Mortgage Lenders vs. Growing Technology

The growing use of technology in the mortgage space is what most lenders call their biggest competitor, according to analysis from Fannie Mae. 

Fannie Mae’s VP of Single-Family Strategy and Insights Andrew Peters said lenders continue to cite “consumer-facing technology” as the most important business priority to maintain competitiveness. 

“The mortgage industry has faced a number of challenges in recent years. Technological advancements, demographic changes, increased competition, and lack of entry-level housing stock have applied pressure to growth and profitability. Over the past two years, lenders have continuously pointed to ‘competition from other lenders’ as the most significant drag on their profit margin outlook,” Peters said.

Lenders have cited consumer-facing technology as the top business priority for the past two years years, with numbers growing each year. 

The amount of lenders who had technology as a top priority in Q2 2017 was 18%, which grew to 23% in Q2 2018 and to 25% in Q2 2019.

“Lenders’ business priorities also appear to be in line with their assessment of market threats. A majority expect “online business-to-consumer lenders” to be their biggest competitor over the next five years, followed by traditional financial institutions with branches, online real estate service providers, and mortgage brokers,” Peters said. “Many pointed to B-to-C lenders’ advantages in technology, scalability, and advertising and technology budgets.”

Peters said that lenders appear to be trending toward making investment to improve customer experience, while reducing the cost to manufacture mortgage loans, all in an effort to better deal with market changes. New entrants, though, are challenging existing market dynamics. Some of these competitors are digital banking startups focused on building a digital experience. Traditional lenders report that online lenders present the largest threat to their business going forward.

“As a result, lenders believe that their biggest opportunity lies in re-engineering their processes to be competitive in similar ways,” Peters said. “The extent to which this type of simple digital banking model can be operationalized within a complex mortgage ecosystem remains to be seen, but investments to that end continue to be made.”