It is widely known that the mortgage industry is undergoing a major facelift. In the UK, technology is becoming a major driver in the uptick in this industry. With digitally-led and accessible home financing becoming a core part of the conversation, many of the industry’s leaders are quickly realizing there is now a need to expand their focus to include innovations to level the playing field. Similar to the automation of the KYC process, the advancement of technology in the mortgage industry has meant competition is now fiercer than ever. As the risks continue to increase, the limelight will slowly shift to the active role regulatory technology will play in keeping it all balanced and fair- a role that has been continuously transforming (and no doubt will continue to) for decades.
Why Did Compliance Issues Resurface?
With the pandemic in full swing over the 2 years, many lenders in the mortgage industry have had to adapt a virtual approach to serving customers. While the introduction of digital mortgage companies and application processes have generally been seen as a positive step forward, it has also meant old compliance issues like mortgage fraud and synthetic identity fraud are back on the map. Synthetic identity fraud now accounts for 10 to 15 percent of lender losses in the UK, according to estimates by McKinsey. Similarly, the 2020 Q3 ACES Quality Control Industry Trends Report showed that the error rate in the mortgage industry was 2.34 percent- the highest since 2016.
Loan Defects Predicted To Shoot Up
The pandemic has also induced record-low mortgage rates which in turn has ignited a surge in mortgage applications, as consumers aim to enjoy the advantages of owning a home right now. Lenders have also had to adjust their criteria to be more flexible and account for these unprecedented circumstances. Unfortunately, while these relaxed measures have provided relief to millions, it has also opened up the doors for higher loan defect rates. With this, lenders will rely more heavily on risk reduction and credit monitoring tools to mitigate the heightened risks.
As Compliance And Regulations Increase, RegTech Provides An Easier Solution For Mortgage Lenders
Industry regulations like Anti Money Laundering (AML) rules are constantly being updated. One of the latest amendments to the fifth Anti Money Laundering Directive called for businesses to move away from manual identity checks in favor of electronic verification solutions. This is in a bid to keep up with the increasing sophistication of fake identity and financial documentation. What this has meant for companies in the mortgage industry is that they have had to spend more time ensuring they adhere to updated compliance regulations. However, with the introduction of electronic solutions in the form of regtech, they can comply with the ever-changing regulatory landscape and keep it cost-effective at the same time.
Customer retention and competitiveness of these businesses are also boosted. By allowing lenders to complete these all-important checks faster, regtech enables financial companies to address a key sore point for mortgage applicants: the timeline of the application process.
These are just a handful of areas where regtech is proving its value in the mortgage industry – a role that will only continue to grow. One good example would be the acceptance of eNotes as security collateral for mortgage applications. Earlier this year, Ginnie Mae announced an important milestone: the first fully electronic securitization using the eNotes technology. By reducing paperwork and expanding to include eNotes as collateral for loan products, lenders have essentially expanded their network for acceptance. AI technology can also be a key driver behind determining what actions lenders need to be taking as the landscape changes during such an unpredictable time.