The outstanding mortgage debt in the US is about $16 trillion, and it is growing rapidly. This means that the mortgage industry is booming. Consequently, the market is attracting a whole slew of competition, particularly from financial technology (fintech) companies. These companies have introduced new technologies that have significantly disrupted a market that has remained largely unchanged for generations. As a result, the new and the old players in the industry have been forced to create a completely new product ecosystem around technologies such as blockchain, machine learning systems, and artificial intelligence (AI). Below is a rundown of some of the ways in which fintech is changing the mortgage industry.
Introduction of Alternative Lending Models
The innovation introduced by fintech companies has altered the basic model that has been making lending possible. Traditional lending models basically involved banks receiving deposits from their customers for them to extend loans to other customers. For banks to earn money under this model, they have to charge higher interest than they pay. Fintech companies have disrupted this model by introducing the peer-to-peer lending model. Essentially, this means that fintech companies have created a lending model in which individuals can earn money by lending to other individuals. Instead of charging higher interests, fintech companies earn their money by charging a small fee for brokering the connection.
Improved Consumer Experience
Fintech is also having a major impact on the consumer side of the mortgage industry. Today, borrowers have access to more information, and they can make use of algorithm-based mortgage comparisons to make the most intelligent choices insofar as mortgage products from the various providers are concerned. Besides, even mortgage applicants to banks can now initiate the application process online in the comfort of their living rooms and get their applications processed within a couple of weeks. To minimize the risk of fraud, lenders can rely on remote online notarization to verify digital documents. In a nutshell, fintech companies have challenged traditional lenders to make use of modern technologies in their operations, and this has significantly enhanced customer experience.
Massive Utilization of Data
Fintech companies heavily rely on data to make decisions. They have the necessary technology to fetch data from many different sources to determine how likely a borrower is to settle a loan. The information can be analyzed within seconds to create a consumer’s risk or creditworthiness snapshot. The information may include auto payments, rent, utility, and much more. Some common sources of data include PayPal, Amazon, eBay, UPS, QuickBooks, Facebook, Yelp, and Yodlee, among others. To keep up with fintech companies, banks and mortgage companies are also making use of alternative credit data instead of solely relying on the traditional credit score.
Expanded Access to Mortgages
Fintech companies use a unique approach to advancing credit in order to target sections of the market that were previously underserved. Most of them tend to enter markets that traditional lenders such as banks and mortgage companies have failed to reach due to strict regulations. Fintech companies are also known for underwriting a lot of FHA-insured loans, and this has the effect of giving borrowers more affordable mortgage options.
Reduced Mortgage Closing Time
The efficiencies that are associated with fintech are allowing lenders to close mortgages faster than ever before. Studies have shown that closing time has been reducing gradually in the last few years. For instance, the average closing time was reduced by 11 days between the beginning of 2018 and the end of 2019. While there are other factors that might be contributing to this, the digitization of the process through fintech is the most significant of them all. This means that fintech is making borrowing and lending processes more convenient for borrowers more efficient for lenders.
The Takeaway
Overall, it is apparent that fintech is changing the mortgage industry in an amazing way. It has changed how borrowers interact with lenders and even how lenders generate their profits. For instance, fintech businesses have challenged traditional mortgage institutions to embrace modern technology to cut costs and improve customer experience. A lot of traditional lenders, such as banks have now digitized their business processes, and therefore, it is possible for borrowers to apply for a mortgage and buy houses without physically visiting a bank or a mortgage company.
