The British writer Arthur C. Clarke once commented, ‘Any sufficiently advanced technology is indistinguishable from magic.’ But for many years within mortgage banking, it often seemed easier to pull rabbits from a hat than install new automation.
‘The mortgage industry is famous for being the last kid on the block to adopt new things,’ says Sanjeev Dahiwadkar, president and CEO of Columbia, Md.-based IndiSoft.
‘I used to tell my board of directors the biggest competition we had in the industry was inertia,’ recalls Dain Ehring, CEO of CoreLogic Dorado, based in San Mateo, Calif.
Today, however, Ehring is witnessing an almost magical change in attitude. ‘We see a higher appetite for technology than before,’ he says.
As the industry struggles to remain vibrant in the face of a still-weak housing market and a fragile national economy, many companies are placing a greater emphasis on technology systems to help maintain their financial viability. However, there are still crucial areas across the industry where high-tech is a low priority.
‘It is clearly becoming a more tech-savvy industry,’ says John Walsh, president of San Diego-based DataQuick. ‘But even in the last six to 10 months, mortgage bankers were sadly lagging behind most B2C industries with technology.’
Today's focus on technology can largely be credited to – or blamed on, depending on how you view the subject – the collapse of the housing bubble and the subsequent chaos.
‘The crisis in 2007 got everyone thinking if there were better ways of doing more with less,’ says Dahiwadkar. ‘Technology happens to be part of the solution, and now managers are thinking about getting more help from technology.’
The value of technology also took on a Darwinian aspect as the industry found its fortunes dwindling.
‘Mortgage brokers had the least technology and the lowest-quality technology in terms of compliance and capabilities,’ says Lester Dominick, president of MortgageFlex Systems Inc., based in Jacksonville, Fla. ‘And that part of the business has since disappeared.’
Ehring also believes in a survival-of-the-fittest strategy. In other words, technology can help to protect today's companies from being targeted for possible takeovers.
‘Getting the right technology in place staves off acquisition,’ he says. ‘You can run efficiently and profitably and adhere to the very, very heavy regulatory requirements that make it more difficult to stay profitable with a smaller-business model.’
Change of agenda
The lenders that survived the crash found themselves in a different business environment, particularly in regard to regulatory guidelines and compliance. The technology companies were also faced with a new challenge of providing systems that could handle the new rules of the game.
‘The vendors we rely on must be up to speed,’ says Lisa Schreiber, executive vice president of wholesale lending at Milford, Conn.-based TMS Funding. ‘But we're kind of married to the vendors – if they are not able to do a new good-faith estimate or implement loan officer compensation, it puts a dent in what we can deliver to our customers.’
However, not every corporate culture is using technology in the same manner.
‘Depending on the company, they can take the approach of utilizing technology as a survival tool or utilizing technology to grow the business,’ says Chris Mace, chief information officer of Cendera Funding, headquartered in Fort Worth, Texas. ‘In today's industry, a successful company has to be in more than a survival mode. The mind-set of the company has to change to utilize technology correctly.’
Cary Whaley, vice president of payments and technology policy for the Independent Community Bankers of America (ICBA), notes that smaller financial institutions are using technology to enhance one of their stronger business points.
‘Community banks regard technology as an extension of their relationship with customers,’ he says. ‘Technology enhances and allows the relationship to go further, but it still keeps the hometown feeling while opening up a new channel.’
Whaley points out that community banks have traditionally been enthusiastic about new automation but that they often lack the time and resources for a leisurely consideration of the new products and services.
‘When it comes to technology for smaller institutions, there is no space for do-overs,’ he adds. ‘Their first shot has to be very good. It cannot be based on a pilot program or learning from mistakes.’
However, many lenders are relying on technology to protect against unwanted surprises. Joseph M. Nackashi, executive vice president and chief information officer at Jacksonville, Fla.-based Lender Processing Services, observes a trend where lenders are leveraging data to quickly identify risks and to address potential problems before they metastasize.
‘There are more predictability capabilities available, such as narrowing down to the ZIP code level where the risks may lie in a portfolio,’ he explains. ‘With this data, lenders can proactively try to modify loans to keep consumers in their homes.’
Nackashi adds that lenders are increasing their emphasis on high-tech solutions that ensure an open communications channel with their borrowers.
‘Banks are not being the 'big bad banks,'’ he says. ‘They care very much about their customers, and they are bringing more capacity at the touch points of contact – either in call centers or on the Internet.’
Of course, change rarely happens in a day – or in a year, for that matter.
‘There is a natural resistance of many people to change,’ observes Ivan H. Darius, founder and co-CEO of Optimal Blue, based in Plano, Texas. ‘Most people are comfortable in things they use and know every day, such as loan origination software. And many people are getting comfortable with product and pricing engine technology.’
Yet Darius also acknowledges that there are areas within mortgage banking where old habits take a very long time to shake.
‘The generation of paper in this industry is phenomenal,’ he continues. ‘The storage of information on paper is hampering the efficiencies of the industry. But it is not totally the industry's fault – the industry interfaces with other systems and institutions that are also not keen about putting things in an electronic format.’
In fairness, the industry itself is not the only one that is slow to change.
‘You can go to trade shows and see dozens and dozens of vendors offering innovative technology,’ says Andrew Weiss-Malik, chief operating officer at 360 Mortgage Group, based in Austin, Texas. ‘But a lot of the technology today is based on technology released years ago.’
Weiss-Malik believes that the industry needs to pay more attention to new high-tech tools, especially products that have become staples of daily consumer life.
‘Mobile is a big area where the industry is lacking,’ he continues. ‘Mobile can be used to create a big burst of origination or processing. The tablet-type PC is the future of our industry.’
PHH Mortgage, based in Mount Laurel, N.J., is already riding the mobile wave.
‘We are seeing our customers and financial advisers participate in mobile social spaces to communicate with customers and originators and fulfill loans,’ says Jeff Dell, chief technology officer. ‘Customers want to interact with their mortgage companies today, and getting a text message or a quick update via a mobile app is something the industry can do much better.’
Dell adds that customer-service functions would be better served via mobile technology rather than an old-fashioned call center.
‘Some 30 percent of calls that come in have to do with payment amounts, balances and due dates,’ he says. ‘These are things we can easily deliver to customers via mobile alerts.’
Another high-tech area to which the industry is paying more attention is the off-site solutions offered in software as a service (SaaS) and cloud computing.
‘Smaller shops may not have the infrastructure or resources available for hosting their data,’ says Joey McDuffee, head of marketing at Wipro Gallagher Solutions, based in Palmetto Beach, Fla. ‘SaaS fits very well into the smaller and midsized tier.’
However, according to ICBA's Whaley, community banks are expressing concern over this approach.
‘The banks are still skeptical about cloud information, particularly the security aspect of the cloud,’ he says. ‘Most community banks are taking a wait-and-see approach – they see a lot of security traps, and data security is an ongoing challenge for any institution.’
While new technology concepts evolve, at least one older practice – the in-house creation of proprietary systems – appears to have gone the way of the floppy disk.
‘We are seeing mortgage banks rely more on vendors than creating their own technology,’ says Don Iannitti, president and CEO of Carson, Calif.-based Document Systems Inc. ‘Proprietary systems are definitely not the way to go.’
Yet Iannitti is concerned that the industry may be hampered by a lack of standards among operating systems.
‘Producing the workflow of mortgages requires a lot of different interaction with different products,’ he says. ‘It requires a clear connection between data and moving things around. MISMO is a step in the right direction, and I would like to see more vendors use that.’
(Please address all comments regarding this article to Phil Hall, editor of Secondary Marketing Executive, at firstname.lastname@example.org.)