SVB Failure Starts Aggressive Regulation Talk in Washington, IMBs Take NoteDoes Artificial Intelligence Have a Future In The Mortgage Industry?

October 21, 2023
It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory

The rise of AI-Artificial Intelligence is dominating industry and news headlines. Elon Musk has recently called AI the greatest tool for the advancement of civilization and the most dangerous technology that could transform mankind into a subservient lower life form. Others have decried the use of AI such as ChatGPI as a tool that could be used to spread disinformation. The drama regarding AI is real, but what about AI in mortgage transactions? Can AI lower costs, increase efficiencies and help make fair, objective and profitable business decisions for lenders? Some experts believe that AI can improve mortgage banking in several ways, including:

Streamlining the loan application process: AI can help automate and simplify the loan application process by automatically verifying income, assets, and credit scores. This can reduce the time and effort required for borrowers to submit their applications and help lenders process them more quickly.
Better risk assessment: AI can analyze data from various sources, such as credit reports, employment history, and property values, to accurately predict the likelihood of a borrower defaulting on their loan. This can help lenders make more informed decisions about loan approvals and pricing.
Personalization: AI can help mortgage lenders personalize their offerings based on the individual needs and preferences of borrowers. For example, AI algorithms can recommend specific loan products, interest rates, and terms based on a borrower’s credit history, income, and other relevant factors.
Fraud detection: AI can help mortgage lenders detect and prevent fraud by analyzing large amounts of data to identify patterns and anomalies that may indicate fraudulent activity.
Predictive analytics: AI can help lenders predict when borrowers may be at risk of defaulting on their loans, allowing them to take proactive steps to prevent or mitigate losses.
If used correctly, AI does have the potential to improve the efficiency, accuracy, and profitability of mortgage banking, while also providing a better customer experience for borrowers. As with any product or service that has the ability to help and harm, sufficient government regulation is likely needed to ensure that the application and use of the technology is governed by reasonable rules and standards. The future of AI is here already, however its ultimate application in our lives, and specifically with respect to financial transactions such as mortgage lending, is still developing. Consequently the time is now to be educated and have a voice regarding the use of AI in the industry.

If you thought this article was informative, note that 50% of it was written with the assistance of an AI research tool.

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