Digital Mortgage Lender “Better” Goes Where No Fintechs Have Gone
One product noticeably absent from fintechs expanding into lending or banking is mortgage loans, but now a fintech startup is looking to disrupt the $13 trillion mortgage industry.
Eric Wilson is co-founder and head of operations at Better Mortgage, a New York-based digital mortgage lender. Wilson explained to deBanked:
“Our industry more than consumer lending is stuck in the pre-internet era and hasn’t been able to leverage the tools to make getting a mortgage feel as simple and as empowering as other products we’re used to consuming online. The industry was waiting for a company like ours to come along with the right skills and engineering staff.”
Better Mortgage is an end-to-end mortgage lender that matches investors interested in giving loans to a subset of consumers. “We take applications and compare with investors for the best price. Underwriting and communication with the borrower happen on the internet,” Wilson said.
The investors are large financial institutions that are in the business of buying mortgage loans.
“We are a direct lender. We originate mortgages. We don’t charge origination fees to customers. We make money when we sell those loans to the secondary market, whether it’s Fannie Mae or any one of our 28 partners,” said Paula Tuffin, Better Mortgage chief compliance officer and general counsel.
In addition to zero origination fees, Better has eliminated commissions. “For us, we believe you should be able to put your storefront online and have consumers find you. We don’t think it’s appropriate or necessary pay one individual to take $6,000 out of a $300,000 loan,” said Wilson.
Instead, Better relies on a team of loan consultants who are “full-time employees or better” who are incentivized to deliver a delightful customer experience,” said Wilson. This differs from the traditional broker model used by much of the industry. “We don’t deal with third-party mortgage brokers. This eliminates a lot of the potential for fraud and harm to investors,” he noted.
The “pain points,” he noted, tied to mortgage lending surpass that of personal or unsecured lending. For instance, greater amounts of data are needed for loans of this size, and there’s the complex and intensive process of risk underwriting, all of which is exacerbated by heavy regulation.
Unlike some of its fintech peers, Better Mortgage has no interest in pursuing an OCC special- purpose national bank charter, or fintech charter.
Wilson is a millennial who had a front-row seat to the mortgage crisis and all of the hardship that fell on consumers. “It was a result of irresponsible lending practices,” said Wilson, “and a failure by regulators to keep lenders in check. So to that end, we are champions of post-crisis Dodd Frank-era consumer protection regulation.”
While operating under a single regulator across all 50 states would streamline the process for Better, it would come at the high price of innovation. “It comes with some pretty hefty strings attached. That regulatory environment is often so challenging to navigate or requirements so onerous … that I would be hesitant to go head-first into a program like this,” said Wilson.
As a result, Better incurs the cost of taking a state-by-state approach, a burden that Wilson says the company is happy to bear: “If we were to pivot and get a bank charter issued by the OCC, we could transact in 50 states overnight. But our ability to innovate evaporates in the process.”
Better is licensed in 19 states and is making an expansion push in which it plans to operate in all 50 states in the first half of 2019. The minimum FICO score for a Better conforming mortgage product is 620.
“By and large, the market is shallow in the application of technology. We’re a tech company first and we acquired a mortgage company as opposed to being a mortgage company learning about tech. This gives us a fundamental advantage in the way we think about problems,” said Wilson.Last modified: October 8, 2018