On the one hand, Wells Fargo and loanDepot announced hundreds of layoffs within their respective mortgage divisions. On the other hand, loanDepot recently announced the hiring of 60 new loan officers. What’s going on here?
Clearly, the demand for mortgages is dwindling due to the economic pressures of rising interest rates AND the advancement of real estate mortgage technology.
Here is the economic pressures side of this causal equation.
The Federal Reserve just released its Senior Loan Officer Opinion Survey on Bank Lending Practices. This survey compiles data from 70 banks around the country in seven categories of residential home purchase loans. Those categories include GSE-eligible, FHA, VA, USDA, QM non-jumbo, non GSE- eligible, QM- jumbo, non QM-jumbo, non QM-non-jumbo and subprime loans.
Lenders reported they would tighten credit standards if/when long-term interest rate products, such as mortgages, begin to yield rates lower than short-term interest rate products. Such a scenario would cause a yield inversion. Yield inversions are seen as predictors of a coming recession.
“Significant shares of banks indicated they they would tighten their standards or price terms across every loan category if the yield curve were to invert,” stated the survey report.
Here is the advancing technology side of the causal equation.
Steve Butler, the founder and president of AI Founding, tells us to look for new AI trends in mortgage lending for 2019.
- AI “kills” OCR (optical character recognition) that has been used in document processing for 100 years. AI tech enables machines to read and react to handwritten content. Manual document processes such as mortgage processing is replaced by software-based robotics processing.
- The veil comes off “instant mortgages.” Mortgage approvals still take weeks, usually three, despite what lenders and iLenders say about “approvals in minutes.” Lenders will instead go to AI back-office automation to speed the mortgage process so that consumers can have a mortgage in hand when they make a bid on a house. AI back-office automation will close the competitive gap between cash buyers and mortgage buyers.
- Mortgage processing will come back to the US. Currently, mortgage processing is “offshored” to low-wage countries such as India and the Philippines. Mortgage processing will come home to AI back-office automation. This will spike back-office investments made by lenders so that lenders will be better able to comply with emerging state privacy regulations AND reduce their costs.
- Instead of the current 3-week approval process, one-day approvals will become the norm within 5 years as AI drives a new generation of “software robots” to automatically process mortgages.
- Real estate firms and websites will become 1-stop shops. Installing a comparable horizontal model used by auto dealers for financing and maintenance, real estate firms will enable buyers to access financing. legal counsel. Accredited inspectors and contractors from their agents. Current examples of this already happening are Keller Williams with K-W Mortgage and Zillow’s acquisition of Mortgage Lenders of America.
It may well be that these 60 new loanDepot loan officers are loan officers of a different strip who come with the expertise to utilize this AI back-office automation.
