Clearly, 2024 was a challenging year for the mortgage industry. Although there was some hope at the start of the year that business would pick up, it simply did not happen, save for a bump in refinances that came in the third quarter. In response, some mortgage companies and servicers chose to stay the course and recommit to their current workflows, technology, and processes. Others prepared for the future by investing in it. These companies are more likely to emerge from the current headwinds better positioned for success.
The fact is, when things do not go as planned, one has no choice but to adapt. That’s why forward-thinking lenders and servicers are now embedding technology – artificial intelligence (AI) and machine learning (ML) – into their workflows to replace labor at critical points in the mortgage process. When volume returns, these companies will have a better infrastructure in place, enabling them to scale faster. Those companies that lack new technology will likely have to hire more people in order to scale.
The main takeaway from 2024 is that it is imperative to operate more efficiently – with better technology, a streamlined process, and a flexible structure – to allow for the necessary pivots that this dynamic market will require in the year ahead.
The Impact of AI and ML in 2025 and Beyond
There is no doubt that AI and ML are seeing increased use in the mortgage industry. From a technology standpoint, the industry has been behind when it comes to incorporating AI into its process – especially in the areas of product ordering and pushing loans through the lifecycle. However, it is beginning to positively impact verifications of employment and will eventually enable other verifications on consumers, property, and fraud.
As with any emerging technology, there are challenges to navigate. It’s important to continue learning and understanding its full capabilities and limitations. By embracing these technologies with a proactive mindset and a focus on responsible implementation, the industry can confidently harness the transformative power of AI and ML to deliver greater value to borrowers and stakeholders alike.
Where Lenders and Servicers Should Focus Their Energy in 2025
For lenders, there is one main area that will make or break their success next year: how they scale. A slightly more favorable market is expected next year which will put more stress on existing systems. Lenders need to do a deep dive into how volume changes impact their operations. How are they going to scale as we return to a normalized market – through technology or by people? Those who are prepared will opt for technology; those who are not prepared will add people – again.
For servicers, they should have a singular focus: to retain their loan portfolios. If we move into a more favorable rate environment, servicers will need to figure out how to effectively solicit new offers to existing customers, so they don’t lose them to someone else – especially those loans that are performing well.
Trends to Watch
What follows are some of the issues the mortgage industry will need to wrestle with in 2025:
The rising cost of credit: The increasing cost of credit has, and will continue to be, a challenge for lenders. The obvious answer is that lenders will have to be more thoughtful when ordering credit reports to realize cost efficiencies. The rising cost of credit is prompting many to consider starting with a more cost-effective option, such as a single bureau or two bureaus, and then upgrading to a tri-merge later in the process through technology or lender decisioning.
Integrations: When it comes to integrations, flexibility will be key because every lender and servicer are not the same, and one size does not fit all. Whatever types of technologies that lenders and servicers utilize for their businesses, they need to be fully embraced. Tech providers must be agnostic when it comes to the technologies they use, and they should ensure there is connectivity to all of them through hundreds of integrations – whether they are out-of-the box or customized solutions. It’s all about maintaining flexibility so that the right data gets into the right hands at the right time. Ultimately, there will be many more integrations in 2025.
Using data to cultivate borrower relationships: To date, the use of data has been focused on applicants who are approved. However, going forward, look for data to be leveraged for those who are not approved – and used to help them qualify for homeownership in the future. By knowing where people financially stand through the use of data, lenders can be better positioned to create a roadmap to homeownership through education and close collaboration. It’s about using data to build relationships – not just with consumers, but also with Realtors and builders.
Upcoming FHFA changes: There is still a lot of ambiguity in this area. Unfortunately, there are no updates on this issue and FICO® data has yet to be published. The GSEs are still pointing to an effective date of Q4 2025, but no one believes that will be possible. There is no guidance, and a lot of work remains. As a result, many LOS platforms do not have a timeline or plan to address these changes – though some lenders are testing FICO 10T through pilot programs and VantageScore 4.0 historical credit score data is available for use by approved lenders to review it as part of their decisioning process. In addition, it’s important to note that the ongoing bi-merge conversation does not mean consumers will begin paying less. On the contrary. Another set of scores will be included and for a period of time, three scores will be in play. By adding scores and removing bureaus, the price will undoubtedly go up. Time will tell what progress will be made on this front next year.
The Trump presidency’s impact on the industry: It has yet to be determined how the new administration’s policies and actions will impact the mortgage industry. Ultimately, it depends on how the markets respond to the initiatives his office will put forth – for first-time home buyers, VA and FHA loans, as well as the future of the CFPB and the GSEs.
A new year always comes with hopeful anticipation that things will get better – and there is reason to believe in certain areas of the mortgage industry, they undoubtable will get better. But to be successful, lenders and servicers must be prepared for any and all scenarios. Because the truth is, no one truly knows what is ahead and there are many things that can influence the health of their business. So, expect the unexpected – and plan accordingly – to be best positioned for a prosperous new year.
Greg Holmes is chief revenue officer at mortgage verifications firm Xactus.
Photo: Nicole Avagliano