WHAT ABOUT TRADITIONAL COMPANIES?
But startups aren’t the only ones harnessing innovation. A number of traditional companies are reimagining the mortgage process and forming partnerships that make the most of old and new.
The best example? The long-promised, ever-elusive eMortgage, which was finally achieved in 2016 by Radius Financial Group, which partnered with DocMagic, the MERS loan registry, Fannie Mae and Santander Bank. The group closed six loans in a completely paperless process, utilizing both lender and closing/settlement agent documentation, eNotarization, eWarehousing and eNote acceptance through DocMagic’s eClosing solution.
Linking disparate parts of the mortgage process into a seamless experience is a hallmark of mortgage disruption, and a place where traditional companies have a better chance of success.
As an article in TechCrunch by Aaron LaRue pointed out, a scalable mortgage company needs a lot of infrastructure, including a way to create consistent access to capital, a reporting infrastructure for compliance and robust operating procedures. These are things traditional companies have been working on for decades.
“When faced with the realities of originating a mortgage, many of these technology companies will pivot,” LaRue writes. “Instead of producing the actual loans, they’ll become sales and marketing vehicles that capture the customer, take the application then serve as a broker for an established mortgage company that can do the heavy lifting.”
For LaRue, true mortgage innovation would be realized from a hybrid of startup and legacy companies. “Ideally, an innovative mortgage company would combine a customer-focused, experience-driven product team with a group of seasoned mortgage professionals. This super-team would come together, surrounded by the infrastructure required to grow and fed with capital to invest in building a platform, and they could fundamentally change the way home loans are done.”
Some of these hybrids already exist. Last year BBVA bought Simple, giving BBVA about 100,000 new customers while giving Simple more resources to grow. Santander partnered with other financial institutions to invest $135 million in fintech lender Kabbage in 2015, providing small business loans. And SoFi, a student refinance lender that is itself a fintech company, recently acquired Zenbanx, a fintech mobile bank.
This kind of collaboration has huge potential, since for all the talk of disruption, the effect of fintech on the overall mortgage market is still very small. The Wall Street Journal reported in April of 2016, “Greg Baxter, Citi’s global head of digital strategy, notes that in the U.S. and other developed markets ‘We are not even at the end of the beginning.’ While really difficult to forecast this early in the cycle, his Citi team estimates that ‘currently only about 1% of North American consumer banking revenue has migrated to new digital business models (either at new entrants or incumbents) but that this will increase to about 10% by 2020 and 17% by 2023.’”
If other disrupted industries are any guide for the future, the mortgage industry will see a frenzied pace of innovation in the next five to 10 years. Startups and legacy companies alike should heed the advice of computer visionary Alan Kay: “The best way to predict the future is to invent it.”