AI’s Trailblazing Impact on Mortgage Lending


AI’s Trailblazing Impact on Mortgage Lending

January 11, 2024
Certified Credit

Artificial intelligence (AI) is one of the most influential technologies of our time. Due to its various applications, AI has already transformed several industries, from healthcare to retail. The mortgage industry is just one more example. 

According to Fannie Mae, 30% of mortgage lenders have already adopted or done a trial run of AI software in 2023. This figure is expected to rise up to 55% by 2025. So, how exactly are mortgage lenders leveraging AI?

In this article, we’ll examine AI’s emerging role in mortgage lending. We’ll also review some potential challenges of employing AI in your loan origination process.

The History of AI in Mortgage Lending

AI was first introduced to the mortgage industry in the early 2000s. During this time, Fannie Mae and Freddie Mac adopted AI-powered automated underwriting systems. 

Fannie Mae’s system is known as Desktop Underwriter (DU), while Freddie Mac’s is called Loan Product Advisor (LPA). These systems compare applicants’ loan eligibility to pre-set eligibility criteria and provide fast lending decisions. 

In the past two decades, AI has advanced considerably, leading to an influx of AI-powered mortgage lending solutions.

9 Applications of AI for Mortgage Lenders

Now, let’s take a look at nine potential benefits of leveraging AI in your loan origination process.

#1 AI Can Automate Repetitive Tasks

While every mortgage applicant is unique, the steps involved in originating loans are quite repetitive. Fortunately, AI can automate many tasks, from data entry to document processing. Through this automation, AI can improve accuracy and enhance efficiency, saving mortgage lenders time and money. 

#2 AI Can Produce Predictive Models

For many decades, credit scores have helped lenders predict applicants’ likelihood of making their mortgage payments on time. Credit scores operate on the assumption that past behavior is a strong predictor of future behavior. However, credit scores are just one noteworthy data point about prospective borrowers. 

AI can analyze additional data about mortgage applicants to predict their risk with greater accuracy. For example, AI can uncover patterns within an applicant’s bank statements that suggest elevated risk. 

By employing AI’s predictive models, you can improve your decision-making and profitability. 

#3 AI Can Automate Underwriting

Just like Fannie Mae and Freddie Mac, individual lenders can leverage AI to automate their underwriting process. AI’s machine learning algorithms can expedite underwriting by:

  • Analyzing vast amounts of financial data in record time
  • Detecting trends that suggest higher levels of risk. 
  • Assessing creditworthiness based on customizable criteria.
  • Reducing the impact of unconscious bias in lending decisions.

By delegating these tasks to AI, you can reduce the amount of time-consuming paperwork and error-prone data entry involved in your underwriting process. More importantly, you can mitigate your risk of default.

#4 AI Can Conduct Ongoing Credit Monitoring

Once you’ve approved an applicant, you want to ensure they keep up with their payments. Using the power of predictive analytics, AI can scour your existing borrowers’ credit reports for red flags, such as changes to their borrowing patterns or payment behavior.

By spotting these signs of elevated risk early on, you can reach out to your borrowers and proactively put them on a more affordable repayment plan, hopefully reducing their chances of default.

#5 AI Can Facilitate Continuous Process Improvement 

As an ambitious mortgage lender, you should optimize your origination processes on an ongoing basis. Continuous process improvement can help you cut costs, enhance efficiencies, and hone your competitive edge. 

If you don’t know what workflow to focus on first, allow AI to assist you. By analyzing your lending data, it can pinpoint the most pressing bottlenecks in your workflows so you can implement appropriate solutions. 

Continuous Process Improvement Example

Let’s say AI discovers that your verification of income and employment (VOE) process is your biggest bottleneck. On average, it takes your company three to five days to obtain verifications. 

Armed with this insight, you research VOE solutions and discover Cascade VOE, Certified Credit’s automated VOE solution. Using an advanced rules-based engine, Cascade VOE can efficiently cycle through several third-party vendors until it receives a hit, often returning verifications in a matter of minutes

By implementing Cascade VOE into your loan origination process, you can shave days off from your verification timeline and expedite your time-to-close. After that, you can use AI to identify the next bottleneck in your business, enabling you to pursue even higher levels of efficiency. 

#6 AI Can Enhance the Borrower Experience

Today’s mortgage applicants value fast service. When they reach out to a lender, they want to hear back from them as soon as possible—after all, their dream home may be on the line. 

Responding to borrower inquiries right away can be a challenge when you’re running a mortgage lending business. Luckily, AI can lend a helping hand. Here’s how:

  • AI-powered chatbots can supercharge your customer service – Thanks to natural language processing (NLP), AI-powered chatbots are increasingly skilled at understanding and responding to borrowers’ inquiries. Featuring a chatbot on your customer-facing website can help you provide your borrowers’ with around-the-clock support. By reducing your response times, these chatbots can prevent impatient applicants from seeking out more attentive lenders.
  • AI can speed up loan approvals – By assessing applicants’ creditworthiness using advanced predictive models, AI can speed up lending decisions, enabling same-day loan approvals in some cases. For eager applicants who want to make immediate home offers, this swift service can make all of the difference.
  • AI can efficiently translate lending materials – By 2040, it’s estimated that 70% of new homeowners will be of Hispanic heritage. As such, it’s important to be able to provide your lending materials in Spanish, along with other languages, without delay. Luckily, AI can complete this process with impressive speed.

#7 AI Can Fine-Tune Your Fraud Detection

While mortgage fraud is pervasive, it can be hard to detect. Fortunately, AI’s machine learning algorithms are more skilled at noticing subtle signs of fraud than human analysts. Thus, leveraging AI can protect your mortgage lending business from illegal actors and prevent you from wasting valuable time on fraudulent applications. 

#8 AI Can Streamline Your Mortgage Lending Marketing

As a mortgage lender, you likely devote most of your workday to loan origination. However, you must also market yourself effectively to ensure you receive a steady stream of new applicants. 

When done manually, marketing can feel like a full-time job. Fortunately, AI can streamline many aspects of digital marketing. For example, it can:

  • Provide compelling content ideas Educating potential applicants is an excellent way to attract their attention, display your expertise, and earn their trust. However, developing an online content strategy can take a lot of time. If you can’t think of new topic ideas, AI can quickly generate a list of new ones to spark your creativity.
  • Produce content – AI can also help you create content more efficiently. For example, some AI solutions can generate blog articles, social media captions, and video scripts. While you may want to revise these first drafts, they can help you break through creative blocks and speed up the content generation process considerably.
  • Optimize your email targeting – AI can scan your email data and pinpoint noteworthy patterns. You can use these patterns to segment your email lists and craft highly targeted email campaigns. AI can also help you write and personalize your email copy. 

#9 AI Can Enhance The Human Touch

While many people worry that AI will replace humans entirely, this is unlikely to happen in the mortgage industry. That’s because borrowers still value the human touch. They want a real person to walk them through this monumental process. 

Fortunately, AI can facilitate stronger relationships between lenders and borrowers by freeing up lenders’ time. As AI handles automatable tasks, you can focus on meeting your borrowers’ needs every step of the way. 

The Challenges of AI in Mortgage Lending

While AI has many valuable applications in mortgage lending, it’s not without its challenges. 

One potential issue is algorithmic bias, which takes place when AI algorithms discriminate against borrowers for unfair reasons, such as belonging to a certain race or gender. Luckily, these algorithms can be tested and modified to eliminate bias before being put into use.

Another issue with AI is the need to maintain data privacy and regulatory compliance. Since the mortgage lending process involves so much personal data, AI-powered solutions must feature robust security protocols. What’s more, they must comply with all relevant regulatory frameworks, such as the Fair Credit Reporting Act (FCRA). 

Stay Abreast of AI Advancements With Certified Credit

As you can see, AI has many benefits for mortgage lenders. It can improve the speed, accuracy, and objectivity of your lending decisions. What’s more, it can make several key workflows more efficient and cost-effective. 

If you want to upgrade your business with mortgage lending tools that leverage AI and automation, Certified Credit can help. In addition to Cascade VOE, we offer a growing suite of automated lending solutions, including:

Want to learn how Certified Credit is implementing AI into our solutions in 2024? Schedule a credit consultation with our team today.