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April 12, 2018

Non-Bank Mortgage Lenders Lead Tech Transformation

Mortgage Daily

The digital transformation of the mortgage process is being led by large non-bank lenders. Title and mortgage insurers could be the biggest beneficiaries of blockchain adoption.

In the decade since the financial crisis, technological innovation in housing finance has mostly lagged other industries that have been transformed.

With housing at the core of the crisis, the sector was hit with more stringent regulations -- leading to significant legal and compliance expense and cutting into technology investments.

Moody's Investors Service discussed the impact of technology in Housing-related industries lay foundation for 21st century technology.

But more recently, many companies have been undertaking new technology-related initiatives. Moody's noted that large non-bank home lenders like Quicken Loans Inc.loanDepot LLC and Guaranteed Rate Mortgage are taking the lead.

"The development of online and mobile consumer interfaces has only accelerated since Quicken Loan Inc.'s advertisement during the February 2016 Super Bowl highlighting its 'Rocket Mortgage' online product that the mortgage lender suggested was special because it could offer a hassle-free experience to borrowers," Moody's said. 

However, financial institutions typically lag behind more entrepreneurial non-bank mortgage companies in digital transformation due to regulatory and compliance concerns. But Moody's noted that large banks' lag in digitization will only modestly impact their mortgage franchises.

"Lagging a bit allows banks to learn from non-banks and assess consumer adoption and satisfaction," the report stated. "However, digitization is rapidly changing the mortgage origination market, and it will be important for banks to stay close behind, if not close the gap." 

Still, large banks like Bank of America, N.A.Citibank, N.A.JPMorgan Chase Bank, N.A.; and Wells Fargo Bank, N.A., are also developing and implementing digital consumer mortgage origination interfaces.

Moody's said non-bank lenders' warehouse expense will be reduced from the faster digital process.

In prospecting for new customers, non-bank originators are trying to turn the tables on real estate agents -- who had previously typically referred prospective borrowers to originators -- by generating the prospect then referring them to agents. Among the most ambitious in this regard are loanDepot and Quicken. But Moody's is skeptical about how successful lenders will be in further engaging consumers outside of the mortgage.

Although technological change is expected to benefit the mortgage insurance sector, mortgage insurers will mostly follow developments in origination an servicing. However, blockchain could result in significant benefits for mortgage insurers that span nearly every aspect of their operations.

"If it were to occur, the full application of blockchain distributed ledger technology throughout the mortgage loan ecosystem could, in theory, provide a number of benefits for mortgage insurers, including a fully automated mortgage insurance policy issuance process, the ability to track loan performance on a real-time basis and a way to streamline the claims adjustment process following mortgage loan defaults," Moody's stated. "Additionally, such real-time data tracking of each insured mortgage loan in a verifiable way would increase transparency and enhance the ability of mortgage insurers to transfer discrete mortgage credit risks to re-insurers and other alternative capital providers on a cost-effective basis."

Also potentially seeing big benefits from blockchain would be the title insurance sector -- which could cut personnel expense as adoption grows.

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