From Robo-signing to e-Signing: The Future of Mortgaging

Several days ago, the New York Times published a rundown on startups who are looking to digitalize and streamline the mortgage underwriting process, with the aim of putting loans into the hands of information savvy Millennials. Starting small but growing fast, the startups profiled aim to take digitalize mortgaging, allowing loan seekers the experience of getting loans from anywhere, anytime, with ease. Only a few days later, the U.S. Justice Department and J.P. Morgan came to a $50 million settlement on the banks’ robo-signing practices, a concession that the Wall Street Journal says involves “payments to more than 25,000 homeowners, including some who received inaccurate payment-increase notices during their bankruptcy cases.” Robo-signing–the practice of approving loans without sufficient oversight to essentially mass produce loans in the buildup to the housing crash–is seen as one of the more dangerous and unsavory practices from the great mortgage run. The old and new conditions of the lending environment feel so distant from one another and so connected at the same time. Two stories that in their own way illustrate the balance the lending industry has tried to strike between ease, availability, and safety . . .  all the while negotiating cautious federal prohibitions against the type of practices that were instrumental in crippling the world economy less than a decade ago. A wealth of questions surround the industry, at once highly regulated to protect consumers and also largely insulated from the type of widespread competition that drives innovative products and offerings due to the high dollar amounts it handles.

The coming years will be interesting as traditional lenders and young upstarts tightrope walk their products into the market, trying to grasp the unique sensibilities and manage the distrust of younger homebuyers, while staying within the confines of ethical and legal lending. Tech and traditional lending aren’t diametrically opposed in theory, but the multi-trillion dollar goliath industry has been sluggish to keep up. Startups from Lenda to DocMagic are lining up as the market begins to shift from in-person underwriting to the digital space. And in the coming years, how loans are made will become all the more important in the competitive lending market, thanks to an ever-increasing demand. Two factors are coming together in such a way that, in all likelihood, there will be an immense push for consumers entering the housing market: demographics and the economy. Both pivot on the wants and needs to the youngest generation of homebuyers–Millennials, or those born between the early 80s and late 90s. The oft maligned, oft praised generation of phonegazers are coming to an age where purchasing a home is the next major life decision.

Millennials make up a substantial proportion of not only upcoming home buyers, but also the population at large–they are predicted to overtake the baby boomers, previously the largest generation, as the largest later this year. Up until recently, the recession and wage stagnation has prevented young graduates from getting the type of employment needed to grow a down payment and make a home purchase. But, as the job market starts to turn around, that may be changing. Will big traditional lenders make the changes to the status quo to court this immense emerging market, or will young upstart techies take the helm?

Beyond making loan underwriting more mobile and, for lack of a better word, swipeable, mortgage lenders need to overcome the enormous hurdle of distrust. Particularly for younger buyers who viscerally remember watching the generation before them, duped by confusing or unjust loan terms, foreclosed on at an alarming rate, banks are often seen as something of great skepticism. Last year, a Gallup poll found that only 26 percent of Americans have “a great deal” or “quite a lot” of confidence in banks, up from a record low of 21 percent in 2012. 28 percent say they have “very little” confidence. This is a problem both for traditional lenders and for real estate, as well as a marvelous opportunity for a new generation of lenders who can extract themselves from the “bank” archetype. By feeling less like a bank and more like a cool tech start up, can this prejudice against bankers be undermined? From my perspective–as someone of that age group–there is a strong likelihood. Whether mortgage loan startups take a slice or define market dominance like some of their Silicon Valley brethren is a question of how they clearly articulate how eSigning isn’t just robo-signing with an iPad.


NICHOLAS BROWN.
Based in Los Angeles, Nicholas Brown writes and researches for JustRentToOwn.com. His interests include macroeconomics, sustainable living, personal finance, and investment trends. He has also guest blogged for several websites, including Realty Times among others.

This article by Nicholas Brown first appeared on Just Rent to Own and was distributed by the Personal Finance Syndication Network.