Page 33 - June 2018 Disruption Report Flip Book

TRANSFORMING MORTGAGE LENDING JAJNUUNAERY20210818
machine learning techniques—to be able to forecast home sale prices and timing. The companies also need to have teams with the kind of entrepreneurial backgrounds that inspire enough capital market confidence such that they can raise an outsized balance sheet. But as these startups gain scale and sell thousands of houses, they can then use the data from those sales to better predict what types of houses will sell at what price and when, and hence offer faster liquidity and better prices, in turn attracting more buyers... a virtuous cycle. As the scale of sellers and buyers grows on their platforms, these startups will be well-positioned to offer more services—like mortgages!—and it will be harder for new entrants to compete with the data network effects.
C. Streamline origination, the most frustrating part
Since applying for a mortgage is the most visible source of user frustration, many startups choose that painful frontend—the application process—as the initial wedge.
One way to do this is to partner with existing originators to provide a better user interface for the mortgage application process, but with the necessary “hooks” into the banks’ legacy systems. If done right, the originator wins by providing a better user experience to its customers, and the startup benefits by leveraging the existing originator’s distribution channel (though startups should be careful with B2B2C). Some early companies are already employing a similar strategy, but for brokers. Once thousands of new mortgages flow through the platform at scale, potentially sourced from many different lenders, the startup will have gained a rich source of data and could start taking over more of the mortgage process to further shorten the full closing process.
Another way to do this on the frontend is to build a Kayak-like marketplace. There may
be room for a new comparison site here (LendingTree, which was founded in 1996, is the giant in this space) that helps consumers not only better understand their options, but goes further to help homebuyers through the mortgage process. At scale, one could imagine a “new Kayak” (riffing on the travel-comparison site) but that offers its own branded product to compete side by side.
Conversely, some startups focus first on the backend of the origination process where there are large efficiency gains to be made. A mortgage can take up to 100 hours and cost almost $9K to produce. A startup could build new software from scratch, which provides full flexibility but is more costly, or try to build upon and improve existing software which may limit flexibility. Some new players purchase an existing company with a steady flow
of customers already in place. The existing flow of customers enables the NewCos to first
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