Much of the real estate market has made strides in integrating fintech, but much of the market remains untapped, according to the Urban Institute. Compared with other goods, the online share of all home sales (to owner occupants, investors, fix-and-flippers, and others) is less than 15%, the Urban Institute states in its report, titled “FinTech Innovation in the Home Purchase and Financing Market.”
“Every step of the homebuying process is heavily regulated at the federal, state, and local level,” the Urban Institute states. “Despite these barriers, technology has made inroads within specific pockets of the housing market: helping consumers build credit and save for a down payment, search for and purchase a home, shop for and obtain mortgage financing, navigate mortgage servicing, and extract home equity to eventually sell the home.”
Fintech firms can cause transformations in two ways: through improved efficiency and through reduced structural barriers. For example, credit scoring firms have enhanced their technology and modeling techniques and incorporated some additional data into the credit scoring process. FICO, for example, is rolling out new programs where borrowers can allow the use of their bank statements, and has arranged for limited use of telecom data for consumers with limited credit histories. While mortgage lenders currently do not take this data into account, Fannie Mae and Freddie Mac are investigating the use of these “alternative data” and, in limited circumstances, will extend mortgages to consumers without credit scores.
Post-purchase, insurance start-ups such as Lemonade and Hippo utilize advanced tech to generate quotes and sell insurance online. With the process fully automated, Hippo claims to offer 25% lower premium. Other startups can offer reverse mortgages online, without requiring a mortgage and monthly payments by taking a portion of the house value when the property is sold.
“In conclusion, substantial innovation has taken place across the mortgage ecosystem, producing clear benefits for consumers,” Urban states. “But major gaps in the availability of fintech services exist.”