Jason and Shmulik discuss the value of fintech and the struggle to adopt
Argyle has brought together a distinguished board of advisors from across the country, each contributing valuable expertise to our mission. So when our founder and CEO, Shmulik Fishman, and advisor Jason Cave both happened to be in New York City at the same time, we jumped at the chance to have them sit down for a rare face-to-face conversation.
In 2022 Jason launched the Federal Housing Finance Agency’s Office of Financial Technology and became its first chief fintech officer, a role that exposed him to the industry’s most cutting-edge technologies. But when he began his career in mortgage, things weren’t quite so advanced.
“When I started at the FDIC in ’93, we had just gotten email,” he said. “When I moved to FHFA 27 years later, we were late to the game creating a fintech office. Though, this being the housing industry, late was pretty much right on time.”
The mortgage space has a long history of leaning into tradition that can make lending institutions and the professionals they employ slow to adopt new technologies. For instance, despite the availability of digital alternatives that improve efficiency and reduce fraud risk, many lenders still rely on paper as their source of truth for processes like verification of assets (VOA) and verification income and employment (VOIE).
“I saw hundreds of new fintechs come to market, but the inefficiency and high cost of manufacturing a mortgage barely budged,” said Jason. “There’s all these great tools, but unless they’re adopted and efficiently used, the needle won’t move.”
Technology holds so much promise for increasing efficiency, ease, and even safety. So, as Jason puts it, what gives?
The complexity of adoption
“Here’s the thing,” said Shmulik. “When a lender is operating at scale, it’s hard to come in and say, oh, upend your process for a few months to properly integrate and train. You have to start small, and familiarize people with the new process before the business can benefit.”
Lenders often hesitate to change established processes. Sometimes it’s as simple as basic human behavior—people like what is familiar. Compliance concerns may be a stumbling block, or lenders may worry that adopting a new technology will be a time-consuming disruption that undermines profitability. Some have tried new technologies before and found it difficult to document their return on investment (ROI).
The danger of falling behind
But while new technologies may come with short-term risks and uncertainties, failure to innovate is just as risky, if not moreso. Traditional processes and outdated solutions are targets for fraudsters, reduce efficiencies leading to higher customer attrition, and can get lenders in hot water when they fail to uphold consumer data privacy.
Many modern technology solutions offer alternatives to the legacy processes fraudsters have long since learned to exploit. Argyle is an authorized report supplier for Fannie Mae’s Desktop Underwriter® validation service and a service provider supporting Freddie Mac’s Loan Product Advisor Asset and Income Modeler, allowing lenders to take advantage of reps and warrants from the GSEs to provide an additional layer of protection against buyback risk due to errors or fraud.
“People used to say paper is the source of truth,” said Jason. “But that simply isn’t true anymore. With one Google search, you’ll find a dozen ways to get paper versions of verification documents like paystubs cheaply, and that’s only one example.”
Fraud isn’t the only risk found with relying on old methods of verification. Relying on paper also puts a heavy onus on the borrower to supply the necessary documentation, often repeatedly. Borrowers might find themselves spending hours tracking down old paystubs and tax returns—hours they would much rather spend picking out the perfect couch for their new living room.
A tired borrower who’s frustrated by time-consuming manual processes is far more likely to fall through the cracks in your loan pipeline and go to a competitor. Is sacrificing the quality of consumer experiences really worth avoiding the hassle of integrating new tech? Jason and Shmulik don’t think so.
“With high rates, low inventory, and many borrowers struggling under the burden of inflation, it’s a tough market,” said Shmulik. “Lenders need every advantage they can get, even if it means uprooting comfortable processes in favor of solutions that save money and get borrowers to the closing table faster.”
Finally, data privacy is gaining momentum as a hot-button topic among consumers. Recent data leaks have negatively impacted consumer trust. Take the ransomware attack against Bank of America in February, which left 57,000 consumers concerned about their data. More and more, consumers are paying attention to how their data is used, and Jason believes the mortgage industry is behind in securing data privacy effectively.
“Our industry has created a system where we’re selling consumers their own data,” said Jason. “I think consumers are going to start catching on to that, and then the issue is going to become one of data privacy. At that point, consumer-permissioned systems like Argyle are going to become essential.”
Effective adoption
“The critical factor in successful adoption is ease of use,” said Shmulik. “A technology solution needs to simplify a complex process, not complicate it further. You can tell someone how your high conversion rates are great for the business until you’re blue in the face, but until you convince individual working professionals a technology solution will make their lives easier, it won’t get you anywhere.”
Giving consumers the power to control their own data privacy during VOIE can increase efficiency and make getting a mortgage easier. Argyle, for example, is giving consumers easy, safe access to pull their own data and payroll information and deliver it to lenders as needed rather than paying extra fees for their own information. This not only enhances consumer trust, but also streamlines processing. As a bonus, it also makes it easier for the loan officer and borrower to talk through unusual sources of income, such as gig or contract work.
“Imagine talking to your borrower, and instead of asking them to hunt down months of paystubs, you can just securely connect to their payroll provider in a matter of seconds” said Shmulik. “And then keep connecting, for ongoing documentation and re-verification. That’s our ultimate goal at Argyle: to simplify VOIE not only for the borrower but also for processors and underwriters.”
“Not every borrower is going to want to use verification processes like Argyle’s, of course,” Jason added. “But millennials and Gen Z are starting to buy homes, and these are the kids raised on the iPad. They’ll expect this kind of interconnectivity, and more besides.”
Considering the future
“Lenders have to choose to move forward,” said Shmulik. “Otherwise, the industry may find itself stagnating.”
Adopting technology can be a challenge for lenders of any size, but it is essential to continue progressing and growing in an increasingly complex and interconnected world. Those who fail to adapt will face increased risk and decreased borrower satisfaction, doomed to watch their competitors bound ahead.
“We forget that there are challenges and disruptions in every business model,” Jason said. “Without change, we wouldn’t be in a society doing mortgage business to begin with; and the future is looking bright.”
