A financial health fintech has partnered with Freddie Mac

BI Intelligence

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Freddie Mac, a US government agency that funds mortgages for lenders, has partnered EarnUp, a fintech that helps borrowers repay their loans on time.

Under the partnership, Freddie Mac will distribute EarnUp's services to low-income consumers through three of its financial counseling partners, nonprofit organizations set up during the 2008 crash to help struggling borrowers avoid foreclosure. In the pilot, a select pool of consumers will be given free access to EarnUp for a year. 

EarnUp allows consumers to manage all of their loans via a single dashboard. Its technology automatically deducts small amounts from users' paychecks that go toward repaying their loans to make sure they stay on top of their debts. EarnUp also generates personalized financial advice to help users better manage their loan repayments. Freddie Mac says that by first rolling out the service with a select group of consumers, the agency will be able to gain deeper insight into the needs of low-income borrowers, enabling it to later introduce more services for this group. This suggests the startup may share its data with the agency.

Working with nonprofit organizations seems like a good way for financial health fintechs to gain traction. Household debt in the US is continuing to rise, making it likely that delinquencies on all types of loans will start to increase in the near future. If this happens, a greater number of less-affluent borrowers would probably turn to financial counseling organizations for help. In turn, this would present a valuable opportunity for companies like EarnUp to boost awareness and distribution. As such, we may see other fintechs specializing in debt management seek similar distribution deals.

In an increasingly digital landscape, tech-savvy consumers are starting to demand simpler ways to take out mortgages, and legacy providers are suffering. In the US, the top three incumbent lenders together captured about 45% of the overall mortgage market in 2011; they hold just 24% in 2017.

But a new class of mortgage-focused startups have developed a range of business models to help incumbents update this valuable product for the digital age.

There are still some fundamental problems in the insurance market that present obstacles to innovation — for both startups and incumbents. But there are ways to overcome them while making mortgages more attractive for consumers and improving returns for lenders.

Maria Terekhova, research associate for BI Intelligence, Business Insider's premium research service, has written a detailed report on the digital disruption of home loans that:

• Examines the flaws in the mortgage status quo that are upsetting consumers and dampening returns for lenders.
• Discusses why incumbent lenders can't afford to delay innovating any longer around this product.
• Outlines different ways mortgage fintechs are breathing new life into this product, including by helping incumbents.
• Looks at some mortgage efforts already underway by incumbent lenders, and some considerations that should guide their projects.
• Gives an overview of hurdles still standing in the way of large-scale change in the mortgage space, and how they can be overcome.

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