Freddie Mac, the company created by the U.S. government in 1970 to fund mortgages and increase home ownership, will start using fintech company Zest AI to help assess the risk of people defaulting on their mortgages. Freddie Mac funded 1.3 million U.S. mortgages in the third quarter of 2020 alone.
Founded in 2009, Los Angeles-based Zest uses artificial intelligence to try to help lenders approve more loans (without increasing defaults), approve them faster and reduce racial discrimination. Historically, Americans of color have experienced significantly lower loan-approval rates than white Americans, one of the factors that has contributed to the wide racial wealth gap. Zest aims to reduce that gap by raising approval rates among borrowers from underserved communities.
Some of Zest’s largest clients include the First National Bank of Omaha, a bank with 120 locations and $23 billion in assets, and Discover Financial Services DFS . Zest helps Discover assess risk for its $7 billion personal loan business.
Zest CEO Mike de Vere says his clients typically see a 20% increase in loan approvals when they sign on. Freddie Mac hasn’t announced when they’ll put Zest’s models to work or how many loans they’ll use them on. But de Vere says, “My back-of-napkin math says you’ll impact tens of thousands of people of color and they’ll be able to afford a home per year.”
Freddie Mac senior vice president Michael Bradley said in a statement that the partnership with Zest will help Freddie Mac advance its goal of “expanding homeownership opportunities responsibly, especially among first-time homebuyers, communities of color, and those living in underserved markets.”
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The partnership could be a boon for Zest, which laid off roughly 20% of its 100-person staff when Covid hit in March, according to LinkedIn data. De Vere says that business rebounded over the summer and that he’s in discussions with a top-five U.S. bank about helping power its lending.
Source: Forbes – Money