While the point the article makes is true — it costs money to acquire the real world data, the comparison to credit underwriting is misguided. Underwriting credit is fundamentally different than predicting house prices.
In particular when you’re auto-underwriting credit it’s not typically an origination-for-sale model. So the value of the loan is the present value of the future payments, less the future value of defaults, less the cost of acquiring the customer.
Historically those things can be modeled pretty accurately and the aspects that can’t be modeled accurately can often be hedged or eliminated by the law of large numbers. The innovation of the new ML underwriting with respect to accuracy is at the margins. The real disruption is the speed and cost. (Disclosure: I worked at a SMB fin tech and we reran multiple credit models for a million customers and past customers every night.)
If Zillow were getting into the rental business, in some ways it might have been easier for them. But they needed to model where they could sell an illiquid asset which is a much harder and much less well understood problem. And yes with enough capital to plow through and the appropriate risk attitude they could likely have gotten the handle on what their pipeline was really going to look like. But it’s hardly the same problem as credit underwriting.
In particular when you’re auto-underwriting credit it’s not typically an origination-for-sale model. So the value of the loan is the present value of the future payments, less the future value of defaults, less the cost of acquiring the customer.
Historically those things can be modeled pretty accurately and the aspects that can’t be modeled accurately can often be hedged or eliminated by the law of large numbers. The innovation of the new ML underwriting with respect to accuracy is at the margins. The real disruption is the speed and cost. (Disclosure: I worked at a SMB fin tech and we reran multiple credit models for a million customers and past customers every night.)
If Zillow were getting into the rental business, in some ways it might have been easier for them. But they needed to model where they could sell an illiquid asset which is a much harder and much less well understood problem. And yes with enough capital to plow through and the appropriate risk attitude they could likely have gotten the handle on what their pipeline was really going to look like. But it’s hardly the same problem as credit underwriting.