Embracing AI in Mortgage Lending: Powerful Enhancements Without a Complete System Overhaul

With mortgage applications at a nearly 30-year low and many lenders “reshuffling the deck” internally, I’ve spoken with many originators who are shifting focus to tech-driven solutions to prepare for the next up-market and to future-proof their organizations as best as they can against the most cyclical market out there—mortgages.

Even with the average 30-year fixed rate at a nearly three-month low of 7.37% and a slight uptick of 0.3% in mortgage applications for the week of Nov. 24th (adjusted for the Thanksgiving holiday), there is still no clarity on when the housing market will see meaningful signs of relief.  There are talks of likely rate cuts at the Fed level in 2024, but much is still unknown with geopolitical stress and an election year ahead.

Focusing on AI-driven solutions, I have learned that, to many, the blanket term “AI” can be overwhelming, vague, or imply a total overhaul of your core systems, including underwriting, processing, and loan origination system (LOS) platforms. While this could be the case with certain solutions in the market today, lightweight, AI-backed data layers and process enhancements can also create valuable efficiencies while working alongside existing processes.

When we talk about our core AI technology at CAPE Analytics, we refer to our machine learning (ML) and computer vision (CV) capabilities, which instantly derive property condition data from high-resolution aerial imagery. The AI technology behind this solution allows CAPE to deliver objective property condition information at scale for millions of properties across the U.S.

As originators shift to data-driven valuation methodologies to decrease turn times and save borrowers money, I have encountered a common unfounded concern: lenders fearing the unknown about how to integrate these cutting-edge solutions.

Fear not: AI-powered property condition intelligence, like that delivered by CAPE, can be easy to implement, provide tangible results that enhance daily productivity, and bring real business value.

Whether you are originating a loan with an AVM that assumes a property is in fair condition, buying a portfolio of mortgages and running diligence, or monitoring for change in a servicing portfolio, AI-backed property intelligence is a powerful tool that can complement your existing processes. 

At CAPE, we instantly provide these insights for our clients, like through our new automated PCR (aPCR), enabling them to make better decisions, mitigate risk, and increase efficiencies.

For example, lenders using an AVM for loan origination have multiple risk elements in play because the AVM assumes that a property is in fair condition. If you portfolio the loan, there is the possibility that you might be lending into a negative equity position and harming both the borrower and lending institution. If you sell into secondary markets, a loan aggregator might find a property condition issue in their diligence and send you a kickback. In both scenarios, CAPE allows the lender to instantly and inexpensively identify property condition outliers that would have created a significantly overvalued AVM or a potential kickback from a capital market partner.

Some lenders already use a PCR to mitigate risk and pass through to investors. In this instance, CAPE provides value to lenders by providing instant property condition data, which saves the institution or borrower money by eliminating the need for an $80-$100 PCR. This also decreases the time processing teams spend tracking down or reassigning inspections, reduces friction between the lender, inspector, and borrower, and provides day-one certainty for the valuation and condition component of the underwriting package.  

These are just a few examples I have seen in the market of how a simple AI solution can sit alongside an existing process without a core tech overhaul. Moving forward, lenders should look at AI innovations with an eye toward seeing how they fit within their businesses, enhance the processes they are already executing, or become a more efficient way to complete an existing time- or resource-consuming task.

–Brandon Goldstein, Director of Real Estate Sales

Click here to learn more about CAPE’s aPCR solution for mortgage lending.