Quicken Loans' Rocket Mortgage has made waves because it promises to process a mortgage application in minutes and close the loan in under a month, but a new upstart is aiming to knock the firm, now the largest retail home lender in the country, off its perch.
Lenda claims to make the fastest mortgages out there — currently two weeks start to finish, with an eventual goal of 30 minutes in a nearly all-digital process.
Launched in 2014, Lenda has made $200 million worth of mortgages, is licensed in 12 states and plans to expand to 12 more later this year. Jason van den Brand, its co-founder and CEO, said that despite other big players, the mortgage arena is ripe for further disruption.
"Mortgages are stuck in the dark ages when it comes to technology," he said. "The big banks are working on technology that was built in the '70s. We cater to the customer who lives on their phone, laptop and tablet and shops online and compares online."
Lenda is following other fintechs that also aim to improve the customer experience in the mortgage process, including Social Finance (or SoFi) and Roostify. But it aims to be the quickest on the block.
How Lenda works
Lenda has built an online mortgage process in which, according to van den Brand, the underwriting starts while the consumer fills out an application.
“We’re able to look at their credit data to approve them and make sure they’re qualified for the loan,” he said. Compliance disclosures are automated and delivered in 30 seconds. Documentation is pulled automatically — Lenda lets the consumer log in to their bank account from its portal to retrieve the necessary three months of bank statements. (They could also download the statements from their Dropbox, Box or Google Drive account and then upload them to Lenda.)
Income verification and employment verification are automated where possible. To be sure, some employers don’t share employment data with databases used by lenders. In such cases employment verification needs to be manual.
The basic mortgage underwriting rules used by Fannie Mae and Freddie Mac are built into the software, ensuring the loans are easy to sell to the government-sponsored enterprises once they are made.
“You could have a human try to determine whether something qualifies or you can build that into tech and start doing it at lightning speed,” van den Brand said. The software makes sure the potential borrower is qualified and will provide a notice of denial within 45 seconds if a red flag crops up that could lead to denial.
“We don't want to waste the customer's time if they're not going to be approved,” he said.
The appraisal process, which typically is not automated, remains a problem. A human appraiser usually goes to a home, takes pictures, makes sure there’s nothing terribly wrong with the structure. It takes seven to 10 days to turn around, van den Brand said.
But this, too, could be automated, he claimed.
“Appraisals are just data,” he said. Satellites could take pictures of a home. Comparable data for the neighborhood can be looked up. Eventually, an appraiser won’t have to come to the house, cutting seven to 10 days from the process.
Lenda has also piloted a digital alternative to in-person document signing or having a notary come to the borrower’s house. It tested digital signing of mortgage documents through video chat with a notary in January in a pilot project in Washington state.
Lenda’s back-office technology lets its human underwriters focus on what really matters, van den Brand said.
The entire lending process start to finish is about 13 days, he said. Competitors take two weeks to two months, he said. Lenda also charges no fees and its rates are an eighth to a quarter of a percent lower than traditional lenders.
In the future, Lenda’s portal will be a place where consumers can access their loan documentation and obtain status updates.
Consumers ready for a digital mortgage
Closing mortgages within half an hour of application might sound like a systemic collapse waiting to happen. But the company is not trying to repeat the lead-up to the mortgage crisis, where banks and mortgage brokers pumped out thousands of no-doc, low-doc and robo-signed mortgages a day to meet the demands of Wall Street.
Instead, this automated solution can ensure certain verifications are locked in, just completed much faster.
Consumers, meanwhile, seem to be increasingly ready for digital mortgages. According to a Harris poll commissioned by Fiserv, 69% of consumers already research loan options online and 68% said they review loan documents online. Among millennials, 48% said they would be comfortable researching loan options on their smartphone.
"A lot of consumers want an all-digital mortgage or a more-digital mortgage," said Craig Focardi, senior analyst at Celent. "We're not that far away where we can enter info on our smartphones and check status and communicate. if lenders can combine and automate their compliance checks, then we can get to a digital mortgage very quickly."
Van den Brand says that time is coming faster than most imagine.
“We’re underwriting customers in 30 minutes, appraisals are getting to the point where they’re going to be automatic and we have completed closings that are borderline automatic,” he said. “By 2025, as a consumer, you’ll be able to sit down at your lunch break and your loan will be completed, done. A real estate agent could drive a client around to look at properties and give the customer the keys to a house the same day. And it will be a higher-quality, better-underwritten product because of data, because of technology.”
But Focardi said Lenda has a long way to go if it wants to catch up to Quicken.
"Lenda and other newcomers have a chance to replicate what Quicken Loans has done," he said. "Quicken relied on decades of mortgage lending experience, deep-pocketed parents, and a decade of continuous digital automation built on top of a legacy loan origination system. The path to becoming the next Quicken Loans will take a long time."
Editor at Large Penny Crosman welcomes feedback at firstname.lastname@example.org.