The mortgage industry has been keeping a nervous eye on Amazon, fearing it is just a matter of time before the company forces its way into the real estate finance business.
Although it is not unreasonable for lenders to be worried about a tech giant bullying their way into their industry, the question remains whether or not consumers will Amazon to manage their money? And if they will, will Amazon be willing to jump through the many hoops posed by the regulatory compliance process to offer mortgages?
Getting into the mortgage lending business is no easy feat. There are licensing challenges, net worth requirements, state regulations, and many more hurdles to overcome before becoming a mortgage banker.
A company the size of Amazon has the funding to go at the barriers head on, but the process is going to be long and difficult. Compliance requirements include examination by state regulators and a multitude of rules regarding quality control, loan officer compensation, and even the appraisal process.
Another hurdle, perhaps the most daunting one Amazon will face, is trust. According to Fannie Mae’s 2018 third-quarter National Housing Survey, 16% of people across all age groups said they would, in fact, trust a favored tech company with their mortgage needs. However, of the companies listed as untrustworthy for this task, two-thirds listed Amazon. The reason? Past issues with privacy and data breaches.
Although the Amazon mortgage idea did not sit well with Fannie Mae’s respondents, there is no doubt that a tech company can provide a user experience that is well matched to consumer demand. With millennials making up the largest group of potential homebuyers, the experience will be important when it comes to online mortgages.
According to J.D. Power, lenders offering digital mortgages saw an enhancement in customer satisfaction.
Adding to the intrigue, Amazon is no stranger to seeking and successfully finding financial partners to team up with for their projects. They have worked with Chase and Synchrony Financial for their consumer credit card and American Express for their small-business credit cards. Rumor has it that they are also looking for a partner for Amazon-branded checking accounts.
Amazon has a number of possible approaches that could make things easier, including a straight-up partnership with an existing lender. This proved successful for Quicken Loans, which formed an alliance between Rock Financial and Intuit.
They could also take the Zillow route and purchase a lending company. They could even model it after their membership-only Amazon Prime, offering mortgages for enticement. If they decided to become a mortgage brokerage franchise, they would avoid licensing and regulatory issues, which would land on the shoulders of the franchisees instead. That worked well for Remax Holdings’ Motto Mortgage.
Amazon is certainly in a position to move forward with mortgage lending plans. However, despite their tech capabilities, competition from more trusted tech companies, financial institutions, and even retailers could prove to be their greatest hurdle.
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