with multiple vendors for credit and verification-related tasks: credit reports, income verification, employment verification, etc. While it may get the job done, this piecemeal strategy creates inefficiencies and unnecessary expenses. By reevaluating these workflows and cutting out extraneous partnerships, lenders can reduce the number of verification providers they work with, streamlining operations, and cutting expenses.
Evaluating Costs and Workflow Efficiency
To determine whether their costs are being properly minimized, lenders must first examine their current workflows to identify inefficiencies. For example, one common issue many lenders encounter is ordering verifications too early in the process. Before the advent of today’s cutting-edge assistive tech, lenders would often pull a tri-merge credit report early in the pre-application stage to “get ahead of the game.” However, this strategy sometimes led to unnecessary costs if the borrower chose not to proceed with the application. To avoid this roadblock, some lenders are adopting a more efficient approach, starting with a soft credit pull that functions like a hard pull without triggering credit monitoring alerts. The tri-merge report is then ordered later in the process, as required to underwrite the loan.
By shifting the timing of these mandatory verifications, lenders can better manage costs while still adhering to regulatory requirements like the Loan Quality Initiative (LQI). Additionally, automated service ordering based on specific milestones has become much more prevalent. This allows lenders to avoid over-ordering, or mis-ordering, products and ensures that they only pay the right price at the right time.
Finding the Right Credit and Verification Provider
As touched upon above, a significant consideration when changing the industry mindset around verifications involves selecting the right provider. Rather than juggling multiple vendors, many lenders are turning to a single provider for all their verification needs. Bundling these services can offer several advantages, including:
- Cost Control: By consolidating credit and verification services under one vendor, lenders can better predict possible variables and simplify expenses. In many cases, bundling services can offer better pricing and terms than working with multiple vendors. For instance, purchasing multiple verification products (credit, income, employment) from one provider often leads to lower overall costs due to the vendor’s economies of scale.
- Simplified Vendor Management: It almost goes without saying that managing fewer vendors can significantly reduce the complexity of the verification process. Instead of juggling multiple relationships, utilizing a single, reliable vendor can create a partner that helps lenders navigate regulatory changes and provides consultative advice on improving operational efficiency. Furthermore, this strategy reduces the administrative burden on internal vendor management teams, allowing them to spend more time focusing on other priorities.
- Scalability and Security: Another critical consideration when choosing a verification provider is scalability. The right vendor must be able to scale up or down depending on market conditions and lender goals. For example, during times of increased loan volume, a provider must be able to handle the influx without compromising quality. Additionally, data security should be a top concern. Lenders need to ensure that their verification provider has robust cybersecurity measures in place to prevent disruptions to day-to-day operations.
Reevaluating Workflows: A Focus on Automation and Consumer-Permissioned Data
Automation plays a pivotal role in today’s mortgage verification process. Lenders are increasingly utilizing milestone-based, automatic ordering systems to eliminate inefficiencies. They can utilize these analyses to trigger certain courses of action. For example, employment verifications can be automated so that if one online database does not have the employment record, the system automatically moves on to the next provider, creating a waterfall effect. This reduces delays and ensures that critical data is available when needed.
Another trend is the move toward consumer-permissioned data, particularly for income and employment verification (VOE/I) and bank statements. In this case, borrowers provide their consent for verification providers to access payroll or bank account information directly. This can lead to significant time and cost savings, as the process eliminates the need for manual data entry and/or expensive third-party services.
However, lenders must carefully decide when and where to use consumer-permissioned data, depending on their specific needs and the type of loans they are processing. While this approach can be beneficial for reducing costs, some lenders may still prefer traditional verification methods in certain situations.
Incorporating Change Into Company Culture
Far-reaching pivots of this nature are not easy and a critical aspect of successfully implementing these changes is incorporating the new mindset directly into the company culture. Workflow improvements cannot succeed in isolation; they must be accompanied by a cultural shift that prioritizes efficiency, cost management, and collaboration with the right vendors. Here is a few ways that management can help get the entire team on board to foster this change:
- Educate Employees: Everyone involved in the mortgage process, from loan officers to quality control teams, should clearly understand the benefits of the new workflows, as they affect both lender and consumer. Regular training sessions, workshops, and internal communications can help employees adapt to the changes and understand why they are necessary.
- Empower Decision-Makers: Put power in the hands of key decision-makers within the organization to evaluate and implement new verification workflows. This could involve forming a task force that includes representatives from various departments–such as compliance, operations, and IT–to ensure that all angles are covered.
- Monitor Performance: Establish clear performance metrics to monitor the success of the new workflows. It should be plainly understood and tracked how well the change is being implemented, and if there are any blind spots that are leading to stagnation or resistance. Tracking could include metrics related to cost savings, processing times, and borrower satisfaction. Regularly reviewing these metrics will help lenders fine-tune their workflows and confirm that they are achieving the desired outcomes.
- Partner With the Right Vendor: As mentioned above, working with a trusted and experienced verification provider can make the transition to new workflows smoother. Lenders should seek out providers that offer not only the range of verification services that are needed, but also consultative support to help them implement and refine these new deliverables as they transition to the new streamlined process.
Improving Business Outcomes With Enhanced Workflows
The mortgage industry is undergoing a significant transformation in many areas, and one notable area that is rapidly evolving is how verifications are conducted. By reevaluating workflows, selecting the right verification provider, and incorporating a new mindset on how verifications should be handled into company culture, lenders can lower costs, drastically improve efficiency, and stay ahead of both competitors and regulatory changes. The key to success for this path lies in a comprehensive approach that combines technology, process improvement, and a cultural commitment to continuous innovation. As lenders continue to adapt to these changes, those that embrace this new mindset will be best positioned to thrive in today’s razor-thin housing market.
