The disruption of the mortgage space is at hand

by Donald Horne02 Dec 2015
Jeff Patmont, a 30-year-old marketing manager for a medical-device company said he did almost everything electronically for the mortgage on his $980,000 home in the San Francisco suburb of Lafayette, California.

“I didn’t want to deal with a bank,” Patmont said. “I signed my offer sheets and loan documents on my phone while I was sitting in a bar.”

For one industry player, rapid pace of technological change should be a wake-up call, requiring a radical re-think on how the mortgage channel conducts business.

“I truly believe that there is some 17-year-old working in his parents’ basement right now, working on some form of technology that might make us just a little less relevant,” says Boris Bozic, founder and president of Merix Financial. “We’ve insulated ourselves in believing that everything we provide is so unique, that somehow what is happening out there in the rest of the world really doesn’t pertain to us. I don’t suffer from the hubris of believing we are all that and a bag of chips.”

Social Finance Inc., a San Francisco-based online lender that refinances government-backed student loans, is originating about $50 million a month of loans like the one it made to Patmont, according to Chief Executive Officer Mike Cagney. Next year, SoFi plans to issue as much as $3 billion of mortgages, including interest-only loans and others that can be sold to Fannie Mae and Freddie Mac, he said.

“The mortgage industry is like the Henry Ford assembly line,” Stanley Middleman, CEO of Freedom Mortgage Corp. told Bloomberg News, which originated $23.6 billion in mortgages last year. “Our industry will be disrupted. It’s when, not if.”

While Social Finance’s $3 billion is but a flyspeck in the $1.45 trillion market for U.S. home loans, SoFi and other tech-focused upstarts such as Lenda, Sindeo Inc. and Roostify are shaking up the industry. They’re pushing lenders to innovate and betting they can win market share with automated processes that might nauseate big banks hesitant to ramp up their lending after paying billions of dollars to settle mortgage-related lawsuits.

The Silicon Valley firms are seeking to benefit from a shift away from banks to lenders like Quicken Loans Inc. and PennyMac Financial Services Inc. Nonbanks were responsible for 37.5% of U.S. home loans made last year, up from 26.7% in 2013, according to data compiled by Inside Mortgage Finance.