Large banks will gain the advantage in offering online mortgages because of their greater financial resources, pricing capabilities and cross-selling ability, Fitch Ratings said.
While a fully online mortgage does not currently exist, various players besides traditional banks, such as nonbank originators, marketplace lenders and internet banks have been working on digitizing parts of the process.
Nonbanks like Quicken Loans have benefited from their investments in the online mortgage process; Rocket Mortgage was responsible for $7 billion of the company's $96 billion in originations last year, a Fitch press release pointed out.
But over the long run, large banks have more financial and information technology resources and that could provide a competitive advantage over nonbank mortgage originators.
"Large brick-and-mortar banks have been investing heavily to digitize their mortgage process, despite some banks' initial lag in developing their online consumer experience. This includes actively buying and entering into joint ventures with fintech firms. JPMorgan Chase announced last month that it would be partnering with Roostify, a fintech firm, to build an online mortgage platform," Fitch said.
A more traditional advantage banks have over the competition is a lower cost of funds, which allows them to price mortgages lower. "Rates should remain a significant determinant of consumers' decision-making. Their large deposit franchises and other financial product offerings may also make it easier to reach potential customers and integrate online mortgages with other bank products," Fitch said.
On the other hand, there are risks involved with online lending like cybersecurity, fraud and regulatory compliance. There are also concerns over the extent that digital automation can replace human underwriting effectively, the ratings agency said.
"Representations and warranty and safe harbor issues could also be amplified with automation. Larger banks with greater compliance resources and existing large IT teams should be in a stronger position to manage these issues as they arise."