… And my arms are tired

Over the past several months, I have been speaking with legislative and industry leaders from the Fed in San Francisco to the House Financial Services in Kentucky, to DC, and all corners of the country. You might be wondering, what’s a guy based in Southern California doing in all these places? Is he fulfilling some kind of bucket list to visit all 50 states? Is he trying to rack up miles? (Maybe if it’s Delta!)

My answer is simple: I believe in opportunity. I believe in free markets, the freedom of choice, and a system that enables opportunity and prosperity for all. Specifically when it comes to financial services, lending, and AI technology, to make this belief into a reality for everyone: from the biggest bank to the smallest credit union—and those they serve.

This week, I traveled to Lincoln, NE to attend Congressman Mike Flood’s Flyover Fintech conference. I joined a crew of incredible, innovative leaders: Hilary Halpern, Head of Public Policy at Rocket Mortgage, Jonathan Lawless, Head of Homeownership at Bilt Rewards, and Michael Dendas, Senior Manager of Government to discuss the latest hot-button topic: AI and Housing.

Today, the financial services industry has big fish to fry. When families try to buy homes, one of the biggest pathways to building economic success, Home Mortgage Disclosure Act (HMDA) data shows that Black Americans have a 26% overall denial rate compared to 14% of White Americans. The data scientists at Zest AI reviewed HMDA data and found higher denial rates don’t correlate with high credit risk. One Citigroup study revealed that the US economy has lost $16 trillion due to discrimination.

We can discuss the reasons for these gaps all day. We can talk about biased algorithms, legacy credit scoring methods, and socioeconomic conditions for hours. We can argue about their causes and their solutions. Your opinion on this subject will inevitably vary on what political, social, and economic lens you look through! But when I look at this data, I see money left on the table. This is a missed opportunity for all, not just for the family trying to buy their first home, but for the mortgage lender approving the loan, and the realtor trying to sell it.

This is where my passion for doing good intersects with my capitalist streak. AI’s ability to level the playing field for all—individuals, families, businesses, and financial institutions—is something worth fighting (flying?) for.

AI: the great equalizer

In a true free market, the best innovations rise to the top, and what doesn’t work fades away. Right now, between AI legislation, technology adoption rates, and consumer expectations, the financial services industry is at a crossroads. Leaders can decide to evolve and keep their place in the spotlight, or continue with the same, outdated strategies and fade away.

Let me give you an example. Before the 1930s, there were no mortgages. Less than 40% of Americans were homeowners (that number has jumped to 65.6% today). Why? They were inaccessible. You had to pay nearly 50% upfront, and pay the entire home off in 5-10 years.

The Great Depression required the real estate industry to make some drastic changes. This included the introduction of Fannie Mae in 1938 and the 30-year mortgage—strengthening the ability for Americans to raise capital, have smaller down payments, and purchase homes.

If the industry had never made these necessary pivots—creating organizations, structure, and new norms for home ownership—we would still be sitting at 40% homeownership (or maybe less).

It’s now time to take action and make changes to strengthen the industry. Right now, we are at risk of losing smaller and community-driven financial institutions like credit unions and community banks. In 2023, 145 credit unions merged, citing the need for expanded services and poor financial performance. Mortgage lenders are also merging or declining. 40 years ago, the US had over 14,000 banks. Today, it only has 4,000.

Free market competition is vital for consumers and businesses to thrive, so we need to do what we’ve always done: adapt. We know that legacy credit scoring methods are inconsistent, inaccurate, and leave money on the table. We also know that we live in an age of instant gratification, where you can order anything online and receive it the same day. We also know that fraud is on the rise, and customers will look for services that will protect them.

Today, if you gave an instant yes to someone that would be declined everywhere else—not because they are an unreliable borrower, or won’t pay their loans back—you would have a customer or a member for life. That’s a real game changer for small lenders who need a larger share of wallet and can’t afford to take on high delinquencies.

Embracing AI is like the necessary shift to the 30-year mortgage—an accessible move that expands economic opportunity and the longevity of an industry.

If we’re going to do this, we have to do it right

Of course, regulators and policymakers also play a massive role in giving Americans the chance to thrive. This is why we’re at the table with policymakers and enthusiastically taking part in these panel discussions. AI is a powerful tool, and to quote Spiderman: “with great power comes great responsibility.”

Ultimately, our end goal is to provide tools and insights for lenders to make better informed decisions so they can offer the best products to the market, and build stronger businesses. We want the best and brightest innovations to rise to the top, especially those that benefit businesses and their communities. With that, we need to ensure that these innovations protect individual rights and freedoms, including the ability to build wealth and prosperity—no matter your background or identity.

That’s why we keep advocating for safe, ethical, responsible AI. The technology is going to be here no matter what, so let’s make it into something that propels us into a better, brighter future.

So, what’s a guy from Los Angeles doing in Lincoln, NE? Making sure that all Americans get a shot at homeownership and credit unions, banks, and community-based lenders have the tools available to help them.

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Mike de Vere — Chief Executive Officer, Zest AI
As CEO at Zest AI, Mike has made it the company’s mission to leverage AI in consumer credit underwriting to build financial equity and create a better, richer, and fuller life for all.