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TRANSFORMING MORTGAGE LENDING JAJNUUNAERY20210818
are still operating off legacy systems that are ill-equipped to deal with any new changes in regulation; they also don’t have good processes for cost efficiently dealing with delinquent borrowers. Meanwhile, for borrowers, it’s challenging to get fast, reliable information about their mortgages and easy answers to questions. Better servicing software could help reduce costs, keep up with compliance, and provide a host of other benefits that appeal to users. The challenge here for new servicers will be to convince originators (e.g., banks) to sell the servicing rights to a startup without a proven track record.
F. Create new ownership models
Although there have been many permutations of the mortgage across its history—e.g., 30-year fixed mortgage, adjustable-rate mortgage, interest-only mortgage—the basic concept has remained the same: homeowners pay a percentage now and the rest over time until they own 100%. What about rethinking this underlying financial instrument?
For instance, what if a homeowner could sell just part of the equity in her home — thus allowing homeownership at 80% or 90% instead of the binary, all-or-nothing model of 100% ownership (companies like Point enable this model).
Other companies here (like Divvy Homes) help new homeowners that don’t have the
full down payment, or whose credit score falls just short, to become homeowners. The company will buy the home and the potential homeowner will rent it back while also paying to build a small equity stake. At the end of a certain time period (in this case three years), the renter owns equity (10% in this case); has likely improved her credit score; and can purchase the entire home from the company.
These are just a couple examples of new models of home ownership, that arguably better align risk and incentives, unlock a whole new asset class for all kinds of investors, and potentially help avoid mortgage crises around the world.
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Tackling the mortgage market has clearly been a daunting challenge for all of the above reasons. But it’s also where the opportunity lies—as is the case with many software-based startups, the technology and strategy together provide a wedge into reinventing a very manual, error-prone, and slow process. And there are opportunities for startups to insert themselves at nearly every stage of the home buying process. (Andreeseen Horowitz Briefing, Angela Strange, 05/19/18)
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