We hear all the time that the only two things in life we can count on are “death and taxes.” Well, there is a third that is often forgotten and that is: Change. Any time I am asked to reflect on the future of anything, my first thought is, “Oh, how convenient it would be to have a crystal ball.” Since none of us have one, we are forced to rely on other methods to analyze and prepare for what we think might come.
Unfortunately, for too many in our industry, a question about the future of the mortgage banking industry has no meaning to them. Many have already moved on, forced out of the business by a downturn so severe that only those interested in staving off public panic refer to it as anything other than a depression. But, for those of us still here who are still committed to earning a living and providing a service to mortgage borrowers, there can be a no more important question.
What will the future hold for our industry? What skill set will be required to succeed here and how can those intent on achieving that success navigate the legislative minefield that has resulted from the financial crash? These are questions that I have personally spent a lot of time thinking about. I'm not one of the chief executive officers who have “survived” this downturn. No, I chose to enter the fray after the downturn had already begun and I did it with the sure knowledge that this industry does have a future and I could lead a firm to success in that future.
Making sense of violent change
Our industry is not the first to experience the kind of change we've lived through over the past few years. It has happened to other industries before us and it will happen again in the future. One common factor of disruptive change, regardless of the affected industry, is a dust storm of data that makes it virtually impossible to make sense of the change while it’s happening. A quick glance at the headlines over the past few years will illustrate this.
Until very recently (and some would argue that we're not even there yet), it wasn't clear how damaging the downturn would be, how many banks would be forced out of business, how many jobs would be lost or how long would it take to recover. When one expert would go on record with an opinion, three others would step up to refute it. Who are we to believe?
Everyone, including the federal government, seems bent on determining who is to blame and what caused the meltdown. Personally, I don't care about any of that because I believe it will take years to work through all of that only to find answers that surprise no one. I choose to leave that to the historians to figure out. I'm more interested in the impact of the crash and what it will take to move forward through this time of disruptive change into the future.
A clear path to the future
Heeding the advice of Albert Einstein, it is clear that we certainly cannot keep doing things the way we have done them in the past if we hope to succeed. It is critical that we learn from the past, but the pathway to the future will not be discovered if we keep looking into the rearview mirror. We'll miss the wide open road ahead of us that is full of opportunities. We’ve seen it happen already to so many firms in our space.
Seeing a clear path to the future requires us to look at things in a different way. As we conduct our planning sessions, we look at the industry through the lens of the three major forces that are affecting our industry right now: Compliance (or quality), marketing and technology. Focusing our view through these lenses helps us better understand not only where we are today, but also where we need to be in order to stay competitive and add value.
The compliance (or quality) lens
Most companies in any industry can succeed based on the power of their marketing departments. They have something to sell, and if they can sell it, they can stay in business. If not, they're out of the game. That's how it normally works.
However, for firms operating in the U.S. financial services sector, it doesn’t work that way. Banks don't need to spend all of their resources on sales in order to remain in business because they have something that most people want—Money. In banking today, success isn't guaranteed to firms that can sell enough to stay in business. Rather, it all depends upon the way they do business.
Toyota is a great example. After World War II, Japan was devastated and was forced to completely change the way it did business if they had ever hoped to compete in the global manufacturing market. W. Edward Deming, the father of the “Quality Sciences,” brought these game-changing methodologies to Japan after his unsuccessful attempts at convincing American manufacturing companies that they needed to adopt a quality approach. Toyota’s decision to adopt led them to become the powerhouse that they are today. That is not to say that Toyota is perfect given their recent issues, but the lesson here is in how they responded to that adversity, and more importantly, they had a business culture that could quickly adapt once again. We've seen the commercials and ads showing that they are spending "$1 million per hour" on improving their business.
Some have described the last few years as somewhat of a complete devastation to how we do business. As a case in point, take the recently announced lawsuit against one of the nation's top five banks. The plaintiff alleges that because the bank didn't take every possible action that might result in the borrower keeping his home, the institution violated Home Affordable Modification Program (HAMP) guidelines and is subject to forfeiture. It's not clear yet whether this case will actually go to court, but the ramifications are potentially serious.
This is but one example of a financial institution caught between those it serves and the brick wall of legislation and regulation that threatens to choke the life out of them. I would venture to guess that it will get worse before it gets better.
To succeed in the future, companies need to see compliance as a “quality” problem. They must look beyond just compliance and re-assess the overall quality of their processes. What is it about their processes that would allow for poor quality? How can they leverage technology to improve and manage their processes to ensure quality and compliant work?
Let me give you one more example. As a result of the new changes in compensation, many companies have increased the costs to the consumer to make up for the shrinking margins. This might work for the short term, but the competitive landscape will begin to squeeze that as well. I just heard someone recently talking about how they lost a client to someone who was willing to do a loan for $250. It is unavoidable that that kind of pressure will force companies to look inward to find inefficiencies that they can fix to maximize their profitability, which is just another way to say what I said above: They will be forced to assess the way they do business.
Any successful firm in the future needs to have quality and compliance built into its DNA or they will simply cease to exist.
The marketing lens
While everyone may want money, banks don't exist to serve everyone. Knowing what markets an institution should be serving, at what price and how, is the purview of the marketing department and it's going to be increasingly important in the future.
As financial services firms continue to focus on niches, competitive pressures will increase and the firms with the best handle on marketing and promotion will emerge as the strongest in their geographical markets.
In the future, a successful firm will be perceived by the rest of the market as a leader in its niche. Goodwill and trust is a hard-won commodity that can no longer be obtained easily with traditional media. Banks must find a way to rise above the sludge left over from the crash and brush off the image of the Wall Street fat cat in favor of a more personable and trustworthy service provider.
This will be very challenging for large national lenders to accomplish, as they just cannot move and adopt as fast. With that being said, I see, ultimately, a return of the mortgage broker. But, and I mean a big “but,” not the mortgage broker of the past. I’m referring to the local professional businessperson who understands the business, truly cares about their clients and is willing to take the time to explain the process to a borrower at a kitchen table, will eventually be a hot commodity again.
But to capitalize on this opportunity when it returns, brokers must take the time now to hone their craft by becoming experts in lending guidelines; improve their skills by learning how to communicate and present complex financial concepts and be able to clearly outline what it means to the borrower; and harness the right technologies that enable them to increase productivity and prevent non-compliance in real-time versus waiting until the end of the process to check for it.
The technology lens
Finally, and most importantly in my mind, is the technology lens, the ability to see the transaction not as simply a pile of paper, but as an orderly progression of processes that speeds the loan in a compliant and quality fashion from lead to post-close. There is no way that mortgage professionals of the future can act on what they learn by looking through the compliance and marketing lenses without good technology. It's more vital today than ever before.
Lenders of the future must be fast, agile, lean and affordable, all of which determines how effectively they can implement the proper technology. But it will not be technology, as we have known it so far. Lenders of the future will need much more flexible systems that can easily and quickly be deployed to sell new programs to new classes of borrowers. This will require a true partnership between the lender and the technology provider.
The technology that lends itself to this kind of relationship and offers this kind of power does not come in a box. Technology that can adapt to the ever-changing needs of the mortgage marketplace of the future can only be provided through Web-based solutions. It will be a template-based solution that is easy to customize, very fast to deploy and seamlessly connected to analytics for compliance and audit trails and dashboards for effective management.
The software will live “in the cloud,” whether it is a public cloud or a private cloud, which gives the bank full control over the data. It will be updated in real time on a near-continuous basis. It will not require large IT teams to maintain—at least for the originator—and will allow business users to get under the hood and make changes without fear of losing critical information. It will be an extension of the originator and will enable compliance and marketing without requiring high levels of resources to run. It will probably also be available at a variable cost that changes with the originator's business. Finally, it will enable full customer relationship management (CRM) before, during and after the transaction with data that threads through. No more importing and exporting of data, which is a quality nightmare.
The future will be one in which specialization is taken to the extreme. Successful mortgage banks will be made up of Jedi Warriors who specialize in compliance, marketing and technology, as it will take all three, plus strong leadership to succeed. But before these professionals can be deployed, the future must be visualized. We can only do that effectively by seeing the landscape through these three lenses.
If we do that, we will be in a very good position to succeed in the future mortgage business.
Rene F. Rodriguez is chief executive officer of Austin, Texas-based MortgageDashboard. He is a renowned behavioral, leadership and organizational change expert, world-class sales trainer and dynamic keynote speaker. He can be reached by e-mail at
[email protected].
