The National Bureau of Economic Research found that technology-driven lenders have created efficiencies in the home lending business that give them an edge over traditional lenders. The study found that fintech lenders’ market share jumped to 8% in 2016 from 2% in 2010. In 2010, the Fintechs originated $34 billion in mortgages and that stood at $161 billion as of the end of 2016. The researchers found that loans issued by Fintechs defaulted 25% lower than traditional lenders, which is lower than the industry average (THE ROLE OF TECHNOLOGY IN MORTGAGE LENDING). That derails the argument that Fintechs engage in lax screening of borrowers and implies they are attracting and providing home loans to borrowers who are less risky.
There is no doubt in my mind that Fintech will continue to revolutionize the mortgage industry. There are clear inefficiencies in how most lenders originate loans, at times using technologies and processes that were around in the 80s. But like anything, it’s important to take it in with a grain of salt and be realistic with expectations.
Humans tend to set unrealistic expectations with new technologies – at times seeking way too much than actually necessary. Fintechs are able to process loans quicker, can better handle movements in demand, and have fewer loans that end up defaulting. A trend that seems to be arising is lenders seeking a little too much from the incorporation of fintech.
A Fintech mortgage lender, Lenda, claims to make the fastest mortgages out there — currently two weeks start to finish, with an eventual goal of 30 minutes in a nearly all-digital process. Jason van den Brand, CEO of Lenda recently stated: “By 2025, as a consumer, you’ll be able to sit down at your lunch break and your loan will be completed, done”. At first that statement seems amazing, being able to completely originate a loan that fast but with second thought I get a little hesitant. There’s almost a sense of insecurity with something that important being completed so fast.
I understand why these innovators seek to reach these kinds of goals. Consumers seem to be increasingly ready for digital mortgages. According to a Harris poll commissioned by Fiserv, 69% of consumers already research loan options online and 68% said they review loan documents online. Among Millennials, 48% said they would be comfortable researching loan options on their smartphone.
Automating the process to just 30 minutes is a very brash goal based on these consumer preferences. Even with all these digital ready borrowers, there are still going to be big groups that need more of a guidance and personal touch.
Technology firms have to offer more compelling value propositions to compete because lenders have tougher spending decisions to make given the businesses lower profitability. Mortgage bankers made just $711 per loan in 2017 compared to $1,346 a year earlier as heightened competition for scarcer originations and other factors that added to costs netted out revenue gains, according to the Mortgage Bankers Association.
Photo by Markus Spiske on Unsplash
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.