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AI's Impact on Non-Bank Mortgage Lending

The mortgage lending industry is on the brink of a significant transformation as artificial intelligence enters the arena. A recent collaboration between HFS Research and Cognizant has produced insightful findings regarding this evolution in non-bank lending, particularly looking ahead to 2025. This time is expected to be a pivotal year for mortgage lenders as they adapt to the rapid changes in technology that redefine operations, enhance customer experience, and create added value throughout the mortgage process.

Key Findings from the Study

The study, drawing insights from 257 non-bank lenders, outlines several crucial trends shaping the future of mortgage lending:
1. Innovation is a Priority: Approximately 74% of non-bank lenders are focusing on innovation to distinguish themselves in the market. However, only 21% feel they are true leaders in this space, indicating a significant gap between intent and execution.
2. Rise of Agentic AI: The research posits that 'Agentic AI' is set to become a game-changer by fusing generative AI’s cognitive capabilities with the precision of automation. This synergy gives rise to intelligent agents that transcend mere efficiency—enabling effective task fulfillment.
3. Compliance Challenges: A substantial 51% of lenders feel ill-prepared for compliance risks, facing an overwhelming influx of regulatory alerts— up to 1,700 in a single year, with 25% resulting in direct business impact. This highlights the necessity for continuous monitoring and adaptation to regulatory changes.
4. Importance of ROI: Demonstrating return on investment (ROI) has become increasingly critical for lenders. Intelligent Document Processing (IDP) stands out as a favorite among lenders due to its rapid returns, particularly in processes still dominated by paper.
5. Evolving Outsourcing Strategies: The landscape of outsourcing is shifting, with full-service partnerships projected to rise from 30% to 42% by 2026. This evolution signifies a move towards measuring success based on growth outcomes rather than mere cost-cutting.
6. Advancement of Automation: By 2026, automation is expected to encompass 68% of mortgage operations. This shift not only reflects a transition from task-level wins but also towards a cohesive integration of technology, human expertise, and ongoing improvements within mortgage operations.

The Current Landscape

As the lending sector navigates the complexities of a rapidly evolving housing economy, the report serves both as a wake-up call and a roadmap for non-bank lenders. The urgency to innovate is palpable, particularly in light of intensified operational pressure, regulatory scrutiny, and technological disruptions. For traditional lenders, the challenge lies in coalescing their existing systems with digital-first approaches that prioritize efficiency and security.

Saurabh Gupta, President of Research and Advisory Services at HFS, noted, "While the fundamentals of lending have not changed, the speed, intelligence, and accuracy with which loans are processed is rapidly advancing. The digital revolution is not only about access to funds but also about ensuring a smooth, secure, and intelligent procedural flow through digital channels." The firms that invest fully in building digitized, modular, and smart operations are poised to define the future of mortgage lending. Those that do not risk obsolescence.

Compliance as an Ongoing Challenge

The report highlights that as platforms evolve, lenders find themselves grappling with compliance, which has reached a breaking point for many. With some executives reporting numerous regulatory alerts that carry operational consequences, compliance has morphed into a continual concern. Investing in technology that scales is becoming increasingly necessary to navigate these challenges.

Divya Iyer, Practice Leader at HFS, observed, "The momentum surrounding Agentic AI underscores its potential to drive industry change. Alongside this, technologies like IDP bridge the gap in traditional, paperwork-heavy processes, demonstrating that transformation does not require full digital readiness."

Moving Forward: Key Recommendations

To thrive in this evolving environment, lenders must take several significant steps:

• - Embrace Real-Time Integration: Over half of lenders still lack the capability for real-time data integration, which hampers agility and decision-making.
• - Focus on Measurable Technologies: Prioritizing tools that offer rapid ROI, such as IDP and AI-driven underwriting, while integrating AI into core operations, is essential for success.
• - Redefine Outsourcing Models: Lenders should not only aim to cut costs but leverage partners for technology modernization and complete service scalability.
• - Aim for Value Creation: The future leaders in this space will optimize technology with a cohesive tech-to-operations cycle that values innovative collaboration between automation, data platforms, and human talent.

As the research outlines, an imperative exists for non-bank mortgage lenders to prioritize process innovation and agility to address operational fatigue, regulatory challenges, and the rapid pace of technological evolution. Ajay Pandita, Senior Vice President at Cognizant, emphasized the need for lenders to adopt strategic foresight and reshape their operations to pave a path towards sustained growth and transformation in mortgage lending.

For those interested in a deeper understanding of these findings and future trends in non-bank mortgage lending, the full report, "Reinventing the Non-Bank Mortgage Lending Journey in the Age of AI," is available for download at HFS Research's website.