The digitization and opening of banking infrastructure have marked a before and an after in the financial industry. Bank branches have given way to an online contract and operational model, where physical presence is no longer as necessary. Open banking has gone a step further, granting access to third parties so that all banking operations and transactions can be completed from other digital platforms, provided that they have the corresponding authorization and certify their security.
Mortgages, the core business of many banks, have not remained untouched by this new reality. In the vast majority of cases, it is still necessary for customers to go to the branch in person to negotiate the loan’s terms. But this form of closing contracts seems to be on its way out, since banking APIs aim to speed up the process for applying for and granting such loans.
The traditional mortgage application: a slow, paper-heavy process
The mortgage market has undergone an unprecedented transformation over the past 10 years, since the advent of the subprime mortgage crisis in 2008. Since then, and in order to avoid the terrible consequences of the burst housing bubble in the United States and Spain, different rules have been passed to protect consumers.
Financial institutions have had to adapt their processes to fit this new legislative framework, with stricter criteria for granting a mortgage: it is necessary to appraise the property for sale, to send all the documentation certifying the applicant’s solvency, to have the bank approve it according to its risk management and go to a notary public, with all the resulting costs.
Overall, the mortgage loan initiation process takes ten to fifteen days on average, although there is no legally set period. The Spanish mortgage law, which entered into force in June 2019, has extended these deadlines even further and, in some cases, they may go beyond a 30-day period.
Open banking as a catalyst for the mortgage market revolution
Given the mortgage market‘s special characteristics, applying for and granting a mortgage is one of the few banking processes that still requires the physical presence of customers at a bank branch. However, open banking and APIs can be the ultimate catalyst for opening a new path for automation.
In fact, according to the latest IRESS Intermediary Mortgage Survey 2019, 96% of respondents say that open banking in general, and the standardization of API use in particular, is beneficial when you sign up for a mortgage. Broadly speaking, users believe that this technology will promote more comfortable access to banking customers and help accelerate the process of applying for and granting mortgage loans.
A significant reduction in paperwork
During the application for a mortgage, a branch manager requests a series of documents from their customer. The customer, in turn, must gather all the information, prove that this documentation is in order and send it to the bank; the bank then performs the corresponding risk control and approves/rejects the application.
With APIs, this process can be significantly simplified. The new biometric identification elements have changed the way this documentation is presented; something that, until recently, seemed unchangeable. Coupled with the fact that, thanks to this open infrastructure, banks and other fintech companies can access data on customer solvency in an agile and simple way, and always with their consent, all these factors significantly reduce the paperwork and time spent on approving and granting these loans.
Easier to meet regulatory criteria
In June 2019, the new Spanish mortgage law came into force. It represented a major regulatory change and forced entities to adapt to new legal requirements. This new rule affected the entire process, from signing to canceling the mortgage loan, offering greater protection to customers and more transparency in contracts.
This adaptation has brought a number of associated costs, and a lot of confusion for both entities (how to adjust their business and systems to the new regulation) and for customers, who often are not aware of their rights under the new law.
APIs can be used to efficiently adapt some processes and to send or retrieve additional information in accordance with new legal requirements, and to provide it clearly and with absolute transparency to customers. These applications can run different tasks to ensure that the procedures meet the expected criteria.
A complete experience for customers
Mortgages are arguably the most complicated-to-understand banking product found in the portfolio of products of any institution’s commercial network. Numerous factors and variables are involved: Euribor, the French amortization system, the APR, the associated fees and commissions, the linked products…
In practice, understanding all these terms takes time, especially when we talk about something as important as buying a home. That is why an API can help customers find relevant information about their mortgage. In fact, APIs make it possible to implement a simulator where customers can find out in advance, quickly and 100% online, information about their mortgage’s payments, fees and commissions, the amortization scheme, and what happens if the Euribor goes up or down.
All this results in greater customer satisfaction and a new experience that expands and accelerates the ability to choose, while also increasing their satisfaction with the search process.
A use case: BBVA’s Mortgages API
BBVA’s Mortgages API allows you to offer your customers the necessary financing for the purchase of their home or obtaining for liquidity without having to leave their application. Thanks to this API, the sale process can be carried out from the house of the future buyer or from your own office, without having to go to a bank branch and handle all the paperwork in person.
Also, before applying for their mortgage, users will be able to find out important economic data, such as the minimum amount needed to apply, and to simulate different scenarios and determine their payments during the whole loan repayment period.
In short, the use of an API like BBVA Mortgages allows you to integrate an entire ecosystem necessary to simulate a mortgage with all its associated expenses into a real estate platform or any other platform, find out all its details, check if you can access it and proceed to sign up for it directly from a single application. All with transparency and without friction of any kind.