BLOG VIEW: Just over one month ago when most Americans were in the midst of the usual holiday bustle, the Federal Reserve voted to raise the central bank’s benchmark interest rate (from a 0%-0.25% range to a 0.25%-0.5% range) after seven years of having near-zero interest rates. The response was mixed, though most economists and financial advisors have widely acknowledged the positive impact this change will ultimately have on the U.S. economy.
For one, we should make the collective assumption that, though this minor interest rate hike makes it more costly to borrow money for home buying, home sales could receive a small boost – at least initially. According to data from Freddie Mac, the annual average rate for a 30-year, fixed-rate mortgage is still less than half of what it was 15 years ago. At the same time, with similar rate increases expected in the months and years to come, refinance activity may take off again, too. The most modest changes to a percentage point of interest can mean a big difference in savings over the life of a loan.
When economic conditions or consumers’ life circumstances change, they often want (or need) a loan retooled to increase their available monthly funds. Unfortunately, traditional refinancing is often perceived by borrowers and lenders as costly and time-intensive. Why can’t the process itself be retooled?
In the face of the recent interest rate hike, many lenders want to respond and remain relevant to borrowers, especially as they question how this will affect them financially. One of the ways lenders can react, they should take note of how financial service organizations have widely deployed modes of automation and self-service in other areas of their enterprises to serve consumers. Though technically speaking, the mortgage process is still catching up to some degree, its evolution to become more digital each year is proving beneficial. There is no reason that the value and advantages of electronic, self-service concepts cannot also be extended to modify a pre-existing mortgage in an effort to lock in rates.
When looking to refinance, the majority of consumers shop online first for the best rate – meaning they are exploring their options beyond the current holders of their loans. By allowing borrowers, through a self-service online experience, to review their choices and lock in interest rates of mortgage loans, they feel more in control over their unique loan situations and ability to potentially keep loan payment obligations down.
Borrowers are no strangers to the digital channel. Online loan application volume continues to rise as more lenders get on board. More are seeing the value of online account acquisition extended to the time and cost per account going down and the overall open rate trending up. Providing borrowers with the option, if they so choose, to first go online, at your institution, to explore available loan adjustment scenarios is attractive – no in-office visit required, no restrictions to the day and time, no need to sign and hand deliver or snail mail necessary documents. You have now made the process more convenient and simpler for them. Plus, it encourages borrowers to consult you first.
At the same time, the lending institution is drastically improving the rate adjustment process internally, simplifying the traditional workflow and reducing the usual resource allocation. As lenders engage qualified borrowers, they are also lowering loan runoff and positively impacting the longer-term performance of their portfolios. Capitalizing on the opportunity to extend the flexibility for borrowers to reduce future loan payment obligations also means you are ultimately retaining more loans.
None of us can control the interest rate environment; we can only respond to it with solutions that address borrowers’ current needs. The access consumers have to “self serve” their needs in nearly every aspect of life has postured time and convenience as key influencers in decision-making. If satisfying these desires for ease and practicality can be applied to keeping homeowners in a better loan situation, then why aren’t we doing it?
John Levy is executive vice president and co-founder of e-signature technology company IMM.