Page 34 - June 2018 Disruption Report Flip Book

TRANSFORMING MORTGAGE LENDING JAJNUUNAERY20210818
focus on creating new software and processes to bring efficiency and drive down costs in mortgage production. From this improved cost position, the new company can then move to scaling its customer acquisition. Existing nimbler, smaller originators are also making strides to significantly reduce processing costs by developing new software.
Finally, some startups tackle both the frontend and backend at once by becoming a direct lender. These are the startups that don’t partner with incumbents or buy an existing company, so will need to develop the full stack of mortgage capabilities (as well as gain regulatory approvals).
The advantage of a full-stack strategy is that the startup will own the entire experience, end-to-end, of the mortgage process, which can be very appealing for customers. It’s not dissimilar to what Lyft and Uber did, where instead of trying to fix the taxi industry or sell software there bypassed it altogether. However, remaking the entire process here is far more complex, with far more players, and even more capital intensive. Startups pursuing this strategy often choose strategies to mitigate some of the initial risk, such as rolling out one state at a time or leveraging partner software for some pieces of the process at least. Also, rather than competing head on with the incumbents for qualified mortgages, these companies may target potential homebuyers who would have trouble getting a mortgage in the current framework but who may still be good credit risks (for example, gig economy workers who are responsible but do not fit the standard W-2 requirements for a qualified mortgage).
D. Coordinate the closing
The coordination of the many parties involved in a mortgage adds time and cost to the process—finding and scheduling (and even rescheduling!) a notary alone could take a
few days of back and forth. A similar challenge exists with appraisers. Further adding to the logistical complexity here, lenders and insurance companies need coverage in many different geographies. If a new company wedges in by facilitating these time-consuming, offline processes for lenders and insurance companies, it could be in a good position to take over even more of the mortgage closing pie especially as these processes move from offline to online.
E. Offer better servicing
Mortgage servicing is the longest-lasting aspect of the mortgage process in terms of user interaction, as these companies collect checks over the life of the loan. Yet many servicers
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