Tech Innovation Blog

The daily news shows surely don’t lack for stories and controversy nowadays. Some advocate socialization of mortgages, others a common rate for everyone, and others an across-the-board write down of anyone deemed to be in a “troubled” mortgage. Foreclosures will affect at least one million homeowners and the government’s tab, depending on whose numbers you believe, ranges from two to seven trillion USD – and counting. Therefore, since everyone has a lot of comments, answers, and air time, let me ask some new and controversial questions – and let me introduce the concept of a constraint bound “Mortgage Molecule.”

First, let’s get straight to the new questions and see if I can challenge more friends and organizations this week:

• Can the FS and mortgage industries driven by their numerous associations, lobbying groups, and client bases survive the continued fall out and loss of premiere status? Who will be left and are their charters still relevant in a globalized world with a reduced number of operators? Will these stoic institutions be open to new ideals and principles, or stubbornly cling to their prior glories and relationships?

• With the rise in national interest supported by government market interventions (e.g., TARP), can offshore outsourcing led by biased foreign operations continue to “take BPO and ITO orders?” Spearheaded by massive domestic job losses, will this historically nationalistic-defined industry suffer a catastrophic deleveraging and fallout? Are your agreements, intellectual capital, and gain-sharing arrangements secured?

• Is this really the end of the MBS instruments that contributed to the world wide structured instrument crisis? Will FDIC and Treasury supported covered bonds become the new currency for an industry seeking a surge in credit availability? Who will manage the comprehensive processes and operations for these “new” products? What other servicing and securitization products will be developed to ensure origination volumes – will this be an atypical reverse supply chain that opens up the dogmatic channels?

• With “anointed” super-sized FS firms getting larger with government “coronations,” will there be any middle market or pure-plays remaining in a post TARP world? If the lenders and institutions consolidate, does that not also signify a radical and painful shift for their underlying vendors that catered to their special needs and operations? Which vendor or sourcing relationships will be viable and which ones will increase organizational transformation needs? Who will provide that guidance?

Secondly, mention the word “molecule” to a group of bankers and they immediately think chemistry, scientists, or even energy. Yet, the mortgage industry taken in its entirety is a complex and changing molecule of actions, processes, and technologies. Spurred forward by customers and credit markets (even dysfunctional ones), the Mortgage Molecule is framed by numerous constraints and interrelationships. It is a “drill-down” model for those familiar with these ideals.

Since my 3D modeling skills are rudimentary, I chose to provide a “simple” subset of the changing molecule for discussion.Whereas, the above model is vast and containing many underlying operating principles and implementation considerations, this framework represents the new world of operations – often a hidden world in the current chaos. You should note that there are over 100 other “atoms” (and counting) that comprise more total molecular groupings, but suffice it to say that a myopic focus on any given grouping will be history repeating itself.

Sure, we can talk about the 3-D models that compare market demands inverse relationship with market stress contained by organization capabilities and the equations that it might yield from the above diagram – but we’ll save that for some other time. We could even discuss implicit compliance, audit demands, and data relationships – but we’ll leave that to dogmatic segmentations within the upcoming conferences. We can talk about the fact that recent data shows that 90% of originations now are “driven” or contained within government controls or entities – but that would be stating the obvious. We could even discuss unemployment numbers and the SEC’s mark-to-market implications encompassing the aforementioned – but we’ll leave that to the economists, regulators, and legal activists.

Yes, we can talk, have meetings, and speak of a “new world order.” We can pound the table and invite 50 of our closest friends to a round table for “clarity.” In spite of that, is all this talking really new, innovative, and most of all, important to profits, jobs, and survival? I privately wonder as I publicly pay.