The State of Mortgage Tech – Disrupting The $1.8T Industry

Almost $1.8T worth of mortgages were originated in the U.S. in 2017, reports government-backed mortgage lender Freddie Mac.

However, even though the mortgage industry is gigantic, the space has yet to become digital. You still need fax machines and snail mail for originating, processing, and underwriting home loans. In fact, the process takes about as long as it did 20 years ago.

Because the industry is so big and profitable, venture capitalists and tech entrepreneurs are targeting it for innovation.

We are still early in the game for tech to have a big impact on how mortgage operations are performed. We’ll break down what mortgage tech is, and the opportunity its players want to capitalize on.

Why it matters: Bank lenders and incumbents will want to be aware of potential loss of market share due to individuals leaving them for smaller, streamlined, tech savvy players.

Defining Mortgage Technology

Mortgage technology startups are companies that apply digital processes to mortgage origination, underwriting, servicing, investment, and other tasks related to the industry.

What Accounts for the Rise of Mortgage Tech?

Reason 1: Increased Competition

Mortgage tech is accelerating because banks are facing more competition from non-bank lenders. The Washington Post reports that three banks accounted for half of the new mortgage loans in 2011, but as of September 2016, that portion had decreased to 21%.

Reason 2: Incumbent Lenders Realize They Need Better Tech

Incumbents are realizing they need better processes, and are turning to digital problem solvers to drive their adaptation. The bulk of this is driven by consumer expectations and evolving behaviors as more homebuyers than ever are digitally fluent.

Reason 3: Debt Burdens are Making Alternative Lenders Necessary

Student debt and skyrocketing urban rent means first-time millennial home-buyers in the US are drowning when it comes to managing personal finances when it comes to qualifying for home loans. Most importantly, Millennials are failing to put together the money they would need to make a down payment. There is a common but false assumption that Millennials are simply not interested in buying homes. While 80% want to buy homes, 72% can’t afford to.

Ultimately, it appears that mortgage tech is on the rise because agile companies have a vast, untapped, tech-savvy market looking for what alternative options the future innovations to the industry will bring.