Traditional Mortgages Won’t Exist By 2035

Build a boat or learn to swim — a wave of 3rd-generation housing technology is crashing over the industry

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Traditional Mortgages Won't Exist By 2035

COO

Becoming a homeowner in the U.S. has long been the benchmark of success in achieving the American Dream. Forty years ago, when a borrower was prepared to buy a home, they likely took a drive around the neighborhood to see what was on the market before connecting with a real estate agent and heading to their local bank branch to secure financing for a mortgage.

Today, only 6% of homebuyers drive by homes or neighborhoods as a first step in their homebuying journey. The housing universe we operate in today is lightyears away from where it was when I joined the mortgage industry more than 20 years ago.

Out of necessity, the digitization of mortgages accelerated during the Covid-19 pandemic, but technological evolution in real estate has been occurring for some time.

In 1995, REALTOR.com was launched as the first portal to obtain MLS listings in mass. Online marketplace platforms like Zillow and Trulia popped up in the early 2000s, completely changing the way people search for and find their dream homes — suddenly, homebuyers were able to view home listings nation-wide in the palm of their hand.

By 2022, nearly 99% of homebuyers between the ages of 24 and 57 used the internet to shop for homes. Though digital mortgage lending gained momentum after secure platforms and e-signature technology were developed, it expanded even more rapidly during the pandemic-era refinance boom.

At their core, digital mortgages leverage technology to connect with borrowers at all stages of the mortgage process, from pre-application to origination to post-closing, allowing for cost savings and automation that’s never been brought to bear on the industry before. Automated rules-based decision engines and software platforms remove bottlenecks from traditional mortgage processes, providing an end-to-end solution that optimizes loan sales and automates loan processing and mortgage loan underwriting.

For more than two years, homebuyers and lenders have been navigating a harsh housing market. 2023 clocked in as the least affordable year in more than a decade for purchasing a home. In the third quarter of 2023, Freddie Mac’s 2024 Cost to Originate Study showed the cost to originate a mortgage averaged roughly $11,600 — a 35% increase in originations costs just from 2020. The top cost-increase drivers included back-end operations and loan officers.

Necessarily, it’s incumbent upon lenders to find ways to make homeownership more accessible to all Americans by identifying opportunities for efficiency and passing savings through to homebuyers. Digital mortgages help make that happen.

It won’t be long before local, brick-and-mortar lenders and the traditional mortgages they offer are a relic.

—Chad Smith

Automation can lead to lower interest rates and origination costs whereas manual processes result in higher costs for the borrower. Traditional mortgage lenders rely on the expertise of loan officers, processors, and underwriters to drive complex workflows throughout the origination process. By implementing mortgage technology throughout the origination process, lenders can streamline processes by breaking them down into tasks that can be automated, optimizing the total cost needed to originate a mortgage.

Cost savings aren’t the only benefit that come with digital mortgages, though. They also save time — a lot of time, at all stages of the process. Top-performing financial institutions process loans 63% faster than their competitors. An expedited mortgage lifecycle means faster access to home financing, which can make or break the chance to secure a dream home for many.

Digitization also supports compliance and security, largely because document handling and borrower verification is inherent to automation. Digital mortgages contribute to a 15% reduction in errors and a 20% increase in loan approvals. Documents that were once provided manually over the course of weeks can be uploaded online — or, better yet, sourced electronically directly from government bureaus which can reduce the risk of customer fraud and lender error.

Originating traditional mortgages is like operating in the 2nd generation of housing technology when we’re already living in the 3rd. One of the first technological advancements in housing was the portal to post MLS listings en masse. The 2nd generation brought developments allowing buyers and agents to connect virtually, and begin the home search through online marketplaces.

It’s incumbent upon lenders to find ways to make homeownership more accessible to all Americans by identifying opportunities for efficiency and passing savings through to homebuyers. Digital mortgages help make that happen.

—Chad Smith

Welcome to the “3rd generation” of housing technology, a space that empowers homebuyers with digital mortgages to save time and money. Soon, the mortgage process will be unrecognizable for some — take the silent generation for example, born between 1928-1945.

Research shows that millennials use mobile devices nearly twice as often as the silent generation in their home searches. But, they’re not alone — only 48% of Gen Xers and baby boomers first looked online for homes compared to 99% of younger generations. It won’t be long before local, brick-and-mortar lenders and the traditional mortgages they offer are a relic.

Nearly 60% of millennials and 70% of Gen-Z applicants want the process to be completed entirely on a mobile app. Local lenders that fail to evolve with the future of digital mortgages will struggle to meet the evolving demands of homebuyers.

The share of fintech companies and online lenders in the mortgage industry continues to increase each year, with global digital lending platforms expected to grow to $20.5 billion by 2028. It’s not too late for local lenders to catch up, but it’s time they begin to shape up and get with the times — digital mortgages are the future of homebuying.