Bank of America's mortgage tech bets have helped save billions and spark a boom in home lending - here's how it's outpacing JPMorgan and Wells Fargo

• After several years of watching its mortgage-origination volumes decline, the Charlotte-based megabank has seen nearly 60% growth in origination volume through the third quarter.
• The bank's head of consumer lending, Steve Boland, attributed that to revamping its employee-facing tech platform, its 1.5-year old mortgage app, and hiring more support and expert staff in branches.
• With the exception of Bank of America, the largest US banks have been outsourcing key components of their mortgage businesses to fintechs like Roostify and Blend.
• Efforts like digital check deposits, mortgage tech, and the Erica chatbot have helped drive down the costs of serving consumers by $1 billion a quarter, even as the bank is plowing money into wide-scale upgrades to ATMs and bank branches.
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Bank of America is on pace to have a banner year in home lending.

After several years of watching its mortgage-origination volumes decline, the Charlotte-based megabank has turned around and leaned on the throttle in 2019. It's seen nearly 60% growth in origination volume through the third quarter.

Banks are seeing a Fed rate cut-fueled resurgence in demand from borrowers and refinancers, but Bank of America's volume growth is outpacing big rivals.

Business Insider talked to the bank's head of consumer lending, Steve Boland, who attributed that to revamping its employee-facing tech platform, its 1.5-year old mortgage app, and hiring more support and expert staff in branches.

Residential mortgage origination volumes at Bank of America nearly doubled in the third quarter, from $10.7 billion in 2018 to $20.6 billion. They totaled $50 billion for the first nine months of 2019, and growth is far outpacing the industry as a whole, which has seen a 30% year-over-year increase in home-loan production.

They're eye-popping numbers, especially for a company whose mantra since 2015 has been "responsible growth," a buzzword so well-worn that company execs have uttered it nearly 250 times in presentations and earnings calls since, according to a transcript review via financial data and analytics platform Sentieo.

But sagging credit quality or other signs the firm has deviated from that motto haven't emerged - nonperforming and past-due residential mortgage loans have declined in 2019 even as the bank's overall portfolio has climbed 7% to $224 billion.

If these expensive bets continue to bear fruit and help win over would-be homeowners, Bank of America could reverse four straight years of losses in origination-volume market share and claw back into contention with Wells Fargo and JPMorgan Chase, the country's largest mortgage giants.

Bank of America still trails its big-bank peers by a healthy margin, not to mention non-bank lenders like Quicken Loans and PennyMac Financial.

Cleaning up the mortgage process

Bank of America is one of Wall Street's largest technology spenders, dedicating a $10 billion annual budget to tech since 2014, including $3 billion earmarked for strategic initiatives.

The byzantine, paper-devouring mortgage operation was a clear target for an overhaul.

Before rate cuts were on anyone's radar, it devoted a chunk of its huge tech budget overhauling its digital mortgage platforms, both internal and external. It launch its consumer-facing mortgage app in April 2018.

The volume jump means a bigger payoff from cutting out time-intensive paperwork and more basic job roles. That helps offset costs of staff it's adding to branches, including lending officers needed for the actual closing and people that work on selling other products.

"Clearly, efficiency matters in this business and so whether that's from digital, whether that's from the fulfillment process, it's got to be very, very efficient," Boland said. He added: "Mortgage was a historically just very paper-intensive and manual experience."

In the run-up to the financial crisis, Bank of America gobbled up a slew of competitors, FleetBoston Financial, LaSalle Bank, and ill-fated subprime giant Countrywide Financial among them. Merging those systems to a single platform would cut costs and make life easier on loan officers, underwriters, and fulfillment teams.

"We replaced our underlying platform and that drove a lot of efficiency for us," said Boland, adding that per-employee productivity has jumped significantly over the last three years.

The mortgage process is traditionally onerous on consumers, as well, requiring reams of documents and weeks of patience.

With the exception of Bank of America, the largest US banks have been outsourcing key components of their mortgage businesses to scrappy tech startups armed with data and algorithms, betting they'll be able to trim costs or sharpen a competitive edge in an industry reckoning with heightened competition, regulatory headaches, and thinning margins.

Rivals had raced to offer online mortgages after nonbank lender Quicken launched Rocket Mortgages in 2015, but chose to go the partner route instead of building in-house.

Wells Fargo, the largest mortgage originator, turned to Blend in 2017, while No. 2 mortgage giant JPMorgan last year enlisted Roostify, a Blend competitor that it's also an investor in, to build a "digital, self-service mortgage platform," as did TD Bank. Online lender Ally this spring offloaded its mortgage platform to Better.com while also upping its stake in the startup.

Bank of America company declined to specify how much it spent building its mortgage platform, but Boland said the firm's "Digital Mortgage Experience" has eliminated nearly all paper from the process as customer information can be pre-filled and necessary documents uploaded and processed electronically.

"Doing a traditional mortgage application, there are 330 fields of entry. For clients of Bank of America, we've streamlined that down to less than 10, because we can basically pre-fill everything we already know about the client," Boland said.

Closing still happens in person, but the digital process cuts the length of the ordeal by as much as half to 20 days on average, the company says.

Billions redirected to hiring more branch staff

Forty percent of the company's mortgages are now processed digitally, which can add up to substantial savings for the bank in man-hours and office supplies.

It's a theme playing out across the firm's consumer retail bank, where half of all customers are now completely paperless.

Adoption of digital and mobile platforms has reduced paper-check deposits from 175 million to 120 million over the past five years, while call-center costs are being stripped away as AI-powered chatbot Erica increasingly handles simple customer queries ("What's my routing number?" for instance).

These digitization efforts have in part helped drive down the costs of serving consumers by $1 billion a quarter, even as the bank is plowing money into wide-scale upgrades to ATMs and bank branches, CEO Brian Moynihan said this summer. Overall tech and operations costs have declined 22% since 2014, from $17.7 billion to $13.8 billion last year.

But the tech push hasn't cut out the need for a human touch when it comes to consumer lending.

Job adds are something of a reluctant necessity for banks looking to handle higher demand without growing their ranks too fast late in the economic cycle.

Bank of America's global headcount has remained steady over the past few years at about 210,000, though the company has cut back- and middle-office positions while hiring platoons of additional sales and front-office staff.

The firm is staffing its new-look branches with more experts who aren't tasked with prosaic client needs like withdrawals and deposits. Those relationship managers, financial-solutions advisors, small business bankers, and mortgage specialists are instead tasked with helping the bank sell more products.

"We have 800,000 people coming into our financial centers every day. We're going to have the opportunity to interact with those clients," Boland said.

And while digital mortgage adoption is surging, the majority of customers are still doing it the old-fashioned way.

While there are "a lot more lending officers in our financial centers," Boland said, the hiring has been steady, rather than chasing after outside economic trends.

"There's no doubt we have more people, but what you haven't seen is this kind of boom-bust cycle of hire a bunch of people, lay them off. We've had a much more moderated growth," Boland said.

The Fed has helped spur the rebound in home lending

Broader economic forces have played a significant role in the mortgage rebound, something Bank of America, which has seen its share of home loan production decline for four years running, can't take credit for.

It's a demand-driven business, and if Americans don't want to buy or refinance their homes, no amount of technological gadgetry or increased staffing will change that.

After all but evaporating in 2018, consumer appetite for mortgages grew voracious this year thanks to an unexpectedly more hospitable environment for borrowers.

Just about everyone, including the Federal Reserve, was banking on rates continuing to rise heading in to 2019. And then - amid signs of economic cracks and market turbulence, handwringing among investors, and a barrage of acid-tipped tweets from President Donald Trump - they didn't.

The Fed pivoted, initially halting its tightening experiment, and then completing the 180-turn with cuts to its benchmark rate starting this summer. The average interest on a 30-year-fixed-rate mortgage in October was 3.69%, more than a full percentage point lower than last year.

This has uncorked a rush of demand from savvy consumers angling to lock in lower payments on their homes - a benefit felt not just at Bank of America, but across the board.

Residential mortgage origination volumes hit $700 billion in the third quarter, the highest tally in 12 years according to Inside Mortgage Finance and 60% higher than the third quarter of 2018. Through nine months, home loan volumes were up nearly 30% compared with 2018.

Bank of America's 93% growth last quarter eclipsed the overall industry expansion, as well as top bank competitors JPMorgan Chase and Wells Fargo, which posted quarterly loan-production gains of 44% and 26%, respectively.

For the first three quarters in full, Wells and JPMorgan saw mortgage volumes increase 4% and 16% to $144 billion and $72 billion, respectively, a far cry from Bank of America's 58% clip.

If the bank's third-quarter pace carries over into the fourth, the firm will top $70 billion in home loans in 2019 - its highest tally in more than five years.