With mortgage rates 2% higher than where they were in 2021, much of the mortgage industry is struggling for survival now that refis are all but dead.
Many mortgage companies relied so heavily on refis that they are all but out of business now.
But – the companies that always seem to fail the fastest and loudest when refi booms end are the big fintech firms who wanted to “automate everything” – until reality got in the way.
Four Reasons Why Fintech Fails In The Mortgage Space
CAN’T AUTOMATE HAND-HOLDING. One of our strongest emotions is “loss aversion” or the fear of loss. And that fear sets in more with a home purchase than at any other time – because it is likely the largest purchase anyone has ever made. And because of this, buyers want a trusted human advisor to guide them along the way. No matter how good a firm’s tech might be, buyers still want to engage a knowledgeable and caring human – something that is often short supply in the fintech realm 😊
CAN’T AUTOMATE EVERYTHING. I have talked to dozens of brilliant software engineers over the years and EVERY ONE of them was 100% confident that they could just wade into the mortgage space and automate every single task with software, including eating, drinking, breathing and going to the bathroom… (I kid, but only a little, as their confidence would amaze me). There are just too many surprises that technology can never fix, such as a non-responsive HOA, a negligent appraiser, irrational underwriters, repair references in a purchase contract, employment gaps that need to be “carefully” explained, 11th hour job losses, loan buybacks, and much else.
PURCHASES ARE HARD/LACK OF TRAINING. This relates to #2 above, but good loan advisors either need years of experience or a stellar training program. There is no room for experienced loan advisors in fintech models and none of them have advanced training programs either. This can work for refis, but it does not work for purchases because there is simply too much to know. In our discussion with one former fintech employee, she told us that deals would simply die whenever issues arose. The examples she gave could have easily been addressed by most anyone at JVM or by an experienced loan officer.
REALTOR RELATIONSHIPS REMAIN SUPREME. This is the #1 reason why fintechs fail – fintech lenders believe that their awesome tech and amazing digital marketing will bring buyers to their proverbial doorstep in droves. Not so much. They invariably end up buying leads but the firms lack the type of sales organization that can convert those leads – as those types of sales organizations are entire businesses in and of themselves. What all successful purchase-oriented lenders need is very strong relationships with real estate agents in order to cultivate very strong referrals – because agents are not going anywhere – much to the surprise of the fintech world.
There were two very prominent fintech startups in the SF Bay Area a few years ago that burned through tens of millions before flaming out. We got to know them really well though because their “Product Managers” (aka dudes trying to figure out how to get more business) were frequently in our office picking our brains about how to get purchase business. We told them how – but they tried to automate it…
