How AI is Revolutionizing Private Lending
Embrace AI, Do Not Fear It
by James Keegan
Artificial Intelligence (AI) has crept into most industries in some way, and it is transforming not only the real estate industry overall, but private lending, specifically. As the private lending industry grows exponentially each year, lenders are facing a major rise in competition from new private lenders as well as banks that are actively expanding their lending offerings.
From big data analytics to improved security, AI is a game-changer for private lenders who are striving to keep up with a rapidly evolving market and the changing needs of modern borrowers. AI technology is opening up a world where lenders can tap into these needs like never before and streamline the lending process, all while improving security and analyzing data, to create a seamless and unique experience for each borrower.
Let’s take a closer look at some of the most impactful AI uses for private lenders as the future of real estate quickly becomes the present.
Predictive analytics
One of the most transformative ways that AI is being used in real estate in 2024 is to predict future market trends, property values and investment opportunities. Fast data analysis is perhaps one of AI’s most useful qualities, particularly for private lenders who can benefit from the deeper insights and hidden patterns that AI can deduce, which humans may not. AI is also more efficient at analyzing each neighborhood down to a granular level to identify changes that may impact properties and, by extension, real estate loans.
A good example of this would be real estate appraisal companies that are now using AI for Automated Valuation Models (AVMs), to provide instant property valuations. Along with that, AI can predict future property values with much greater accuracy, which means that private lenders can assess the risk associated with properties more accurately and adjust their LTV ratios according to the future value of a property.
Security and risk management
AI is used to enhance security in real estate transactions by machine learning algorithms analyzing vast amounts of data in real-time to find patterns and pinpoint any anomalies. Through this, AI can detect fraudulent activities and, as such, ensure the integrity of transactions.
AI systems can also detect fraudulent activities from small shifts in transactional data, which go unnoticed to the human eye, such as changes in digital signatures. This allows private lenders to keep up with fraudsters with ever-evolving tactics.
Along with this, AI technology provides real-time risk scoring that adjusts according to the information gathered. So, risky accounts can now be identified quickly, which allows private lenders to intervene and manage these risks early to potentially save themselves from major losses.
Streamlined application processing
One of the most prominent enhancements that AI provides for the private lending industry is in the loan application process. AI is streamlining the way documents are collected and speeding up the entire loan application process which means that borrowers can get their loans quicker, with less paperwork and less stress. Loan processes are notoriously laborious and full of paperwork, but AI is optimizing this by reducing underwriting time through quicker borrower evaluations, extracting necessary information from documents, and verifying data using natural language processing (NLP) combined with machine vision.
For example, AI technology can assess a borrower in just a matter of seconds by matching their income data with bank deposits and tax filings. Customer communication can also be customized to each borrower’s sentiment more accurately using AI, which can result in a stronger borrower-lender relationship.
Automated documents and reports
AI is being used to improve loan processes by automating the preparation of reports and documents. This not only speeds up the loan process but provides a transparent and efficient experience for borrowers. Loan agreements can be generated through AI using data from the loan application, the specific loan terms required, as well as the local laws and regulations that apply to each area.
Smart contracts are one of the most revolutionary aspects of AI technology to be brought to the private lending realm. These are self-executing contracts that are triggered by certain actions and will execute according to pre-determined terms coded at the outset. Smart contracts are making loan transactions more efficient and hassle-free.
Personalization
In the age of individuality and customization, being able to offer loan products that can be tailored to each borrower’s specific needs is a pivotal moment for private lenders. Structuring loans in a way that suits each borrower in terms of their risk tolerance, financial situation and even their memory, is a great way to appeal to more clients and have more success with loan repayments. However, using AI, lenders can go one step further to create an overall lending journey that is uniquely designed for each borrower’s circumstances, goals and preferences.
Beyond tailoring loan products to each borrower, AI allows for proactive customer service. For example, if a borrower is repeatedly missing their monthly repayments, AI technology could be used to pick up on this trend and proactively reach out to the borrower with a reminder each month. Alternatively, if the market conditions change within a borrower’s region, AI can be used to analyze the impact of this on the borrower’s loan and their loan structure can be adjusted accordingly.
AI should not be seen as something to fear, but rather as a powerful tool for private lenders to use to stand out from the crowd by enhancing their existing processes, as well as introducing new features that are driven by data, personalization and proactivity. AI technology has created an eco-system where both lenders and borrowers can benefit from the transformative qualities it brings to real estate transactions and the lending journey.
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