A recent Harvard Business Review survey of Fortune 1000 and global business leaders found that 96% of organizations see the overall impact of artificial intelligence as beneficial. Additionally, 89% reported that AI is expected to be the most transformational technology in a generation, up from 64.2% the year prior.
The implementation of AI across industries continues to increase and the mortgage industry is no exception — Fannie Mae projects that 55% of lenders will either start trials or roll out AI more broadly in 2025. AI has immense potential to reimagine the mortgage industry by enhancing efficiency and improving decision-making.
While machine learning has been used for years for tasks like classifying documents, the technology is now expanding into more complex areas, such as underwriting and communication. That will change the mortgage space as it is now known.
Adopting AI doesn’t come without challenges, however. A comprehensive understanding of the advantages as well as the potential risks associated with the technology is essential for it to make a lasting impact and improve mortgage processes.
Misplaced fears
There are widespread concerns about the impact of AI across industries, such as the loss of human engagement and personalization. When used properly, AI doesn’t replace humans but instead enhances and augments human capabilities.
In the context of mortgage lending, AI can now intelligently understand and assess the context of all loan details, which can improve the entire mortgage process. The technology can also handle repetitive tasks such as sorting and managing documents, analyzing large datasets and evaluating loan purchase eligibility, enabling lenders to work more efficiently.
AI can reduce human error by catching mistakes that regularly occur, such as data entry or documentation oversights. Additionally, because AI never sleeps, it eliminates the need for corrections and prolonged feedback loops, improving accuracy and speed. Rather than replacing humans, it empowers them to focus on making high-level decisions and create positive borrower experiences.
Responsible guardrails
As more organizations adopt AI, many have begun to prioritize responsible AI practices. In fact, 77.6% of organizations report having implemented responsible AI safeguards and guardrails, according to the Harvard Business Review survey.
But 43.5% report that they still need to recruit the talent to implement and sustain responsible AI. In the mortgage industry, establishing a level of responsibility and accountability when implementing AI is critical. Machine learning models that are trained on historical lending data such as underwriting or loan approval decisions can reinforce biases related to race, gender and socioeconomic status.
Such bias can lead to unfair loan denials, reinforcing systemic inequalities and potentially limiting access to credit. To prevent discriminatory outcomes, AI systems should be regularly audited to ensure they are trained on diverse and unbiased data and employees should be properly trained to guarantee knowledge of the technology’s limitations.
Human oversight
Another risk of AI in the mortgage industry involves the use of large language models (LLMs). AI “hallucinations” are a phenomenon where an LLM perceives patterns or objects that are nonexistent or imperceptible to human observers, creating outputs that are nonsensical or altogether inaccurate. Hallucinations can lead to various issues in lending when critical decisions are being made and accuracy is of the utmost importance.
In addition to hallucinations, AI can occasionally make decisions with low confidence. Fully automated systems, though faster and cheaper, may overlook important nuances or fail to account for edge cases, leading to errors that can scale quickly.
To avoid the consequences of these inaccurate decisions, humans should always be in the loop to verify outcomes and adjust when necessary. Although AI is both more efficient and consistent than humans are, it must be built correctly, trained with a supervised approach and regularly monitored to prevent systematic mistakes.
Invaluable tool
For the mortgage industry to thrive, adopting AI is imperative. The true value of AI lies in its ability to complement human judgment, reduce costs and improve efficiency without sacrificing fairness or accountability. A balance between AI and human involvement is necessary for success.
With the right precautions, such as auditing AI systems for fairness, adopting a supervised approach with continuous monitoring and requiring thorough employee training, AI can be invaluable for automating routine tasks and key decisions, such as underwriting, compliance and loan approvals. Failing to ensure ethical use and human oversight can hinder progress and lead to lasting consequences. Now is the time to embrace AI, but with caution and with supervision.
