The ‘tap tap’ mortgage

My home buying needs are simple: I want an app that scans an image of my iris, then — tap tap — and my mortgage is funded. 

Sci-fi? Nope.

That’s what happens when I go through airport security, using the Clearview facial recognition system — no ID, no paper boarding pass, just my pretty blue eyes. That 10-second step unearths a mound of personal data, which is then examined by an algorithm. Safe enough for the U.S. government to instantly clear me to board the plane and to protect air travel from terrorists.

Why not the funding of a home loan? Verifiable data retrieval, then instant loan authorization and funding. Bam!

Like airport security, all of the necessary data is there for rapid-fire home loan funding.

But the clunky, expensive, highly-regulated mortgage, once dominated by monster bureaucratic banks, has prevented innovation.

Not anymore.

The old-school mortgage bureaucracy is being displaced by companies that find customers online, giving them more control over how to access loans. With technology, they are slashing ridiculous rule-based underwriting that funds a gaggle of expensive middlemen.

The digitalization and consumerization of the home loan is coming. Thanks in part to the next generation of nonbank lenders who are making headway in the market—Homeward, Knock, Ribbon, Orchard and Tomo.

Their business models differ, but they all promise a friendlier and more efficient way of financing the purchase of a home.

The “tap tap mortgage” is almost here. 

Knock co-founder Sean Black says imagine ApplePay when buying a cup of coffee; Airbnb when renting a weekend getaway; or apps for trading in a used car. All work seamlessly with easy-to-use technology that sits invisible behind the consumer experience — a safer, easier, more secure and personalized finance method.

Today’s mortgage, on the other hand, is an in-your-face loan approval slugfest, requiring a slew of intermediaries, appraisals, forms, documents, tax records and credit scores. And it’s packed with anxiety, as the borrower awaits a long drawn-out loan approval process. Exhausting.

“The mortgage is the catastrophe of the real estate transaction,” said Greg Schwartz, founder of Tomo. His firm sidesteps traditional mortgages— “by tapping capital more efficiently from Wall Street to fund loan transactions.”

Following the lead of nonbank lenders like Rocket, Loan Depot and Better Mortgage, this new generation of so-called “power buyers” are the grandchildren of the old way.

“The mortgage won’t be a disconnected piece of home buying much longer,” said Homeward founder Tim Heyl. ”This evolution of the mortgage is changing the way homebuyers approach affordability, make offers, and even the home they buy.”

The prize is gigantic.

Real estate consumes about 18 percent of GDP in America, equivalent to $3 trillion a year. Billions are spent delivering home loan services.

Tech advances in data, authentication, artificial intelligence (AI) and loan processing are making mortgage fulfillment easier. Digital docs help streamline assorted steps in the process and secure data sharing offsets re-keying consumer information.

Sounds like gobbledygook, that is because the mortgage industry is packed with arcane traditions, acronyms and practices with language that confuses, not helps the consumer.

Title executive Pat Stone blames a maze of state regulations, lender systems and data sources that are disjointed and not connected.

A big reason why it has taken so long for consumer technology to disrupt mortgage lending is that the highly regulated industry does not lend itself to Silicon Valley’s fast-moving, break it culture. Plus, regulation has been an excuse for doing nothing. So don’t hold out hope for self-examination and rectification from the old guard.

The inaction opens the door for disruption, like is happening in other rule-strapped industries: medicine, logistics, securities and DNA. 

Real estate brokers are also chasing new ways to wrap mortgages into the home buying process — shattering the silos of brokerage, lending and title.

“Our vision is to combine lending and brokerage services into new ways for people to move from one home to another,” said Redfin CEO Glenn Kelman. That’s code for power buying.

The tech brokerage firm recently acquired mortgage shop Bay Equity. “This will let Redfin customers buy homes they couldn’t have gotten through a stand-alone broker or lender,” Kelman said.

The last mile of shaking up the mortgage industry is putting the whole mess on the blockchain, which will provide transparency, efficiency and safe transactions without the bureaucratic shitshow.

Until then, cheer on the disrupters, who, like the mythical David, are taking on Goliath.

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