AI is Transforming Home Loans. It’s Time to get on Board.

Monday, October 28, 2019

Like “The Cloud” before it, artificial intelligence (AI) is a computing tool that has become a buzzword in nearly every industry you can think of: law, healthcare, transportation, manufacturing, etc. Financing is no exception, especially in the home loan sector. And it’s taken too long to catch on.

Specifically in the home loan industry, AI technology is more useful than many trendy practices and tools that have sprouted up in the digital age. It’s a technology that has a great capacity to pass along benefits directly to customers in addition to improving the quality of life for home loan industry professionals.

The most direct improvement that AI brings to home loaning is efficiency.

As an industry veteran, I can tell you that there is no such thing as true “instant” approval for any kind of home loan. Even if a lender advertises some kind of expedited pre-approval, there will still be days, often weeks, needed to get all the forms with mandated regulatory disclosure time frames and collateral review documents prepared for the actual loan to be 100% approved and funded.

AI platforms still can’t make the entirety of a loan approval instant, but their ability to organize data relieves underwriters and loan officers of a fair amount of guesswork and tedious tasks.

Consider this: a potential loan customer is in fair financial shape but lacks credit history or has minor infractions on their history. Where a busy lending team may not have had time to explore the finer details of this clients case in the past, AI can sift through and organize the client’s standard documents quickly, freeing personnel time up to develop a closer relationship with the client in order to make the right call for their loan.

The client feels more tended to and the lending team feels less crunch to make a decision once they have the routine processes out of the way. It’s a win-win scenario, and opens up the lending process to probable candidates who are otherwise unseen.

On top of hastening the background work of lending, AI makes the customer-facing application process more customizable. Instead of plugging all standard financial information into an application, an AI-enhanced process can determine early if a pre-approval is possible, if a review of certain documentation is needed, or if a denial is likely. It also allows more predictive information to be plugged in for better decisions, instead of relying on simple numbers like credit scores alone.

Smarter applications can learn patterns over time and offer more detailed metrics on the kinds of clients flocking to a particular lender, allowing that lender to become more specialized to their clientele.

It’s the union of artificial intelligence and a client-focused attitude that separates good lending from great lending, and is the reason why Paramount Bank has already begun implementing AI-enhancements to our home loan application processes and virtual banking platform. We’re not alone in looking to expand AI use either, with 58% of lenders expecting to try or use the technology in the near future.

Still, that means 42% of lenders are not. Deep integration will take time of course. I’ve written before about the lending industry’s reluctance to innovate and although that is improving, AI is another instance of gradual change. But it’s one that will leave your business behind if you don’t start adapting soon.

For many lenders, it will be costly in many cases to reconfigure an operation’s systems to communicate with a new platform; doubly so for those who still have segmented portals for their various procedures. However, the benefits of investing in deep AI assistance are almost certain to be worth it.

For lenders, remember that we are stronger as an industry when we keep up with the times. It’s crucial to understand how the world operates now instead of keeping up routines that have worked in the past. Without that understanding, clients will be far less compelled to trust our industry.

Home loans are a major commitment and few people want to commit to the past, especially when the recent past of home-owning is littered with risky business.

For clients, ask your lenders what they are doing to stay modern. If processing and approval times are long, don’t be shy to ask about what technology they use to get the work done. It’s helpful to know this information in any case, but it may jog your lender into looking for more options to enhance their process too.

Artificial intelligence won’t replace the human touch needed for lending, but it will make the personal elements that remain more meaningful and productive for all involved.