A few months ago, there was a picture of an IBM Global Entrepreneur Program presentation making its rounds through social media. The slide in the picture was titled “The Digital Disruption Has Already Happened,” and contained eight bullet points, each mentioning an industry disruption and the company driving that disruption. It went something like this:
►World’s largest taxi company owns no taxis (Uber)
►Largest accommodation provider owns no real estate (Airbnb)
►World’s largest movie house owns no cinemas (Netflix)
The formula for disruption seems to be clear. These disruptors don’t own or control the physical or human assets that manufacture or perform the service. Instead, these companies, through their digital platforms, own and control the consumer experience.
Uber, for example, does not own the vehicles that transport thousands of people a day, nor do they directly employ the thousands of drivers that participate in their offering. They do, however, own and control a digital infrastructure that makes it possible for you to seamlessly order a car service from your mobile phone and have that car picking you up in minutes (sometimes even seconds).
The same can be said about the travel industry, with companies like Airbnb and Orbitz, and the entertainment industry as demonstrated by Netflix (although Netflix has begun to produce their own media in the past few years). Digital technologies have completely transformed how these industries are structured.
So why, then, have we not seen this level of digital innovation in the mortgage industry?
Obstacles to innovation in the mortgage industry
There are significant barriers to entry that any innovator must overcome in order to successfully scale a company in the mortgage industry.
►Complexity of mortgage products and borrower loan scenarios: Mortgage products are complex financial instruments that most people do not naturally understand, or, for that matter, care to understand. Lay consumers can easily get lost in an alphabet soup of loan programs and loan features.
The complexity of mortgage products is only matched by the complexity of borrowers’ financial backgrounds and other particularities.
From a digital automation standpoint, this complexity “double punch” from both sides of the transaction is hardly an ideal scenario.
►Sensitivity of mortgage transaction for consumers: Unlike streaming a movie, buying a plane ticket or ordering car service, getting a mortgage is the single most important financial transaction in an average person’s life, and consumers desperately want and need the guidance of mortgage experts. Getting a mortgage is a series of important decisions—e.g., how much should I put down?, Should I add a co-borrower to my application?, Should I buy down points?, etc.—and there is simply no replacement for the reassuring voice of a mortgage professional who knows the ins and outs of these products and how each of these decisions will impact your loan.
►Regulation: Navigating the mortgage industry’s complex regulatory landscape is not an easy feat, and it has only gotten harder in recent years with the introduction of Dodd-Frank and all the new rules and laws that stem from it. Regulation impacts digital innovation in many different ways:
►Increases the upfront costs of entering the industry (e.g., hiring lawyers or compliance professionals).
►Makes the product development cycles longer (in less regulated industries, it is easier to launch an initial product and iterate based on feedback collected from real users, whereas in more regulated industries the initial product must comply with industry regulations from the outset).
►Makes sales cycles longer because new products must be fully vetted by a potential client’s compliance department before getting the green light.
The silver lining for mortgage innovators
Ironically, it is these same obstacles that make the opportunity of innovating in the mortgage industry so attractive, because once you overcome them, they are there to protect you from future entrants as well. There are already many mature companies and tech startups bravely and passionately pursuing ambitious goals in the mortgage industry, and now a perfect storm is brewing to give these innovators much needed wind behind their sails to break through.
►Millennial homebuyers: Recent reports by the National Association of Realtors (NAR) already show the millennial generation as the largest percentage of homebuyers in the United States. With improved economic and employment conditions, these tech-savvy consumers are finally moving out of their parents’ basements and into homes of their own. Like generations before them, Millennials also see homeownership as an aspirational goal. And as rents throughout the country continue to skyrocket, their sentiments about homeownership are only reinforced by mathematical logic that points to homeownership as the better financial decision.
The Millennial homebuyer represents a major shift in consumer behavior in the housing industry. This is the first generation born and raised in a digital economy where information is free and abundant, and services—even financial services—are seamlessly delivered via their electronic devices.
►Regulation … again: Regulation is significantly increasing the cost of doing business in the mortgage industry. As costs increase, lenders and other loan originators will look for ways to minimize human error and increase efficiencies in their operations through automation and standardization - two problems technology can help solve. In fact, studies show that technology can help reduce origination costs by up to 25 percent.
The case for embracing innovation
Innovation can be frightening. By definition, innovation changes the way things are done, and, because of its uncertainty, change is always a little scary. However, in today’s fast-paced, technology-driven world, successful professionals—in any industry—are those who learn how to quickly adapt to the times.
The forces of innovation do not ask for your permission or wait for your approval; they are coming, whether you are on board or not. This being said, innovation is something to embrace, not something to protect yourself against. Technology can make you more efficient and help you deliver a better experience to your borrowers. And, as you already know, happy borrowers lead to more borrowers, which you will now be better equipped to handle because your technology is there to help.
Mortgage professionals who embrace technological innovation have an opportunity to be more successful than they have ever been—not in spite of technology, but because of it. Therefore, not only should mortgage professionals embrace innovation, they should strive to be a part of it.
The mortgage industry is too complex for even the most brilliant technical minds in Silicon Valley or other tech hubs around the world to develop great technology products alone. Innovation in the industry will only succeed if it results from the collaboration of different groups, some within the mortgage industry and some outside of it too.
Up until now, technological innovation has been lagging in the mortgage industry, but 2016 is shaping up to be the year that it finally goes digital. Technology will have a transformative impact in the industry—not only in the way consumers search, shop and ultimately obtain a mortgage, but it will also change the way lenders and other loan originators deliver their services and loan products.
Mortgage professionals should embrace—and become a part of—this wave of innovation. Those who do will greatly position themselves to capture the millennial generation of borrowers and other digital natives who are accustomed to doing everything else online.
To quote the great hockey player, Wayne Gretzky, “Skate to where the puck is going to be, not to where it has been.” In the mortgage industry, the puck is going to be in digital technology.
Valentin Saportas is co-founder and chief executive officer of MortgageHippo, a mortgage technology company that partners with mortgage lenders, brokers and loan originators to provide better online experiences to borrowers. Before starting MortgageHippo, Valentin was a finance attorney at the bank lending group of a large Chicago-based law firm. He may be reached by e-mail at [email protected].
This article originally appeared in the May 2016 print edition of National Mortgage Professional Magazine.
