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The Road to the Frictionless Mortgage

Getting a mortgage should take days not months

JP Ackerman

JP Ackerman

Nov 18, 2019

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Homebuyers in the US, especially first time buyers, face complexity and uncertainty as they navigate the roadblocks in the mortgage process. They need a trusted partner who can deliver certainty, speed and simplicity. 

Each year home transactors endure nearly 207 million wasted days waiting to close a home, that results in over $8B in frictional cost to the homeowner and $28B in excess expenses incurred by the lenders. This waste should be deployed to address affordability concerns plaguing homebuyers, deliver new products to address consumer needs, and provide higher quality outcomes to loan investors.

There is significant opportunity for improvement in the current mortgage process:

  • The current mortgage process is slow, taking an average of 46 days to fund. For those mortgage contracts that were delayed, 36% were due to financing issues and 16% to appraisal issues. 

  • Appraisals, a key component of the process, are both inconsistent and biased: over 7% of closed transactions have appraisals come up short of the actual purchase price (nearly 500,000 transactions each year), and many more see the parties forced to renegotiate. The balance snap to or just above the purchase price (over 90% of the time) leaving consumers without an objective, unbiased valuation of the home. 

  • On average we estimate $4,000 in costs (over 40% of the overall production cost) could be removed from each mortgage transaction through improvements in processing, underwriting and digitization.

While the industry is evolving, it is moving at glacial speed. At the current rate of innovation, it will be the middle of the next decade, at the earliest, before we see fully digitized consumer engagement and much longer to modernize the entire process.

SimpleFinance is off to a strong start in solving these problems

At SimpleFinance, we’ve spent the past two years building the foundational platform to support homebuyers through their journey. 

We are focused on two theses:

  • Addressing the key underlying bottlenecks in the residential financing workflow with AI/ML will greatly accelerate the process. Our first push on this front is collateral valuation, which represents the longest timeline to complete a loan.

  • Reimagining the process requires us to be a full stack startup. We are overhauling the entire origination process to remove friction from all phases of the process: borrower engagement, application, processing, underwriting, closing, post-closing, and servicing.  Owning the entire process is the only means to defensibly change the outcomes.

I was drawn to SimpleFinance by the opportunity to deploy groundbreaking technology on behalf of the broader community of homebuyers. I spent a decade as a homebuilder at PulteGroup seeing firsthand the challenges and uncertainties homebuyers face. Having led the revenue function at HouseCanary, I know firsthand how powerful a best in class valuation engine could be, and what could be done if we used an engine like this at the core of a new kind of financial institution, as opposed to just providing a tool for incumbents. 

During my due diligence on SimpleFinance, I was struck by the best in class results of the engine, and incredible aptitude and velocity among the team -- what they’d done with such a small group of engineers in a couple of years was remarkable. From my experience in the real estate business, I’ve seen that even with the right intentions, it is hard for the incumbents to change. Even some fintechs lack the engineering and product firepower to ship larger product innovation.

Our platform features a best in class AI-powered residential valuation model, which has seen successful real world usage in multiple proof of concept implementations in some of the most active real estate markets in the US. The AI underpinning our valuation model is trained on thousands of factors from a complete nationwide set of properties and combines structured property and neighborhood data with computer vision analysis of imagery to deliver the most accurate results possible compared to current benchmarks. The team behind the platform has been led by Adam Kolář, our Machine Learning lead, and is composed of seasoned AI and ML practitioners.

Our mission is to empower homebuyers with certainty

We will fulfill our mission by delivering unique loan products. We are building partnerships to deliver a full array of residential lending products, including products that expand the credit box to underbanked communities estimated to account for an additional 10% of the market. Through these products, we leverage our collateral valuations to provide near-instant approvals and accelerated funding in fewer than ten days.

Introducing the frictionless mortgage

The team at SimpleFinance is working hard to bring our vision of the frictionless mortgage to life. Free from extended timelines, surprise costs and uncertainty, the frictionless mortgage is designed to empower consumers. 

Frictionless financing requires a solution that is: 

  • Fast: The borrowing process shouldn’t take nearly 50 days. We are designing loans that will fund in fewer than 10 days, allowing homebuyers to make offers like cash -- allowing for more favorable home pricing. 

  • Technology Fueled: The existing mortgage process is administered by humans, prone to error and laden with redundant workflows. The SimpleFinance process is entirely designed around and fueled by technology. It enables us to process faster, underwrite risk more accurately and remove costs throughout the system, translating to reduced pain and expense for our borrowers.

  • Transparent: There should be no hidden fees and no unexpected delays in the mortgage process. The home valuation process shouldn’t be a mystery nor should last minute surprises in low appraised values blow up nearly 10% of home transactions.  To ensure our borrowers have complete transparency, we will provide a core component of our underwriting process - our home valuation engine - to consumers at no charge so they can use it when it really matters most: while shopping.

  • Comprehensive: Few consumers are aware of the full array of financing products and even fewer can access them, thereby limiting choice and opportunity for homeownership. We are providing a comprehensive array of financing solutions that empower consumers with access to credit to purchase their first home, to increase buying power to reimagine their purchase destination and to optimize their outcomes.

SimpleFinance’s frictionless mortgage will accelerate the speed of lending by 67%, while leveraging the thousands of dollars saved to offer more compelling products at leading prices.  

We can’t wait to show you what we’ve been building! Be the first to find out by signing up for early access at SimpleFinance.io.

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JP Ackerman is the CEO of SimpleFinance. Previously JP served as EVP, Head of Sales and President of Real Estate Products at HouseCanary, a big data analytics startup. JP has also held executive roles in strategic planning, portfolio management and acquisition at PulteGroup, the third largest home builder in the US based on number of homes closed. JP began his career as a product manager at Hewlett-Packard.

Sources for the data in this post: Ellie Mae, NAR, Fannie Mae, and SimpleFinance internal calculations based on industry forecasts.