A new report from Fitch Ratings finds large banks hold a much greater advantage in the digital mortgage space thanks to 3 huge advantages, listed below.
The report states large banks can access to more competitive pricing, along with the ability to link online mortgages with other bank products, giving them a market edge in developing this segment over time.
However, nonbanks do deserve some credit in promoting a digital mortgage process.
As the Fitch report stated and HousingWire has often mentioned, some larger nonbanks that were early adopters of online lending have particularly benefited in terms of growth, such as Quicken Loans.
And it definitely wasn’t the only one. Companies like SoFi and loanDepot also stepped up to meet the digital revolution in mortgages, leading the charge for the industry.
These three companies, however, are the heavy hitters for the industry, and as the Fitch Ratings report noted, other companies that do not invest more in their fintech will risk losing market share and face negative revenues.
Nonetheless, it will still be a challenge to compete with the big banks.
Due to their sheer size, big bank lenders, in particular, dominate in these 3 areas:
The larger budgets and IT resources of the big banks could provide a competitive advantage over non-bank mortgage originators. This includes actively buying and entering into joint ventures with fintech firms.
2. Competitive pricing
Large banks will continue to benefit from their lower cost of funds which will help them maintain competitive pricing - rates should remain a significant determinant of consumers' decision-making.
3. Cyber security
Depending on the types of digital processes involved, risks to online mortgages can include fraud, cyber-risks, and regulatory compliance and concerns over the extent digital automation can replace human underwriting effectively. Larger banks with greater compliance resources and existing large IT teams should be in a stronger position to manage these issues as they arise.
For example, Chase announced earlier this year that it launched a digital mortgage platform by collaborating with Roostify, a mortgage technology provider.
“Digital technology is reshaping the mortgage industry and is rapidly influencing how consumers make purchases today,” said Mike Weinbach, CEO of Chase Mortgage, at the time. “This platform will allow us to be where more of our customers are, which is online and on their phones, while still offering the option to work with us in person if they prefer.”
Companies like Roostify that partner with lenders to create a digital mortgage platform are big contributors behind the growth in technology. Roostify, a HousingWire Tech100 2017 winner, for example, partnered with Ziplogix, DocMagic, GenWorth, and others.
Third-party vendors in the digital space, such as Roostify and Blend, continue to gain prominence as lenders decide whether they want to partner or buy-to-adapt more technology into their process, as opposed to building it all from scratch.
Recently, a session at the Mortgage Bankers Association’s National Technology in Mortgage Banking Conference and Expo in Chicago presented this same idea, noting that it has become a common topic of discussion in the industry.
Coming from a big bank like JPMorgan Chase, which has a significant footprint in the mortgage space, Seth Wheeler, managing director, strategy, consumer and community banking with JPMorgan Chase, noted that they absolutely look at whether they should build technology versus if there is a great group of innovators that they can partner with.
And now, according to this new report from Fitch Ratings, the big players, like JPMorgan Chase, are likely to beat out other companies thanks to the advantages that come with being a larger bank.