In New Era, Lenders Increasingly Turn To Technology


Since the end of the Great Recession, America’s lenders have confronted a vastly different financial landscape.

From a multitude of new regulations, greater government oversight, and shifting public attitudes towards both saving and spending, in recent years perhaps the only ‘constant’ for America’s lenders has been ongoing change.

In an effort to remain fully compliant with new regulations, and meet their fiduciary as well as legal obligations in such a tumultuous environment, America’s lenders have increasingly turned to state-of-the-art, “next generation” technology to aid them in their efforts.

In its recent ‘Lender Sentiment Survey’, Fannie Mae reported that America’s lenders have increasingly relied upon—and had varying experiences with–technology service providers (TSPs); the survey also found that the clear majority of those lenders contacted viewed integrating that technology as a key to their future success.

By way of context, it’s important to note that as technology has rapidly evolved in recent years, a new generation (“next-gen”) of companies emerged  to provide new technological solutions to long-standing challenges within the lending industry; many companies are focused on helping transform the mortgage origination and servicing business, often by digitizing transactions; the solutions offered are often focused on a specific aspect of the loan cycle.

The Fannie Mae survey found that, for the lending industry, TSPs served an array of functions, but lenders’ primary uses for TSPs were in the areas of regulatory compliance, loan production and business analytics; Fannie Mae found that about one-third of lenders surveyed currently use “next generation” TSPs, another one-third have started investigating the use of them, and the remaining lenders have yet to consider the TSP option.

An additional survey finding should sit well with the technology sector: a clear majority of ‘next-gen’ TSP users in the lending industry said they were satisfied with their current providers.

Interestingly, the percentage of lenders using TSPs varies depending on the actual size of the lender. The survey found that the nation’s largest lenders were much more likely to rely on next-gen TSPs, with more than half of large lenders and mortgage banks already utilizing TSPs. That number declines for smaller lenders, with just over 40 percent of mid-sized lenders utilizing next-gen TSPS; and in terms of the nation’s smaller lenders, the percentage of TSP users drops dramatically to about 15 percent.

Still, despite the many benefits offered by TSPs, the survey found that they are not without their challenges.

The Fannie Mae survey reported that there were numerous “barriers” that hindered lenders’ ability to use next-gen TSPs. Those barriers included the costs involved, difficulty with implementation, as well as challenges integrating TSPs with existing lenders’ systems.

When selecting which TSP might work best for their individual organization, the survey found lenders’ cited the ease of integration, functionality and, of course, the costs as primary determinants.

And as is often the case with new technology, a majority of lenders also cited the importance of TSPs being “user-friendly” as a critical factor in ensuring their continued popularity among the lending industry.

Fannie Mae’s Economic & Strategic Research Group conducted the survey last November; all told, the survey found that approximately 37 percent of “depository institutions”, and 23 percent of all credit unions, currently use next-gen TSPs.

And while their use is becoming more common among the nation’s lending industry, a significant number of lenders still  found the cost of TSPs to be prohibitive; the survey reported that a full 37 percent of respondents viewed the cost of implementing TSPs as “too high” and not worthy of the investment.

Still, the implementation costs notwithstanding, there can be little doubt that a growing percentage of America’s lenders are turning to technology—especially state-of-the-art TSPs—to help navigate their business through today’s uncharted, ever-evolving financial waters.