The tools are there to create a faster mortgage process, but fear of noncompliance and reliance on old habits still prevail, industry technology leaders said this week.
“There’s no shortage of technology,” said Zeenat Sidi, president, LDI digital products and services at nonbank lender loanDepot, in a panel during the Fintech Nexus USA conference in New York on Wednesday.
“It’s really hard for lenders to adopt these technologies, not because they don’t want to, but because actually building this into a modern process is nearly impossible.”
Relying on tried-and-true methods is not only preventing shorter closing times, it also seems to be driving up costs. In 2022, it took approximately 49 days to process a refinance loan, the same amount of time it did 10 years earlier, according to data provided by the Federal Housing Finance Agency. Meanwhile, the costs to originate that same type of mortgage in that time period more than doubled from $5,138 to $10,637, despite several advances in underwriting technology.
“There’s so much cost embedded in the system. And that has to go away for us to be successful,” said Nima Ghamsari, CEO of mortgage and banking services fintech Blend.
Lenders feel genuine apprehension of running afoul of regulations and facing the consequences later, which makes them hesitant to adopt new tools, Sidi said. “Repurchase risk is real.”
Even when companies invest in the technology that would speed up loan processing, they have also layered on decades-worth of other procedures on top of them for peace of mind regarding compliance, she said.
“When you’re constantly thinking about quality and I can’t be off by even a few digits on how I’ve captured this data income, et cetera. That doesn’t leave a lot of space for innovation.”
Similarly, worries about potential lending bias — a violation regulators and industry watchdogs are vowing to penalize financial services companies for when committed — can also be “paralyzing,” keeping mortgage businesses from changing how things have worked for them in the past, Ghamsari said.
The refinance boom during the COVID-19 pandemic, while profitable for lending, served as a hindrance to tech adoption once interest rates fell to record lows, Blend’s CEO also said. “We hit like a three-year pause on innovation.”
Lenders focused their energy on getting volumes processed quickly to ensure clients were able to take advantage of the low rates and back-burnered investing in technology that could do it more efficiently. “It distracted people for a long time,” Ghamsari said, but added that he saw a bigger appetite currently than ever before for innovation “now that it’s a necessity.”
It’s more essential now because consumers demand it. In research conducted a year ago by the parent of National Mortgage News, almost two-thirds of consumers said they thought mortgages should close within three weeks, less than half the length of time it took last year.
But established lenders have their brand reputations to uphold, making them wary of causing disruption, a concern newer technology-focused startups aren’t thinking about when trying to move the needle.
“You’ve got to really be comfortable around how I’m going to take some risks because I have a lot more at stake here: reputation, relationship wise on the counterparty risk, et cetera,” Sidi said.
Ideally, a company that can combine legacy enterprises’ know-how with fintechs’ openness to experimentation will emerge, she said.
“It’s always a discussion that I enjoy having — which is who’s going to get there faster? The incumbents who have the scale, the distribution, the experience, the relationships? Or the startups that have none of this baggage?” Sidi said.
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