As we progress through this, the tenth year since the mortgage crisis of 2008, those struggles are growing smaller and smaller in our collective rear view mirror. The industry has seen a strong resurgence and has bounced back in almost all sectors. Plus, a variety of new entrants – regional and independent banks resuming wholesale programs, private equity firms, REITS and numerous non-bank entities – are invigorating the industry. In this new era, all participants are challenged with delivering more value to borrowers and investors in an ever changing, hyper-competitive and highly regulated business.
As these firms vie to differentiate themselves, market dynamics will drive new technology innovation and adoption. Here are three technologies that will substantially impact the wholesale mortgage market in the next 3 to 5 years.
DIGITAL MORTGAGE PLATFORMS
Gen X and Gen Y Millennials have very different service expectations than Baby Boomers. Handing over reams of photo-copied forms and statements, then waiting weeks for a loan to go through is unacceptable to customers accustomed to managing their lives online or on their phones.Mortgage originators have accelerated their adoption of digital mortgage platforms to improve service to borrowers. These systems offer the side benefit of capturing and making data available for both analysis and wholesale side transactions.
To aid in this journey, several visionary companies have emerged to make this ecosystem a reality. Starting with the borrower application phase, firms like Maxwell have created software that allows mortgage companies of all sizes to deliver a 21st century user experience across all devices with a managed workflow and access to all necessary documentation. Floify is another company that helps manage and automate the application process. When it comes to the inner workings of the processing phase, longtime industry leaders like Ellie Mae, Calyx and LendingPad continue to innovate by providing automated workflows and APIs to connect with liquidity options like SecondaryWire, a wholesale mortgage trading platform.
ARTIFICIAL INTELLIGENCE AND MACHINE LEARNING
Artificial intelligence, simply, is the area of computing that seeks to program machines to think and act like humans. Ever since IBM’s Watson computer defeated former champions Brad Rutter and Ken Jennings on the game show Jeopardy in 2011, technology and business leaders the world over have speculated and even dreamed of what artificial intelligence (AI) could deliver.
It’s now eight years later and artificial intelligence promises a new era of disruption and productivity. While major ambitions like Elon Musk’s driverless cars and IBM’s Watson Health’s cancer diagnostics dominate the headlines, AI has huge potential in all verticals of business including the mortgage industry.
For several years, lenders and brokers alike have leveraged automated underwriting and approvals, applications by phone, chatbots and other automated communication tools, but as artificial intelligence continues to develop, the potential is tremendous. Expect to see new innovations in streamlining underwriting processes, risk reduction, data validation and wholesale portfolio valuation.
One big potential for AI is in the mortgage processing area.For years, major lenders have leveraged offshore delivery centers in India, the Philippines and elsewhere to reduce costs. As cloud computing has proliferated,it has made those endeavors even more enticing. Now, outsourcing is no longer just throwing cheap labor at the problem. Large business process outsourcing(BPO) firms like Tata, GenPact, Cognizant and even Accenture are leveraging AI automation platforms to generate and send disclosures, order payoffs and additional documents and deliver notifications to borrowers, realtors and other parties. In short, these platforms, once mature, will be able to handle the entire process allowing some professionals to be repurposed to more customer facing,business development and other roles.
A new technology grabbing the headlines is blockchain. In short, blockchain is a digital ledger in which transactions made in Bitcoin or other cryptocurrencies are recorded chronologically and publicly. This allows all parties to share a digital ledger across a network of computers without need for a central authority. No single party has the power to tamper with the records: the math keeps everyone honest. Forty of the world’s top financial firms are experimenting with blockchain for capital markets and it’s logical to assume it is coming to the mortgage industry as well.
A recent Moody’s study demonstrated that blockchain could improve the monitoring of loan performance while boosting the degree of transparency throughout a mortgage’s life- cycle, allowing “mortgage insurers to transfer discrete mortgage credit risks to reinsurers and other alternative capital providers on a cost-effective basis.” Property records could also be stored on a blockchain, allowing the public to easily trace each home’s ownership.Anyone could view liens against the property in chronological order. With blockchain mortgage technology, establishing the chain of title is simple and the prospect of undisclosed liens is greatly reduced.
This should, in theory, lead to less risk and thus lower title insurance premiums.
Beyond property records, blockchain could dramatically reduce the need for other services. Currently, it’s nearly impossible to transact real estate without needing third party services. With blockchain, it is possible to tie ownership of physical assets to information stored on the ledger. Since blockchain is decentralized, each user has a copy, so the integrity of the ledger does not need to be maintained by a central source or authority. Updates are recorded and downloaded automatically as they occur, so everyone always has the same information. Users could then digitally buy, sell or trade without needing third party services. Moody’s estimates a 10 to 20 percent cut in these expenses would save $840 million to $1.7 billion annually.
All three of these technologies will make it easier to share data across systems and make it more available for advanced analysis. The increased value for customers and enhanced efficiency will help innovative firms thrive.