The great digital shift might upend the way we get mortgages, transforming a $2.1 trillion industry weighed down by time-consuming processes to one that is faster and more transparent.
Anyone who has walked into a branch bank to buy property — or is sitting in their own home reading this article — knows the drill of getting a mortgage: reams of paper, years of bank statements and pay stubs, notarizations and certifications.
But the pandemic has put a crimp in the flow of paper and the face to face meetings — perhaps to everyone’s advantage.
In an interview with Karen Webster, Nima Ghamsari, co-founder and CEO of Blend, said as there is a spike in demand for mortgages, Software-as-a-Service (SaaS) platforms can satisfy a range of consumers’ needs across the banking spectrum, whether they turn to marquee names such as Wells Fargo or to credit unions for loans.
For banks, large and small, the advantage of digital data collection lies with having a more accurate view of the customer, and with being able to make better lending decisions — in real time.
To get a sense of just how powerful the digital shift can be, consider the fact that it took seven years — from Blend’s 2012 founding to 2019 — to hit $2 billion in daily volume processed for banks. It took just about a year to nearly double that volume to $3.5 billion in daily customer lending.
Underpinning it all is a data-driven approach that shortens pre-approval processes to minutes, leveraging the data to which the banks already have access to.
As Ghamsari told Webster, Blend’s genesis traces back to the aftermath of the great recession and the financial crisis, when, during a stint with Palantir, a tech company focused on big data analytics, he worked with banks to find data-driven ways to modify loans that were in default and avoid foreclosure.
“I had a couple of realizations,” he noted. “One was there's a huge scale here where the numbers of consumers who can be affected and the scale of the monetary impact that [these lending decisions] can have on them is so great. The other was that the bank technology that was being used to do this — to make those decisions, was extremely paper and human intensive."
Manual processes, he added, mean that making good lending decisions at scale — and again, the scale here stretches into the trillions of dollars — is hard to do.
To smooth out that lending process, he said, Blend takes the same digital data that a growing number of consumers are already accessing — bank account level information, payments, income data, all of them vital links of information in mortgage applications — and uses it as a foundation to make lending decisions in real time.
“That creates a lot of simplicity for the consumer,” he told Webster, “where they’re not searching for their bank statements and their pay stubs” to complete applications.
Data, Not Just Documents
“The idea of using data, rather than documents is foundational to our company,” said Ghamsari of Blend.
That transparency also helps the financial institutions (FIs) on the other side of the equation, as it helps them manage risk more effectively. In addition, the lenders satisfy consumers’ expectations that they be able to interact with lenders across digital channels — if they want.
And, in fact they may want a, well, blended experience (pun somewhat intended). Ghamsari said that the firm’s offerings are omnichannel, on offer not just for the consumer but for the banks’ loan officers and call centers as well.
“The financial institutions are on board with this,” he said, and while mortgages remain Blend’s largest vertical, the company also has presence in home equity, auto lending, deposit accounts and credit cards.
He said that there’s value inherent in the integrated platform model because for banks offering a separate platform for each product line leads to a fragmented experience.
Ideally, FIs should serve customers across the continuum of their financial lives. For the FIs, especially smaller ones, there is a fundamental advantage in engaging with customers digitally (in terms of labor savings, especially).
That being said, banks, of course, sometimes are reticent to jump into the tech pool with both feet, so to speak.
Ghamsari said that, when handling trillions of dollars in assets, they must be careful of compliance and regulatory mandates when embracing new tech deployments.
The regulatory environment is getting stricter in the digital age, he said, in making sure that people are who they say they are and fund flows are legitimate.
“We don't expect banks to move fast in the sense that we don't expect them to sign with us in one day and then be live with us the next day,” he said.
Getting to market can take several months (or even years) to launch digital lending efforts, depending on the FI. Moving beyond paper-based processes, though, and serving customers is becoming a top priority for banks, especially smaller banks, said Ghamsari.
A “layering” approach is key for Blend and for the lenders on its platform, he said, as is looking toward new ways to bundle SaaS geared toward mortgages. By way of example, Blend just launched a video-based notary and closing service.
Blend said earlier this month that it raised $75 million in a Series F funding round.
As the great digital shift continues in the housing industry, said Ghamsari, “innovating on top of a business that has capacity issues already is something that banks have to figure out,” noting that such innovation is “good for consumers in the long run.”