Technological advances in home financing are coming from a variety of directions. Small lenders are getting access to end-to-end digital mortgage technology. Online real estate listings companies, like Zillow, are moving squarely into the home buying process, including offering mortgages. Startups are also experimenting with novel alternatives to mortgages. Competition in the mortgage lending industry is giving consumers more options and squeezing profits for lenders.
Bigger lenders losing market share
The top five mortgage lenders in the country collectively lost market share in the first two quarters of 2018. Traditional mortgage lenders are looking at shrinking profits due to an increase in competition in the space. Even growing fintech lenders are having their struggles. Earlier this month, fintech lender SoFi reduced 7 percent of its staff, thinning out headcount in its mortgage group. Competition was a key factor in profit reduction, according to the Fannie Mae Mortgage Lender Sentiment Survey. “Those expecting a lower profit margin outlook continued to point to “competition from other lenders” as the primary reason,” the survey found.As a result, commercial lenders have attempted to develop their own digital platforms for lending. Rocket Mortgage from Quicken Loans was one of the first such platforms initiated three years ago. More recently, Bank of America, Wells Fargo, and others have released their own digital offerings to keep up with innovations in the lending space.
Tech to simplify the work of lenders
Freed from brick-and-mortar, the development of digital mortgage platforms and services are creating more opportunities for smaller lenders. Fintechs can provide key infrastructure and data, allowing firms with less capital to speed up the lending process and increase their ability to close using better lead generation and data.Instead of competing head on, many traditional lenders are teaming up with newer technology players. This plays to the strengths of both partners. “From the start, lenders, like banks, have had an unparalleled amount of access to data about their customers, but haven’t had the technological infrastructure to utilize that fully,” said Erin Collard, co-founder of mortgage lending platform Blend. “Fintechs, on the other hand, were built with modern technology stacks, and by entering the mortgage space, are primed to take advantage of their ability to glean insights from this type of financial data — if they can attract borrowers in the same volume as financial institutions.”Technology solutions are helping lenders do their jobs better. Existing CRM and document management systems have made way to even more industry-specific solutions for lenders. CloudVirga offers a full digital mortgage experience for lenders. The technology firm introduced a mobile POS solution earlier this year. Roostify also offers a digital mortgage solution that’s used by lenders like Chase and TD Bank. The product works with lenders to keep track of all correspondence with borrowers and make it easier to collaborate with all team members in the lending process. JPMorgan Chase announced in 2018 that it will offer a mobile mortgage platform through a partnership with Roostify.
Real estate listings companies start direct lending
Existing real estate search and brokerage companies have decided to leverage their existing infrastructure and customer bases by offering mortgage lending solutions of their own.Zillow recently acquired Mortgage Lenders of America, positioning it in the mortgage lending space. This acquisition dovetails with the company’s Zillow Offers service, where Zillow purchases a home directly from a homeowner and sells it on the open market.For Zillow, this acquisition helps to better service its customers. “Consumers want a digitized end-to-end home purchase transaction,” Zillow’s CEO, Spencer Rascoff wrote in the company’s third quarter update. “We are laying the foundation for creating a digitized end-to-end home purchase experience that minimizes the friction caused by multiple parties, including mortgage origination – the most time consuming step of the home buying process.”Redfin, a listing service that provides home buyers and sellers with full-service agents, got into the mortgage lending business last year. The company is expanding its lending services throughout the US, working itself into 10 markets. Late in 2018, Redfin also partnered with Notarize, an online closing solutions, so customers can complete the home buying process completely online. Last year, Credit Karma acquired the digital mortgage platform Approved, hinting that the company plans to expand into digital mortgage comparisons. Approved is a platform designed to help mortgage lenders digitize the entire lending process, which Credit Karma can pair with its user base of over 80 million people to help them shop for a home loan. “Today, we’re really talking more publicly about mortgage. Mortgage being for many of our members the most important financial decision they’ll make...The acquisition is just the continuing effort of saying, ‘look, we’re serious about taking our scale and being that trusted destination for our members as it relates to helping them with their mortgage,” Nikhyl Singhal, Credit Karma’s chief product officer told TechCrunch.
New digital lenders aim for customer experience and alternative financing models
Meanwhile, digital lending upstarts are bringing their experiences directly to borrowers.Digital mortgage lenders utilize data and their infrastructure to drive their lending processes. This allows a lender like Laurel Road to provide more personalized products to its customers, making for a better overall customer outcome. “The biggest advantage that comes from being a direct lender is that we can better solve for and provide the best customer experience – from obtaining pricing to underwriting, processing and supporting the closing process,” said Alyssa Schaefer, Laurel Road’s chief marketing officer and head of product experience. “The agility and flexibility we have as a direct lender not only alleviates the frustration of stalled processes (which can occur for various reasons) but also provides the customer with much-needed transparency into the overall process and status of their mortgage.”Other digital lenders are providing alternative methods of financing a new home for consumers. DivvyHomes purchases a home for a potential borrowe, who pays rent that is slowly turned into equity in the home. With a minimum 2 percent downpayment, DivvyHome potentially expands home ownership for habitual renters.Point’s home financing product attempts to align itself with homeowners. Competing against home equity lines of credit, the company buys a fractional percentage of the borrower’s home. This gives Point and the homeowner upside on the appreciation. The buyer has a few years to sell the house or payback Point’s original investment in the house.
Borrowers enjoying the digital lending process
Home buyers are getting comfortable with these online platforms. 34 percent of borrowers initiated contact with a lender online in the past year. Borrowers want transparent and fast information in the lending process, making online lending a practical choice.“Customers can select the loan type that is most relevant for them, rather than being told this by a Loan Officer,” said Laurel Road’s Schaefer. “They have support to help them with questions but ultimately transparent product and pricing options lay out everything they need and put the customer in the driver’s seat.”As more millennials enter the home buying process in the coming decade, digital mortgage technology is likely to continue to grow in popularity.
Lenders of all kinds, from large banks to small community banks, credit unions, and fintechs, are hemmed in by the pressing issue of SMB lending fraud -- with fintechs continuing to experience the highest hit.
Convenience is a staple of digital lending. And while this is valued by borrowers looking for a quick and easy application process, it also opens the door for fraud.