It’s been a year since COVID-19 hit and forced lenders and the market to pivot to adopt digital technology in the mortgage process. But what have the changes achieved? And are they here to stay? Malavika Santhebennur investigates.
Digitising the mortgage process has been a long time coming. While some lenders and neobanks have been harnessing technology to create a speedier process, others were slower to the uptake due to risk appetite impediments. As we reviewed in last year’s tech edition of The Adviser (July 2020), COVID-19 forced the hand of many to shift to a digital process to ensure that the Australian dream of home ownership remained a possibility.
The social distancing restrictions meant that lenders overhauled processes and risk appetites to enable brokers to conduct virtual meetings with their clients, adopt remote electronic verification of identity (VOI) checks (either via specific tools or video conferencing), and sign for documentation digitally (e-signatures).
But it wasn’t just new tech or services that lenders adopted. Even the low-hanging fruit such as enabling mortgage documents to be emailed, rather than posted, helped speed up the process and take the home loan process online.
Some lenders, such as Heritage Bank and Adelaide Bank, also enabled upfront or virtual property valuations, which allowed deals to continue to flow, while many shored up their assistance and phone lines to help answer queries.
But it wasn’t an easy move to fundamentally change internal risk appetites, as Bendigo & Adelaide Bank’s head of third-party banking, Darren Kasehagen, tells The Adviser.
According to Mr Kasehagen, while the lender had considered implementing these technological changes before the COVID-19 outbreak, it was “extremely challenging” to implement the changes in a hastened time frame last year, and to convince the group to accept “taking on what is incremental risk to our bottom line”.
Similarly, BOQ’s general manager, broker, Kathy Cummings, says the bank had to work collaboratively with its risk and product functions to adapt to the COVID-19 environment.
With the COVID-19 peak having subsided and vaccinations now rolling out, the question now is: Are these changes here to stay?
The desire for digital
A survey by mortgage broking platform HashChing found last year that more than 90 per cent of brokers wanted technology-driven changes to the mortgage application process in response to the COVID-19 crisis to be made permanent.
Borrowers also seem to have appetite for a more digital experience. Indeed, a report released by KPMG in October 2020 revealed that digital was the preferred “mass affluent” channel for all stages of the mortgages experience, including researching, servicing and applying for a mortgage.
A huge 94 per cent of respondents in Australia said they would prefer to conduct their research online, while 86 per cent opted for digital servicing, and 67 per cent indicated their preference for the digital channel during the application stage.
Some of the barriers to adopting remote VOI may also be less of an impediment now. For example, with lenders having already largely moved to remote VOI, there seems little appetite to defaulting back to their previous risk appetite regarding the ARNECC standards.
According to analysis by some legal players in the industry, the updated rules around VOI (effective 12 April) mean that lenders will comply with the rules if they follow the face-to-face requirement or verify the borrower’s identity “in some other way that constitutes the taking of reasonable steps”.
This could mean that lenders who use remote electronic VOI could fall into the category of taking reasonable steps to verify the borrower’s identity.
Bankwest general manager, third-party banking, Ian Rakhit says that introducing electronic VOI last year created an end-to-end digital home loan experience across the lender for the parts of the process it controls.
He continues: “The option for customers to identify by providing a ‘selfie’ with their ID document will continue (alongside existing options of attending an Australia Post outlet or Bankwest branch), but this will no longer be required for customers who meet with their broker face-to face.”
The lender also utilised comprehensive credit reporting information to validate data wherever possible to reduce the requirement for manual documents while meeting due diligence and regulatory requirements.
“These initiatives are part of Bankwest’s three-pillar strategy for supporting brokers: sharing data and insights, sharing the work to help make brokers’ lives easier through automation and digitisation, and accelerating processes by removing redundancies, automating manual steps and providing better information,” Mr Rakhit tells The Adviser.
“An end-to-end digital home loan process is not just a better experience for customers, it also creates an electronic audit trail, reduces error rates, significantly reduces error correction time, and can turn the processing time span from weeks to minutes in some cases,” he says.
Indeed, the digitisation of the mortgage process has shaved days of turnaround times. According to Mr Rakhit, the bank’s digital home loan process means customers can now sign their contracts digitally, reducing the time to settlement from about 13 days to less than seven working days for new loans, and 24 hours for increases to existing loans.
“The technology also enables us to send the documents to brokers for review 12 hours prior to the customer, allowing them to pick up and correct errors, and to contact the customer with the good news, which we know is important in the broker-customer relationship,” Mr Rakhit said.
Given the huge volume of applications being experienced by lenders at the moment, which has in itself caused turnarounds to blow out, particularly at the majors (see the April 2021 Broker’s Guide supplement for more), having the ability to reduce delays by adopting simple solutions such as this is an important consideration.
Mr Rakhit adds: “We will consider the permanent adoption of processes in due course, but most of the initiatives put in place to support brokers during COVID-19 were either already in place or were planned to be launched, so are unlikely to require review once the pandemic is over.”
Another lender that has prioritised reducing turnaround times is Heritage Bank, with the bank’s head of broker experience, Stewart Saunders, revealing that over the past 18 months, Heritage has focused on service improvements to support higher volumes of applications, including a case ownership model for home loan assessments, and is now working to implement a product origination program of work later this year.
Mr Saunders asserts that the digital changes Heritage Bank has implemented “will be available moving forward”, adding: “Further digital improvements are also on the way as part of product origination platform changes.”
“With technology constantly evolving, we are open to the opportunities of using digital tools to support and enhance the lending experience at Heritage,” he says.
What’s the next big change needed?
Lenders, brokers and borrowers want to continue offering these digital mortgages options to borrowers, and with lenders who spoke to The Adviser asserting that these changes would remain in place post-COVID-19, the digital path seems to be clear.
However, there is a snag.
A recurring issue cited by various lenders is that the laws around certain aspects of digital mortgages are not uniform across Australia.
Indeed, lenders such as the Commonwealth Bank of Australia (CBA) have lamented this fact, with general manager of third-party banking Adam Croucher telling The Adviser that the ability to electronically sign home loan documents is limited to certain states.
He says this has remained an issue for the lender as it planned a phased rollout of CBA’s digital signature tool DigiDocs over the coming months.
“Given the legislative requirements in some states, our new DigiDocs pilot, which allows customers to sign home loan documents digitally, was limited to Victoria, New South Wales and South Australia,” he says.
“Currently, these are the only states that legally allow all mortgage documents to be issued digitally.”
Mr Croucher adds that CBA rolled out the solution in March in a phased approach for all customers purchasing a home in these states only.
Mr Kasehagen concurs, adding that while Bendigo & Adelaide Bank did not face any constraints in implementing the digital solutions as an individual lender, legislation prevented it from allowing digital signatures across all states.
“Not all states have yet approved the fact that you don’t need a wet signature on a document. Provided that they have made that change, we’re okay to adopt it,” he says.
“Our team monitors legislative changes on a monthly and quarterly basis, and if changes are made in certain states to allow e-signatures to execute or sign documents, then we’ll adopt it as they allow it.”
Mr Saunders says he would also like to see consistency across property legislation in all states and territories to remove complexities in addressing the different requirements for different locations.
“For example, uniform requirements from State Land Registry Office to make digital signatures acceptable across the mortgage writing process would facilitate better experiences for all,” he explains.
Adding his voice to calls for a permanent – and uniform – change is DocuSign vice president and deputy general counsel Doug Luftman, who told The Adviser last year that he thought federal and state/territorial governments should be collaborating to bring about a solution.
Meanwhile, last year, a coalition of associations – including the Australian Banking Association – called on the government to make permanent the temporary rules introduced in the wake of the COVID-19 crisis that allowed electronic mortgages, witnessing a document over video call and signing documents electronically. They argued that it would save time, money and hassle for customers.
Change could be coming soon, though. Law firm Allens pointed out that one state that has moved towards reform is Victoria, which in February introduced a bill that, among other things, provides “expressly” that deeds and mortgages can be electronic. The bill operates by amending the Electronic Transactions (Victoria) Act 2000, Allens said.
The bill states: “New section 12B (1) clarifies that mortgages are able to be in electronic form. As there is already provision for mortgages to be electronic in Victoria under the Electronic Conveyancing National Law (Victoria), this new section will enable private mortgages to be in electronic form.”
It is undeniable that the devastating health, economic and social impacts of the coronavirus pandemic have cost Australia and the world dearly.
Nonetheless, if one were to look for a silver lining, it is that lenders, brokers and borrowers adapted to the new world almost overnight.
While the law is gradually catching up to facilitate the digital mortgages process, it remains a work in progress in certain aspects.
Despite this shift, lenders like Bankwest have asserted that while digital tools may enhance the speed and efficiency of the mortgages process, they can only augment, rather than replace, the human element.
As Mr Rakhit concludes: “It’s important to note that we look at technology as complementing the critical aspect of our relationship with brokers,” he said, particularly highlighting the need for a “case ownership model, which ensures single person responsibility for the processing of an application”.
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.
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