Early this year I had the opportunity to sit down with HousingWire Editor-in-Chief Sarah Wheeler to discuss, among other things, our industry’s persistent profitability issue. A few weeks later the Mortgage Bankers Association released its Quarterly Mortgage Bankers Performance Report, underscoring my point with some truly grim figures. The fourth quarter of 2023 was the seventh straight quarter of net production loss for lenders, who hemorrhaged an average of $2,109 pre-tax dollars for each loan they originated. The latest figures, out this week, show some improvement—but lenders were still in the red, this time for the eighth consecutive quarter.

While there will always be a need for the next innovative idea that keeps housing finance moving forward, our industry’s real problem is not an inability to devise technological advances that save lenders and consumers money—it’s our inability to adopt and execute at scale. Everyone in mortgage knows that fintech adoption remains stubbornly low, despite years of innovation and concerted efforts by software developers, trade associations, consumer-interest groups and the GSEs to spread the gospel of cost-saving technologies. 

Case in point: a HousingWire study finds that as of April, more than 90% of lenders are still relying on Equifax’s The Work Number for some or all their employment verification needs, despite well-publicized allegations that the decades-old service adds hundreds of dollars per loan in unnecessary origination costs, and despite the availability of lower-cost, higher-converting methods that are Fannie Mae Desktop Underwriter (DU) authorized report suppliers.

And employment verification is just one of dozens of mortgage cost centers. At every stage of the origination process, too many lenders are doing things the same, ineffective, costly way they always have despite the availability of better, cheaper alternatives. The GSEs have invested millions building and promoting initiatives designed to encourage the digitization of mortgage data and processes, yet their utilization is underwhelming. 

Drastic times call for drastic measures.

Despite the promises of efficiency, cost-saving, and security, lenders still hesitate to embrace fintech solutions wholeheartedly. Maybe it’s time to consider more radical approaches. Here are some unconventional ideas:

• Embrace a structured approach. To fully capitalize on the potential of fintech tools, lenders must recognize that implementation isn’t solely about acquiring new software or hardware—it’s about transforming processes, workflows, and, most importantly, the organizational culture. By investing in comprehensive training programs, clear communication channels, and dedicated support structures, lenders can effectively navigate the complexities of technological integration, minimize resistance to change, drive adoption, and ultimately realize the promised return on their technology investments. Fintech vendors, third-party consultants, and industry trade associations could all play a role in helping lenders build a competency around change management.

• Reward good behavior at the individual level. Inertia within lending institutions poses a formidable barrier. Loan officers, often gatekeepers of mortgage technology adoption, resist change due to myriad reasons—comfort with traditional processes, fear of job displacement, or sheer reluctance to adapt. To combat this, loan officers must be incentivized to embrace innovation. Offering financial rewards or penalties tied to tech adoption could be a compelling strategy. After all, aligning incentives with desired outcomes can be a potent catalyst for change.

• Institute enterprise financial incentives, too. The current fragmented mortgage process, with many hands in the pot and no clear accountability, disincentivizes real change. If lenders had to internalize costs and bear the entire burden of inefficiencies and mistakes instead of passing them on to borrowers, fintech adoption would likely be much higher. Thus, one idea worth exploring is for the GSEs to offer a discount on guarantee fees for loans underwritten using approved fintech tools that provide benefits like increased security and reduced fraud risk in addition to lower costs. This could help address lenders’ profitability concerns while incentivizing safer, more efficient mortgage lending. 

• Mandate change from the top down. We should also consider more disruptive options, like mandating the use of Day 1 Certainty and Asset and Income Modeler (AIM) for GSE-backed loans. While controversial, this may be needed to finally overcome entrenched industry resistance. 

Most of all, we need collective action by stakeholders across the industry, from frontline originators to executive leadership and from regulators to core platform providers. No single party controls all the levers; we must work together toward solutions. 

Have more ideas? Share them with me.

In closing, I invite readers to join the conversation. What are your ideas to finally spur real fintech adoption across the mortgage industry? Do you have adoption ideas or success stories to share? Now is the time to stop talking and start acting. Together, let’s propel the mortgage industry into a new era of profitability and sustainability.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: [email protected]