Last Updated on May 2, 2024 by Luke Feldbrugge
AI in mortgage lending is here to stay. As artificial intelligence (AI) evolves, so do its possibilities for transforming the mortgage industry and the work of mortgage professionals. Loan officers and mortgage originators looking for ways to improve and grow their businesses should consider what AI brings to their business and where time and innovation may bring more clarity and trust.
One sign of AI’s important future is the Federal Housing Finance Agency (FHFA) appointing a Chief Artificial Intelligence Officer (CAIO). Tracy Stephan, head of the Office of Financial Technology, will also serve as the CAIO. Establishing the position is the FHFA’s response to an Executive Order and related Office of Management and Budget memo to address AI security risks and better govern this new technology space.
“Establishing a Chief AI Officer underscores FHFA’s commitment to understanding new developments in technology and the marketplace and incorporating those insights into our day-to-day work,” said FHFA Director Sandra Thompson. “Through her role leading the Office of Financial Technology, Tracy has been a leader in FHFA’s work on AI and she is well prepared to lead this into the future.”
AI’s impact on the mortgage business mirrors what we see in the real estate industry including; automating and streamlining repetitive tasks and processes, increasing efficiencies and convenience, and improving customer service. AI in mortgage lending extends to areas such as risk management, fraud detection, loan underwriting and loan serving.
How is AI Changing the Mortgage Industry?
AI in mortgage lending is becoming more commonplace as loan officers discover how AI elevates business.
As seen with others in the real estate industry, anticipated advantages include:
Improving Efficiencies, Accuracy and Volume of Business
For loan officers, this includes:
- Loan application intake and pre-qualifying applicants.
- Processing and verification of documents relating to the potential borrower’s application.
- Risk assessment analysis of the loan applicant for underwriting purposes with machine learning algorithms to assess creditworthiness.
- 24/7 customer support tools such as chatbots and virtual assistants that elevate customer service.
- Automated delivery of loan servicing statements and borrower reminders.
Next Level Customer Service
Customer service wins customers, and AI is making a difference:
Chatbots and virtual assistants that elevate customer service with 24/7 availability.
Analysis of customer behavioral data can help a loan officer use target marketing and advertising more effectively.
Analytics that drive delivery of loan options tailored to a borrower’s specific needs and circumstances.
Data is at the center of the mortgage business. Customer behavioral data and other individual borrower data are critical to everything from a loan officer’s business marketing efforts to providing a borrower with loan options tailored to their needs.
Fraud Prevention
AI can identify irregularities in loan documents, highlight inconsistencies in borrower information, and compare large databases of borrower data and public records to highlight red flags.
Improvements in Predictive Analytics
Predictive analytics are central to what the mortgage industry does. Whether assessing the risk of an individual borrower repaying a loan in a timely manner, or making market predictions that influence borrower and lending behavior, AI brings value.
Accurate risk assessment is key. With machine learning algorithms that can analyze massive amounts of data from a variety of sources, loan officers benefit from a more thorough and complete analysis of a borrower’s risk. Creating a better borrower profile ultimately helps lenders through improved loan decisions and a better assessment of default potential.
Also important to lenders, accuracy in predicting overall market trends. Benefiting from AI’s deep dive into historical data on the economy and housing market, lenders can anticipate changes in the market, and what it may mean in terms of potential loan product offerings.
Lender Comfort Levels Using AI
Lenders comfort level and eagerness to adapt to AI in mortgage lending varies by task and purpose. Fannie Mae’s 2023 Mortgage Lender Sentiment Survey® of mortgage lenders found lenders are most interested in AI’s ability to “improve operational efficiencies” followed by compliance, underwriting and property valuation.
The focus on efficiencies makes sense considering the volume of data consumed, desire to properly assess risk and to move clients to closing as swiftly as possible.
What Challenges Remain with AI in Mortgage Lending?
AI presents the mortgage industry with challenges, in addition to the positive influences and innovations. With the complexity of the process and stress it presents, no one really believes AI will replace mortgage loan officers. But instead, AI in mortgage lending can enhance the process and allow humans to do what they do best. The human element remains vital and irreplaceable.
Loan officers understand some of the unresolved issues with AI in mortgage lending.
Algorithm Bias and Ethical Lending
Humans input data and the algorithms analyze the data. In a broader discussion of technology bias, Federal Reserve’s Vice Chair for Supervision Michael S. Barr stated at a 2023 conference:
“While these technologies have enormous potential, they also carry risks of violating fair lending laws and perpetuating the very disparities that they have the potential to address. Use of machine learning or other artificial intelligence may perpetuate or even amplify bias or inaccuracies inherent in the data used to train the system or make incorrect predictions if that data set is incomplete or nonrepresentative.”
He outlined other risks, and all relate to machine learning relying on the data input.
Privacy and information security – One of the biggest hesitations in AI adoption for lenders is the data security and privacy. This along with concerns about integration with current infrastructures, high costs and an unproven track record are on the minds of mortgage lenders.
Adequacy of Regulations
With modernization and transformation, regulations must be examined. With AI in mortgage lending, questions arise about ensuring adequate data privacy protections are in place, fair lending practices work and transparency of process exists.
Why Do Lenders Remain Essential in Mortgage Lending?
Lenders should view AI as a tool that allows them to effectively and efficiently deliver the best customer service experience possible. It allows loan officers more freedom to focus on business aspects that need the human touch; from building and nurturing relationships, to sharing expertise that only comes with years of industry experience and reassuring homebuyers through a complex process.
Ideally, lenders and AI work together to provide customers with the best lending experience possible.
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