5 things we learned from the FHFA listening session on fintech
October 7, 2022 10:16 AM
If the issues raised at a public listening session Thursday are any indication, the Federal Housing Finance Agency's new Office of Financial Technology has its work cut out for it.
From a lack of standardization in appraisal automation to income analysis that could broaden borrower outreach, speakers notedrisks and opportunities they thought the office should address.
Their comments reflected the office's previously stated perspective that automation could bring the stubbornly high mortgage costs down for borrowers and the industry, but that it presents a host of new challenges.
Fintech can make home loans "faster, cheaper and more equitable," but the FHFA also needs to "be aware of any obstacles" it faces or creates relative to these goals, said Chris Dickerson, special advisor to the FHFA.
From a lack of standardization in appraisal automation to income analysis that could broaden borrower outreach, speakers noted
Their comments reflected the office's previously stated perspective that automation could bring the stubbornly high mortgage costs down for borrowers and the industry, but that it presents a host of new challenges.
Fintech can make home loans "faster, cheaper and more equitable," but the FHFA also needs to "be aware of any obstacles" it faces or creates relative to these goals, said Chris Dickerson, special advisor to the FHFA.
Appraisal comp adjustments have been a point of friction
In response to a question about what types of automation could benefit from a "tech sprint" in the office's recent request for information, Jillian White, head of growth at fintech Aloft Appraisal, singled out adjustments made to comparable property values.
Inconsistencies in how the process is handled lead to a lot of "back and forth," she said, so automating it in a standardized manner could remove friction. It could also support more equitable lending practices, White said.
"A lot of the conversation aroundappraisal bias has gained traction because within appraisals, we live within the domain of opinions," she said. "Anything that could be done to move us away from opinions and towards standardization, data-driven information that can be applied in the same way from appraisal report to appraisal report and from appraiser to appraiser, would help tremendously in solving for this."
Inconsistencies in how the process is handled lead to a lot of "back and forth," she said, so automating it in a standardized manner could remove friction. It could also support more equitable lending practices, White said.
"A lot of the conversation around
Community lenders fear vendor consolidation could increase costs
Automation can often provide cost savings, but if it becomes concentrated in the hands of too few players at a time when the mortgage industry is consolidating , some lenders fear it could reduce competition and lead to price hikes.
Large companies might have the resources to develop an in-house operation to deal with this concern, but smaller and mid-sized mortgage companies have fewer options, said Scott Olson, executive director of the Community Home Lenders of America.
"Software services are absolutely integral to…loan transactions. These contracts vary from three to five years, and so we're sort of at the mercy of what the vendors want to charge when they renew the contract," Olson said.
Community lenders might be able to transition to a new provider, but doing so requires an investment in time that could be hard on them financially, he said.
"For our lenders, we can't afford to be down for even a few days and so that presents this situation of vulnerability," Olson said, in asking the FHFA to consider policies that would address these challenges.
Large companies might have the resources to develop an in-house operation to deal with this concern, but smaller and mid-sized mortgage companies have fewer options, said Scott Olson, executive director of the Community Home Lenders of America.
"Software services are absolutely integral to…loan transactions. These contracts vary from three to five years, and so we're sort of at the mercy of what the vendors want to charge when they renew the contract," Olson said.
Community lenders might be able to transition to a new provider, but doing so requires an investment in time that could be hard on them financially, he said.
"For our lenders, we can't afford to be down for even a few days and so that presents this situation of vulnerability," Olson said, in asking the FHFA to consider policies that would address these challenges.
The digitization of residual income analysis could involve NFTs
The kind of residual income analysis recently adopted by Guild Mortgage opens the door to more expansive underwriting, said Brent Chandler, founder and CEO of FormFree, the vendor involved in the lender's new program.
"The credit invisibles and those that have been left behind, it's time to address their needs," he said.
Down the road, he foresees the further digitization of borrower information opening up the market further.
"It's our mission to make lending more inclusive by capturing that holistic view of the consumer and making that available both to the consumer as well as to the lenders as a non-fungible token ," Chandler said.
"The credit invisibles and those that have been left behind, it's time to address their needs," he said.
Down the road, he foresees the further digitization of borrower information opening up the market further.
"It's our mission to make lending more inclusive by capturing that holistic view of the consumer and making that available both to the consumer as well as to the lenders as a
Lending by mortgage fintechs is, on average, more expensive
Rates for mortgages originated by nonbank fintechs vary but are, on average, 14 to 16 basis points higher than rates charged by traditional financial institutions, according to Aminah Moore, senior regulatory affairs counsel, National Association of Federally-Insured Credit Unions.
Moore called for regulatory cooperation in oversight of fintechs, noting that she, like the FHFA, sees a mix of risks and opportunities in working with them.
"Fintechs can make…mortgage loans much faster than traditional methods, which can provide a huge advantage for borrowers who may be racing the clock, especially in times of [volatile] interest rates and competitive housing sales," she said. "Conversely, Fintech innovation within housing finance has limits and may not be accepted by all borrowers."
Moore called for regulatory cooperation in oversight of fintechs, noting that she, like the FHFA, sees a mix of risks and opportunities in working with them.
"Fintechs can make…mortgage loans much faster than traditional methods, which can provide a huge advantage for borrowers who may be racing the clock, especially in times of [volatile] interest rates and competitive housing sales," she said. "Conversely, Fintech innovation within housing finance has limits and may not be accepted by all borrowers."
AI might help with new language translation requirements
Artificial intelligence and machine learning technologies could come in handy when it comes to new requirements FHFA added earlier this year for borrowers with limited English proficiency.
"Some key areas to continue advancements are the use of AI and ML for digital experiences, mobility, as well as language translation," said Bhavini Amin, who leads revenue, operations and marketing for Roostify.
"Some key areas to continue advancements are the use of AI and ML for digital experiences, mobility, as well as language translation," said Bhavini Amin, who leads revenue, operations and marketing for Roostify.
