Housing supply is at a 20-year low. At the same time, Millennials entering the market are fueling a strong demand for homes. Unfortunately, that means not everyone who wants a house can afford one. People are also frequently put off by the cost and complexity of applying for a mortgage. With origination costs adding an average of $8,000 to the cost of purchasing a home, and low supply driving housing prices up, the question of affordability is now on everyone’s mind.
Last month, Blend co-sponsored a housing summit with The Atlantic, “From Houses to High-Rises.” I led a panel focused on housing access and affordability with Jon Lawless from Fannie Mae and Steve O’Connor of the Mortgage Bankers Association (MBA). Each of us outlined how our organizations are working to improve housing affordability by educating borrowers and by increasing transparency and reducing costs in the mortgage process.
Educating Borrowers and Studying the Market
Both Fannie Mae and the MBA play important roles in the housing ecosystem. For Fannie Mae, this means equipping lenders with the resources they need to easily work with borrowers. “A core part of Fannie Mae’s mission is to focus on affordability, “ said Lawless, vice president for product development and affordable housing at Fannie Mae. “The primary way we do that is by providing liquidity to our partners — lenders who are making loans every day.”
Lawless said Fannie Mae closely studies housing supply to understand what’s driving it. “You’ve heard a lot about [the drivers of inventory shortage] today,” he said. “For example, you have the single family rental shift, which is the result of a lack of rental housing, has taken off the market ten years of construction worth of starter homes. People are also rebuilding their existing homes instead of moving up.”
Providing Inexpensive, Transparent Financing
Steve O’Connor at the MBA pointed to the growing role technology plays in lending. Many borrowers, for example, aren’t able to apply for a loan during business hours. By designing a loan experience for a fast-paced digital world, technology companies are helping borrowers access credit while reducing origination costs.
Housing finance can be a very expensive, complex process for consumers to go through. At Blend, we believe in the power of technology to lower these costs. Platforms like Blend directly impact affordability by reducing friction in the notoriously tedious mortgage application process.
Reducing application complexity makes financing low-to-mid-cost homes cheaper and more transparent for both lenders and borrowers. While a traditional mortgage might cost a bank $8,000 to originate, a loan originated using technology like Blend is less expensive and a better customer experience. This means that lenders can finance less expensive homes that might not have been profitable for them otherwise.
Companies like Blend also create transparency by making it easy for borrowers to understand both what information they need to apply for a loan and their likelihood of being approved for a particular mortgage. We’re helping borrowers get a true sense of what they can afford. “Technology is a great tool for [lenders] out in the marketplace at point of sale with the consumer to help educate [them],” said O’Connor.
Looking Forward and Planning Ahead
While Silicon Valley has long ignored the mortgage space, companies like Blend are paving the way for a more affordable lending ecosystem. We recognize the complexity involved in creating a simpler financing process for consumers. However, by working together with groups like Fannie Mae and the MBA, we’re leveraging each other’s strengths to build an affordable, sustainable housing ecosystem that works for everyone.