5 Fintech Firms Hoping to Impact the Mortgage Industry in Big Ways
Jul 27, 2016
Technology has disrupted any number of industries over the last two decades — media, retail, transit, and hotels. Is there any reason the mortgage business would be any different?
Perhaps. As mortgage industry consultant Aaron LaRue noted in an article for TechCrunch earlier this year, home loans present a variety of challenges to financial technology, or fintech, firms.
For instance, the highly regulated nature of the business requires a substantial investment in employees and systems to ensure compliance and correct reporting. And the complex, multi-part process of originating a home loan means companies need to be well staffed with specialists needed at each step of the way if they hope to significantly scale their businesses.
Those aren’t requirements that can just be “innovated” away, LaRue points out.
At the same time, mortgages are a multi-trillion dollar industry, with more than 81 million mortgage accounts in the first quarter of 2016, according to the Federal Reserve Bank of New York. Meanwhile, the average time to close on a mortgage loan is 45 days, according to recent data from Ellie Mae.
That kind of opportunity is all but certain to draw interest from entrepreneurs looking to build a new business by improving upon this old one. But established fintech players still face some uncertainty in areas such as regulation and a cooled response from the investment community.
Still, historically low mortgage rates and rising home equity levels offer rewards along with the risks to innovation in the housing space. Below is a look, in no particular order, at five up-and-coming fintech firms.
Imagine if, when you decided to sell your home, instead of putting it on the market, holding open houses, and then spending weeks or months working through the details of a sale to another individual buyer, you could just go online, get an appraisal, and close the deal. That’s the idea behind start-up Opendoor, which buys and sells homes directly from and to private individuals.
The company, which currently operates in Phoenix and Dallas and plans to expand to Las Vegas, uses seller-provided descriptions along with an analysis of the local market to come up with an offer price for your home. If you accept that offer, they then conduct a home inspection. Assuming the inspection doesn’t turn up any issues, sellers can then select a closing date between three and 60 days out. Opendoor handles the rest of the process, delivering proceeds of the sale on your chosen closing date and charging between six and 12 percent of the sales price.
On the other side of the process are buyers who, upon purchase of an Opendoor property, are able to return their new home within 30 days if they aren’t happy with their purchase, minus the closing costs. Homes also come with a two-year warranty covering a range of repairs and maintenance services.
2. Better Mortgage
New York City-based Better Mortgage is combining data science, machine learning, and user experience (UX) design with the goal of streamlining the mortgage process. The company, which originates mortgages and then sells them to investors who provide servicing, developed an online mortgage process that allows customers to complete the process, from an initial quote through to the ultimate house purchase, all online.
According to the company, which currently operates in California, Washington, and Oregon, it has originated 10,753 mortgages to date, with a total of $4.99 billion in funded loans. It also closed a $30 million Series A financing round from investors including Goldman Sachs this past June.
Launched in 2014, this San Francisco-based firm aims to streamline the mortgage refinancing process allowing customers to complete their loan from start to finish without leaving their home. The company offers an online application process as well as the ability to verify credit scores and upload required documents through a secure portal.
According to the company, it passes the cost savings provided by its streamlined approach to its customers, allowing for lower rates and fees. Lenda currently operates in California and Washington.
This mortgage broker is using technology to make the lending process simpler and more straightforward for consumers, offering an online application and providing applicants with access to more than 40 different lenders and 1,000 different loan programs.
Consumers can compare rates and fees across lenders to determine their best option. Sindeo also aims to provide a more old-school personal touch — customers are guided through the process, from quote to close, by one of the firm’s mortgage advisors.
According to the company, the process allows for closings as quickly as 15 days and saves customers an average of $20,000 over the life of their loan.
This San Francisco-based lender started off in the student loan business, offering recent graduates the opportunity to consolidate and refinance their loans. The company has since moved into personal loans and mortgages where it offers home loans of up to $3 million with down payments that range from 10 to 50 percent.
SoFi uses technology to streamline the application process. Customers apply and upload documents online. SoFi also eschews origination fees and doesn’t require mortgage insurance, even in the case of applicants putting less than 20 percent down. The company is currently licensed to originate mortgages in 26 states plus Washington, D.C. To date, the company says it has issued about $10 billion in loans across all of its businesses since 2011.
SoFi’s overall loan volume that includes mortgages, personal loans, and student loans, was $1.85 billion in the first quarter of 2016. Its mortgage loan volume has increased each quarter since that product launched in December 2014 through the first quarter of this year, says SoFi.
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