MReport April 2021

TheMReport — News and strategies for the evolving mortgage marketplace.

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12 | M R EP O RT MTECH life cycle to help retain existing customers, gain new customers, mitigate risk, and operate more effectively. The Role AI Plays in Ending Racial Disparity NEW REPORT FINDS ARTIFICIAL INTELLIGENCE AND ALGORITHMIC LENDING CAN REDUCE RACIAL DISCRIMINATION IN THE MORTGAGE INDUSTRY. T he Financial Services In- novation Coalition (FSIC) and Creative Investment Research released a new report that finds artificial intelligence (AI) and algorithmic lending can play an important role in reduc- ing racial disparities in mortgage lending. The report, "Artificial Intelligence and Algorithmic Lending Has the Potential to Re- duce Discrimination in Mortgage Lending," explores the rise of non- bank lenders and their adoption of AI and algorithmic systems, the obstacles lenders have faced in creating nonbiased underwriting, and the path forward for continu- ing to reduce discrimination in home-buying process. "The development and deploy- ment of artificial intelligence and algorithmic lending systems, paired with the increase in lend- ing from non-banks, can make significant progress in allowing disadvantaged populations—spe- cifically Black Americans—obtain housing loans, a critical com- ponent to generational wealth," said Kevin Kimble, Founder and CEO of FSIC. "For too long, Blacks and other minorities in the United States have been victim- ized by bias—both conscious and unconscious—in the lending sector. Color blind application of appropriate data, can help reverse this historical inequity." The groups explained that AI and algorithmic systems remove much of the human element from the underwriting process, lower- ing the potential for bias. The report also argues nonbank lenders have helped facilitate this process. In 2013, nonbank lenders accounted for fewer than 40% of all loans. By May 2019, these lend- ers wrote nearly two-thirds of all new mortgages. "Nonbank lenders are certainly part of the solution. The growth of these lenders, which have fewer qualifying factors and lower down payment requirements than traditional banks, has opened the door to homeownership for mil- lions of previously underserved families, especially in low-income and minority communities," Kimble said. However, the report finds that even with these gains, loan underwriting based on any credit analysis from the past will always have some inherent bias. To ad- dress this, the authors call on the federal government to reform GSE qualifying factors, as government- sponsored enterprises such as Fannie Mae and Freddie Mac guarantee over 90% of mortgages in the United States. "The full potential of AI and algorithmic lending systems can- not be realized until the GSEs modify the qualifying factors for the conventional home loans they are willing to buy or insure," Kimble said. "What is notably missing from the current formula are factors that could benefit first- time homeowners, such as rent or utility payment histories. These systems must continue to be honed and improved in order to get a more fulsome perspective of the borrower and their commit- ment to repaying the loan." Introducing a New Post-Closing Solution AVANZE PARTNERS WITH SOFTWORKS AI TO DIGITIZE POST-CLOSING WITH STACX. A vanze Tech Labs an- nounced its partnership with SoftWorks AI to bring to market STACX, a SaaS post-closing solution, automat- ing processing, and compliance checklists for lenders, servicers, and title companies. The com- pany shared that with support from SoftWorks AI, Avanze's recent launch of STACX elimi- nates the need for labor-inten- sive, manual reviews, creating a seamless digital experience for its clients' operations; the AI and ML technology reduces loan processing time and improves the loan fulfillment process. "There's lots of room for innova- tion and improvement throughout the mortgage process," according to Auvese Pasha, Avanze CEO. "We're aiding the path to digital mortgage by helping solve issues related to post-closing—leveraging AI in a way that drastically reduces processing times while maintaining the high degree of accuracy that is so crucial in this industry." Advanced AI and machine learning algorithms reduce both human error and labor costs; STACX can automate document classification and can recognize and organize over 540 different mortgage document types. Highly accurate optical character recogni- tion (OCR) software coupled with cross-validation technology extracts 6,000-plus data fields from loan documents, reducing processing times and resulting in faster loan decisions. Avanze's partnership with Softworks AI brings to the industry an intuitive platform that is highly customizable, using rules and preferences that can be defined by an administrator in your organization, without requiring high customization and upfront implementation fees. "Our aim to be nimble for our clients fuels our companies to make better products," Pasha added. "We're excited to be working with Avanze to jointly bring our touchless mortgage automation solutions to the market," said Ari Gross, CEO of SoftWorks AI. "Manual document processing has been time-consuming and error- prone; through our partnership, processes that once took hours can now be done with a higher degree of accuracy in just minutes. Avanze's deep understanding of the mortgage industry coupled with our bleeding-edge tech- nologies will provide our clients a world-class digital mortgage experience." "For too long, Blacks and other minorities in the United States have been victimized by bias—both conscious and unconscious—in the lending sector. Color blind application of appropriate data, can help reverse this historical inequity." —Kevin Kimble, Founder and CEO, FSIC

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