Defaults Spark Use of Consultants

Charlotte, NC-If in the past few years one way the mortgage industry cut costs was by minimizing consulting expenses, the market may be regaining its appetite for such services.

"It's not like all interest in consulting firms ever turned off. In the past couple of years there definitely has been a lot of interest in default management. There certainly has been an ongoing demand," says Brian King, the newly appointed president of Wisemar Inc. here, a management consulting firm that provides business process improvement, management and corporate strategy assistance for consumer, mortgage, small business and commercial lending.

"That being said, banks are being very careful in their selection of consulting firms they want of work with. They want to make sure they get a tangible return on that investment, which obviously is a smart move on their part."

The mortgage market continues to face challenges that feed demand for consulting.

"Demand is there, but it may take some more time before banks are more accepting of using consulting firms more rapidly, but they definitely see a market demand for people with the appropriate skill sets, the talent and the reputation to deliver results." According to Mr. King, since banks routinely cut first spending on marketing and consulting, a large pool of individual talent and people with valuable industry expertise who have been displaced or laid off are currently available for hire. If anything, over the past few years management consulting firms have been cutting back," he said. However, in addition to loss mitigation, expertise in other areas of financial consulting also appears to be in demand.

"Business process improvement is going to attract more demand as banks look into their efficiency ratio and where they need to trim expenses and be more efficient."

He also expects to see increased interest and "demand for very targeted strategy" along with mortgage production and loan origination efficiency consulting as banks focus on the front end of mortgage lending. Clients inquire about the efficiency of launching a new product or analyzing the benefits of getting into a specific market segment, he said. Risk control is one area that is rapidly generating consulting demand. "I have seen interest about risk from clients. Definitely there's concerns about that, and not just about risk as a product, but risk in processes or policies."

Other industry sources highlight the downside of a regrowth of consulting.

According to a recent report from the Center for Community Capital, "Short-term economic incentives promoted loose underwriting standards and demand for high yielding is widely accepted as the root cause of the mortgage crisis and since the regulatory structure which showed it cannot police the marketplace properly is fundamentally unchanged, new initiatives that are based on similarly convenient short-term economic incentives - like advisory firms - may mushroom now."

"I haven't seen a lot of new consulting firms entering the market, or expansion of existing consulting firms, since most firms are being very cautious, and conservative," Mr. King says. "There might be more displaced people available to do contracting as an individual, but I do not think we've necessarily turned a new corner where there's going to be a lot of new firms entering the market. We're still in a difficult place. Maybe we've hit the bottom of the trove, but there's a long way to go."

If there will be a resurrection of the financial advisory marketplace going forward, he expects financial institutions to carefully select their consulting sources. "There's opportunity there for the right type of project, when the client needs some external help."

Other industry data show there is demand for management counseling in niche markets.

For example, executives of Helios Capital, Woodbridge, N.J., an advisory firm established in January 2009, found their niche in trading small-balance nonperforming commercial paper debt secured by formerly mismanaged good assets. By midyear the firm had completed over $30 million in mortgage loan transactions. "Despite the unique challenges that are currently in place in the commercial mortgage loan space, we have found that there are a number of significant opportunities available," Helios managing director Josh Malka explained in an interview.

"Local knowledge of the market allows a local investor to analyze and underwrite a deal very quickly."

Other firms are taking the plunge. Newswire reports continue to report on firms hiring or promoting industry veterans, even expanding services in niche markets.

Commercial, residential and consumer loan sale advisory firm Mission Capital Advisors, New York, said it is further expanding into new offices in New York, Florida and Southern California to accommodate its "growing staff and broadening business."

In Newport Beach, Calif., Mission hired as branch director Chad Coluccio, whose previous experience includes being a founding partner of Citation Capital Partners, a commercial mortgage brokerage firm focused on debt, mezzanine and joint venture equity placement.

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