Banks and large mortgage lending firms have traditionally dominated the broadly understood mortgage industry. However, in recent years, startups with a tech-focused approach, such as Mortgage Propeller, Mojo Mortgages, or Mortgage Hippo, have revolutionized the outdated and cumbersome mortgage processes. Those startups have developed various tools and services to enhance mortgage technology, address poor customer service, and streamline the slow mortgage approval processes.

The impact of COVID-19 on the mortgage industry

With approximately $7trn in outstanding mortgages in the European market and $11trn in the US market, the mortgage industry presents a vast opportunity for disruption. Despite the global pandemic's impact on financial markets, the Federal Reserve's actions led to historically low-interest rates, fueling a surge in loan originations for new home purchases and home refinancing.

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The COVID-19 pandemic brought significant changes in consumer behavior, with remote work being one of the most notable shifts. As families become more accustomed to staying at home, the demand for suburban housing and home improvements is increasing - leading to a rise in single-family housing starts in both the United States and Europe compared to previous years.

However, the mortgage industry faces the challenge of operationalizing remote working teams that can support customers throughout the mortgage process. Coupled with the high volume of applications, this creates a bottleneck as lenders try to manage the influx of applications while lawyers and conveyancers deal with the surge in completion work.

Lenders primarily focus on reducing costs associated with the mortgage process, which can be expensive due to its complexity. The lending assessment involves multiple parties, including aggregators, brokers, and lenders, who must work collaboratively to ensure a seamless customer journey. The pandemic was a catalyst for the digitization of the mortgage market, resulting in greater efficiency and improvement of a suboptimal process, ultimately benefiting future customers.

Latest innovation trends in the mortgage industry

The digitalization of the mortgage process benefits borrowers - who enjoy a superior customer experience through design, automation, convenience, efficiency, and lenders.

Digital verification enables lenders to make faster decisions based on more accurate information and can enhance compliance and quality by eliminating human error.

New technological models can be categorized into four different segments:

1. Mortgage processing/workflow software
2. Marketplace lending and direct-to-consumer lending
3. Digital mortgage brokers and mortgage closing
4. Mortgage data and analytics

Mortgage processing and workflow software

Companies and startups enable lenders to improve their workflow by helping them organize and track documents in the mortgage process. Some of the most successful startups in this area are US-based.

Three companies fall into this category: Blend Labs, Cloudvirga, and Roostify. Blend Labs is a platform that focuses on mortgage lending while providing buyers and lenders with an innovative application experience for home buying. Cloudvirga, on the other hand, is the creator of the cloud-based intelligence Mortgage Platform®, or iMP, designed to streamline the mortgage process. Finally, Roostify offers web and mobile services that simplify and accelerate the loan application and closing process.

Marketplace lending and direct-to-consumer

Marketplace lending and direct-to-consumer companies are changing the mortgage industry by empowering borrowers to access mortgage loans directly and easily. Platform leaders, such as Better Mortgage, LendInvest, and SoFi, consistently innovate to create a seamless experience for borrowers looking for different types of loans, including mortgages.

Better Mortgage, for instance, is a direct lender to consumers looking to access mortgage loans. Others include LendInvest, a marketplace lending and investing platform for residential and commercial mortgages.

Focusing on property finance, they orchestrate the relationship between borrowers, investors, and intermediaries. SoFi is the biggest company in the space, which began as a student loan-focused marketplace and now offers a marketplace lending platform for different types of loans. SoFi’s mortgage capabilities are provided by Zillow, a publicly quoted market discovery platform to find and share information about real estate.

On the other hand, the European market leaders include Landbay and Molo. Landbay offers retail, institutional, and local government investment into UK residential mortgages, while Molo leverages AI technology to speed up the mortgage application process and bring ease and affordability to borrowers.

With their efficient and innovative platforms, these companies are disrupting the traditional mortgage process and making it easier for borrowers to unlock the dream of homeownership.

Digital mortgage brokers and mortgage closing

The digital mortgage industry is revolutionizing the home buying experience, making it easier for consumers to connect with top mortgage providers and secure great deals by assessing various characteristics. UK-based Habito is one of the leading players in this field. This company gives more than 3,000 external brokers exclusive access to the company's buy-to-let mortgage products and Instant Decision technology capabilities.

Better.co.uk (formerly Trussle) implements a freemium model, giving borrowers free mortgage advice and leveraging a network of 90 lenders. As competition intensifies, many digital brokers have shifted focus towards mortgage closing startups that offer a seamless path to execute real estate transactions. Qualia raised $160mn to date and combines a range of services, including title production, escrow, document preparation and storage, secure communication, and repeatable workflows to provide end-to-end support.

Mortgage data and analytics

Some startups utilize advanced data analytics tools beyond market research to make better business decisions. Through products that collect and supply data to mortgage originators, issuers, investors, or services, businesses are constantly innovating. Amongst leading players, we have LoanLogics, which provides loan performance and quality analytics software. Credit Sesame is another US-based player offering a credit scoring system that helps consumers manage and grow their credit while saving money. As for novel ways to capture data, a standout startup is Cignifi. Their innovative analytics platform delivers consumer credit and marketing scores using data from mobile phone behaviors.

A look into the future of the mortgage market

Digital technologies, like artificial intelligence, blockchain and machine learning, are expected to continue in the mortgage industry as more lenders adopt these solutions to improve the mortgage process. Alternative lenders and fintech startups will also likely gain market share as they offer innovative solutions and attractive underwriting models to tech-savvy, younger borrowers. Lenders will strive to enhance the customer experience by providing faster loan approvals and personalized service to stay competitive.

Additionally, lenders are likely to prioritize environmental, social, and governance, also known as ESG, when evaluating borrowers and properties, potentially leading to an increased emphasis on sustainable and energy-efficient homes. Governments and regulators may introduce new policies and regulations to address affordability, credit access, and systemic risk concerns. Despite these changes, demand for homeownership is expected to remain strong, and the mortgage market will still be fundamental in facilitating access to credit and supporting the housing market.

The pandemic catalyzed accelerating the digitization of the mortgage industry, with pressures from the US and UK models pushing other markets to follow suit. The marketplace model has attracted significant funding, but newer verticalized solutions such as mortgage closing and data analytics are gaining momentum in response to the complex ecosystem and rising customer expectations.

As the mortgage market continues to evolve, it's clear that lenders will need to continue innovating and improving the customer experience to remain competitive. With the adoption of new technologies and alternative lending models, the future of the mortgage market will be shaped by a blend of traditional and digital solutions that prioritize efficiency, convenience, and sustainability.

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