Mortgage technology advanced despite tough market in 2024

December 24, 2024 9:00 AM

The pace of technology breakthroughs on a broad scale provided momentum for growth in efficiencies within the home lending community in 2024 despite ebbs and flows in loan volume.

While digital adoption in the industry has rapidly accelerated since the Covid-19 pandemic, 2024 provided evidence of how essential it has become in home finance — with both positive and negative results to show for it — and an indispensable part of mortgage's future.

Headlines frequently focused on artificial intelligence, but regulatory updates and cybersecurity trends also highlighted the role technology plays on a day-to-day basis.

Here are a few of the key technology developments over the past 12 months whose influence will continue to be felt throughout all stages of mortgage lending in 2025.

Creating spaces for AI

The tech theme of 2023 remained the dominant headline in 2024, but for different reasons. While 2023 was largely about the hype and potential of artificial intelligence, the past year showed mortgage companies looking to devise strategies and tools to make it work for them.

While there is almost universal agreement that AI doesn't belong in loan decision-making, businesses continued to implement it to streamline processes by creating artificial intelligence-driven copilot assistants for lending officers and other staff. Following the introduction of copilots by some of mortgage's big names in 2023, more leading players jumped aboard the AI train with their own chatbot-like tools.

A few companies looked at extending AI capabilities by putting the technology in front of the borrower and adding voice-enabled software to handle inquiries.

Despite artificial intelligence's rapid rise, it still remains expensive to introduce, and technology experts caution companies about rushing to jump in without also coming up with their own clear strategy for it.

HUD makes strides with eNotes

Growth of eNote adoption accelerated during Covid-19 out of necessity, but positive feedback from those efforts drove the Department of Housing and Urban Development to look at expanding policies that will encourage more of such activity from issuers and servicers in the future.

In May, the department announced it would permit both digital and paper collateral to be pooled within Ginnie Mae securitizations, touting the cost savings the move would bring. At the end of 2024, it then announced a demonstration program for partial claims submissions of Federal Housing Administration-backed liens, allowing lenders to submit digital versions of promissory notes and forms.

Evidence of the popularity of digital collateral appeared in Ginnie Mae's data. In its most recent fiscal year, Ginnie Mae reported securitizing over 183,000 eNotes, representing $44.8 billion. The latest represented a year-over-year increase from approximately 111,000 and $29.9 billion.

Digitized collateral isn't just the domain of federal agencies either, with an issuance over the summer from Rocket Mortgage that showed the private-label market opening the door wider for eNotes in its pools.

Appraisal technology gains regulatory clarity

With advances made in technology and modeling, lenders have turned to automated valuation models with greater frequency, both for efficiency and to help deal with the shortage of appraisers. Over the summer, they finally received some clarity from six government regulators about their use of AVMs.

While the rule didn't spell out a specific course of action or penalties for improper use, it gave mortgage trade groups a base from which to develop their own standards and guidance when it goes into effect.

Among the requirements, lenders will need to ensure their AVM usage provides high confidence in estimates, protects against data manipulation and complies with nondiscrimination laws. How mortgage banks address the latter will fall under heightened scrutiny, with reports and lawsuits surrounding appraisal bias continuing to make news.

Cyber incidents bring new requirements

After reports of system hacks and related crises arrived with alarming frequency in 2023, cyber crimes appeared to tail off over the past 12 months. The effects of a year some mortgage companies would prefer to forget lingered, though, leading to rollout of new rules and the likelihood of increased prevention costs, with perpetrators taking no breaks as they look for new ways to commit fraud.

In March, Ginnie Mae issued a mandate directing all of its market participants to report cybersecurity incidents within 36 hours. Just a few months later, the Federal Housing Administration followed suit with an even stricter requirement for lenders, which it later revised. The FHA specifically cited the frequency of cyber hacks in 2023, some of which hit mortgage's biggest names, behind its new policy.

Although cyberattacks made fewer headlines in 2024, home finance businesses did not exit the year unscathed. Cyber criminals managed to find vulnerabilities and gain access to customer data, with multiple reports of such incidents to end the year.