The Amazon effect is coming for the mortgage industry, and that could mean a future where closing on a house takes days instead of dragging on for weeks

Samantha Lee/Business Insider

From closings in five days, to "everything stores" for homebuying, to a massive generational shift between boomers and millennials, here's how mortgage experts say the industry could change over the next decade.

• Business Insider is polling experts around Wall Street to learn what different areas of finance will look like in 2030.
• The home-buying industry transformed over the past decade, as it recovered from its disastrous role in the global financial collapse.
• We asked execs at companies innovating in the home-lending industry about what changes they see coming in the next decade.
• Experts expect the industry, which is still bogged down in byzantine, paper-heavy steps, to rapidly evolve in the coming years as the Amazon effect hits mortgage providers.
• In the not-too-distant future, tech advancements and continued partnerships between banks and fintechs could mean home-closings happen in days instead of dragging on for weeks.
• Visit BI Prime for more stories.

Home ownership is intrinsic to the American dream. But at the start of this decade, the notion had taken on the spectre of nightmare - a white-picket fence charred and mangled by excess, neglect, and complacency.

The mortgage industry took center stage in the global financial collapse in 2008 and 2009, revealing an antiquated, deeply flawed process that, instead of serving as a beacon of prosperity and wealth, rained financial destruction upon millions of Americans.

But destruction often affords the opportunity for rebirth.

The ensuing years have been spent clearing the detritus and installing safeguards to prevent such calamity in the future.

They've also seen leaders in the home-lending industry - from tech startups propelled by a flood of VC cash to old-school stalwarts looking to keep pace or make amends for prior sins - use the disaster from the aughts as a chance to rethink and reimagine a cumbersome, inefficient system.

We've traded robo-signing scandals - when thousands of lending employees, tasked with processing a glut of foreclosures, robotically and fraudulently signed off on piles of paperwork without verifying or vetting it, leading to billions in settlements against the largest financial institutions - for algorithmic underwriting and digital documentation that streamlined lending and, in some cases, reduced discrimination.

Instead of filling out reams of paper in a stuffy bank office, today people can apply for a mortgage from the comfort of a smartphone.

"The mortgage-application process has been revolutionized by technology, allowing homebuyers to complete online what used to be a heavy load of paperwork," Steve Boland, head of consumer lending at Bank of America, told Business Insider.

It hasn't been perfect though. Some argue lending standards ratcheted up too much in reaction to the freewheeling pre-crisis era.

Bank of America

Steve Boland, head of consumer lending at Bank of America.

"The financial crisis at the start of the decade really set the stage and has had widespread ramifications on the housing market," Jason Bateman, head of Redfin Mortgage, said. "While credit standards were far too loose in 2006-2007, it's clear the pendulum swung way too far in the other direction."

Jamie Dimon, CEO of JPMorgan Chase, has railed against the perils of mortgage overregulation in public appearances as well, blaming it for preventing multitudes of would-be first-time homebuyers from claiming a piece of the American dream.

And even with with all the technological improvements, the system often remains bogged down in enormous loads of paper, with mortgage application files still frequently running hundreds of pages long.

But the next 10 years offer another opportunity to push the industry forward. We polled a handful of executives from innovative home-lending firms about what kind of changes would reshape the industry by 2030.

From closings in five days, to "everything stores" for homebuying, to a massive generational shift between boomers and millennials, here's how mortgage experts say the industry could change over the next decade.

The Amazon effect hits homebuying

When we asked executives about the most significant changes they expected in the coming years, there was harmony in the belief there was a lot of fat still to trim in the system.

"While owning a home has long been the cornerstone of the American dream, it's head-scratching that in today's on-demand Amazon and Venmo digital world, the mortgage industry - with $15 trillion in assets - has remained painfully analog and plagued with inefficiencies," said Vishal Garg, cofounder and CEO of mortgage-tech startup Better.com, a rapidly growing digital lending startup that has attracted more than $200 million in funding from backers.

That sentiment was echoed by Nima Ghamsari, cofounder and CEO of Blend, another mortgage-tech startup that has raised nearly $300 million in funding and has more than 170 lending clients.

"We will see a major shift in how the homebuying process happens. Right now, despite all the progress we've made as an industry, buying a home involves dozens of steps," Nima Ghamsari, cofounder and CEO of Blend, said. "All of them are manual and require a lot of effort from the homebuyer."

Garg said he expected the "Amazon effect" to hit the mortgage industry, eventually allowing customers to deal with the process in one place - realtor, financing, title insurance, homeowners insurance, appraisals.

Part of the inefficiency of the current system comes from customers having to jump through hoops and coordinate with a different service providers, which "puts a lot of pressure on the buyer and often her agent to quarterback the transaction and keep everyone informed and on track," said Bateman, whose firm started out as a digital brokerage but has added mortgage and title capabilities.

"The holy grail that we're all working toward is the end-to-end buying experience," Bateman added.

"The holy grail that we're all working toward is the end-to-end buying experience," Bateman added.

Fintechs that started out focused on simplifying and automating mortgage applications and platforms have been using the large sums of investment capital they've attracted to build out their capabilities, adding services like title and homeowners insurance, home-equity loans, realtor and appraisal networks.

"In the next decade, we'll eliminate paper and friction from the homebuying journey and give consumers a one-stop shop where they can access all the tasks to get into a new home," Ghamsari said.

Banks and tech startups will continue to join forces

In recent years, incumbents like JPMorgan Chase, Wells Fargo, and Ally have been handing off key components of their mortgage businesses to scrappy tech startups like Better, Blend, and Roostify.

With margins thinning and competition intensifying from nonbank lenders like Quicken Loans and LoanDepot, a topflight digital-mortgage offering is becoming a standard requirement for banks.

But the relationship is symbiotic. Part of the reason banking giants are investing in digital lending startups - Ally, Citi, Goldman Sachs, JPMorgan, Santander, and Wells Fargo have each put up capital - in addition to partnering or buying their services off the shelf is they recognize the value of these startups can grow dramatically with the scale and brand recognition that banks provide.

"Whereas incumbents value startups for their speed and the opportunity to stay on top of potentially disruptive innovations, startups benefit from the scale and resources offered by larger established firms," Garg said.

Bank of America has been an exception to the trend, electing to dedicate a large chunk of its $10 billion annual tech spend to upgrading its internal and consumer-facing mortgage platforms, rather than outsourcing.

Better

Vishal Garg, founder and CEO of Better.com.

The Charlotte-based giant, which launched its digital mortgage app in April 2018, has been having a banner year in home lending.

Even with the tech ramp up in the industry, the firm believes the human touch and in-person service will remain vital to successful home lending operations.

"We've invested substantially both in digital technologies to make lending easier and more holistic, and staff to support key financial milestones in our clients' lives such as home ownership," Bank of America's Boland said.

He added: "After a swing toward rapid technological innovations, it feels as though we're moving back toward a balance of technology and in-person interactions."

By 2030, you may be able to get a house in under a week.

The average time it takes to close on home is still upward of 45 days - a month and a half.

But that figure has been falling as the influence of startups proliferates. A 2018 study by the Federal Reserve Bank of New York found fintech mortgage challengers processed applications 20% quicker than traditional lenders without engaging in riskier underwriting.

Home closings for digital customers at places like Better and Bank of America happen in roughly 20 days - half the industry average. Redfin offers a 25-day closing guarantee, and the average will continue to drive lower as more parts of the process are streamlined.

"We'll see the time from application to closing shrink considerably as we're able to automate more of the pre-approval, underwriting, appraisal, and the close," Bateman said. "We're within striking distance of being able to consistently close a sale within 12 days of an accepted offer."

By 2030, closing on a home in under a week will become the norm, Garg predicted.

"The continued advancement in technological innovation around the mortgage process will soon allow us to see five-day closings in the coming years," Garg said.

Redfin

Jason Batemen, head of Redfin Mortgage.

A massive, generational shift is about to unfold

The baby boomers were the largest generation. But then along came the millennials, a generation of more than 70 million now in their 20s and 30s who have persistently zagged where boomers zigged, often delaying cultural milestones - including homeownership.

Not that they've had much of a choice in many cases. Stiffer lending standards and more onerous financial obligations, including albatross-like student loans as well as rising rent and healthcare costs, have led to an uneven housing recovery that has left many out in the cold - with millennials feeling the brunt of this phenomenon.

But boomers, now hitting retirement and beyond, are expected to flood the market with homes as they downsize, fly south to more hospitable locales, or die. Roughly 9 million residences - or 13% of all owner-occupied homes - will be vacated between 2017 and 2027 amid this generational shift, The Wall Street Journal reported, with the dynamic intensifying as time goes on.

Will millennials step in and snatch up homes from their parents' generation?

"As with most everything else millennials do, they will likely buy homes when they are somewhat older than those in earlier generations," said Tim Mayopoulos, who joined Blend as president this year after six years as CEO of Fannie Mae. "If that is true, future demand for housing will continue to be very strong. The question is whether millennials will be able to successfully act on their expressed desire to own homes given affordability challenges."

The question is whether millennials will be able to successfully act on their expressed desire to own homes given affordability challenges."

If the younger generation remains financially unstable, that could have several knock-on effects in housing, Mayopoulos said: continued high demand for rentals, an increased preference for smaller homes versus the McMansions boomers favored, and new innovations.

"There will be a need for less expensive methods of constructing homes; and there will be new innovations in lending to facilitate down payments, to reduce upfront transaction costs, and to keep monthly payments as low as possible," Mayopoulos said.

Some say the boomer flight may be less pronounced than anticipated, with owners opting to tap home equity and remodel their existing abode instead of moving.

"We've seen many boomers decide to remain in their family homes and instead make the necessary renovations to update their space, whether that's modernizing it or expanding to accommodate extended family," Boland said.

"A significant number of boomers are expected to age in place versus selling homes; affordability and inventory will continue to be a major housing industry pain point," Rajesh Bhat, cofounder and CEO of Roostify, said.

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