How You Might Benefit When Mortgage Lenders Use AI

Over the past few years, we've seen the use of artificial intelligence or AI grow throughout all areas of business – including within the mortgage industry. Banks, mortgage companies, and independent brokers utilize these AI loan tools to help facilitate daily processes and reduce the work handled by human loan officers and underwriters.

For borrowers, this translates into faster, more streamlined lending experiences. Loans are closing sooner and with fewer missing documents and last-minute surprises.

This article examines how AI is disrupting the mortgage industry, what that means for consumers and lenders, and where AI mortgage lending is likely going.

How Mortgage Borrowers Benefit from AI Mortgage Lending

Mortgage AI is improving the borrower experience across various areas of consumer lending. Loans are closing faster, lenders are more responsive, and there are fewer surprises late in the origination process.

Superior Customer Support

Since the release of ChatGPT, AI chatbots have become one of the most common new tools in the mortgage industry. Lenders of all sizes use chatbots to provide personalized answers to customer questions instantly.

These AI bots are even sometimes used to begin your mortgage process. Want to apply for a loan in the middle of the night? That's no problem when a lender's AI loan platform can analyze core documents and data and then direct you toward the best-suited mortgage options.

Less Back-and-Forth Document Submissions

Loan underwriting requires extensive documentation, and the paperwork requirements for self-employed borrowers or those with non-traditional credit can be even higher. Traditionally, tracking down missing documents involves a back-and-forth between the borrower and their loan officer, with every step delaying underwriting further.

Through the use of AI, lenders can scan through an entire mortgage file in seconds to ensure that they have everything required to process your loan. If anything is missing, the loan AI notifies you immediately, avoiding untimely issues closer to closing.

Faster Loan Processing

The standard loan involves a lot of human effort: pouring through documents to extract data, calculating ratios, assessing borrower risk, and double-checking everything for accuracy at least once or twice.

However, these routine tasks are one area where artificial intelligence truly shines. Mortgage AI is helping to reduce the amount of human involvement in loan processing.

Some lenders can even automatically gather employment and income data without the need for paychecks or tax returns. The Equifax TotalVerify platform, for example, receives regularly updated data from over 3.1 million employers.

The Advantages of AI Loan Processing for Lenders

Lenders benefit when loans close faster with less work and more satisfied customers. Chatbots, document scanning, and data extraction are just a few ways lenders gain from AI loan tech.

Some other advantages that lenders are seeing from AI mortgage processing include:

Risk Assessment

Machine learning tools can search databases of consumer and market data to provide a more accurate, individualized risk assessment for each borrower.

Fraud Analysis

By reviewing transactions for common warning signs of mortgage fraud, AI helps lenders identify the riskiest files and flag them for a more in-depth human review.

Post-Closing File Audit

Lenders conduct post-closing file audits to ensure that all required documents are present and complete, all material information is correct, and the loan file meets all lending guidelines. AI streamlines this task, saving hours of review time per file.

Regulatory Compliance

The mortgage industry is highly regulated, and the rules are constantly changing. AI loan tools keep up with current regulations to ensure that mortgages remain compliant with less human management.

Automated Valuation Models

Getting an appraisal can be a significant delay in the lending process. Sometimes, it may take weeks between ordering an appraisal to the appraiser submitting their report. However, through the use of AI valuation tools, lenders can get a relatively accurate idea of a property's worth with just a few clicks.

Preventing Defaults

Lenders can use AI to analyze economic and loan-specific data to predict which borrowers will most likely default on their loans. By having a warning indicator before troubles begin, mortgage companies can work with the borrower and offer potential solutions to prevent payment interruption.

Potential Disadvantages of Using AI in Mortgage Lending

While many advantages of mortgage AI exist for both borrowers and lenders, the technology is still under development, and so there are also some potential disadvantages.

A few of the things that worry experts and industry insiders include:

• Hallucinations – Just like humans, artificial intelligence can make mistakes. This is often because of being given incorrect data, but sometimes errors can materialize on their own. These issues are called "hallucinations" and are part of why AI mortgage platforms still require human oversight.

• Racial, Gender, and Other Biases – There has been concern over the use of AI in mortgage lending due to the racial, gender, and other biases historically present throughout the housing industry. While decades of regulations and improvements have helped to minimize problematic instances, AI systems rely entirely on the datasets they're fed. When the data used to train AI systems contains traces of bias, the system’s output will further reinforce this partiality.

• Cybersecurity and Consumer Privacy – With systems designed to access and store a seemingly endless amount of personal consumer data, mortgage lenders operating on the front lines of AI tech need to pay special attention to cybersecurity threats and consumer privacy laws.

What Mortgage Lenders Currently Use AI?

Many companies within the mortgage industry are using AI in one way or another, some of the biggest undertakings being designing custom platforms to create more efficient processes. Here is what a few of the largest mortgage companies are doing with AI:

Rocket Mortgage

Rocket Mortgage publicly announced its Rocket Logic platform in mid-2024. Since launching the AI software, which processes and analyzes borrower documents, the company has saved tens of thousands of hours of work and seen loan closing times decrease by 25%.

Mr. Cooper

Since launching its Pyro platform, Mr. Cooper has used its AI loan tool to automatically read more than 2.7 billion pages of documents at an average rate of 3,000 pages per minute, according to their website. During its first year of operation, Mr. Cooper claims that Pyro tackled a backlog of documents that would have taken more than four years to process manually.

Newrez

In late 2023, Newrez began a partnership with Microsoft to harness the power of the tech giant's Azure OpenAI Service. The Newrez platform, still under development, is following a developmental roadmap to establish in-depth data analysis and customer support modules.

United Wholesale Mortgage

United Wholesale Mortgage (UWM) released its ChatUWM platform in May 2024. The AI chatbot is designed to help loan officers, underwriters, and borrowers quickly find answers to their questions from UWM's comprehensive knowledge base. United Wholesale Mortgage claims that its average home loan is currently cleared to close in just 17 days.

AI Tools for Mortgage Lending

According to a 2023 survey conducted by Fannie Mae, the largest hurdle preventing lenders from implementing AI is integrating the technology with their current systems. Doing so can be costly and time-consuming.

A slew of financial technology companies offering AI services are on the rise to help smaller banks and lenders level the playing field when it comes to using AI in mortgage lending.

These six companies represent just a handful of the AI firms at the forefront of high-tech lending:

1. Candor

Candor provides AI underwriting services to all types of lenders. While most other companies are creating platforms to streamline document collection and customer support, Candor claims to be the "only patented decision engine in the industry."

Designed to think like an underwriter, the Candor platform analyzes and compares borrower data to lending guidelines before a human underwriter even touches the file.

2. Tavant

Through its Touchless Lending platform, Tavant allows banks and mortgage companies to automate communication, improve the customer experience, and ensure the completion of necessary documents. According to the Tavant website, its AI loan software increases lender underwriting capacity more than fourfold.

3. Zest Finance

The Zest AI platform helps lenders more accurately assess the risk level of lower credit borrowers. Utilizing tailored underwriting models, Zest identifies the borrowers most likely to make their mortgage payments despite having a lower credit score.

4. Capacity

Capacity’s AI loan platform provides round-the-clock chat support for consumers and lending professionals. However, the company also offers modules that help lenders automate their workflow and improve loan servicing practices.

5. Jaro

Jaro provides lenders with a comprehensive appraisal management platform that uses the Assign IQ prediction engine to identify potential appraisal issues before an appraiser even sets foot on the property. The platform also allows lenders to schedule appraisals and accurately predict how long it will take to get the final report for each home.

6. Metasource

Metasource offers a comprehensive suite of AI tools, including intelligent document processing, reviewing for loan compliance, and boosting the customer experience through AI-driven chatbots and call centers.

Will Advancements in Mortgage AI Replace the Human Element?

While machine capabilities increase every year, the human element will likely never be completely removed from lending.

Borrowers still want to be able to go over the nuances of their transactions with a human loan officer. After all, taking out a mortgage is a major financial decision and machines are not free of error.

Lenders may be able to use AI to extract underwriting data, but human underwriters will still need to verify the results.

There are also restrictions on loans that are securitized and sold to investors. While AI can help ensure that all documents are present, the regulatory burden still falls on humans to verify that the document packets are compliant.

The Future of AI Mortgage Tools

Despite noteworthy innovations, we're still in the early stages of AI mortgage lending.

Over the coming years, we're likely to see more lenders – particularly smaller banks and mortgage companies currently limited by the cost of implementing AI – begin to use artificial intelligence to streamline the lending process.

According to research by Arizent, 60% of lenders currently use an AI loan tool or plan to do so by the end of 2024.

Plus, the tools currently used for tasks like document analysis and risk assessment continue to be refined and improved. As more lenders adopt increasingly advanced mortgage AI, we're likely to see industry-wide funding times shrink.

For example, Rocket Mortgage claims that they could fund loans 25% faster after launching their AI Rocket Logic platform.

AI Loan Processing Is Changing the Mortgage Industry

Mortgage AI has already begun to change how lenders process and underwrite residential mortgages. This translates to a smoother, faster, more personalized consumer lending experience. But AI loan technologies are still in their infancy – we're likely to see even more disruption to traditional mortgage practices over the coming years.

One thing is clear, however: the integration of AI in the mortgage industry is already proving to be a win-win for lenders and consumers alike.