How Will Advanced AI Technology Affect Mortgage Lending?
Written By: Joel Palmer, Op-Ed Writer
Most of the world, at least those who pay attention to the world, have by now heard of ChatGPT.
It stands for Chat Generative Pre-trained Transformer and is the latest software program driven by artificial intelligence (AI) technology.
Launched in November 2022, it has become one of, if not the biggest technology story of 2023. By January 2023, it had become the fastest-growing consumer software application in history.
ChatGPT is far from the first AI software on the market. But its capabilities have generated a firestorm of publicity. It has especially earned notoriety for its ability to compose music, write novel-length stories in days, and generate business ideas. It threatens to disrupt professions that were once thought to be immune to automation, especially those in the creative spaces.
ChatGPT itself hasn’t had much impact on the mortgage industry, but its emergence has intensified debate on what AI technology will mean to the future of mortgage lending.
In a speech at the National Fair Housing Alliance National Conference last month, Federal Reserve Vice Chair Michael S. Barr said that while AI and machine learning have potential in mortgage lending, they also carry significant risks.
“The digital economy has produced alternative data sources, some of which can provide a window into the creditworthiness of an individual who does not have a standard credit history. And new artificial intelligence techniques such as machine learning have the potential to leverage these data at scale and at low cost to expand credit to people who otherwise can't access it,” Barr said in his speech.
“While these technologies have enormous potential, they also carry risks of violating fair lending laws and perpetuating the very disparities that they have the potential to address. Use of machine learning or other artificial intelligence may perpetuate or even amplify bias or inaccuracies inherent in the data used to train the system or make incorrect predictions if that data set is incomplete or nonrepresentative. There are also risks that the data points used could be correlated with a protected class and lack a sufficient nexus to creditworthiness.”
These concerns were expressed the month before by the Consumer Financial Protection Bureau (CFPB) in its Fair Lending Report. In the concluding section titled “Looking forward: the future of fair lending,” the CFPB wrote that it was “increasing its expertise in data science and analytics to ensure that we can identify fair lending violations at each stage of the credit lifecycle and hold creditors and service providers accountable for fully complying with fair lending and other federal consumer financial laws, regardless of the technology they choose to use.”
The private stakeholders in the mortgage industry seem far less concerned about the emergence of AI.
Research from Experian showed that 81 percent of global businesses say they’re confident in the use of AI, and 70 percent say they frequently discuss using AI and advanced analytics to improve credit risk decisioning and collections.
“In my opinion, we are prepared for AI and what it may or may not do to our industry,” Tom Ahles, co-founder of Edge Home Finance, told the Mortgage Professionals America in June.
“We will always have loans that do not fit inside a perfect box and will take a personal touch to ensure all aspects are considered. Most of the simple day-one certainty loans will be automated and will lower the origination cost for these loans as it will be even faster and cheaper than it currently is.”
A recent American Banker column said generative AI presents an opportunity to make loan underwriting more interactive and collaborative.
“GenAI could empower consumers to engage directly with lenders, helping consumers understand how their personal financial data is used to determine the price and availability of loans they are being offered and to learn what factors or behaviors might produce better financial outcomes.”
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
