MortgageTech is the Next Frontier for Fintech
The Fintech sector has been on fire for the past several years — both in terms of funding and buzz within the industry.
In addition to the new buzzwords we now all carry as part of our daily vocabulary, there has been some real progress towards disrupting traditional financial services business models through the use of technology, particularly in consumer banking, payments and wealth management.
Mortgage, however, is one segment that has lagged the overall growth of Fintech.
Despite the mortgage segment representing a HUGE market — more than $1.9 trillion [yes, trillion] in new single-family mortgage loans will be originated in 2016 according to Fannie Mae and approximately $10 trillion in mortgages are outstanding in the U.S. — yet mortgage has yet to see its day in the Fintech sun.
I believe that is about to change and we are on the cusp of what will be the next frontier for Fintech — MortgageTech.
The seeds for MortgageTech were planted several years ago by a handful of startups such as Roostify, Blend Labs and Better Mortgage that were all looking to re-invent the customer [borrower] experience by applying a digital lens to a very archaic, paper-based process.
For those who have applied for a mortgage recently, you likely have a sense for the opportunity and just how far this segment has to go, so it is no wonder that 30% of mortgage lenders are dis-satisifed with their Loan Origination System (LOS) technology.
For the past several months, I have been tracking and discussing a list of MortgageTech companies at the Fintech Genome, a peer-to-peer Fintech knowledge platform run by the folks from Daily Fintech.
We are seeing several distinct business models emerge within the MortgageTech landscape, each with their unique value propositions for the industry.
There are mortgage enterprise solution providers, which generally encompasses a new wave of B2B technology vendors with solutions for mortgage lenders. These startups are not lending money, but are building solutions for those who do lend.
The primary differences between this vintage of MortgageTech startups and incumbent mortgage technology providers are the use of more modern architecture and design principles to create a digital experience more on par with other consumer-oriented services.
Then there are what I call “digital first” lenders — startups that actually lend money to borrowers, but do so through a digital platform rather than traditional branch offices or a call center model. There are multiple variations of this model, but almost all believe that loan officers and underwriters [the most expensive parts of mortgage production] can be replaced with technology.
Finally there are mortgage data and analytics providers that are aggregating industry data and providing tools and insights to mortgage lenders and investors. This is an area with tremendous potential given the data-driven nature of mortgage as an asset class, but one that remains largely under-exploited.
In addition to the increasing number of startups entering the mortgage space, another sign of this segment’s emergence was the Digital Mortgage Conference that was held in December of this year and featured 2 days of events and demos from more than 25 companies.
While mortgage has a long way to go before it will be on equal footing with its industry peers, we are sure to see more attention on this space and MortgageTech will be more prominently featured in the Fintech spotlight.
