Surely it’s a relief to most that 2008 is done. But what will 2009 bring? For one, there’s going to be a new administration in town that has promised sweeping change, literally. That same administration recognizes that re-election depends on if it can make good on those promises. So, there are uncertainties for sure, but I’m hopeful. I think the industry can and will come back even stronger. How? Here’s how:
1. Think Twice About The Process. If the mortgage industry remains reactive to Washington, to the secondary market, to rating agencies, etc., it can’t move forward. The smart lender will take this opportunity to look had at everything they do and analyze why they do it that way. An antiquated process and way of doing business is what caused the industry to fail and until that process is re-worked, in my view in part by applying technology, how can recovery happen?
2. Don’t Play Follow The Leader. Part of re-thinking the process requires that the lender be able to move from there and innovate based on those findings. For example, if XYZ Mortgage finds that it is dealing with a lot of borrowers, but is unable to keep their interest and a good portion shop with XYZ Mortgage, but lock and close with a competitor, XYZ Mortgage has to be willing to act on that information.
How? Maybe by adopting electronic applications and disclosures so once the borrower is shopping, a pop-up message comes up saying something like, “I see you’re looking at a 30-year fixed. We can help you out. Click here and find out how.” From there the borrower is prompted to fill out an online application and within seconds a product is chosen and electronic disclosures are here to electronically sign. This way the borrower is locked in.
But XYZ Mortgage can’t do anything to improve, in this case pullthrough, until they’ve first re-evaluated their process and second, acted to actually change that process for the better. Too often I hear from lenders that automating this or that is the way to go but they say they won’t do it until others move in that direction first. How do you survive a tough market if you’re not willing to act? Waiting for the other guy can mean you fall behind and who can afford to fall behind when the industry itself is suffering?
3. Don’t Fear Going Electronic. In keeping with follow the leader mentality, a lot of lenders that I talk to say they are or will go paperless. They say they will move toward doing electronic disclosures and electronic signatures at the point-of-sale. Some say they’ll do electronic delivery to investors. But when the conversation turns to electronic closings most fear moving in that direction.
Why? You’d think going electronic was some futuristic thing only seen in Star Trek films or various science fiction flicks. It’s not. E-signing to close a transaction is pretty common. Just go to the grocery story or your local Wal-Mart. To this argument lenders say, “Yes, but that doesn’t happen in mortgage. There are too many players. The secondary market isn’t ready and neither are county recorders.” To that I say, “No, no and no.”
The GSEs make up a big portion of the volume and they’re accepting e-notes. Similarly, county recorders in very populous areas where the bulk of loans are being done also accept some form of e-notes. And further, going electronic and doing e-mortgages really isn’t new. There are over 30,000 e-notes already registered on MERS. This isn’t Star Trek, it’s being done today.
I have yet to encounter a lender that doesn’t acknowledge that going electronic is where the industry is headed. So why wait? Why fear what’s going to happen anyway? Essentially, either you embrace the future and carve a place there for your institution or you’re left in the past. How do you survive stuck in the past?
4. Take Off Your Blinders. Embracing concepts like an e-mortgage require a new way of thinking. Too often lenders isolate a problem and look for a bandage to let it heal without ever dealing with the root of the problem. If you injure yourself in a car accident because you’re driving recklessly you go to the hospital and get patched up, but if you don’t stop driving recklessly you’ll just end up back in the hospital or worse.
So stop lending recklessly. Fulfill my first three wishes and apply them by using technology to improve the whole process. What do I mean? A lot of lenders are concerned about fraud and compliance, for example. Are they looking at their process to see how they can make it more fraud resistant and compliant? No, they’re getting the latest fraud detection tool and slapping it at the point-of-sale. Guess what, a lot happens to the loan in between point-of-sale and investor delivery. And if 85% of fraud is done by insiders, it would stand to reason that the lender should look into where in the process insiders change or add a lot to the loan and do fraud checks there too.
Tasks like fraud detection or compliance should be called up as services throughout the process to make for a better process. Just using a fraud detection tool at the point-of-sale isn’t really solving the whole problem and creating a better process. See what I mean about taking off the blinders now?
5. Try To Think Long Term. I won’t take up much more of your time. This blog entry is already quite long. I know things look bleak. I know the market is bad. When you’re concerned about surviving the day thinking long term is hard. But the industry will turn. People will always need mortgages. So try to be ready. Don’t sacrifice the future for today. Tomorrow is going to come, so you have to be ready for it.
I know I’m asking a lot, but as I said earlier, I’m optimistic. Will the industry grant my wishes? Probably not all of them, but a few will get done and the mortgage process will be better for it.
So, what are your new year’s wishes to prompt mortgage industry recovery in 2009?
