Data and artificial intelligence (AI) are playing a key role in transforming home loan originations. And the big winner could be the customer.

“Australia is one of the most progressive countries in the world when it comes to adopting property data-based tools and artificial intelligence (AI) in the mortgage origination process. New Zealand is even further ahead.”

That’s the view of James Vaughan, CoreLogic’s Head of Data Products, who says clever use of data has the potential to eliminate many of the pain points of the mortgage origination process – and help drive long term customer loyalty.

Taking the tedious out of home loan processes

It’s no secret that writing home loans can be a tedious process. The traditional approach can call for numerous checks and lengthy documentation. Along the way, the same customer can be contacted multiple times regarding the same piece of information.

This doesn’t just cause delays. It can damage a hard-won customer relationship.

A new breed of emerging lenders are quickly gaining a competitive advantage by taking a different approach: one that’s very much driven by data and AI.

Melissa Christy, Head of Lending at 86 400, explains, “Data is key for us. We set out not to have supporting documents. Data is collected upfront, and we can use CoreLogic’s AVM for rental income, so we’re not waiting on things like letters from real estate agents. It makes for a lean business and relieves back office staff.”

The smart use of data doesn’t just benefit lenders. It can also fast-track response times and deliver a more competitive product for customers.

Shaun Lordan, Chief Product Officer at Nano Digital Home Loans, says, “Home loans are a highly regulated space, there are a lot of processes to think about. But instead of a patchwork approach, we use data to run processes in parallel.”

“This drastically reduces the time to ‘yes’ and lowers unit costs – savings we pass back to the customer through lower rates and no fees.”

Of course, turbo-charged, data-driven approvals aren’t suitable for every loan application. Human intervention will likely always be required, especially for unusual or complex deals. But as a guide to just how quickly decisions can be made when data is put to work, Nano Digital Home Loans has clocked up a personal best of under 10 minutes – from origination to unconditional approval, for a mortgage refinance.

Data innovation in mortgage origination

Along with income and expenses, a key piece of data in the loan origination process is the suitability of the security property. It’s an area James Vaughan says, “Can often be seen as a bottleneck in the process.”

CoreLogic is changing this, using analytics and digital tools to help speed up this assessment – and thereby approvals, by engaging high quality property data. “We are making high quality data work harder,” James notes.

He adds, “The security assessment is super important in the loan approval process. CoreLogic has 40 years of market data, and we are using contemporary data feeds to enrich that history.

“Data and machine learning (ML) are making it possible to discover just about everything in regards to a particular property. This is supporting an assessment that enhances the experience for home buyers, home owners and lenders.”

Latest advances in image recognition and AI

The additional data CoreLogic can factor into an assessment is helping to create a remarkably holistic picture about a property.

Today, CoreLogic can see whether a property could be in a risky location – such as a bushfire-prone area, or if it has proximity to the coastline, or if it could be at risk of other potential impacts of climate change such as flooding. CoreLogic can even reveal whether a property has been renovated, and if it’s in suitable condition for resale.

“Millions of property images are available throughout its databases, and using this data together with machine learning, we have the ability to analyse those images to create a more complete picture of a property,” says James. “We can assess around 80% of properties across Australia with a high degree of confidence.”

“Better data means better decisions by lenders – and CoreLogic is designing its systems and services to help find that data quickly, to support faster approval times.”

Agility makes it hard for traditional lenders

As James Vaughan observes, new and emerging lenders aren’t as encumbered with the legacy systems faced by some larger, more established lenders. Yet the same factors that make these new lenders agile may also make it difficult for the rest of the market to compete.

“It’s definitely easier to be nimble – and make changes, when you are building a system from scratch,” says Melissa Christy. “Instead of annual system upgrades, we are making adjustments every fortnight, every sprint, to stay ahead of the competition.”

While data and AI can help increase agility, lower unit costs and improve the time to ‘yes’, they can also help to eliminate the ‘slow no’. After all, no one likes to be left hanging on loan approval – especially in today’s hot property market.

Lenders can also use data to be more transparent, even when the news isn’t so good, helping a customer understand why they have been knocked back for a loan, and from there having conversations around how the customer can position themselves more favourably in the future.

It may be for instance, that a property assessment shows the customer was aiming too high – but property data can also be used to show locations within the borrower’s financial scope.

Beyond origination: Enhancing relationships and retention

Data and AI can also form the foundation of valuable client retention tools. And in a competitive market that matters.

A 2020 survey by ActivePipe found 95% of direct to lender customers reported their bank did nothing to stay in touch with them beyond transactional emails[1]

The research also found only one in ten home loan borrowers feel some sort of loyalty to their lender.

As James Vaughan sees it, data can help lenders win the hearts and minds of borrowers.

“Predictive analytics leveraging property data is definitely being used more effectively in client retention,” he says. “It allows lenders to go beyond giving the customer a statement that shows the balance of their loan. Instead they can look to determine how much equity the customer has. This can be a real driver of retention conversations because we know how strongly people are engaged with property.”

“Smart lenders are now blending property data with loan and customer information to drive retention systems.”

He adds, “AI is helping the best loan officers engage with customers at the right time, with the right offer and conversation. It’s empowering loan officers to engage content, such as livability or a more appropriate credit product – and retention rates can be profoundly impacted.”


[1] Home Loan Study: What Drives Borrower Loyalty After Settlement?


 

"A lot of opportunity"

Nano’s Shaun Lordan sums up the situation saying, “The ground is very fertile in this space. Open banking and customer data right (CDR) is giving back control to the customer. There is a lot of opportunity right now in the home loan ecosystem.”