Stop Wasting Money on Pre-Approvals: A Smarter Approach for Mortgage Lenders

With no immediate sign of mortgage rates dropping, housing inventory remaining low, and a general sentiment among younger generations that homeownership is out of reach, mortgage lenders have been actively seeking ways to operate more efficiently during a prolonged period of lower volume. Some have taken the opportunity to re-examine their internal team processes to gain time savings; some have looked to technology to automate tedious parts of the loan process; and others have doubled down on the borrower experience to ensure that they attract and retain whatever volume there is. Whatever the measure, mortgage lenders are acutely aware that now’s the time to change.

One area that lenders are re-examining is their top-of-funnel experience, generally referring to what is known as the “pre-ITP” stage, or before the intent to proceed from the borrower. During this non-committal phase, lenders are doing their best to qualify the borrower for one of their loan programs and provide preliminary loan terms, while borrowers are free to shop around. It’s key to work fast to secure the borrower, but it can also prove to be a wasted effort if the borrower isn’t themselves committed or qualified.

That being said, it’s not only wasted effort but wasted costs—especially if you're spending unnecessary money to verify non-committed borrowers. In this post, we’ll examine three solutions that your organization may have adopted during this phase. More importantly, we’ll talk about how you may be wasting efforts and resources with those solutions.

Collecting documents

We hate to break it to you, but collecting documents to verify income and employment is quickly becoming a thing of the past. It's a manual and tedious process for your internal teams, and now, thanks to AI, it's becoming almost impossible to know what's real and what's fake. Instead, lenders are beginning to turn to automated technologies that connect directly to source-of-truth data, like user-permissioned credentials.

But it’s technically “free” to collect documents, right? Not necessarily. When you think about the manual effort that goes into collecting and reviewing documents, the hours add up. Depending on who in your organization is the one overseeing this document review process, you're wasting their hourly salary rate on mundane tasks when they could provide more value elsewhere. Not to mention, human review is more prone to errors, which has downstream consequences if the information turns out to be incorrect for pre-approvals (or other formal verifications).

Even if it’s just for a pre-approval, collecting documents doesn’t have to be the way. It’s important to reduce manual effort in this early stage of the loan process, to set the stage right and pave the way for additional automation.

Leveraging an instant data provider

Keeping borrowers interested means moving fast. So instead of the often slow-moving process of collecting and validating documents, a lot of lenders turn to vendors with instant data to fulfill their pre-approvals. Even though it’s fast, it’s also expensive thanks to the rising costs of instant data over the years. In addition, it’s prone to inaccuracies thanks to stale databases. Inaccuracies or errors have negative downstream consequences on the loan terms and borrower experience.

If you're solely relying on instant data this early in the loan process, especially from legacy providers, you're trading the illusion of speed with bad data and high costs, and both your teams and borrowers lose out.

Asking the borrower to do it

With the rise of borrower or user-permissioned methods to collect income and employment data, some lenders are leveraging this experience up front to issue pre-approvals. If they already have an online application experience, adding the verification process seems to be a no-brainer. Asking a borrower to connect and permission their payroll or bank accounts goes straight to the source of truth, and removes the need to collect documents manually or leverage a costly instant database. As long as they log in successfully, you get the verification data quickly.

But there can be downsides to introducing friction this early in the borrower process. If the online application is already long, this is just another step they have to complete, which can cause them to abandon the process. If the borrower doesn’t know their credentials, it pauses the process and causes delays. If the borrower isn’t used to this type of user-permissioned process, they could resist using it, which causes delays. For the pre-approval process, these kinds of delays can cost you borrowers and slow down crucial top-of-funnel conversions.

So what do you do?

No documents, no instant data, no user-permissioned data. What then? We believe that it’s not about a single-track approach or saying no to all of them. Just like every borrower is a unique case, your approach should be a comprehensive, adaptive, and intelligent approach that leverages a mixture of these processes to produce the best result for your teams. As it becomes more important for lenders to provide best-in-class experiences to attract and retain borrowers, it’s more clear that a one-size-fits-all approach doesn’t work, especially during the delicate pre-ITP stage.

Holistic verification solutions like Truework can help you ditch the one-size-fits-all approach early in the loan process and leverage a tailored process that moves quickly, keeps borrowers engaged, and produces the most cost-efficient verifications.