The digital bond broker
Moving house is said to be one of the most stressful experiences in life. A major part of that is undoubtedly the hassle of trying to get finance. Very few people can afford to buy their property outright, so need to get a mortgage bond to amortise the cost. Understandably, the banks or lending institutions require some effort by the borrower to prove their creditworthiness as part of the application process. But filling in applications for multiple lenders to get the best offer can be a tedious process.
MortgageMe, a subsidiary of e4 launched in 2019, focuses on taking the traditional paper-based bond origination process and digitising it. The bond origination market is dominated by two well-established players – Ooba and BetterBond. According to Andrea Tucker, director of MortgageMe, these two companies are closely affiliated with a number of estate agents, which, given the importance of estate agents in the house-buying process, has obvious benefits for them. However, their dominance is being challenged by more digitally-focused players, such as MortgageMe, WeApply and Leadhome (featured elsewhere in this edition), all looking to make the application process easier and less stressful.
“There's a lot of paperwork required,” says Tucker. “To submit to multiple banks, in the case of the home loan originators, has always been a manual, paper-based process, emails back and forth and lots of documentation.
“Our vision was to take a manual-based process, simplify it, make it quick and something that doesn't give people anxiety. We also wanted to negate the need to print documents, sign, scan and return them.”
A 20-year veteran of the fintech industry, e4 initially found success having created a switch used in the home loan space to push data from one bank to another. From that foundation, it built out a broader portfolio of backend integration services in the home loans fulfilment space.
With services in the ‘big four’ banks, and some of the smaller home loan granting institutions, it has experience in the field and an understanding of the processes. The senior team has good contacts into the banks, which has helped when streamlining and designing the application process.
“Each home loan institution had separate application processes, forms and requirements from a data perspective, so it would take hours to complete the separate forms. Through our analysis, we were able to pick up the common fields, but then there were some unique fields; Standard Bank, for instance, wants to know if the applicant is a smoker.
“Thanks to our long history with the banks, we were able to phone the bank CEOs and better understand the application process nuances. We had to ask if the banks were using all of the information requested,” says Tucker.
There are two main offerings on the platform. One is the application for a mortgage (about 20% are seeking finance immediately, while the remainder are looking to purchase a house in the near term), and the other process is for an affordability assessment.
The process for buying a house typically takes between six and nine months, says Tucker. Someone arriving at the site at the beginning of their journey should undertake an affordability check. “We build a credit score into the process. It uses statement analysis technology, so if customers upload their bank statements as part of the affordability process, we can extract all the information from their statements and analyse that as a single data package, to determine total income and then do a similar assessment of expenses. The technology OCRs data, and there’s a machine learning component built in to ensure the engine learns every time it looks at a certain transaction.”
If you're a mortgage originator, you need customers at the point when they sign an offer to purchase, and the estate agent is the best person to initiate that.
The affordability check determines the level of bond, and, importantly, the level of repayments, an applicant can likely receive. With that complete, a document can then be created for the applicant to take to an estate agent, to show what they can afford.
“In that process, they get their affordability indication, which is their own income and expenditure; and then they'll get a credit score that we extract from any of the credit bureaus. If the customer fails, it will give them a breakdown of reasons why, all of that is tracked by the credit bureaus, and they will have an understanding of where they can make changes before they start buying a house.”
Too much tech?
Successful adoption of a technology platform is about getting the right balance between what’s possible, what’s necessary and what’s acceptable for the user. Tucker says MortgageMe has taken guidance from the banks as to how much tech to include. “It doesn't mean that whatever we have currently is what it will look like a year from now.”
One example of an advanced capability available, but not required by the banks, is a live biometric facial verification of the user against the images uploaded on their identity document. As the banks do a full KYC (Know Your Customer) verification of the applicant, as do the attorneys, it was felt this was unnecessary.
The National Credit Act stipulates that submitting an application for credit requires a signature, so how does MortgageMe overcome this hurdle in a digital process?
“Historically, you'd complete the application, print the PDF, sign it, scan or take a picture and upload it. We've built electronic signatures into the process, use two-factor authentication – users get an SMS to confirm they are the person required to sign it. The moment it’s signed, our support team in the office picks up the application.”
There is a quality assurance team in MortgageMe’s backend ensuring applications have all the required information and documents, including signed offers to purchase.
Once the application is submitted, the banks take roughly two to four days to respond and give an approval in principle, if they applicant is deemed creditworthy. To solidify the approval, the bank has to check the property is valued correctly.
“Some valuations are done in person,” says Tucker, “but most are done using Lightstone technology. Once the valuation comes back confirming the property is worth the agreed amount, the approval in principle gets converted to a final offer.”
Lightstone is set to play a key part in MortgageMe’s go-to market.
“Lightstone has a system regularly used by about 25 000 estate agents to conduct valuations. For the agents, it’s a basic CRM system where they upload contacts, whether buyers or sellers, and the property information. Because the estate agent is able to upload all the personal details for a buyer, seller and property, and they have the offer to purchase, they can in effect start an interim home loan application for the applicant, which gets sent to MortgageMe. The potential buyer is notified by email that the home loan application has been started and they can complete it. If you’re a mortgage originator, you need customers at the point when they sign an offer to purchase, and the estate agent is the best person to initiate that.”
As the estate agent has a vested interest in closing the sale, for their commission on it, the added incentive of a cut of the bond origination fee is an extra carrot to push towards completion.
For those applicants seeking out the MortgageMe service independently, Tucker says they are usually based in and around the major urban centres and are typically tech-savvy first-time home buyers or people looking to upgrade.
“It’s not going to appeal to someone with a private banker, as they'll take the offer to purchase and send to the private banker, and assume their bank will come back with the best offer. More often than not, the main bank offer customers an interest rebate and it’s generally lower.”
Another observation is that of those applicants who create a MortgageMe profile on their mobile device, 95% complete the application on a laptop or desktop PC.
“It's possible to do it all on a mobile device, but you're applying for a large amount of credit, it involves thinking, quiet time; we're seeing that behavioural change because of the quantum of what people are doing.”
Of course, given the year that was 2020, the real estate sector has had a rough ride. According to TransUnion, in its Q3 2020 South Africa Industry Insights Report, home loan originations decreased by 62.4% year on year, due to the lockdown. However, where loans were given, they were at much higher values, with average new loan amounts rising by 46.4% year-on-year.
Tucker agrees that the negative sentiment has been seen in the applications made through MortgageMe. “South Africans are in trouble, spending too much money, and not able to pay off their debts. We're experiencing a number of applications that get declined by all four banks.”
However, she does see a positive in the reduced interest rates, set by the Reserve Bank during the pandemic.
“This is the cheapest time for a South Africans to apply for long term debt. We're seeing that the properties are lower value, there are huge volumes in the market of R350 000 to R800 000, with a market cap of R1 million. Someone entering the market at R350 000 is assuming property values will increase, while the interest rates increase slowly.”
Given the rise in unemployment and economic uncertainty the next few years are set to bring, Turner is hoping that the turnover of properties, comes back down from nearly nine years at the moment, to the five years’ residency of a couple of years back.
* This feature was first published in the February edition of ITWeb's Brainstorm magazine.