From Policy To Practice: Ai In The Mortgage Industry

AI isn’t the biggest risk to mortgage lending right now. Policy misunderstanding is.

While lenders across the country are moving quickly to implement artificial intelligence responsibly, state legislators are moving just as quickly to regulate it. And when policy moves faster than the policymakers’ understanding, unintended consequences follow.

As former Cisco CEO John Chambers recently observed, “AI is moving at five times the speed and will produce three times the outcomes of the internet age.” The mortgage industry is already feeling that acceleration in real time. Artificial intelligence is rapidly reshaping how lenders detect fraud, ensure compliance, improve accuracy and deliver faster decisions to borrowers.

But while technology is moving quickly, policy is racing to keep up — and not always in ways that support consumers or lenders.

AI is already embedded in modern mortgage lending

For mortgage professionals, artificial intelligence isn’t theoretical or futuristic. It’s already embedded across the lending lifecycle.

Automated underwriting systems, fraud detection tools, servicing analytics and customer engagement platforms all rely on advanced data models and automated decision-making. These tools help lenders operate safely, consistently, and at scale while meeting increasingly complex regulatory expectations.

They also support the very outcomes policymakers want to protect:

• More accurate credit decisions
• Stronger fair lending oversight
• Faster approvals
• Reduced operational errors 
• Fraud prevention
• Removal of human bias
• Better consumer experiences

When deployed responsibly, AI enhances compliance rather than undermines it. It allows lenders to monitor outcomes more closely, identify risk earlier and deliver greater transparency across the process.

Yet as these technologies advance, lawmakers are increasingly focused on how they should be governed — and in some cases, restricted.

The California policy moment: AB 1018

Last year, California lawmakers considered AB 1018, a proposal aimed at preventing “algorithmic discrimination” in automated decision systems.

The goal was valid and widely supported. Protecting consumers from bias and ensuring fair outcomes must remain central to any conversation about AI in mortgage lending.

But as initially drafted, AB 1018 created significant operational concerns for financial institutions already operating under extensive federal oversight. The bill proposed new state-level requirements layered on top of existing federal laws governing privacy, data protection, fair lending and model governance.

In practice, duplicative regulatory frameworks create complexity rather than clarity.

Mortgage lenders already operate within one of the most highly regulated sectors of the economy. Federal requirements establish clear expectations around data use, consumer protection and model governance. Layering additional state-specific rules on top of those frameworks can introduce conflicting standards, increase compliance costs and slow implementation of technologies that improve both efficiency and consumer outcomes.

Most importantly, it risks reducing access to credit — particularly for borrowers in underserved communities.

When policy outpaces operational reality

If policy unintentionally restricts or complicates the use of these tools, the impact extends far beyond lenders.

Approvals take longer.
Operational costs increase.
Technology investment slows.
And ultimately, borrowers face reduced access to efficient, affordable credit.

This is not a theoretical concern. It is the operational reality lenders face when well-intentioned legislation is developed without sufficient engagement from those responsible for implementing it.

The conversation around AB 1018 made one thing clear: policymakers and industry leaders must work together earlier and more collaboratively to ensure outcomes that truly benefit consumers.

Engagement changes outcomes

There is also an encouraging lesson in how this issue unfolded.

Industry engagement made a difference.

Organizations like the California MBA worked directly with lawmakers and legislative staff to provide operational context, clarify existing regulatory frameworks and propose constructive adjustments. Those conversations helped narrow the proposal and align it with existing federal oversight.

This kind of engagement is not about resisting regulation. It is about improving it.

Thoughtful, effective policy emerges when legislators understand how mortgage lending actually works — how decisions are made, how data is governed and how compliance obligations intersect with technology implementation. Achieving this level of understanding only happens when industry participants are seated at the table.

AB 1018 can be revisited in the 2026 legislative session as is, through amendments, or new legislative proposals addressing AI and automated decision systems. Similar conversations are already emerging in other states and at the federal level.

As California moves, the nation watches

California has long served as a policy bellwether. Regulatory frameworks that begin here often influence national and even international approaches.

That reality creates both risk and opportunity.

Artificial intelligence is driving enormous efficiency and economic growth, but it is also raising legitimate questions around consumer protection, transparency and data security. Policymakers are eager to act — and the frameworks they build will shape the mortgage industry for years to come.

If regulatory structures support responsible innovation, lenders will be able to continue improving accuracy, expanding access to credit and delivering evolved consumer experiences. If those structures create unnecessary duplication or restrict the use of proven technologies, the industry will face higher costs and reduced flexibility — outcomes that ultimately affect borrowers.

This is not simply a California issue. It is a national business issue for lenders, servicers and technology providers alike.

Advocacy is now a business strategy

The mortgage industry has always adapted to change. But in today’s environment, adaptation alone is not enough.

Artificial intelligence will continue transforming how lenders operate. At the same time, policymakers will continue working to understand and regulate its use.

In this environment, passive observation is not a viable strategy.

Engagement must be proactive.
Conversations must begin earlier.
Leaders must recognize that advocacy is no longer separate from business strategy — it is an essential component within it.

At the California MBA, we are committed to ensuring that AI policy discussions remain grounded in operational reality, consumer outcomes and the need for a modern, efficient mortgage system.

The future of mortgage lending will not be shaped by technology alone; it will be shaped by the policy decisions being written right now — and by the leaders willing to help shape them.

Paul Gigliotti is the CEO of the California MBA, where he leads one of the most influential state mortgage associations in the country at the intersection of advocacy, policy, and industry strategy.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.