Digital mortgage processing: taking the elephant one bite at a time

The financial sector’s holy grail of end-to-end digitisation of complex mortgage transactions is in sight, according to Tommy Petrogiannis founder and president of digital signature specialist eSignLive. They may just need to tackle it one bit at a time.

eSignLive, which has established data centres in Melbourne and Sydney since launching in Australia 18-months ago, believes Australia provides fertile regulatory and technological grounds for financial institutions to pursue the highly disruptive but lucrative goal of eliminating manual, paper-based processes from vending sophisticated loan products.

However, he said that the Australian financial industry was being held back by a perception that the prudential and logistical barriers to fully digitising complex transactions were too high.

“Technologically all the elements are there. From a regulatory view point, all the elements are there. We know enough about this space as we’ve been in it for two-and-a-half decades. There are no real hurdles from a legislative point of view or a technology point-of-view — it really just comes down to perception and education, because it’s possible but there are not enough local success stories,” Mr Petrogiannis told CSO.

It is sometimes known as “straight-through processing” and it refers to the process by which banks and financial institutions apply business rules that they currently apply to providing complex financial products like mortgages and deliver them online.

The process has gained traction in Australia for processing lower risk, higher volume and less complex consumer financial instruments such as credit cards and small loans.

Mr Petrogiannis conceded that it took approximately six years for a handful of major US banks to achieve it but he said that other banks in the North American market were starting to follow and the trend was likely to reach Australia.

The approach that North American banks had taken was to “not take the whole elephant” but take it “one bite at a time”, he said.

“It’s interesting to see what happens here because we saw the exact same thing in the US. They tried to automate or digitise the entire mortgage process from beginning to end and the more you go down that path the more difficult it becomes because you get a number of layers in the ecosystem… So, what we’ve seen become very successful in the US and Canada is to break it up into specific parts — they automate parts of the mortgage process. It might be as simple as taking part of the request to do a simple inspection. They automate those pieces to do a lean registration check to automate a piece of the financial check,” he said.

“I think we’re going to see the same thing happen here where the holy grail is end-to-end but the truth is there is a tremendous amount of cost-savings all the way from the origination side all the way through to closing,”

The challenge, he said, may become meeting demand from of other parts of financial institution — to which he referred as “the herd” — seeking the same automation and digitisation savings.

It’s not clear what impact the Federal Digital Transformation Agency’s (DTA) decision to invest $33 million to develop its own trusted digital identity tokens for government services will have on commercial providers.

The federal treasury’s 2014, wide-ranging inquiry into Murray Report into the financial system devoted an entire page to the need to develop a widely-accepted digital identity token. Furthermore, the DTA flagged that the digital identity technology it developed might form the basis for a non-government entity.

Mr Petrogiannis said that the Australian regulations were neutral to technology, however the DTA’s decision to pursue its own trusted digital identity token is likely to be a development that Australian financial institutions would be watch closely.