While the chaos of 2020 wreaked havoc in many industries, the housing and mortgage markets boomed. Mortgage rates set 15 records in a single year as they dropped, encouraging equally record-breaking volume. In mid-December, mortgage applications were 26% higher than the previous year, while refinancing applications were up 105% from 2019. With rates still low, demand remains high, even with climbing costs and low inventory. On top of all the widespread adaptation required last year across the board, lenders have been sprinting to keep up with this high demand. The solution? Accelerated digitization of the lending process.
And artificial intelligence (AI) is opening the door to even more possibilities.
New Trends In The Mortgage Lending Market
Volume trends in the mortgage lending market are continuing in 2021. Bankrate reported that the slowdown usually experienced by the market in the winter was far less noticeable this year, which implies that the first quarters of ‘21 will continue to see high demand.
Low rates haven’t been the only factor driving high mortgage lending volume. As social distancing became the norm across much of the economy, employees worked from home. And even as coronavirus cases dropped in some areas, many companies announced a transition to long-term and even permanent work-from-home. This transformation has encouraged some employees, who were previously restrained by a daily commute, to move into a new home. As Bankrate puts it, “demand is especially high in neighborhoods outside of downtown city cores, as increasing work from home and virtual learning requirements have driven many homeowners to favor space over on-the-doorstep amenities.”
High demand, for all its reasons, is butting up against rising costs and low inventory. Low rates appear to be sufficient to encourage continued sales, despite median home prices now rising above $340,000. This combination of factors means that we’re likely to see a competitive housing market persist over the coming months.
On top of factors driving high demand, other trends in the mortgage lending market are fostering change. For example, social distancing, quarantines, and lockdowns increased consumer adoption of digital and remote solutions. US ecommerce sales jumped 37% by Q3 2020. Utilization of telemedicine and remote diagnostics increased. Remote education relied on digital learning solutions, as well as virtual communication tools like Zoom. Consumers, especially digital natives, were already expecting and becoming accustomed to digital solutions in many industries. Why wouldn’t they expect the same in mortgage lending?
The Digital Mortgage: How Mortgage Companies Are Adapting
With demand and market competition so hot, lenders are looking for ways to streamline their processes and keep up with consumers and potential homebuyers. The solution? Digital adoption.
In this high-demand mortgage lending market, mortgage companies may need one thing above all else: time. They need to cut cycle times, allowing for more loans to be processed. They need to save borrowers time to keep them satisfied. Traditional paper-based mortgage processes tend to take more time and involve more friction. Digital mortgages, on the other hand, streamline not only the mortgage application, but the entire lending process, removing high-friction back-and-forth with borrowers through digital verification solutions.
Digital verification solutions enable mortgage companies to adapt to high volumes and empower consumers along the way. Where paper-based verifications require borrowers to dig up old documents to verify creditworthiness, digital solutions powered by open banking, AI, and consumer-permissioned data, allow borrowers to quickly and securely share all the financial data necessary to get them a loan. Digital verifications enable mortgage lenders to automate and streamline workflows, all while delivering borrowers with a convenient, simple, digital-first experience.
In addition to challenges revolving around time, today’s mortgage lenders are facing another issue in a physically-distanced world: trust. Borrowers are frequently navigating the mortgage application process or refinancing remotely, without meeting agents, sellers, buyers, and loan originators. Lenders can empower borrowers with a consumer-centric experience that enables them to control and benefit from their financial data. Layer that with secure, consumer-centric data sharing principles and protocols and lenders can build with borrowers valuable relationships founded on trust.
Some mortgage companies implement a digital solution here and there, but there’s a difference between doing digital and being digital. Any digital solution will of course help streamline processes and update workflows, but a completely digital workflow informed by a company-wide digital-first strategy enhances mortgage companies with consumer-first experiences that accelerate growth and increase ROI.
Why High Demand For Mortgages Needs A Digital Mortgage Solution
Digital mortgage solutions streamline the verification process and, by extension, the entire origination process. That streamlining cuts time from the origination and leaves more time to process more loans. A necessity in today’s high-demand market. As Allen Taylor of Lending Times notes, leveraging digital solutions and AI models will “likely drive the greatest overall efficiencies, both reducing costs and boosting revenues. This enhanced efficiency can be used to drive competitive position and ultimately higher profits.”
As purchase volume and demand rises, so do chances of fraud and risk. Fortunately, digital mortgage solutions reduce fraud and overall risk by connecting directly to secure financial institutions and getting the most accurate data from the most reliable sources.
How Digital Verification Is Facilitated By AI
The digital verification enabling streamlined digital mortgage owes part of its efficiency to artificial intelligence. This doesn’t mean that Watson or Alexa are performing your digital income verification. Instead, artificial intelligence leverages machine learning, deep learning, and neural networks to mimic human intelligence and predict, optimize, and automate tasks that were once performed manually.
As IBM explains, “Perhaps the easiest way to think about artificial intelligence, machine learning, neural networks, and deep learning is to think of them like Russian nesting dolls. Each is essentially a component of the prior term.” In brief, fundamental terms, here’s more on each AI component:
- Neural network – Algorithms that mimic the neurons of a human brain. Consist of an input, weights (how correct or incorrect the input is relative to the task), a bias (or a threshold), and an output.
- Deep learning – A multi-layered neural network. With more layers, artificial intelligence can produce a more accurate output from data fed into the network’s input.
- Machine learning – Deep learning is a subset of machine learning, which is fundamentally the “practice of using algorithms to parse data, learn from it, and then make a determination or prediction about something in the world.” The machine learns to perform a task instead of being run through hand-coded software routines. “Classical” machine learning involves training the machine learning model to learn based on specific, labeled datasets fed in so the AI can distinguish between data inputs. This is also called “supervised learning.” “Deep” or “unsupervised” machine learning, on the other hand, involves AI learning without a labeled dataset by identifying patterns in data inputs.
In mortgage lending specifically, AI performs income, employment, and asset verification after a lender connects to a borrower’s bank accounts following a consumer permissioning experience. Once the consumer gives the borrower permission to access their financial data, that data enters the AI’s machine learning algorithm and the AI outputs information based on the task. For example, digital income verification involves the AI recognizing an income stream from financial transactions, and cleaning and categorizing data for a clear output that displays a borrower’s income situation.
Digital verification, powered by AI, automates what loan officers and underwriters once had to do manually. That automation enables lenders to, according to Forbes, “reduce underwriting overhead and delays, which increases profits per loan.” In fact, Fannie Mae has found that digital, AI solutions save up to 8 days for asset validation and up to 12 days for income and employment validation. Ultimately, AI-powered digital verification enhances the entire lending process, delivering a more streamlined experience for customers, and reducing risk while increasing ROI for lenders.
Finicity Can Help Your Mortgage Company Improve Their Process: Here’s How
Through our Finicity Lend solution set, we leverage AI capabilities to help lenders meet high demand. Our open banking platform, powered in part by artificial intelligence, identifies tradestreams in consumer-permissioned financial data and delivers cleaned data, ranked by confidence, in easy-to-read reports to lenders. Finicity Lend delivers valuable real-time data insights on:
- Cash Flow
- Scoring Attributes
These data solutions not only streamline the lending process and better enable lenders to meet high demand, but they also reduce risk and improve loans by enhancing decisioning. Finicity’s real-time data connections ensure high accuracy so that you get the clearest picture of a borrower’s financial situation.
And in addition to the standard verification of income, employment, and assets, lenders can also get a more comprehensive view of a borrower with Cash Flow analytics. Cash Flow leverages artificial intelligence to identify tradestreams not traditionally considered in risk assessment, but that enhance a lender’s understanding of a borrower’s financial habits with a clear view of how money moves in and out of borrower accounts.
We want to make sure you get the most out of Finicity Lend and that your mortgage company can help its lending process reach its greatest potential. To that end, we offer best practices training to facilitate a smooth integration of Finicity solutions into mortgage platforms and an effective transition to a fully-digital mortgage process. We’re not just here to offer products; we’re here to be a resource so you can get the best results.
Artificial intelligence is helping lenders integrate digital mortgage solutions that don’t just meet high demand, but dominate it. With the all-star team-up of AI and open banking platforms, consumers can benefit from their financial data and increase their chances of getting a home loan, and lenders can enjoy enhanced decisioning and ROI, as well as an innovative workflow that hones their competitive edge. Don’t take our word for it. Check out Finicity Lend and see for yourself what AI can do for you.
Digital innovations are happening at lightning speed. The sheer number of things we can do online—simply by sharing some of our data—is truly astounding. And it’s growing daily.
But with convenience comes concern. Consumers are beginning to worry about how much data they’re sharing. What companies are doing with it. And who should really own that information. With breaches at historic highs and increasing since the COVID-19 pandemic, it’s no wonder consumer trust is beginning to wane.
That’s why Finicity has joined with 20+ governments, nonprofits, and businesses across finance, health care, enterprise software and other industries to create the Trust over IP (ToIP) Foundation and advance digital trust standards.
This cross-industry coalition has partnered with the Linux Foundation to create global industry standards for both ecosystem governance and technical standards for the exchange of verifiable credentials between any two parties on the Internet. The adoption of TOIP will dramatically enhance privacy for consumers and businesses— while infusing data with trusted markers that prove it comes from a credible source. It will also allow consumers to connect, interact, and innovate at a speed and scale not possible today.
The mission of the ToIP aligns with our own guiding core principles of control, access, transparency, traceability, and security, which is why we felt compelled to become a founding member.
A roadmap for empowerment and innovation
Data breaches are at an all-time high. Consumer confidence is at an all-time low. And losses due to identity theft are growing every day. As hard as this situation is, we believe this triumvirate of pain will drive the adoption of a new data ecosystem.
And that’s exactly what the ToIP Foundation has mapped out. With a global standard for trustworthy exchange of data, plus collaboration between all stakeholders—from industry leaders to policy makers to consumer groups—we can create an ecosystem that significantly advances digital trust and keeps innovation on track.
It starts by giving consumers control of their data. This will allow them to decide who gets what information—rather than sharing more than is necessary and introducing unnecessary risk. That, in turn, will allow more space for companies to create a wide variety of compelling solutions that further empowers consumers and that they can embrace with confidence.
The ToIP Foundation will use digital identity models that leverage interoperable digital wallets and credentials, along with the new W3C Verifiable Credentials standard, to address these challenges and enable consumers, businesses, and governments to better manage risk, improve digital trust and protect all forms of identity online.
Think of the possibilities. Loans that currently take several days to underwrite could be done in minutes—leading to faster closings and lower costs. Other types of transactions can happen faster, too. Imagine proving your age without sharing your drivers license or proving your nationality without sharing your passport. TOIP will dramatically improve data privacy by reducing or eliminating the need to share data. Imagine being able to answer yes to a question “are you over 18?” without ever sharing your birthdate.
ToIP Foundation members
The ToIP Foundation is being developed with global, pan-industry support from leading organizations with sector-specific expertise. Please visit https://trustoverip.org/members/ to view an up-to-date list of both steering and contributing members.
As we work together to solve the trust dilemma, we’ll see a rapid acceleration of innovations that will change the way we do business, share consumer information, connect with others, and engage in entertainment. All with the utmost confidence in the security of our data.
Yesterday, leaders at the Federal Reserve, FDIC, OCC and CFPB announced their support for using alternative data, like transaction or cash flow data, in credit underwriting.
This statement represents several years of work in the nation’s capital by principled regulatory leaders, lawmakers, passionate consumer advocacy groups, and individual thought leaders tied together with the thoughtful rollout of products like Experian Boost, the UltraFICO Score, Fannie Mae Day 1 Certainty and Freddie Mac AIM.
These products use alternative data to meet the needs of credit underwriting in a digital world by providing data direct from consumers’ financial accounts combined with enhanced insights from that data. This level of connection and insight hasn’t been available in credit scoring or mortgage lending until now.
The agencies recognized that alternative data in underwriting will ultimately lower the cost of credit and increase access to credit. They also recognized that these two key results are coming directly from the innovation and continued automation of underwriting and the evolution of credit score modeling.
As the agencies outlined, benefits include:
- Improved speed and accuracy of credit decisions.
- Deeper insight when evaluating creditworthiness of consumers not currently in the mainstream credit system.
- Enabling consumers to obtain additional products and more favorable pricing or terms based on enhanced assessments.
- Providing credit opportunities for those who would otherwise be denied.
- Increasing transparency and amount of control consumers have over their data.
It’s remarkable to see US regulators come together in unanimous public support of the principles we have evangelized to empower consumers through open banking principles and practices.
As we continue on this path, and as the agencies encouraged, responsible use of consumer’s data is paramount. Keeping the consumer at the heart of what we do has been Finicity’s North Star since our founding. This focus has driven the design of products and solutions that provide data to consumers for their benefit. It’s also the reason that we’ve taken extra measures to protect consumers by maintaining our status as the only data access provider who is also a registered consumer reporting agency.
Congratulations to everyone who has supported this effort. This is just the beginning for where and how alternative data can be used to benefit consumers.
By Nick Thomas, Executive VP
At the end of last year, The Financial Brand did a survey to determine the top 10 trends for retail banking in 2017. The number one concern for industry leaders and experts was reducing friction from the customer journey (54%), the next was using big data, AI, advanced analytics and cognitive computing (53%)…and one of our favorites came in at number 4, open APIs (32%). Why is this important? Because it speaks to the ongoing digitization of banking processes. And as far as mortgage lenders are concerned, the big question is how can they harness technology to embrace digital lending? Digitizing the lending process, not only speeds it up, but also provides better insights, increased efficiency, decreases fraud, and it can actually create a larger credit pool,
First step – verification solutions
One of the most significant opportunities is digitizing the verification process. The first two solutions which dramatically improve the loan origination process are Verification of Income (VoI) and Verification of Assets (VoA). Both of these solutions utilize borrower-permissioned financial transaction data. VoI allows lenders to confirm a borrower’s income for up to two years. When done right, it utilizes data intelligence to identify, track and extract sources of income from an account’s data. VoA offers similar functionality for the borrower’s assets by accessing checking, savings, retirement and brokerage account information to create an accurate and real-time picture of assets.
Benefits to lenders
We explored the ways our VoA solution enhances the borrower’s experience of applying for a mortgage in this post. So here’s a closer look at how both solutions improve the process of originating loans for lenders.
Manually inputting and verifying documents is time-consuming and labor-intensive. Automating these activities increases the speed of loan origination – by up to eight days in the case of one mortgage provider. Lenders also make better decisions, as they have access to deeper and more accurate data. Improving speed and accuracy frees up loan capital which can be deployed elsewhere. Then there’s the regulatory regime to take into account. With the requirements imposed by the Home Mortgage Disclosure Act set to become tougher in 2018, VoI and VoA solutions can help lenders remain compliant by automating the reporting process.
Becoming more efficient doesn’t only save time, it saves money too. This is a serious consideration for lenders, as the cost of loan origination is rising. According to the Mortgage Bankers Association, it jumped from $5,779 in 2013 to $7,845 in 2016. Meanwhile, the net income per loan dropped from $1,772 to $8252. So lenders can also use VoI and VoA solutions to cut costs and boost their bottom line.
Lower the risk of fraud
One of the biggest problems with the manual process, where a borrower provides paper (or .pdf, etc) copies of documents to support a loan application, is that doctoring them is easy. According to CoreLogic’s latest Mortgage Fraud Trends Report, 12,718 mortgage applications were considered fraudulent in the second quarter of 2016 alone and the risk of income fraud rose by 12.5% from a year earlier. Lenders can combat fraud by using VoI and VoA solutions, as these pull data straight from the financial institution.
If you’d like to discuss how Finicity’s solutions can help your company cut costs and streamline the loan origination process, please let us know.
At the end of April, Nick Thomas, Finicity’s President of Data Services, and Jessie Morris, our Software Development Director, presented at FinovateSpring 2017, one of the most prestigious events in the Fintech calendar held at the heart of the tech scene in Silicon Valley.
Finovate showcases the latest in banking and financial technology innovation, with presenters demoing their product before an audience of around a thousand venture capitalists, journalists and execs representing some of the biggest names in financial services like American Express, Wells Fargo and Fannie Mae.
Each presenter gets just seven minutes to convey the key benefits offered by their product. As you’ll see from the video below, Nick and Jessie did a great job showing how Finicity’s Verification of Income and Assets solution transforms the experience of applying for a mortgage, making the process quick and painless for borrowers and lenders.
Get in touch with us if you’d like to learn more.
One of the major banking trends in 2017 is removing friction from the customer journey. So says Jim Marous, top Fintech influencer and publisher of the Digital Banking Report. The latest report suggests banks must harness digital technology to address customer pain points, such as streamlining the user experience¹.
This mirrors a trend in the digitization of the service industry in general. After all, you can carry out numerous transactions from your mobile device these days, from ordering a pizza to booking a hotel. By 2020, PricewaterhouseCoopers claims an entire generation, which they refer to as Generation C (for connected), will have grown up in what is essentially a digital world².
Consumers expect the same level of convenience when dealing with the financial sector. According to Accenture’s 2016 North America Consumer Digital Banking Survey, 60% of respondents use online banking at least on a weekly basis, while 11% of those who switched banks moved to an online or virtual bank³.
The survey also reveals that one of the most common reasons customers would look at switching banks would be to simplify the experience of buying a home⁴. This shouldn’t come as a surprise, considering how much of the loan origination process is still time-consuming and manual, for example filling in forms and photocopying proof of identification. So if a financial institution can offer a more digital lending experience to borrowers, it stands a good chance of differentiating itself from the competition.
That’s where Finicity comes in.
Verification of Assets solution
Our Verification of Assets (VoA) solution completely transforms the experience of applying for a loan. It enables borrowers to permission access to accounts that in turn provides lenders with a complete picture of assets that could affect the loan decision. And they can do it from a variety of account types and from multiple institutions. For borrowers, it simplifies the process and delivers the digital experience they’ve come to expect from other aspects of their lives.
To further simplify the experience we have created Finicity Connect, a web app or widget that allows the borrower to easily control and permission secure access to the account data they want considered in the loan process. It’s basically a three-step experience of providing personal identification information, selecting from an extensive list of financial institutions and then choosing which accounts to be used. And one of the best parts for the lender is that Finicity Connect and the Finicity reports can be integrated with, or pushed through the lender’s platform.
Broader loan availability
Prospective borrowers who are thin-file or no-file are at a disadvantage when it comes to applying for a loan. However, they may only have a poor credit score because they don’t use credit – such as credit cards or have very little credit history. Going forward, we believe our VoA solution and a more digitized experience will provide greater insights into financial wellness. This will allow borrowers to use permissioned data that in turn helps lenders to make a decision based on a wider selection of financial data, giving otherwise qualified borrowers a better chance of securing a loan.
Dispute management and resolution
One other thing we’ve done to improve the experience for borrowers is register Finicity as a Consumer Reporting Agency. This provides more transparency, and a communication channel- our dispute and resolution platform- which borrowers can use if they receive an adverse action. We want to ensure the best experience as well as the best data.
If you’d like to offer your customers a loan origination process that’s quicker, simpler and more convenient, get in touch.
It feels as if we’re at the beginning of a seismic shift in the credit decisioning world. With the use of additional and/or alternative data in the credit decisioning process, how we apply for and approve a loan is changing.
The Consumer Financial Protection Bureau (CFPB) held a field hearing yesterday, and announced a request for information (RFI) on the pros and cons of using alternative data for credit decisioning.
CFPB Director Richard Cordray’s comments were very thorough and well balanced. If you haven’t read them, check them out here.
The RFI covers four main issues:
- Potential risks and benefits for consumers of using additional and/or alternative data to better assess their likelihood of repaying a loan.
- How introducing new alternative data sources into the credit decisioning process might add to its complexity. For example, will it make credit decisioning more difficult for people to understand and will it impact their ability to control their financial lives?
- How the use and interpretation of this data may affect privacy and transparency.
- Whether reliance on some types of alternative data could result in discrimination against certain consumers.
These are all important issues to examine and discuss, which is why Finicity will be one of many voices to weigh in on the RFI. However, the way these issues are being portrayed underplays what I believe to be the empowering benefits of new data in the process and the positive impact for consumers.
At Finicity, our goal is to help individuals and organizations make smarter financial decisions. We believe this is done by providing a rich, real-time view of an individual’s or organization’s financial health through their financial transactions. Better information leads to better insight, which ultimately leads to better decisions. All the while, the account owner is in complete control of how, when and where that data is deployed, and their data becomes a powerful tool to be utilized in any manner they see fit.
In the CFPB field hearing, it was brought up that there are approximately 45 million people who are “credit invisible” (no credit history at all) or have credit histories that are too limited or have been inactive for too long to generate a credit score, leaving them unable to receive a loan in the current system. For these people, the ability to demonstrate loan suitability through their day-to-day account activities would be a great advantage. These transactions may include income deposits, utility bills, telecom payments, rent, and others.
We’re in the foundational stages of using account information within the lending process. Right now, we’re rolling out verification of assets and income solutions to dramatically simplify and improve this aspect of the loan process. And as we progress forward, we’ll see transaction information used in ways that further speed up the lending process, improve accuracy, expand credit to those underserved, and ultimately provide a better experience for all involved.
It will be important that all voices are heard on this issue. Identifying the key challenges and having a robust discussion will benefit everyone. And our hope is that these seismic shifts will benefit a broader group of individuals and organizations through the appropriate utilization of alternative and additional data within the credit decisioning process.