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At the time of this writing, there was over $15 trillion in outstanding mortgage debt in the US, making it the largest type of outstanding debt in the country.
Mortages represents an industry for which business is booming – and that’s attracting a whole slew of new competition into the space.
Much of it is coming from the newly-minted fintech sector, which is bringing disruption and innovation into a market that had remained unchanged for generations.
The core of the fintech push into the mortgage industry is centered on improving the customer experience. The push involves streamlining the underlying processes, and lowering overhead.
To make that happen, many of the new and existing players in the mortgage market are building whole new product ecosystems comprised of the latest technology like AI, machine learning systems, and blockchain.
It’s all coming together to form the makings of an industry-wide revolution that could solve long-standing pain points and change the industry forever. Here’s a look at some of the ways that fintech is having an impact in the mortgage industry, benefitting both lenders and borrowers alike.
Bringing Fragmented Systems Together
One of the reasons that the process of securing a mortgage has traditionally been so complex is the sheer amount of data involved in such a transaction. From credit files and income verification to appraisals, contracts, and titles – there’s almost no end to the documentation.
Problems such as unclear contracts that get signed without being properly read or robo-signing are only making the whole situation worse. As the industry has embraced digitization in recent years, the situation has improved somewhat. However, emerging instead is a complex set of data silos with little interoperability. That has hobbled loan officers and support staff and led to unnecessary delays in the mortgage process.
Now, AI-powered chatbot systems are beginning to see use as a means of tying disparate information systems together to provide on-demand data access to those that need it. The latest generation of AI systems are built to interface with the myriad legacy information systems that are common in the finance industry. These bots can identify, retrieve, and categorize information from digitized paperwork and databases alike.
For mortgage originators and their employees, that means it’s now possible to access loan-related information such as applicant financial history, relevant regulatory information, and comparables from anywhere by asking a single system for it in plain English.
That functionality dramatically reduces unnecessary administrative costs and facilitates faster decision making and loan origination. With an estimated 70% of mortgage processing costs going toward human labor, streamlining backend processes like this could prove to be of tremendous significance.
End-to-End Blockchain Lending
Chatbots aren’t the only technology that’s changing the mortgage industry. At the same time, a number of fintech startups are exploring the use of blockchain to build new comprehensive data warehousing and transaction systems to replace aging backend technology.
Of particular interest are a variety of approaches that seek to record ownership and title data on encrypted blockchain ledgers, which could help streamline the traditional mortgage process. If successful, such blockchain systems have the potential to eliminate the need for title insurance in mortgage origination and could substantially lower closing costs for most real estate transactions.
On top of that, a startup known as Homeland is in the process of building a blockchain-based mortgage crowdsourcing platform that could, for the first time, wrest control of mortgage lending away from traditional financial institutions.
When operational, the system aims to connect borrowers with private individuals to build custom mortgage solutions. It would replace the current one-to-one mortgage lending approach with a many-to-one system that will make mortgages available to borrowers in a wider variety of financial situations, creating more competition in a market that has long been dominated by large, institutional lenders.
ML and AI Process Automation
AI is being adapted to help organize and provide access to the enormous volumes of data captured by the mortgage industry, but it’s also being used to automate the collection of that data as well.
Startups like Blend have built lending platforms that leverage ML and AI to speed up the paper-heavy mortgage application process by requesting needed information from applicants with no human intervention and fewer errors.
That’s a big deal in an industry where up to 18% of home loan applicants end up having to redo paperwork due to missing information.
The Blend system is also capable of analyzing both submitted documentation and user behavior to look for signs of fraud, which cuts down on the wasted effort by lenders in the processing phase of loan origination, not to mention reducing losses on improperly documented loans.
Those losses add up to billions of dollars per year and represent a significant cost driver that AI-powered anti-fraud measures could eliminate. At a time when the rate of mortgage fraud has been steadily increasing, a fintech solution could make a world of difference right when the industry needs it most.
Since AI systems have the ability to analyze decades of applicant financial data and background information in real time to find even the tiniest indications that an application could be fraudulent, they’re well suited to the task. When they’re combined with the widest pool of data available, the result is a pre-screening system that reduces risk without causing undue friction for qualified applicants.
Changing the Customer Experience
On the consumer side of the mortgage industry, technology is also having a major impact. For example, borrowers now have access to algorithm based mortgage comparisons to help them choose the right product for their needs. That’s good news when you consider that the mortgage industry has never been very user-friendly or well understood by the average consumer.
For lenders, that means a steady stream of pre-qualified applicants coming into their systems who are better educated and already know a fair amount about the offer in front of them. That makes it easier for lenders to deal with customers, and with poor customer service being one of the top complaints of consumers, the change is necessary and welcome.
The ease of use of today’s popular online mortgage origination services isn’t lost on consumers, either. In 2017, statistics indicate that 43% of mortgage applicants began the process online, reflecting a rising preference for digitized mortgage experiences.
The shift is proving beneficial for lenders, as well, who are reducing overhead, costs, and the time it takes to complete a mortgage. One online mortgage lender even managed to complete a loan from beginning to end in just 13 days, which is less than a third of the industry-wide average.
Looking to the Future
As fintech begins to take over more and more functions in the mortgage industry, it should begin to form an integrated system that allows for fully-digitized consumer experience. There are plenty of signs that such a shift is already underway, and that both consumers and lenders are embracing it wholeheartedly.
Judging by the speed with which the latest technology is overtaking the industry, it may not be very long before consumers will be able to find, apply for, and secure a mortgage in mere minutes, without ever speaking to a person.
That will represent the culmination of years of development, all geared towards creating a low-cost, frictionless marketplace where the customer is in the driver’s seat – and all sides benefit.
Andrej is a dedicated writer and digital evangelist. He is pursuing an ongoing mission to share the benefits of his years of hard-won expertise with business leaders and marketing professionals everywhere. He is a contributor to a wide range of technology-focused publications, where he may be found discussing everything from neural networks and natural language processing to the latest in smart home IoT devices. If there’s a new and exciting technology, there’s a good chance Andrej is writing about it somewhere out there.