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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2018

Tech Divide Demands More Than a Band-Aid Fix

Comprehensive solutions and strategies are essential to thriving in an evolving mortgage industry

Until relatively recently, mortgage lenders and originators have had the luxury of operating with basically the same processes and consistent rules of business. That’s allowed many mortgage industry leaders to avoid deep, innovative process changes and enabled them to keep the train on very well-defined tracks.

It’s almost as if the industry has been able to fly on autopilot with very few deviations to consider or worry about. The problem is that the rest of the world has changed.

Your clients suddenly came in contact with a plethora of new technologies (think iPhone X; ApplePay or “smart” appliances for starters). They became very used to these tech tools. To add to the complexity, many people still blame mortgage originators, in part, for sparking a financial crisis that sent the country into an economic tailspin for years, resulting in a regulatory clampdown on the mortgage-lending industry.

The mortgage industry today, arguably, is in the early stages of a major disruption, sparked to no small degree by technological advances. The decisions you make on that front now may very well determine whether your business survives and thrives, or dies, in the future. The changes affecting the mortgage industry dictate nothing less than the end of most of the old business models. Nearly everything you have known about this business will be different in the near future.

Challenges abound

One of the elements that technology has changed in a major way is the nature of the competition. The internet opened the market to the world. All lenders and originators are not created equal.

Every day brings new marketing techniques and process improvements to the market. Meanwhile, your technology infrastructure (like that of most others in the industry) is probably dated. It’s missing key capabilities required to keep up. And the borrower demographics are changing. Your customer base has a different set of expectations for how they buy your product and interact with you.

The mortgage crisis and subsequent regulatory blizzard virtually cut off a huge chunk of the most profitable loans available, leaving in large measure only the safest and least-risky consumers eligible for loans. Regulatory changes shifted more of the risk to the lender, making the production of a mortgage loan more detailed and difficult. Production expenses for mortgage lending increased.

A global perspective of needs and technology allows for better planning and solutions that work together, not just today, but for the long run.

Compliance and investor pressure on mortgage lenders is pushing them to understand more about the service providers they work with. More regulation leads to more processes to enable compliance, which means more for lenders to understand. Having knowledge of title and appraisal functions is becoming an absolute requirement. It’s no longer enough for lenders to focus on just sales and products.

On top of that, interest rates are rising and will continue to do so. This is likely to reduce the market further, minimizing the number of deals available out there. Mortgage originators don’t have the same levels of business they used to. There’s no guarantee that they can just go get the business, either.

These demands are taking their toll. Mortgage professionals have been asked to go from the equivalent of a comfortable walking pace to a full-on Olympic-level sprint through the mountains. Process change, new (and different) technology and dramatically altered workflows rarely mesh seamlessly with even the best of personnel.

It’s a lot to process. No matter how successful you were, you may be starting over. The product you produce, the way you sell it, the media it’s in and how it gets done will change. If you’re of the opinion that mortgage lending has always been done a certain way and will never change, you’re simply setting yourself up to be left behind.

A path forward

Because the business processes for the mortgage industry were stable for so long, the industry had the luxury of choosing technology utilities to solve one-off and individual problems, never having to address them with global solutions and strategies.

Interestingly enough, other industries had the same issue until the concepts of enterprise resource planning were introduced in the early 1990s, with business software companies like SAP. These technologies enabled other industries to view complex, multi-stage problems and solutions within one technology solution, allowing inter- and intra-connectivity for all departments and processes.

One glaring example of a utility-choice approach can be seen over and over again with the electronic closing. From a distance, it appears that the digital transformation is sweeping over the industry. Your borrowers are likely becoming aware that this is a very real, and a more accessible solution, to the chaos of the traditional paper closing/settlement.

But look closer. There are many products on the market, many of which encourage the industry to solve an issue with one-off, utility-like tech solution. The problem is that making the mortgage signing/closing electronic is neither the primary problem nor the solution to the larger issue you’re facing. An eSigning will only replace a pen when, in fact, a fully digital mortgage becomes a commonplace reality — and that day appears to be coming soon.

Because of the mortgage business’ long history of stable processes, however, many lenders and mortgage originators have been conditioned to accept Band-Aid solutions. Most of the industry’s challenges have been relatively tactical or minor in nature because of its long history of stability. The mortgage closing, at its heart, however, is complex and very important to all parties involved.

The analysis of a solution should consider all the data needed and produced — not just a single event within the larger process. A number of factors must be taken into account with respect to digital mortgages, for example, including the differences in regulations from state to state; the different circumstances involving borrowers; and how any technology solution adopted will affect the borrowers of today and beyond. Don’t fall into the trap of solving a surface issue with a technology utility that seems to be the answer. View your business strategically and globally to understand upstream and downstream impacts.

Future impact

A global perspective of needs and technology allows for better planning and solutions that work together, not just today, but for the long run. Technology is a tool. It solves problems by enabling business to execute better, faster and cheaper than before.

Many issues stem from the fact that the technology’s particular target (or the challenge it’s designed to solve) is rarely static. Instead, it’s a moving, evolving target. Many mortgage companies have had to learn that fact the hard way — after adopting a utility solution for today’s problem that was unable to evolve as “today” became “yesterday.” This results in companies choosing a technology provider over and over again — all because they seek to solve tactical issues without considering future impacts and the changing environment.

It’s clear that a massive paradigm shift driven, in large measure, by technological innovation has started to take hold of the mortgage industry. It’s also fairly obvious that technology is and will be the foundation and key to making a new world possible. It is imperative that the industry change its view of technology. The industry needs to move forward — beyond the single utility-solution view — toward a mindset that is focused on enterprise resource planning to ensure that the solutions of today are not automatically rendered obsolete with the passage of time and are more global in vision and can change with circumstances.

•  •  •

This is the crossroads where success meets failure for most businesses. Simply making no choice or standing pat means being left behind. You must be deliberate in defining your company’s direction and in choosing the solutions that support it. Realize it’s not just the same old issues. They can’t be solved in the same old way. The survival of your business survival may well depend on it.


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