A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future issues straight to your inbox.
Refinancing a home loan has long been a complicated and costly process. The costs can be so high that unless a borrower can lower their current mortgage rate by at least 75 basis points, most experts believe refinancing isn’t even worth it.
Now two leading real estate technology companies are joining forces to reduce those costs.
Open doorwhich buys homes directly from sellers and operates a title and escrow business, is acquiring a portion of Doma, a real estate technology company that automates property searches, the companies told CNBC exclusively. Doma says it uses machine learning and artificial intelligence to make real estate closings – particularly title, escrow and underwriting closings – faster and more affordable.
“We are in the process of rebuilding and automating, like most of the other technologies Opendoor is working on… to save customers time and money,” said Lucas Matheson, president of Opendoor.
The terms of the contract were not disclosed.
Since 2024, Doma’s technology has been used in a Fannie Mae pilot program aimed at reducing title insurance costs for eligible refinance transactions. It was just extended until 2027.
Under the program, certain refinance transactions that Doma determines have a low title risk may be sold to Fannie Mae without the need for title insurance from the lender or an appraisal letter from an attorney. So far, according to Doma, this has been around 80% of the refinancing candidates.
However, title insurance is only one part of the refinance process. Closing costs also include other services such as setting up an escrow account, ensuring all mortgages are paid off, and paying transfer fees and taxes. Some of it is still manual and heavily service-oriented; It can take several days and add thousands of dollars to refinancing costs.
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“This program grew so dramatically last year that we operated our own closing and escrow agency, a significant one at that, and we did a good job of keeping up, but frankly the demand exceeded our ability to close transactions,” said Doma CEO Max Simkoff. “We simply didn’t have the resources to provide both the risk decision technology and the closing side.”
So Doma set out to find a company with the technology to scale his business as much as possible and landed on Opendoor, whose technology can handle closures much more efficiently. According to Simkoff, the price of closures is therefore below the industry average.
Following the acquisition, 85 Doma employees will move to Opendoor.
However, the refinancing business is no longer what it was a month ago. The war with Iran has led to a sharp and rapid increase in mortgage rates. As a result, the number of applications to refinance a home loan has fallen. According to the Mortgage Bankers Association, demand has fallen 20% in the last four weeks alone.
“Refinancing in the current market represents the biggest challenge in homeownership,” Simkoff said. “Nobody who refinances with a six-and-a-half, 30-year fixed-rate mortgage is doing it because they want to, but because they have to.”
But both Simkoff and Matheson say the timing of this collaboration is irrelevant.
They note that mortgage rates were higher last year and the program with Fannie Mae still saw tremendous growth. Even as the refinance pool shrinks, Matheson says the share of borrowers using Opendoor’s closing services with Fannie Mae will increase.
“That’s about $1,100 per refi a family would save while introducing virtually no risk into the system,” he said. “Just for illustrative purposes, Doma has a zero-defect track record in this program.”
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