Your Complete Guide to Mortgage Document Processing with AI

Businesses across various sectors want to leverage AI to increase efficiency, reduce cost, enhance customer experience, or do all that in one go. The mortgage industry is feeling it, too, thanks to the several potential areas where AI technologies can impact. For instance, AI can help mortgage lenders by:

• streamlining and automating manual tasks like document processing,
• identifying data anomalies and frauds,
• measuring and managing risk better,
• and evaluating customer behaviors for more personalized solutions.

In fact, according to a Fannie Mae survey, mortgage lenders believe compliance, underwriting, and property valuation are all ripe for AI integration. With the number of mortgage applications hitting a 19-month high in August of this year, it’s worth noting that lenders have to process up to 17 different document types for every refinancing or new mortgage application.

This blog offers insights into how AI can facilitate smarter and faster document processing for mortgage lenders.

AI + Mortgage Document Processing: What Is It?

Leveraging AI in mortgage document processing is a great idea for several reasons such as:

• mortgage lenders need higher operational efficiency,
• and want to improve accuracy and increase efficiency,
• they deal with a large variety and high volume of documents,
• and these documents have considerable variations in formats and layouts.

But what is AI mortgage document processing? Simply put, it’s an umbrella term for the use of AI technologies to automate and make document processing more efficient. The most popular and effective use case of AI in the mortgage industry has been intelligent document processing (IDP).

Intelligent Document Processing (IDP)

Intelligent document processing involves using AI technologies to automate data extraction from documents such as emails, PDFs, Word files, spreadsheets, scanned images, and more. IDP can automatically preprocess, extract, and validate relevant fields from unstructured documents.

Learn more: What is intelligent document processing (IDP)?

Understanding the “AI” of it All

When it comes to document processing, AI technologies such as natural language processing (NLP) and retrieval-augmented generation (RAG) are helping lenders do more than just extracting data. By leveraging large language models (LLMs), AI-powered solutions can also analyze the context and meaning of the data, allowing for a deeper understanding and analysis for better decision-making.

In other words, AI-powered document processing is well-positioned to address the challenges of manual processing or conventional document processing solutions.

Challenges of Processing Mortgage Documents

Organizations in the mortgage industry process thousands of documents every day, with each application containing hundreds of documents. Moreover, lenders deal with documents of varying formats and layouts in different file types during the prequalification, application, and closing stages of every application.

Lenders have been relying on manual and conventional approaches to process mortgage documents but they’re not without their challenges. Let’s look at a few big ones:

Operational Efficiency

73% of lenders cite improving operational efficiency as the primary reason for adopting AI. Manually processing hundreds of documents for each application leads to a high turnaround time. With automated document processing, lenders can swiftly process applications, saving tens of hours on each application. The improved efficiency also carries cost and time savings, which optimizes resources and allows lenders to deliver better customer service.

Variety of Documents

Lenders have to process a variety of documents for every new mortgage or refinancing application, from income statements to credit reports, tax returns, and bank statements. Depending on the borrower’s profile and the nature of the mortgage, these documents can number in the hundreds and need to be vetted and verified thoroughly. Manual document processing is a big reason the mortgage process can take up to 90 days or longer.

Large Volumes

There was a time when mortgage applications contained minimal paperwork. But when the housing bubble burst, the number of documents in a mortgage application increased, and now an average file can contain up to 500 pages. These pages typically contain asset and income records, tax returns, disclosures, and several other financial documents.

Considering the large volumes of documents that require processing for each application, conventional document processing tools aren’t quite cutting it.

Varying Formats and Layouts

Almost every document in a mortgage application originates from a different source, which means they all differ in layouts, even if ever so slightly. The variations in the layouts of documents like the Loan Estimate and Closing Disclosure mean that conventional solutions can’t process multiple documents in one go without missing out on crucial information.

Plus, the variations in format mean some documents are scanned copies of the original documents, some contain handwritten information, while others may be in locked PDF files.

Types of Mortgage Documents AI Can Process

Let’s look at the different types of mortgage documents that AI can process to understand the full potential of AI mortgage document processing:

Loan Application Forms (URLA-1003, Form 65)

URLA-1003 (Unified Residential Loan Application) is the industry standard application form used by nearly all mortgage lenders in the US. Borrowers fill out this form, or its equivalent, Form 65, when applying for a mortgage. The URLA-1003 is a fairly complex and lengthy document that contains detailed information about the applicant, the type of property, the required amount, and other details about the purchase.

Lenders may have to process these documents manually, especially when dealing with scanned copies of hand-filled forms or printed versions. However, processing URLA-1003s becomes much easier with AI mortgage document processing, as all data is extracted and validated automatically in seconds.

Income Verification Documents (W-2 Forms, IRS Forms 4506-C)

Several documents are required to prove the borrower’s capacity for repayment, and these are classified as income verification documents. They typically include W-2 forms (the Wage and Tax statement), IRS Form 4506-C, pay stubs, copies of income tax returns, etc. Freelancers and self-employed applicants will be required to submit contracts and invoices dating back to 2 years for proof of income. Some lenders may also require P&L statements and cash flow analysis forms.

These financial documents contain crucial information for mortgage processing but have varying layouts and formats, which is why they’re ideal for automation by AI-powered data extraction.

Assets & Liabilities

Mortgage lenders also have to check debt obligations and calculate the debt-to-income ratio. This requires documents such as assets statements, including your investment, retirement, savings, and checking account statements. Similar to the documents discussed above, these also contain crucial information for the mortgage process, which needs to be extracted accurately.

Credit Reports

While acceptable credit score criteria can differ, all lenders require documents such as credit reports and scores to verify the score. Letters explaining cases when a borrower missed or defaulted on a payment can also be included.

For most mortgage documents, relevant information is often in an unstructured format buried in dense text. Extracting the relevant information accurately is crucial to smooth and efficient mortgage processing. With AI, all the paperwork can be processed in seconds or minutes instead of hours or days, and that too, with a higher accuracy rate than manual processing.

Make your mortgage document processing effortless with Astera

Astera IDP is an enterprise-grade solution that helps mortgage providers streamline their operations, reduce processing time, increase accuracy and reduce costs by leveraging AI.

Book a personalized demo to see how it works.

Benefits of AI-Powered Mortgage Document Processing

Lenders stand to gain a lot of benefits by incorporating an AI-powered solution into their mortgage document processing. Let’s look at some of the biggest ones:

Improved Business Process Efficiency

Improving efficiency is a priority for most lenders, and AI-powered IDP does exactly that. Manual document processing in the mortgage sector is resource-intensive, thanks to the sheer volume and variety of documents. AI-powered solutions automate data extraction to process hundreds of documents in seconds, which currently takes days if not weeks.

These solutions also minimize human oversight for a more expedient process by preprocessing, validating, and enriching the extracted data. For instance, Astera’s IDP for mortgage documents can deliver up to eight times faster document processing.

Better Decision Making

AI-powered solutions leverage LLMs and RAG to extract data accurately and understand it by analyzing the context. Compared to legacy solutions that lack scalability, AI-powered IDP can intelligently adapt to changing document types and volumes. Lenders can leverage this to uncover patterns, correlations, and trends within their data from diverse sources and convert them into actionable insights.

Higher Accuracy

The accuracy rate for manual processing or conventional solutions varies but has considerable room for error, even with the best-performing tools. For instance, if a solution offers a 95% accuracy rate, that translates to up to 500 errors in a document containing 10,000 words.

For mortgage lenders, the room for error is considerably smaller, which is why AI-powered solutions are the obvious choice. According to initial tests, AI-powered document processing solutions can reduce errors by 97% compared to conventional solutions.

Streamlined Compliance

According to Fannie Mae, lenders are most excited about using AI to automate the compliance review process. Automating data extraction and document processing not only reduces the room for error but also streamlines compliance. Moreover, lenders can leverage AI-powered IDP to automate compliance checks per their regulatory requirements. Since the extracted data is validated, data integrity and quality are much higher than in manual processing, which helps the lender’s compliance efforts.

Cost Reduction

Currently, mortgage lenders have to allocate significant resources to process large volumes of documents, which leads to reduced agility and loss of competitive edge. However, intelligent document processing overcomes these challenges. AI-powered tools rapidly classify, extract, and analyze documents, with 90% faster data extraction. This automates previously repetitive manual work and reduces costs. As a result, lenders can allocate resources to high-value tasks and facilitate agile decision-making.

Make Your Mortgage Document Processing Effortless with Astera

To wrap up our discussion so far, AI mortgage document processing is a transformative solution for lenders navigating the steep demands of today’s industry. Through data extraction automation, lenders can enhance accuracy and streamline compliance. This also allows them to handle large data volumes accurately and swiftly. By embracing AI, lenders can boost efficiency and deliver better customer experiences while reducing operational costs.

At Astera, we believe in empowering organizations by leveraging AI for meaningful and value-adding change. Our AI-powered solution is designed to automate document processing for mortgage lenders, enabling them to serve their customers better and much quicker than the competition.

Don’t get bogged down in paperwork. Let Astera handle the complexity for you. Schedule a demo today to see how Astera makes a difference.