FinTech and the Future of U.S. Mortgage Lending

Fintech Industry | GoRion Blog

Technological innovation is disrupting every aspect of the financial industry. Experts say the $14 trillion mortgage market could be next.

U.S. mortgage lending has been largely immune from the fintech revolution, but experts say this can soon change thanks to a rapidly growing segment of start-ups and digital lenders looking for a piece of the $14 trillion market.

Since the financial crisis, commercial banks have seen their share of the mortgage market dwindle from 74% to just over half. Over the same period, non-bank players saw their share surge from 23% to 43%.[1] The movement away from commercial banks is expected to continue as borrowers look for faster and more efficient ways to process their loans. When it comes to technology, terms like “faster” and “efficient” are generally associated with lower fees.

To date, the biggest fintech disruption in the mortgage industry has come from tech-centric players like Quicken Loans, which has become the largest online retail mortgage lender in the country. Between 2013 and 2016, the company closed nearly $300 billion in mortgage volume across the U.S.[2] Its Rocket Mortgage service is a fully online system that has been shown to “approve” mortgages in less than 10 minutes.

Start-ups are also seeking entry into the mortgage market by introducing efficiencies to a broker channel that has been resistant to change. Home loan provider Lenda has emerged as another digital mortgage solution promising quicker turnaround times for mortgage applications. Mortgage provider Radius Financial Group recently introduced the fully paperless mortgage with the help of DocMagic and the MERS loan registry, a sign that automation would soon become part of the application process.

There’s also a lot buzz surrounding SoFi, a tech start-up that allows borrowers to qualify for more financing than traditional lenders. The company is slowly expanding into the mortgage space after making its name in the student and personal lending spheres.[3]

On the consumer side, there’s huge appetite for digital lending services. A recent survey from J.D. Power found that nearly two-thirds of homeowners who originated a new mortgage or refinanced within the past year would use a mobile app to complete their application.[4]

In addition to mortgage lending, fintech is disrupting the industry in various other ways. Mortgage enterprise solutions, which include loan origination systems, underwriting and fulfilment platforms, are showing the potential for greater technology integration. Analytics services that provide key market data to loan originators, issuers and investors are also part of this growing ecosystem.   

For all the promise fintech offers, there’s still lots of barriers in a market with over 7,000 loan originators. Fintech companies account for only a tiny fraction of total originations, and could be hard pressed to enter market segments dominated by traditional lenders.

But with demand for alternative lending rising, market share is there for the taking. This is especially true as the big banks juggle with post-crisis regulation and more stringent liquidity standards.

The housing recovery is also leaving many Americans out in the cold, as rising interest rates, stricter lending guidelines and more expensive real estate listings weigh on first-time buyers and borrowers with smaller down payments. The success of fintech companies could come from their ability to serve these lending segments. Fintech has already made strong inroads into unsecured consumer loans by using data analytics to match borrowers and investors.[5] A similar approach in the mortgage market could yield tremendous results.

[1] Daily Fintech (January 6, 2017). “The $14 trillion mortgage market disruption game is about to start.”

[2] Quicken Loans. Press Room.

[3] Barbara A. Friedberg (January 19, 2017). “How Fintech Can Disrupt the $14T Mortgage Market.” Investopedia.

[4] J.D. Power. Buyer’s Remorse Is Relatively High despite Rising Satisfaction, J.D. Power Finds.”

[5] Ben McLannahan (November 26, 2016). “Fintech start-ups look to build on US mortgage market share.” Financial Times.

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This article has been exclusively written for GoRion by...

Sam Bourgi

Sam Bourgi

Sam Bourgi has more than seven years of progressive experience in economic analysis, market research, public policy and the financial markets. He has a broad expertise in the financial markets, including commodities, real estate the foreign exchange. As a published author in both peer reviewed and industry research, Sam has covered topics ranging from mortgage-backed securities to consumer spending and labor. Sam's resume includes more than 40 government and industry publications, thousands of financial articles and hours of educational resources on personal finance and trading.

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