Lenders Go on Offensive to Gain Competitive Advantage

While regulatory pressures remain top of mind for the mortgage industry, lenders surveyed by National Mortgage News are shifting their attention from defensive-minded compliance initiatives to ones that improve companies' ability to compete.

To be sure, regulatory compliance remains an omnipotent force underscoring the industry's every motivation. But with most of the major regulations created in response to the housing crisis now in place, the compliance focus is shifting from implementation to maintenance — while providing lenders and servicers with some much-needed breathing room to focus on more competitive- and business-oriented initiatives.

As a result, mortgage companies are setting their 2016 strategic sights on initiatives aimed at two primary goals: optimizing internal operations and improving customer services levels, according to the results of a recent survey. NMN, in partnership with SourceMedia Research, deployed the survey in September 2015 to a sample drawn from across the mortgage industry. The pool of more than 300 respondents includes C-suite and other senior-level professionals at mortgage origination and servicing firms of all sizes.

Compliance and regulation were top among lender concerns in 2015, and will remain so for 2016. But the survey reveals a dramatic shift in lenders' goals for acquiring new technology — 44% of lenders selected "innovating to gain a competitive advantage" as the primary goal of their firms' 2016 technology acquisition, up from 19% for 2015 — which points to a similarly dramatic shift in underlying strategic thinking. And that swing comes as the percentage of lenders who named "meeting compliance requirements" as the impetus for new technology purchasing dropped from 73% to 42% from 2015 to 2016.

Adding Resources

Lenders' renewed focus on internal improvement comes at a time when many are professing optimism about their staffing outlooks. More than two-thirds of respondents said they intend to increase staffing levels in their origination businesses in the coming year, with most of the remainder planning to keep employee counts where they are. Those new hires look to be broad-based; respondents were as likely to say they would add IT staff, for example, as they were to add non-IT staff.

In addition, more than one-third of respondents cited investment in technology as one of their high-priority objectives for 2016, evidence that many companies are taking a hard look at infrastructure now that some of the most complex compliance burdens have presumably been accomplished.

However, the fact that technology ranked well behind other bread-and-butter strategic initiatives is misleading — for many respondents, technology investment is a means to an end rather than a strategic end in and of itself. Indeed, technology investment and increases to tech staffing registered high among the methods executives were eyeing as ways to meet strategic objectives in the coming year.

Improving Quality Control

The post-bubble regulatory crackdown brought with it a mountain of compliance work in areas ranging from underwriting to fees to disclosure. While compliance may have forced some process improvements at companies, new rules and their attendant deadlines are not the kind of things that lend themselves to comprehensive process improvement.

It is clear that originators are now looking hard at their overall operating effectiveness. When asked how they intended to meet their 2016 strategic objectives, "implementing new processes" was often among the top two methods cited by executives. The sheer breadth of initiatives against which respondents aim to buttress internal processes — compliance, cost control, and improved service and profitability — points to a potentially rich opportunity for firms and technologies that can help bridge process gaps.

Indeed, originators are looking at their key customer acquisition and service touch points for improvement as well, and within these, the range of planned tactical approaches is a broader one. Training staff and increasing sales and marketing resources are top of mind for several strategic objectives, including efforts to generate new business among immigrant borrowers.

The correlation between training and increased marketing for certain consumer-facing priorities is noteworthy, given recent Consumer Financial Protection Bureau actions targeting marketing services agreements, alleged unfair and deceptive advertising practices and the addition of consumer narratives to its publicly-available complaint database.

In contrast, next year's efforts to attract millennial customers look to be squarely in the digital space, with mobile technology and social media the top choices. Lenders also desire to ensure the effectiveness of these activities by monitoring search engine optimization and other performance metrics, as made evident in the words of one respondent: "We recently installed a completely new computer system and will be contracting with an advertising company to implement and manage our marketing campaign, including website SEO and advertising."