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Why A.I. and Algorithms Will NOT Take Over Mortgage Lending

artificial-intelligenceWHAT KEEPS ME AWAKE AT NIGHT?

One of the many things that keeps me awake at night is my overwhelming fear that Artificial Intelligence (A.I.) and Algorithms will take over the lending industry, making 99% of everything we built at JVM instantly obsolete.

It seems all but inevitable that software will “eat” the mortgage industry the same way it ate the music industry (Spotify, iTunes, Pandora), the thumb drive/floppy disc industry (Box, Dropbox), or most of retail (Amazon).

But, I learned last week that my fears are overblown.

A.I. is already employed in consumer lending and in the mortgage arena in other countries.

While mortgage lenders in the U.S. look only at traditional criteria such as credit, income, assets, employment and collateral (the property), A.I. looks at as many as 12,000 data points when considering how creditworthy a borrower is.

A.I. would eventually make mortgage lending far safer for creditors and far easier and cheaper (in most cases) for borrowers.

REGULATIONS PREVENT USE OF A.I. IN MORTGAGE INDUSTRY

BUT – despite its benefits – this is why we will not see A.I. employed in the mortgage industry: regulations.

According to a prominent mortgage industry attorney (Mitch Kider) I listened to last week, regulations, specifically ECOA, will prevent the mortgage industry from modernizing for a very long time.

ECOA or the Equal Credit Opportunity Act prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, or source of income.

If A.I. is employed by the mortgage industry, there will be no way of knowing if a person is denied credit for one of the reasons prohibited by ECOA.

And no lender will take the risk of violating ECOA.

So, while software will be employed to make the traditional underwriting process easier for borrowers and lenders alike, the traditional underwriting process is here to stay.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646