Automated Mortgage Underwriting

The housing market is an ever-changing place.  Within the last twenty years, it has changed significantly with both positive and negative changes occurring.  The primary example of a negative change is the housing crisis that started in 2007 as we are still dealing with the repercussions of that economic downturn.  The market has slowly come back from its lowest point and seemed to be approaching new heights until the coronavirus pandemic struck another blow to people looking to buy and sell houses.  However, as the pandemic is reaching its end, nonbank mortgage lenders are preparing for an increase in demand for mortgage loan applications. In order to handle this expected influx of demand, these companies are implementing automated underwriting systems in order to maximize efficiency and quality.  

 

I think that this new way of giving out loans is going to be beneficial in the long run.  Automated processes like this is becoming common place in multiple industries across the world.  This is because if data can be extracted and compiled automatically, it saves time and ultimately leads to a more efficient product or service.  Previously, this job was left to people who, no matter how proficient they are, will eventually make a mistake.  These mistakes could lead to banks or other lenders giving out loans to people who cannot pay them back.  This was a major contribution to the housing bubble from a decade ago.  With this automated system, mortgage lenders will be more accurately able to identify borrowers who are likely to default on the payments.  The end result will hopefully be less subprime mortgages, which will ultimately boost the entire market.  On this same note, fraud will become less common since borrowers’ data will be cross-referenced across different platforms.  This has significant benefits for both the lenders and borrowers.  Because there is less fraud, the lenders, especially nonbank lenders, will have more credibility and higher investment ratings.  On the other hand, the borrowers who have proven their worthiness are more likely to get the loan they desired with the added benefit of having lower interest rates due to the lack of risk on the lenders part.

 

I also think that automated systems are improve the way appraisals are done.  Because these new systems can get accurate property valuations, there will be less of a demand for official appraisals.  I think this is beneficial because, in some communities, appraisals can be influenced by prejudice.  For example, there have been accounts of minorities experiencing bias in the form of lower appraisals for the house they were trying to sell (“Black Homeowners Face Discrimination in Appraisals”).  I understand that these automated systems may not benefit everyone, such as people trying to leave a low-income area. However, I believe that in the long run, the housing market will prosper with the help of this new technology, especially as it continues to be improved upon.

 

Sources:

https://www.businessinsider.com/automated-underwriting-system-mortgage

 

https://www.nytimes.com/2020/08/25/realestate/blacks-minorities-appraisals-discrimination.html