Fintech
It’s time for collective action on fintech adoption
Earlier this year I had the opportunity to sit down with HousingWire Editor-in-Chief Sarah Wheeler to discuss, among other things, our of the industry persistent profitability problem. A few weeks after the Mortgage Bankers Association he released his Mortgage Bankers Quarterly Performance Report, underlining my point with some truly grim figures. The fourth quarter of 2023 was the seventh consecutive quarter of net production loss lenders, who hemorrhaged an average of $2,109 before taxes for each loan they made. THE last digitsreleased this week, show some improvement, but lenders are still in the red, this time for the eighth consecutive quarter.
While there will always be a need for the next innovative idea that moves real estate finance forward, our industry’s real problem isn’t our inability to engineer technological advancements that save lenders and consumers money: it’s our inability to adopt and execute on large scale. Everyone in the mortgage industry knows that fintech adoption remains stubbornly low, despite years of innovation and concerted efforts by software developers, trade associations, consumer interest groups and GSEs to spread the gospel of the technologies of cost savings.
Case in point: A HousingWire study finds that as of April, more than 90% of lenders still rely on The one from Equifax The job number for some or all of their employment verification needs, notwithstanding well-publicized accusations that decades-old service adds hundreds of dollars per loan in unnecessary origination costs and despite the availability of lower costs and higher conversion methods that are Fannie Mae Desktop Underwriter (DU) Authorized Report Providers.
And employment verification is just one of dozens of mortgage cost centers. At every stage of the origination process, too many lenders are doing the same things, ineffectively and expensively, as they always have, despite the availability of better, cheaper alternatives. The GSEs have invested millions building and promoting initiatives to encourage the digitization of mortgage data and processes, but their uptake is disappointing.
Drastic times call for drastic measures.
Despite promises of efficiency, cost savings and security, lenders are still hesitant to wholeheartedly embrace fintech solutions. Perhaps it is time to consider more radical approaches. Here are some unconventional ideas:
- Take a structured approach. To fully exploit the potential of fintech tools, financiers must recognize that implementation is not solely about acquiring new software or hardware, but is about transforming processes, workflows and, most importantly, organizational culture. By investing in comprehensive training programs, clear communication channels and dedicated support structures, funders can effectively address the complexities of technology integration, minimize resistance to change, drive adoption and ultimately realize the promised return on own technological investments. Fintech providers, third-party consultants and industry trade associations could all play a role in helping funders build change management expertise.
- Reward good behavior on an individual level. Inertia within credit institutions represents a formidable barrier. Loan officers, often gatekeepers to mortgage technology adoption, resist change for myriad reasons: comfort with traditional processes, fear of moving jobs, or sheer reluctance to adapt. To combat this, loan officers must be incentivized to embrace innovation. Offering financial rewards or penalties tied to technology adoption could be a compelling strategy. After all, aligning incentives with desired outcomes can be a powerful catalyst for change.
- Also establish financial incentives for businesses. The current fragmented mortgage process, with many hands in play and no clear accountability, disincentivizes real change. If lenders were to internalize costs and shoulder the full burden of inefficiencies and errors instead of passing them on to borrowers, fintech adoption would likely be much higher. Therefore, one idea worth exploring is for the GSEs to offer a discount on guarantee fees for loans taken out using approved fintech tools that provide benefits such as increased security and reduced fraud risk in addition to lower costs. This could help address lenders’ profitability concerns while at the same time incentivizing safer and more efficient mortgage lending.
- Changing the mandate from the top down. We should also consider more disruptive options, such as mandating the use of Day 1 certainty and the Asset and Income Modeler (AIM) for GSE-backed loans. While controversial, this may be necessary to finally overcome entrenched industry resistance.
Above all, we need collective action from stakeholders across the industry, from frontline creators to executive leadership and from regulators to major platform providers. No party controls all the levers; we must work together towards solutions.
Do you have more ideas? Share them with me.
In closing, I invite readers to join the conversation. What are your ideas to finally spur the real adoption of fintech in the mortgage industry? Do you have adoption ideas or success stories to share? Now is the time to stop talking and start taking action. Together, we push the mortgage industry into a new era of profitability and sustainability.
This column does not necessarily reflect the opinion of HousingWire’s editorial team and its owners.
To contact the editor responsible for this piece: [email protected]