Technological innovations in the mortgage industry (part 1)

From Agile methodologies to navigating regulatory changes, discover how banks adapt to meet evolving market demands.

Technological innovations in the mortgage industry (part 1)

Written by Alleta Marton (Project Delivery Manager) and Oana Sarlea (Project Delivery Lead), in the December 2023 issue of Today Software Magazine. Read the article in Romanian here.

In recent years, a significant trend has been observed in the Finance and Banking industry, that of streamlining and improving the various processes and services offered to customers in which technological development plays a crucial role.

Moreover, in the current economic context, this trend has become a major priority for banks and financial institutions across Europe.

Banks earn revenue from a variety of sources, and one of the ways they do this is by offering consumers the opportunity to buy homes through mortgage credit.

To respond to the changing demands of the market and customers, this industry has evolved through the development of technologies and design methodologies, which will also be covered in this article.

Agile and waterfall: advantages and challenges

The Waterfall methodology is used in projects with clear and fixed requirements from the start, where changes are limited and involve completing one stage before moving on to the next.

It applies to projects with minimal initial client input, carried out over the long term.

For example, in projects with strict regulations, such as the IRCC index change, the Waterfall/ITIL approach is preferred due to clear requirements and fixed implementation deadlines specific to regulatory requirements.

Also, in projects with very tight deadlines, there is often disagreement about the usefulness of time spent in Agile ceremonies (budget vs performance vs deadline).

On the other hand, in implementing new instalment payment methods or developing lending processes, banks are adopting Agile approaches and more flexible methods. This approach comes about because rapid feedback and adaptation to change are essential.

The Agile’s iterative approach allows problems to be identified and resolved promptly or changes to be implemented at any point in the process, thus removing obstacles.

Created by the authors: Waterfall, Hybrid and Agile Applicability

When dealing with modern, complex projects, such as the integration of the mortgage loan process in a brokerage platform, the Waterfall method can create challenges. In contrast, the iterative Agile approach provides the flexibility to manage challenges and adapt to needs.

Financial institutions should adopt project management principles and data flow practices like those used in software development to remain competitive and innovative.

Created by the authors: Agile vs Waterfall – Advantages and Challenges

Implementing the Agile methodology in a project environment brings with it certain advantages, but at the same time it also imposes challenges.

Agile advantages in banking

Efficient management of complex processes: Agile is well-suited for complex processes in the banking industry, such as mortgage origination. The common flows of this process, such as loan application, application processing, mortgage financing, lending and post-finance services, benefit from adaptation to Agile methodology.

Flexibility in reviewing and changing flows quickly: In a dynamic environment, such as Retail Banking, where the pressure on IT is high, Agile allows for quick review of flows, changes in funding policy and credit risk calculations in a short timeframe, leading to fast and automated decision-making in the loan process.

Effective risk management: Agile enables identifying and remedying of potential risks at any stage of the development cycle, reducing the likelihood of costly roadblocks or compliance issues.

Agile challenges in banking

Complex implementation due to regulations and compliance requirements: Agile implementation in Banking can be complex due to strict regulations and Financial industry-specific requirements. It is essential to keep a balance between adapting Agile methodology and complying with regulations and security standards.

Integrating Agile practices with existing standards and processes: Banks face the challenge of integrating Agile practices with existing standards and business processes. Adjusting Agile methods to the specific requirements of the Banking industry can involve significant efforts.

Managing large projects and user feedback: Large projects with complex requirements and constant user feedback present a unique challenge that neither Agile nor Waterfall can effectively address. In this context, combining an effective software development tool and an Agile approach can be beneficial.

Technological innovations

Technology has significantly transformed the way in which mortgage loans are granted and managed. On one hand, this has made the process more efficient, convenient, and accessible for customers, aligned with market and consumer demands.

On the other hand, it has also brought challenges in terms of data security and access to accurate/correct information.

Experts point out that this technological change has been accelerated by two key factors: the need to manage the challenges posed by the pandemic and the growing number of digitally oriented home buyers.

Basically, the pandemic and subsequent restrictive measures have been the promoters of a new technological era that emerged in response to necessity and is the result of lenders’ awareness that, to meet the future needs of borrowers, they need to offer their customers online solutions.

Those looking to purchase or refinance a mortgage loan began looking for lenders that offer online tools to complete their mortgage process in the comfort of their own home.

The results of a survey carried out by the company ICE Mortgage Technology in 2021 indicate that almost all lenders (99%) believe technology has helped improve the mortgage application process, highlighting benefits such as simplifying the overall lending process (74%), reducing their time to close the process (70%) and minimizing their data entry (67%).

Created by the authors: Technology Trends in Mortgage

Many Banking institutions depend on older mainframe systems to support critical applications.

In order to modernize these systems, they could start with:

  • Automating processes through RPA (for manual mainframe steps) and reducing the number of calls (API) to the mainframe (Cobol, C, etc).

  • Creating APIs and microservices to facilitate integration with Cloud and Web-based applications.

  • Moving data and workloads to a hybrid or multi-Cloud environment to achieve greater flexibility and optimise costs, including modern DMS systems.

  • Adopt DevOps practices to streamline development, testing and deployment processes.

  • Blockchain adoption for auditing the mortgage process (especially Audit Trail).

  • Implementation of AI-based self-help systems (ML or genAI) for end customers.

The challenges of maintaining legacy systems are multiple, and in the following lines we will highlight some of them:

  • Clients rarely opt for a “Greenield” project. Preferences related to chosen technologies and even infrastructure, limitations caused by the aversion towards adopting Cloud infrastructure (legal or preferential reasons) are the most common reasons.

  • In general, the business and technical specifications of the application are unclear or completely missing. Stakeholders may no longer be available for various reasons (leaving the company, etc.). This automatically raises the challenge and expresses the need for identification and reverse engineering at the requirements level.

  • Challenges in the Rollout:

    • Progressive migration through module carving.

    • Big bang style approach – single release with the new platform, complete retirement of the old platform from one day to the other.

Given the dynamic and competitiveness of disruption-driven technology innovation in the industry, the above points are becoming more and more a priority for financial and banking institutions.

It is also worth considering that we, as specialists, are promoters and responsible for bringing these points to the attention of our clients.

In a future edition, we will present the technological trends and their benefits.