Is AI in the mortgage industry?
AI has entered many aspects of our lives – the mortgage industry is no exception
It seems as if artificial intelligence (AI) has entered our daily lives at warp speed, so it may not come as a surprise that it’s making waves in the mortgage industry as well. From customer service chatbots to fraud detection and improved compliance with underwriting, AI is now offering solutions for streamlining various aspects of the mortgage process.
How much can AI impact the mortgage industry, and more importantly, how does this benefit you as an applicant or a current mortgage borrower?
AI may offer lenders greater efficiency when processing mortgage applications, including with customer service, underwriting and fraud detection.
Jump to insightLenders can use AI for improved compliance with the substantial number of regulations lenders face by using automatic reporting.
Jump to insightBorrowers can benefit from AI in the mortgage industry because it streamlines the application process and can offer a more comprehensive applicant assessment.
Jump to insightThe use of AI with mortgages can also cause concerns among lenders around the complexity of using it and the lack of proven success.
Jump to insightThe role of AI in the mortgage industry
The potential impact of AI reaches far into aspects of the mortgage process for both the borrower and the lender from the beginning of the exploration phase to closing and beyond.
Customer service
Chatbots are hardly a new concept, but they are a good reminder of the use of AI with customer service inquiries. Lenders can now use AI-driven chatbots and virtual assistants to provide more personalized assistance to borrowers by answering specific questions, offering guidance through the application process or facilitating communication with lenders.
Tailored loan recommendations
AI has the capability to recommend individual loan options for potential borrowers. It not only factors in personal financial information, such as income and spending habits, but also it can incorporate risk tolerance so a borrower receives a much more personalized loan recommendation. This can offer a helpful solution during the application process because it may suggest loan options that someone might be unaware of.
Documentation review
AI can assist with the documentation review portion of the loan application process, including automating the review of paystubs, bank statements and other documents. It can make quicker work of the submission process, which the borrower may appreciate, and can potentially reduce the number of human errors on the lender’s side.
Creditworthiness assessment
AI can use algorithms to assess a borrower’s creditworthiness in more advanced ways compared to the traditional underwriting process of relying on a credit score. Not only can AI analyze credit history, income and debt-to-income ratios, it can drill down even further. AI can analyze a borrower’s spending patterns, social media behaviors and bill payment history to form a more robust picture of a borrower’s financial habits.
Using AI to create a well-rounded applicant profile can potentially benefit borrowers as well, since it may increase approval odds based on other factors outside the traditional approval parameters.
Underwriting
The use of automated underwriting is not a completely new concept, but more lenders may choose to adopt this approach as AI gains in popularity. For example, Fannie Mae uses a proprietary program called Desktop Underwriter for its underwriting process, which provides faster data validation which in turn can make the underwriting process more efficient.
Fraud detection and compliance
Whether a borrower is taking out a new mortgage or refinancing, AI can assist lenders in looking for application anomalies or red flags that might indicate fraudulent activity. AI can do this by analyzing any inconsistencies in applications, such as with employment verification, instances of identity theft or inflated income statements.
Additionally, the mortgage industry is subject to a long list of regulations, which can make it harder for lenders to stay compliant. AI can help streamline the reporting process lenders face by automating much of the reporting.
Pros and cons of AI in mortgage lending
While AI offers numerous benefits around efficiency and customer service, it has its downsides, too.
Advantages
- Greater personalized service, including faster connection to lenders and individualized loan recommendations.
- Increased fraud detection by analyzing patterns, inconsistencies and anomalies with borrower applications.
- Improved underwriting customer data verification and quicker processing of the applicant’s documents and data.
Disadvantages
- AI doesn’t have a proven track record just yet, since it’s still in the early adoption phase in some areas.
- It may be too complex for lenders to integrate into current systems or existing infrastructure.
- There are concerns with AI having unintentional bias or discriminatory results, since AI must be programmed.
» LEARN: How to qualify for a mortgage
Future of AI in the mortgage industry
Based on a recent Fannie Mae survey among lenders considering adopting AI, the appetite is strong for using AI in numerous applications, both in interactions with customers and behind the scenes. Lenders are particularly interested in increasing the use of AI in complex categories such as compliance, underwriting and property valuation.
"Lenders are grappling with record-high costs associated with mortgage origination, placing additional strain on already stretched consumers and borrowers,” explained Mark Hinshaw, CEO of Candor Technology, which uses AI to approve or decline mortgage applications for lenders. “Enter artificial intelligence, poised as the most significant catalyst for cost reduction and accuracy improvement in decades.”
The same Fannie Mae survey also showed that lenders need more confidence with AI, as it does not have a long track record of results with lenders and there can be potential bias in the program.
“While AI has made strides in mortgage origination, the complexities and regulations surrounding activities like underwriting remain formidable challenges. Generative AI platforms, in particular, face hurdles in overcoming biases and inaccuracies inherent in their training data," Hinshaw said.
» MORE: Appraisal vs. inspection
FAQ
How does AI help in assessing the creditworthiness of a borrower?
AI can help with assessing the creditworthiness of a borrower in a couple of different ways. It can make quicker work of reviewing an applicant’s credit history, income and debt-to-income ratios (how much debt someone has versus their income).
It can also use more advanced algorithms for reviewing an applicant’s financial habits, including spending patterns and on-time bill payments, which may provide a more accurate prediction of an applicant’s risk.
How does AI improve the mortgage application process?
AI can offer improvement to the mortgage application process in a few ways. It can quickly answer an applicant’s questions and guide them through the application process. It can review all the financial documents an applicant submits, plus flag any inconsistencies or anomalies. Finally, it can make the underwriting process more efficient and reduce the likelihood of human error that may occur when underwriters evaluate personal information.
What are some examples of AI tools used by mortgage lenders?
Mortgage lenders have access to several AI tools. For starters, they can use AI to generate marketing copy for advertisements or use AI chatbots to improve communication in instances of answering specific questions or connecting a customer to the lender.
Lenders can use AI for more strategic purposes too, such as using AI for more accurate predictions of a potential borrower’s financial habits.
Bottom line
Lending professionals may use AI across a wide range of categories, including marketing, communications, personalized loan recommendations and underwriting. The proper use of AI may have a positive impact on the entire application process from start to finish for both the borrower and the lender.
However, even with the potential for greater efficiency, AI is not quite proven yet, and it remains to be seen whether or not it can improve on the human touch many lenders seek to offer their clients.
Article sources
- Areal, "Artificial Intelligence in the Mortgage Industry." Accessed March 29, 2024.
- Fannie Mae, "Mortgage Lender Sentiment Survey Special Topics Report." Accessed March 29, 2024.
- Fannie Mae, "Desktop Underwriter & Desktop Originator." Accessed March 29, 2024.
- Federal Housing Finance Agency, "Fraud Prevention." Accessed March 29, 2024.
- Federal Deposit Insurance Corporation, "Banker Resource Center: Mortgage Lending." Accessed March 29, 2024.
