You’ve likely seen the mortgage commercials where lingo is used that some in the spot are apparently not familiar with, only to be clued in by Keegan-Michael Key!
These are funny spots no doubt, but when it comes to something as financially important for a consumer as buying a property, while at the same time acquiring financing through a mortgage, is a computer-based online process going to be as beneficial for all prospective buyers as speaking with a trusted advisor either at a bank or with a mortgage brokerage who come highly recommended would be?
We have explored this subject at the Hallmark Abstract Service website in the past, for example in the article ‘It Doesn’t Take A Rocket To Get To The Top‘.
Common sense would say that an automated computer-driven process likely won’t walk borrowers through the myriad of mortgage options that they may have (or need), or discuss some of the potential pitfalls of one product versus another.
But in the age of technological advancement we currently live in, the online option is increasingly being presented as the easy, quicker and most efficient choice.
So is a technologically-based mortgage application that leaves humans completely out of the process the right choice for some? Undoubtedly! But, is it the right choice for all borrowers? Likely not!
Finally, is it possible the findings in the article below that ‘FinTech mortgage lenders originate loans more quickly than other lenders and that these loans are less risky’ could be based on the fact that consumers who qualify for computer-based underwriting may have more pristine financial backgrounds and would therefore be underwritten more quickly whether on or off-line and experience lower than average future payment delinquency?
All of that said, this is an interesting article from Liberty Street Economics at the Federal Reserve Bank of New York…
‘How Is Technology Changing the Mortgage Market?‘
The adoption of new technologies is transforming the mortgage industry. For instance, borrowers can now obtain a mortgage entirely online, and lenders use increasingly sophisticated methods to verify borrower income and assets. In a recent staff report, we present evidence suggesting that technology is reducing frictions in mortgage lending, such as reducing the time it takes to originate a mortgage, and increasing the elasticity of mortgage supply. These benefits do not seem to come at the cost of less careful screening of borrowers.
The “FinTech” Business Model
Although many mortgage originators are adopting new technologies to varying degrees, it is clear that some lenders have placed particular emphasis on using technology to streamline and automate the mortgage origination process. We view the defining features of this “FinTech” business model to be an end-to-end online mortgage application platform and centralized mortgage underwriting augmented by automation.
Online applications enable a borrower to be approved for a loan without talking to a loan officer or visiting a physical location. Supporting documents can be uploaded and processed electronically while other information can be verified by accessing records and accounts directly; these options automate what has historically been a document- and labor‑intensive underwriting process. All of this is complemented by centralized underwriting operations that allow for labor specialization and greater scalability. These processes contrast sharply with traditional mortgage lenders that collect physical documents and operate in a hub‑and-spoke model where branches house loan officers and underwriters in the markets in which they operate.
To identify FinTech mortgage lenders, we evaluate the sophistication of their online application process by determining whether an applicant can obtain a pre-approval online without being prompted to interact with a loan officer. We then use Wayback Machine, which archives webpages, to assess when the lender began offering this option. Although online applications are only one dimension of the FinTech model, they serve as an easily observed indicator for the other, complementary technology enhancements.
Our classification process identifies six FinTech mortgage lenders during our sample period, 2010-16. Our list of FinTech originators conforms closely with reports by industry observers and other researchers. The market share of FinTech lenders, based on our classification, has grown from 2 percent in 2010 to 8 percent by 2016. The number of lenders offering a fully online application platform has continued to grow rapidly since the end of our sample period.
The FinTech lenders we classify are all nondepository institutions (that is, mortgage banks) and their loans are usually securitized through the agency mortgage backed securities (MBS) market, rather than held in portfolio. Also, a FinTech lender origination is typically a refinancing of an existing mortgage rather than a mortgage for the purchase of a new home…
Read the rest of the article here.
Andreas Fuster, Matthew Plosser, and James Vickery, “How Is Technology Changing the Mortgage Market?,” Federal Reserve Bank of New York Liberty Street Economics (blog), June 25, 2018, http://libertystreeteconomics.newyorkfed.org/2018/06/how-is-technology-changing-the-mortgage-market.html.
Michael Haltman, President
Hallmark Abstract Service
Phone: (646) 741-6101