2020 served as a real litmus test for mortgage technology and fintech. Between having to transition whole teams to work from home — in some cases over just a weekend — to dealing with crushing origination volume, companies could clearly see the advantages or disadvantages of the technology they had invested in.
For 2021, I talked with Scott Petronis, principal of Xcentric Consulting and one of the architects of HousingWire’s HousingStack ecosystem, about three areas of fintech he’s keeping an eye on in the new year.
End-to-end tech vs disparate tech solutions
The age-old dilemma of build versus buy has morphed a bit in the last few years, as even companies who do a prodigious amount of in-house development are seeing a need to integrate some outside solutions. Today the conversation is more about whether to choose an all-in-one solution or piece together separate best-in-class solutions.
Petronis said that there’s no right answer on this question, it’s just a matter of where a company wants to deploy its resources.
“My bias on this topic is to try to build a system out of individual best-in-breed solutions, as opposed to relying on a single vendor to run your business,” Petronis said. “But that advice has caveats. Integrating those best-in-breed solutions typically means you have to be able to do some level of integration yourself, so it’s typically more effort. You have to figure out what best means, identify the best vendors and have the capability to do those evaluations.
“Once you layer on the regulatory constraints, you really need an in-house team capable of doing that, or a trusted partner/consultant. It can be daunting if you don’t have the resources, time and skillset.
“On the other hand, it could be much easier to evaluate four or five frontrunners for end-to-end solutions and take the bake-off approach. Those vendors are then on the hook to deliver what was sold, and that approach typically comes at lower licensing cost and a lower total cost of ownership.”
Petronis noted that many companies start out with an end-to-end approach and then transition as they know better what they need.
New uses for AI
With record origination volume in 2020, mortgage companies are increasingly turning to artificial intelligence to gain efficiencies in their businesses. Although constantly evolving, AI technologies include advanced analytics, robotic process automation, machine learning and blockchain.
A survey of 200 mortgage executives by Forbes and Roostify in July found that 55% of the executives surveyed think AI fintech will make their firm more competitive, and they are relying on it to reduce operating costs, deliver personalized customer experiences, improve customer experiences and reduce cycle times. Specifically, the survey found that the most popular AI use cases were:
- Predicting a banking customer is ready to buy a home (58%)
- Collecting and pre-filling data on a mortgage application (57%)
- Sending alerts to consumers and ops teams on status or progress of the loan (57%)
- Combining external databases to authenticate data (55%)
Mortgage companies are still figuring out how best to leverage blockchain, but there are indications that 2021 could be a breakout year for the much-hyped technology. Deloitte’s 2020 Global Blockchain Survey found that an increasing number of business leaders — 55% — see blockchain as “a top-five strategic priority and are increasing their investments in staffing and blockchain technology.”
Companies like JPMorgan Chase, Goldman Sachs, PayPal and Square all made significant investments in blockchain in 2020, and blockchain providers are able to demonstrate tangible benefits. Figure, a company offering the Provenance blockchain, says blockchain fintech could take 117 basis points of cost out of the mortgage process.
“There’s been increased talk this year about mortgage blockchain in terms of security and validation and identity, which blockchain could improve. I think we are finally going to see that come to fruition in 2021 and beyond,” Petronis said.
The pitfalls of all that data
Mortgage companies now collect an enormous amount of data, from property data to consumers’ buying preferences and social networks. Consumers expect personalized experiences but are conflicted about the data collected to understand their preferences. And for all the opportunities that data presents, it also carries a huge risk.
“I don’t believe companies have done a good enough job understanding the data governance side of things,” Petronis said. “Have they resolved questions like: Who does the data belong to? What happens if I get an information discovery request? How do I purge the data? What do I do to ensure there’s not a breach and what steps do I take if there is a breach?
“Many companies still aren’t prepared, but one thing is certain: When it comes to consumer privacy and data security, the aggressive posture from the regulatory side is going to keep tightening.”
An entirely digital mortgage came a long way in 2020 with the use of fintech, especially considering changes in the closing process. Mortgage lenders and servicers in 2021 will have to find a way to stitch tech together to make an end-to-end process that serves their business and consumers as we head into another year of low rates.