Pavan Agarwal is the CEO of Sun West Mortgage Company and Celligence.
Homeownership should represent the fastest way to reduce the issue of financial inequality and is often considered the cornerstone of the American Dream. However, financial services denial rates are significantly higher among Black and Hispanic ethnicities. The good news? With advances in technology, specifically artificial intelligence, we can now remove the opacity in the financial approval process brought on by overly complex qualifiers.
How AI Can Help Reduce Bias
Most mortgages today are still reviewed and screened manually and many times applications may get denied without a clear explanation. Having inconsistent or incomplete documentation can also lead to a refusal without a why. The result? Too many people who do meet the criteria and guidelines are declined because a human underwriter or realtor didn’t understand the complete situation or, because of a staffing shortage, they did not have time to review the details. In our experience, these issues can unfairly impact minorities.
If trained properly by humans, AI algorithms can be better equipped to review applications without bias and respond faster in the event that documentation is missing. In fact, we found that AI reduced the processing time from days to hours and allowed for a more dynamic process with a conversation with the applicant and not just a yes or no response. In other words, AI can help solve complexity and that helps people who have complex financial circumstances.
How AI Can Reduce Cost And The Overall Timeline
The current home financing process is often buttressed by simple, unintelligent tools that support a highly manual process. Loan production can, therefore, be error-prone, tedious and costly. AI can correct this by reversing the process to a borrower-defined and driven workflow with minimal to no human touch in the manufacturing of the financial instrument.
My company recently completed what we believe to be the first 100% AI-controlled and executed house purchase. Using an AI-powered platform, we were able to connect a minority first-time home buyer and home seller and complete the entire purchase transaction in less than 25 days.
To start, the AI system conditionally approved the home buyer within 30 minutes. Through sophisticated algorithms, the platform then presented the buyer with daily listings of potential homes that matched their specified criteria, ensuring a highly personalized and efficient search. This AI technology also has the capability to determine the optimal offer price, taking into account various market factors and the buyer’s preferences. Once the ideal offer was identified, the platform sent proof of funds directly to the listing agent, expediting the negotiation process.
AI also saved the real estate agent time by efficiently generating offers and counteroffers, thereby relieving the agent of time-consuming administrative tasks and enabling them to focus on providing exceptional service to their clients.
How AI And Lenders Can Work Together
ChatGPT uses a probabilistic AI model, meaning it works on the probability that the response is accurate. At my company, however, we use an empathetic and deterministic AI model—whereby the output is fully determined by the parameter and the values—to ensure accuracy in responses because we feel that a probabilistic model is not accurate enough in an area like financial services. I recommend other financial services companies employ the same type of model.
Trust is also integral to our financial processes, and we need to communicate with customers about how AI can deliver objective and correct results. Part of that is putting into place safeguards that ensure the safety, accuracy and reliability of financial decisions. Human control and oversight are still necessary to ensure that AI is a tool to augment human intelligence, not replace it. For example, humans can ensure any financial credit issues are given context and evaluated on merits.
So remember that in order to use AI to improve the experience of your customers and empower them, you also need to invest in human capital. I encourage all financial institutions to embrace this technology and use the time that AI frees up to spend more time helping customers proactively. This way, we can unlock the potential of AI and use it as a force for good to help achieve fair lending.
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