Effective technology strategies will help define the “winners and losers” in the new era of mortgage banking, the CEO of loan origination system provider Ellie Mae said during this week's Mortgage Technology Conference in Miami.
During his presentation, Sig Anderman predicted a turnover in the top five mortgage originators, with many megabanks getting out of the industry. “There will always be a top five, the question is who will they be?” Anderman said.
The winners in the future of the industry will have to “play by the rules” of new compliance requirements, rather than find loopholes or workarounds. In addition, Anderman believes lenders will continue to gravitate toward a variable cost strategy for originations, including a preference for transaction-based pricing for technology systems.
Anderman cited a Stratmor Group study that estimates the cost of each closed mortgage includes as much as $700 in wasted costs from duplicate efforts in the origination process.
“You must be more efficient and fully leverage technology,” Anderman said. “That will be the difference between doubling your profit and having no profit at all.”
He added that the emphasis on loan quality and quality control will be an ever-present force in the industry. Anderman compared the mortgage industry to the rise of Asian-based auto manufacturers in the U.S. where domestic manufacturers had little quality control in their process -- and only at the end of the production line. Asian manufacturers put an emphasis on quality earlier in the process, and built more reliable and consistent vehicles. Anderman said the mortgage industry must take the same approach and inject more automated QC earlier into the process.
“The industry will not tolerate waiting until loans are fully funded to make sure they are originated correctly,” he said.
It's been a hallmark year for Anderman's company Ellie Mae, which went public in April and acquired rival LOS vendor Del Mar Datatrac in August. Anderman predicted further consolidation among technology vendors, as rising research and development costs will make it difficult for the LOS and other technology segments to remain fragmented.
“R&D is so costly and consumes so much annual revenue in the vendor industry that you will have to combine,” he said.
Ellie Mae committed $10 million to R&D in 2011 and an additional $3 million in infrastructure investment. Anderman said Ellie Mae's future goals include developing mobile technology, expanding software offerings and continuing its path of strategic acquisitions. He said the technology sector that supports the mortgage industry is in a critical moment that will define the future of the industry.
“We are going to change the way mortgages are written so that in 20 years, our grandchildren will scratch their heads and say, ‘It used to take 45 days to close a loan, when now it only takes 45 minutes?'” Anderman said. “We have to do that.”
