I have a very successful friend who owns a mortgage bank, and who still originates loans just to stay in the game.
He spent six months pre-approving, educating and counseling a young millennial couple – only to see them leave for another lender offering an 1/8% lower rate after they got into contract.
This was a reminder to me that borrowers still want an actual human to educate and help them, but that technology makes it much easier to leave (because borrowers can shop and take their digital loan packages elsewhere so easily).
It was also a reminder that today’s generations might be a bit less loyal than others. 😊
Candor (Using AI To Underwrite)
There are tons of new technologies hitting the mortgage industry that make it far easier to pre-approve borrowers, and one of them is called Candor.
Candor uses AI to pre-approve borrowers for conforming loans and can effectively render humans almost superfluous for clean borrowers.
Loan officers get excited about the labor savings, but they are not accounting for the fact that it turns clean loans into pure commodities.
Need For Speed – No Mas
When the purchase market is on fire, borrowers need speed and the best service to ensure they get the house they want, and they will be less rate-sensitive if they can get it.
But in slower markets, borrowers seem almost entirely concerned with interest rates.
Tech Is Replacing Loan Officers
So, now that the market is slowing, tech does seem to be effectively replacing or at least threatening loan officers because it allows borrowers to (1) shop for rates; (2) get pre-approved; and (3) move their loan packages – so much more easily.
Tech Is Not Replacing Real Estate Agents, But…
In this excellent Inman Video, Mike DelPrete tells us that agent usage is at an all-time high (87% of buyers use agents, and 90% of sellers do).
He further states that tech firms like Opendoor, Zillow and Redfin are struggling mightily because they are losing so much money, and their endless supply of cheap capital is no longer available.
He also says that the total commission pool is at an all-time high because prices have climbed so much, and every VC in Silicon Valley is still trying to go after that giant pool of money.
They have several strategies, including: (1) i-Buying, or paying cash for homes and then reselling them; (2) Power Buying, or helping buyers effectively pay cash for homes with special financing; (3) Offering amazing tech and platforms to agents; (4) Offering discounts to buyers and sellers; and (5) Controlling and nurturing leads – and feeding them to agents (Zillow’s new focus).
And – so far, none of these strategies seem to be working that well, or at all. It is interesting too that some bare-bones brokerages seem to be doing well by simply offering high commission splits, autonomy and/or help with lead gen.
In any case, Mr. DelPrete reminds us: “tech does not sell homes; agents do.”
The one thing I have been hearing about lately though, now that the market is slower, is that more buyers and sellers seem to be pressuring agents for discounted commissions.
This could be anecdotal though, and I would love to get feedback from readers.
Nonetheless, I think agents still remain much more insulated from the onslaught of tech than we lenders do.
Founder | JVM Lending
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