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How Will Fintech Affect Mortgage Lending in 2020?

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The U.S. mortgage market currently consists of roughly $14 trillion in assets, making it 14 times larger than the student loan or auto markets. However, what was once dominated by banks and credit unions is now threatened by a wave of financial technology (fintech) companies that do business almost entirely online.

Between 2007 and 2014, the market share of traditional lenders has declined from 74 percent to 52 percent. This is due to a combination of increased regulations on banks and consumers' growing lack of trust in these institutions. Fintech firms such as Quicken Loans, Rocket Mortgage, and SoFi have stepped in to fill the gap and brought with them a ton of technological innovations that improve the homebuying process for consumers.

So, what will the coming year have in store for fintech and mortgage lending? Here are some trends that are likely to continue.

Fintech Is Lowering Mortgage Closing Times

Efficiencies produced by fintech are allowing lenders to close on mortgage loans faster than in the past. According to an analysis released by online lender LendingTree, homebuyers in 2019 are closing an average of 11 days faster than they did in 2018.

This was a 3-year study, revealing that the average time to close in 2017 was 74 days, and that had dropped to just 40 days this year. This 45 percent reduction is partly due to lower volume but also to the digitization of the process.

Fintech Is Driving Innovation in Mortgage Lending

Fintech has been shaking up the mortgage industry with its innovative programs, and this is a trend that is likely to continue in the coming years. For example, Flyhomes adjusts the process so that buyers can make all-cash offers. Homebuyers that want to rent to own can access this option through a company called Divvy.

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Fintech Is Expanding Access to Mortgages in Certain Groups

Some fintech companies' unique approach to granting credit has enabled this industry to help previously underserved and unbanked communities. Many fintech lenders are also likely to enter markets that are constraining to traditional banks because of regulations. Fintech companies also underwrite a high percentage of FHA-insured loans, which give borrowers affordable options.

Fintech Holds a Significant Share of Refinanced Loans

Less than half of applicants to traditional banks are seeking refinancing, yet more than 80 percent of applicants to fintech lenders are looking for this option. Fintech firms originate more refinanced loans in the U.S. than the five largest banks combined.

Refinancing vehicles are reshaping the mortgage market, and they tend to highlight the advantages that fintechs have over traditional banks. These include being more accessible, tech-friendly, and faster to close.

Traditional lenders can still compete with these fintech giants. They just need to make innovation and customer experience top priorities. Many of them are doing so. According to a recent report released by PWC, 81 percent of banking CEOs are concerned about the speed of technological change in their industry. The ones that develop a plan to leverage fintech will be the most competitive going forward.