Page 31 - June 2018 Disruption Report Flip Book

TRANSFORMING MORTGAGE LENDING JAJNUUNAERY20210818
provide said capital to an unknown startup until a significant number of loans have already been made and repaid. Finally, mortgages involve an incredibly complex regulatory system that varies by county and state; often involves multiple third parties; and requires a deep and intimate understanding of the current system. These same regulatory requirements
— e.g, in-person home appraisals — also make it practically impossible for some of the processes to be fully digitized. Startups in this space often can’t fully bypass offline through online alone.
But now, there’s a new era of companies, spurred by increasing demand for better user experience—users are starting to expect the same efficiencies they have in so many other areas of their lives. Increasingly, people are starting to choose fintech companies over incumbent banks in other areas of financial services, and are now more open to procuring a mortgage from an unknown company. As a result, existing lenders are forced to prioritize improving the mortgage experience—sometimes through partnerships with new companies. Even the regulatory context is improving as agencies show more openness to making the process easier for consumers; for example, Fannie Mae is piloting a program that would allow homeowners to count their AirBnb rental income in mortgage refinance applications.
Furthermore, as entrepreneurs increasingly straddle not just tech-native know-how but other industry know-how as well, there’s new breeds of entrepreneurs and hybrid teams emerging that combine deep technical and financial expertise. Finally, there’s a number
of obvious tech shifts happening here: As new sources of data and AI techniques come online, the mortgage data collection, underwriting, and appraisal process can be sped up dramatically through software. Entrepreneurs are already rebuilding parts of the mortgage stack to make processes far more efficient than they were with legacy software.
The question is now less of just technology capabilities, but more of what strategies startups could use today to be successful in building a company in this space.
The Strategic Wedge
Instead of trying to redo the entire, multi-stakeholder process in one shot—which would be extremely costly and difficult to pull off—new mortgage companies are choosing a clever wedge from which to remake, simplify, or streamline part of the mortgage process. It’s
the strategic point (and sometimes even the Trojan horse) where they insert themselves into the process, with ambitions to expand from that initial beachhead. And sometimes it doesn’t even start directly with the mortgage.
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