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Lessons Learned from 2022’s Mortgage Lending Trends

by Chan Hsuan Hung
Thursday, February 3 2022

#trends

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The home-buying process has undergone a dramatic transformation in recent years. Increasing digitisation means that prospective homebuyers have new ways to view, and buy their dream home. 

During the COVID-19 pandemic, these digital-first channels became absolutely crucial—many rely on these online tools to view potential properties. Meanwhile, AI has expedited the document-heavy process of applying for a mortgage, and of being approved. It used to take people considerable time to pore over all relevant documents when reviewing a mortgage application. For machines, however, this can be completed in minutes. 

This blog post will dive into the three trends that will impact the mortgage market in 2022 before exploring how these also apply to digital debt collection. Specifically, it will analyse:

  • The digital homebuying experience
  • Increased virtual loans services
  • Why FinTechs are coming after the mortgage market

The digital homebuying experience

In the past, prospective homebuyers would always insist on seeing houses in person. This is understandable. Buying a home is incredibly expensive, so it makes sense to see it up close. 

But now, that has all been turned on its head.

The COVID-19 pandemic meant that people couldn’t view homes in person. Under strict lockdowns and quarantines, they had to resort to using other channels. Like digital alternatives.

According to Zillow, “36 percent of Americans would be more likely to try to buy a home entirely online during the current coronavirus outbreak while 43 percent would be more likely to try to sell a home entirely online”.

This is especially popular amongst the younger generations. Zillow research shows that 36% of Gen Z and 39% of Millennials would happily buy a home online. These generations are digital-first and have grown up online. They trust digital channels for their banking and for communicating with loved ones, so why wouldn’t they trust it when buying a home?

And it appears this trend will long outlast the COVID-19, with 30% of people saying they would still choose to take a virtual or video home tour instead of visiting in-person—even after the current coronavirus outbreak ends. 

Increased virtual loan services

Applying for a mortgage (or any loan for that matter) has traditionally been a very long and tiresome process. Applicants have to submit a wealth of information: identification documents, bank statements, proof of income, evidence of a deposit, and more. In the past, applicants might even have had to sit down with mortgage brokers face-to-face to go over the key details—and this would often take multiple meetings before the mortgage was approved. 

However, the rise of digital channels is reinventing the way in which people apply for mortgages. 38% of lenders who offer online applications say that more than 80% of their applications were completed online in 2020. This isn’t surprising when you consider that 80% of consumers would prefer an entirely online loan application process. 

In fact, according to Infosys, only 0.3% of mortgage applications are completely paper-based nowadays. 34% of all mortgage applications are 50% digitised—in other words, there is an equal mix of paper and digital application processing. Excitingly, over 50% are highly digitised (75% and above), meaning that many financial organisations have realised the value of automation and have put it to use in the mortgage lending industry. 

Source

According to Home Credit India data, “Nearly 40 per cent borrowers showed willingness to move to digital platforms for taking loans. This is over and above the 15 per cent customers who have already graduated to the online loan journey instead of traditional offline channels.” 

Consumers can now easily complete the entire process virtually, though this means that loan providers must ensure their online processes are up to the task. “Signing documents electronically is quickly becoming the minimum, and borrowers expect a seamless experience from start to finish”, according to Joe Tyrell, President of ICE Mortgage Technology. 

Why FinTechs are coming after the mortgage market

FinTechs are transforming every aspect of the financial services industry, from debt collection to personal banking. Unsurprisingly, they’re now also coming after the mortgage market.

According to statistics from EconStor, FinTech lenders have “grown annually by 30% from $34bn of total originations in 2010 (2% of market) to $161bn in 2016 (8% of market)”. Meanwhile, in the U.S., FinTech lenders are now responsible for two-thirds of all mortgages—this represents a 660% increase in market share since 2009.

FinTechs have reimagined the mortgage application process, using AI and digitisation to make it more efficient for both parties. With consumers readily adopting FinTech solutions in other areas of their life, why wouldn’t they consider using a FinTech when it comes to applying for a mortgage?

Digitisation is not only reinventing the mortgage landscape, but it’s also having a profound impact on the debt collection industry.

AI and digitisation are removing the need for human interference, making dunning processes more simple, scalable and effective. By leveraging machine learning and automation, financial organisations can analyse large data sets in seconds, take the appropriate next steps, and make informed decisions. This makes collections teams more productive, while also providing past-due customers with an enhanced and seamless end-to-end customer experience

But rather than competing with FinTechs, traditional organisations can instead work with them—using these companies’ innovative tools for their own customers’ benefit and to unleash their potential. This allows them to focus on their core business while leveraging the latest, best-in-class solutions. By doing so, they will increase their customer satisfaction and reduce days sales outstanding (DSO) going forward.