Americans are getting their loans and mortgage approvals online as Silicon Valley gets into the action.
Technology has infiltrated even the most guarded traditions of Americans like mortgage loans which are usually processed the "old school" way by banks and other lending institutions. According to Bloomberg, online lenders like Sofi or Social Finance Inc. is able to serve $50 million worth of loans in a month via online transaction.
One reason why the mortgage market is slowly being penetrated by Silicon Valley startups is convenience. An example of this is 30-year-old Jeff Patmont who works for a medical-device company. He said he was able to secure a $980,000 mortgage for his house in Lafayette, California through his phone. Patmont said, "I didn't want to deal with a bank. I signed my offer sheets and loan documents on my phone while I was sitting in a bar."
SoFi Chief Executive Officer Mike Cagney said that his company refinances student loans as well and that in 2016, SoFi has plans to release about $3 billion worth of mortgages plus interest-only loans. These are loans that may be sold to Freddie Mac and Fannie Mae. However big this may sound, it is still just a small amount in the trillion dollar industry for home loans in the U.S. Aside from SoFi, other tech lenders are Lenda, Sindeo Inc. and Roostify which are all disrupting the mortgage market.
In a report by The Real Deal, mortgage consultant Terry Wakefield warns that this practice could lead to a repeat of costly mistakes in the past, especially in the 2000s when non-bank companies gave away loans by volume. This led to the U.S. housing bubble that to some extent is still felt today.
Wakefield said, "They need to get the details right with the processing, underwriting and funding of the loans, and then get the technology right."
