Digital mortgages: The new normal?

Projects that were expected to bring about digital home loans were rolled out at lightning speed to ensure that the Great Australian Dream of home ownership could continue despite physical distancing.

While non-major lenders and fintechs such as ING, Resimac and 86 400 had been harnessing technology to speed up the home loan process long before COVID-19, the major banks were far behind – and had to hit the ground running to bring their legacy systems up to speed. For example, NAB CEO Ross McEwan revealed in March that the major bank had been working on a project to enable its mortgage advisers to utilise video conferencing technology before the virus hit. At the time, it was expected that the project would take up to 12 months to activate, but when the virus hit, the bank was able to get the service up and running in three days.

Then, in April, the major bank announced it was bringing in compulsory measures for brokers to sight, collect and verify borrower identity documentation for all NAB consumer loan applications via MSA National’s remote verification of identity (VOI) app – IDyou – until further notice.

Indeed, MSA National CEO Ayhan Baba says that while the service provider had just over 5,000 brokers registered for IDyou prior to COVID-19, in the weeks following COVID-19, that number jumped to more than 16,000.

“Lenders have been quick to adapt to this challenge by embracing the digital tools that have been available to them,” Mr Baba says.

And more and more tools have been launched to help; NextGen.Net recently launched its Document Verification Service (DVS) in ApplyOnline, which allows brokers to immediately compare a customer’s identifying information with records from 22 government databases.

The new service provides electronic validation of government-issued documents such as birth certificates, citizenship, driver’s licence, marriage certificates, Medicare and passport information.

While the tool was expected to be released by the end of the first quarter of 2020, the technology solutions provider accelerated the launch in light of COVID-19, as lenders and brokers reassessed and updated their in-person, face-to-face policies and ID check procedures.

NextGen.Net chief customer officer Tony Carn says that the tool is also designed to circumvent fraud and is a direct service with the federal government.

“It’s validating that the identity documents are real, verified documents, and that they do match the name of the person claiming that those documents belong to them,” Mr Carn told The Adviser.

“It also protects the lender because it takes the need to interpret the validity of the document away from the approval process. Moreover, lenders will not require copies of documents, which means we’re shifting to a more paperless process.”

To help speed up the mortgage process and write mortgages remotely, lenders came out en masse in the weeks following the social distancing rules being brought in, saying that they would accept digital appointments via video conferencing and digital signatures on loan documents.

For example, ING’s head of third party distribution and direct mortgages, Glenn Gibson, told The Adviser that the bank has always allowed its broker network to conduct its interviews through video conferencing, but it did amend its policy around how it accepts the signing of loan documents from its customers.

With brokers and aggregators using various e-signature tools, Mr Gibson says the bank thought it best to take a flexible approach to what it would accept.

“Instead of going out to the market saying brokers need to use one particular signing tool, we said we would accept whatever tool they were using,” he says.

“Some aggregators have built their own tool while some brokers are using DocuSign. We just thought, let’s make it nice and simple. Whatever tool brokers and aggregators are using, we’ll accept that.”

Non-bank lender Resimac also looked to digitise the mortgage process, rolling out an end-to-end digital loan document solution for brokers, through which brokers can work from anywhere to lodge applications. The broker can email the loan document pack directly to the borrower, ready for digital execution and return. It is a paperless process and includes the ability to upload property insurance and other related documents required for settlement.

“These changes have allowed us to maintain our service level agreement with brokers, which is sitting at under 48 hours,” Resimac’s general manager of distribution, Daniel Carde, reveals.

What does a digital mortgage look like?

While several lenders have had to tweak their home loan process during COVID-19, it has largely been business as usual for neobank 86  400.

The fintech’s national manager of broker distribution, George Srbinovski, says the bank implemented a fully digitised solution when it launched a suite of home loan products available via the broker channel in November 2019.

He explains to The Adviser that everything from the income expense verification to the VOI is completed via the digital channel.

“The digital home loan process is really about efficiencies for brokers and their customers, and we’re trying to use accurate data to turn deals around quickly,” Mr Srbinovski says.

Using software provider Simpology for broker lodgements, the bank sends clients an email through the Smart Statements portal to digitally obtain income expenses over a period of time, which it then splits into various expense categories.

“The broker then receives a page summary back from the customer where the broker is able to have a good conversation with them about their income and expenses that we have obtained digitally,” Mr Srbinovski says.

“Once all parties are satisfied, the broker sends an application form to the customer, where they can digitally sign their application form on their phone or their desktop.”

Clarence Independent Finance Brokers director Matthew Dimos, who has used the services of 86 400, says the advantage of the digital home loan process is that once the application reaches the credit team, there is very little reason for knock-back as the servicing test is completed correctly.

“There is definitely a convenience factor here for the client. Lenders usually ask clients for manual statements and payslips,” he tells The Adviser.

The VOI hurdle

With all of these new applications and technological innovations being rolled out, there is a huge impetus in bringing about a truly digital mortgage process.

When it comes down to it, embracing video conferencing and remote VOI of mortgagors has traditionally been the main barrier to bringing about a truly digital mortgage. This all boils down to the legal framework surrounding VOI.

The Australian Registrars’ National Electronic Conveyancing Council (ARNECC) – the body responsible for facilitating the implementation and ongoing management of the regulatory framework for electronic conveyancing of property in Australia – sets out the rules for VOI in its model participation rules for lenders. It states that they must either use the Verification of Identity Standard (which requires a face-to-face, in-person interview) or take “reasonable steps” to verify the identity of a person in some other way if that is not possible and demonstrate how that was done.

While many lenders allowed for remote VOI for regional borrowers, it wasn’t until COVID-19 hit that the market saw a significant shift in the number of lenders that announced they would accept remote VOI. For example, ING announced it would support the identification of clients through ZipID, Resimac approved the use of the IDyou app, while others allowed brokers to now verify their clients’ ID through video conferencing technology such as Zoom, Skype, FaceTime and WhatsApp.

A flash in the pan or here to stay?

But will this all be here to stay? Earlier this year, ARNECC consulted on changes to how the verification of identity of borrowers is undertaken.

Following feedback from industry, an amendment was put forward in March that would have required brokers and lenders to first apply the Verification of Identity Standard, which requires a face-to-face, in-person interview. Previously, the standard gave users the option of applying the standard or taking reasonable steps to verify the identity of the borrower.

This change, taking effect from 3 August 2020, would require the identity verifier and the person being identified to both be physically present at the interview as a first port of call.

However, ARNECC pressed pause on these changes once COVID reared its head. “The world has changed significantly with the escalation of the coronavirus pandemic and resultant restrictions imposed,” ARNECC said in May.

Noting that it is “unknown how long the consequential and disruptive impact on all businesses” and the changes that have been required to methods of operation will last, it had “reassessed” its proposed amendments as well as the implementation timeline for the rule changes.

“It is now unlikely that a take-effect date will be implemented in 2020. Once a pathway out of the pandemic situation is clear and the feedback has been fully evaluated, ARNECC will be able to advise an updated implementation timeline,” the body stated.

It is therefore uncertain if lenders will continue to accept remote VOI once social distancing rules ease up and ARNECC’s amended rules come into play. But it would seem that adopting something so convenient and then walking it back again could be a hard pill for borrowers (and brokers) to swallow.

As Mr Baba says: “Allowing the industry to retain the choice and use available technologies that simplify the process is a great win for lenders, brokers and customers.”

While some lenders have flagged that their COVID-19 policy changes are temporary, ING’s Mr Gibson believes the changes mark a long-lasting shift, and “there’s never ever any going back”.

“Whenever you adopt something for the better, you want to take it and run with it,” he tells The Adviser.

“If you have a look at processes, if you have a look at efficiencies, what COVID-19 has delivered for us is a jump forward in time. There’s a lot of things all lenders would have liked to have done, but lenders need to prioritise what actions they will take. I think this certainly has bumped that up to the next level.”

Resimac’s Mr Carde agrees, telling The Adviser: “We believe that many brokers will continue to embrace the advantages that come from digital mortgage lending.”

“Brokers have personal relationships with the customers, and we believe that lenders should continue to provide solutions that enable the broker and borrower to choose the way of transacting that works most effectively for them.”

In an unusual turn of events, even the major banks seem to agree – with the CEOs of both NAB and ANZ stating that COVID-19 and the changes it has brought to banking bring about a new way of transacting.

ANZ CEO Shayne Elliott stated: “You have to take in all the new information. The world has changed; it will never be exactly the same as it was before…

“What we know from history is that the economy post-crisis always looks very different to the economy pre-crisis. It will change, and people will change their behaviour; consumers will change their behaviour; people will learn that, ‘Actually, I quite like this digital part of my life... I quite like doing the banking on my phone, and I’m not going to go to the branch as much as I used to, even though it was a habit’.”