Fintech’s Trek To Trillions

Despite an unhealthy housing market, there’s a trend to fintech investing, especially to keep consumers happy

Sarah Wolak
Sarah Wolak
Fintech’s Trek To Trillions

“What’s causing that friction is low conversion rates. We’re seeing that 31% of borrowers abandon applications, and 25% of abandonments are due to the process taking too long,” Rossato said, citing a study she presented in April. “Another is that the number one thing that companies can do to provide an excellent experience is to value a consumer's time. … People who are currently struggling were not prepared on how to utilize fintech to optimize their business practices to remove roadblocks.”

Rossato says that Floify, a software company that does mortgage automation, is aiming to tackle those issues to keep on pace with the rest of the industry. She says a lot of customers don’t understand that a mortgage company's use of an automation program doesn’t mean there isn’t a human to help the process go smoothly.

Most customers, Rossato says, assume that artificial intelligence is going to take over the fintech industry altogether. “I always like to remind people that it’s not human or machine, it’s human and machine working together to make the mortgage process easier,” she said. “We recently introduced two new programs called closing accelerator and customer capture, which help with retention. Only 18% of customers return to a lender, and we want to change that.”

John Paasonen, co-founder and CEO

  Maxwell Lender Solutions

Continue to Invest

Rossato says that continuing to invest in automation is key, especially in a down market when loan officers are trying to do everything to their ability to keep customers happy.

“Loan origination takes so much time, when you think you’re at the finish line your [debt-to-income] ratio gets messed up or your insurance doesn't come in where you thought it would,” she explained. “There are so many factors that can lengthen that time, and those pull-through rates aren't as high as they should be. For this reason, [Floify’s] looking at it from the borrower's point of view to help them through the homeownership journey.”

But it means that investing has to happen in a calculated manner, Rossato said.

“One thing to think about entering the AI world is the potential for danger. You have to be careful with the technology partners that you choose who use AI across large data sets,” she said. “People can get in trouble if they use it incorrectly, especially if that AI violates compliance issues. … You want to partner with fintech who makes your workflow easier. If you try to fully digitize something as big as a home purchase, it’s not going to work.”

For others, investing in fintech is a way for lenders to mitigate risk. John Paasonen, co-founder and CEO of Maxwell Lender Solutions, says that risk occurs when lenders have a weak business model and little flexibility.

“There’s a big demand for efficiency,” Paasonen said. “The MBA said the average pre-tax production loss in Q4 [of 2022] was 99 basis points. We’re seeing a huge demand right now for help managing costs, and it’s revealing how fragile some business models are if they can’t flex up or down with the market.”

Paasonen says that when the market shifts, many lenders opt to hire or fire as a way to navigate. But Paasonen says that fintech can be solvent – if lenders choose to make the investment. “Maxwell is more than software. We do processing, underwriting, and really take on the idea of embedded finance, which means we see a mortgage as a service,” he said. “We think about what we can do on a larger scale to help take on the complexities of the business so LOs can focus on their relationships and being forward facing.”

Fintech as a Business Model

Maxwell’s other co-founder and CEO, Rutul Dave, says that companies who aren’t continuing to invest in fintech and integrate it into their business have a “limited scope” of their processes on the consumer and provider sides. “As a business model, you need to think about the entire origination process,” Dave explained. “Individually, these lenders need the benefit that comes from scaling their business with the market’s demands. We saw the opportunity to create a platform for lenders to run their business using both humans and technology.”

And Dave says the data that is aggregated from incorporating fintech into the origination process is priceless. “There’s the idea of data insight matters just as much as the data itself,” Dave said.

Dave and Paasonen say that they’ve been able to advance Maxwell in congruence with the overall financial services industry. “Our business continues to grow despite the market. The overall mortgage industry was 60% down year over year, but Maxwell was up 11% in volume year over year,” Paasonen said.

Dave added that Maxwell recently acquired LenderSelect Mortgage Group, which is a mortgage solutions provider with access to the capital markets. Dave says that his company plans on integrating the group’s services into Maxwell Capital, which is Maxwell’s initiative to provide access to the secondary market.

For Allen Pollack, owner of KapVue Advisors, the mortgage industry has been the slowest to adopt fintech. “We’ve been focused on digital mortgages for the longest time, and the mortgage industry has been slow to adopt, but there are many reasons,” Pollack said. “Mortgages are risky, the process can be messed up, and it’s a period of time where consumers are on edge. And as an LO doing everything they can to close the loan, everything is very manual. There are a lot of hands on the loan, and a lot of solutions over time have culminated to where we cannot do what we do without technology.”

Allen Pollack, owner

  KapVue Advisors

Customer Experience Matters

Pollack, who has worked for tech and digital solutions companies such as MeridianLink, OpenClose, and Fiserv, says that the biggest issues plaguing the industry are the costs of originating loans and tech keep rising. “Lenders’ tech investments don't immediately have [a return on investment],” he said. “There’s a phrase that if you build it they will come, but that’s not the case with mortgage technology. You build it and have to sell it while making sure it’s compliant and can support lenders.”

But Pollack says it’s also important for lenders and fintech companies to make sure that the customer experience is supportive, too. While lenders are looking for all-in-one solutions to support their automation, Pollack says that it’s equally important that the automation makes sense for that lender's customer base.

“There’s a lot to lose and lenders are cautious,” he said. “Everyone has great tech with fancy interfaces, but if the automation isn’t serving the consumer, then the tech gets a bad reputation. So the question really is, does [the lender] have the right tech to answer their demands?”

Pollack says that the growth of fintech lies in what the biggest demands are. “E-closings and a digital experience are what lenders and consumers want right now,” he said. “We’re also thinking about how to make real-time valuable connections with those customers, especially when we think about the younger generation starting to buy homes.”

Sarah Wolak
Sarah Wolak,
Staff Writer
This article was originally published in the Mortgage Banker Magazine August 2023 issue.
Published on
Aug 14, 2023
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