The following is a blog post by mortgagetech veteran Caleb Skinner.
This year’s historically low interest rates are creating rare opportunities for homebuyers and mortgage refinance applicants — and, by extension, for the mortgage industry.
Unprecedented as the present economic situation is, though, it’s not unexpected. Indeed, it’s already old news.
What’s more interesting to real estate professionals, financial professionals, and fintech executives whose livelihoods depend on a vibrant real estate lending industry is how that industry looks two, three, or four business cycles out from the present.
Like It or Not, Big Changes Are Coming
Comforting as it is to imagine that business will continue as usual through the coming decade, all available evidence suggests that won’t happen. We need to gear up now for years of potentially wrenching change and prepare for a mortgage industry that, come 2030, bears little resemblance to today.
Here are five ways that lending will dramatically change in the next 10 years.
- (Virtually) touch-free origination
“Disruptive” originators like Quicken Loans’ Rocket Mortgage combine slick marketing with legitimate process improvements to insinuate that the mortgage application process of today is radically different than 15 years ago. Today’s buyers and refinancers shuffle less paper and enjoy a far better digital user experience. Still, the basic, labor-intensive workflow is about the same.
That’s not likely to be the case in 2030. We already see the contours of a (virtually) touch-free origination process that requires little if any person-to-person interaction. For example, platforms like Mortgage Cadence offer consolidated digital lending platforms for lending professionals. Meanwhile, “hybrid close” suites like SimpleNexus and automated borrower support tools like Capacity facilitate borrower self-service and reduce lender workloads.
For lenders, this makes for leaner, more productive origination; for applicants, a dramatic reduction in time, effort, and awkward phone calls.
- Appraisal as afterthought
For most lenders in most markets and submarkets, in-person appraisal is already strictly optional. Experts can easily compare comps and take the market’s temperature from afar.
If the early success of AI-powered valuation tools like Clear Capital holds, those experts won’t have much to do by 2030. That might be a good thing. Human appraisers bring their blind spots and built-in biases to their work, potentially putting their employers on the wrong side of borrower protection laws like the Fair Housing Act.
- In-person close: strictly optional
This is the year remote closings went mainstream. In the short term, the in-person close is likely to make a comeback as pandemic-era habits fade. But the fact that deals got done this year, and the market held up better than anyone expected in March, is a warning sign for anyone betting on in-person closings over the long term.
- Responsive, humane delinquency management
Presently, lenders’ and servicers’ risk management departments accept that a certain proportion of their loans will lapse into delinquency and that foreclosure is inevitable in many of these cases.
The first condition won’t change much by 2030, but the second can and probably will. AI-powered servicing solutions like Brace, which spots troubled loans early and keeps borrowers current, will help servicers identify looming delinquencies, jumpstart the workout process, and stop costly foreclosures before they happen. With widespread implementation, lender foreclosures could become less common by decade’s end.
- Remote work
Many of the office-based jobs that evaporated in the pandemic-induced shift to remote work earlier this year aren’t coming back — to the office, at least.
They still exist, just in dispersed form. In time, they’ll disperse further, as newly location-independent workers seek out lower-cost, higher-quality-of-life alternatives to expensive coastal hub cities threatened by climate change and income inequality. A 2020 study of the best places to work remotely identified clear competitive advantages for small and midsize cities in the Midwest and interior South, mainly due to low living costs and excellent Internet infrastructure. As the knowledge economy gains ground in places like Grand Rapids, Michigan, and Des Moines, Iowa, fintechs clustered in major U.S. metros will need to broaden their horizons and cast a wider net for talent.
Final Thoughts
This year taught us that trying to predict too far into the future is risky. We can’t say for certain how the world will look 10 months from now, let alone 10 years.
That said, no one disputes that an ambitious cohort of fintechs are revolutionizing the mortgage industry in real time. By 2030, homebuyers and homeowners will take for granted a host of new capabilities now in their infancy.
In-person appraisals and closings will be strictly optional. The entire origination process will involve few person-to-person conversations and take a matter of days, not weeks, for well-qualified borrowers. And the lender foreclosure process, at least in its current form, could be all but obsolete.
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Caleb Skinner worked in a mortgage lending company for 15 years. He is now a finance consultant.
Photo by Tomasz Frankowski on Unsplash