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History has shown that those who take a different path than the rest emerge as leaders, while those that continue with the same path eventually get run over.
The mortgage industry has enjoyed a static environment of lending for almost 50 years with very few major changes or dramatic shifts in the manner in which business has been conducted. With the exception of banks getting bigger geographically, and firms such as Quicken implementing just a touch of innovation via the internet, business have had little in the way of shifting market share.
The question is, “Why has the mortgage industry remained so static, and why hasn't someone really emerged as different?”
What generally drives shifting markets and innovation in other industries is the consumer. Businesses build their entire strategy around attracting consumers and keeping them engaged. However, that doesn’t seem to be the case with the mortgage industry. To put it simply, there is entirely too much focus on “getting the deal done” and avoiding the regulatory spotlight, with not nearly enough on serving the consumer.
The baby boomer generation pushed itself to improve on the processes established by the previous generation through cost-cutting, rather than efficiency, convenience or technology. In the context of obtaining a mortgage, the most important aspect of choosing a mortgage lender became the proffered monthly payment and/or APR, and the market responded accordingly.
Now, the world is shifting quickly, and the CFPB has accelerated its focus on consumer participation and education in the mortgage process. The wrongdoings from the recession have forced the ship to be righted, placing the focus back on measures instead of profits. This is now going to be rapidly accelerated by 80 million millennials and their insatiable demand for technology. What this means is the industry must respond to the APR and payment issues, but must do so with a more massive amount of service through technology. In other words, the industry must do more for less.
This massive, accelerated paradigm shift will cause denial, confusion and, finally, acceptance. As October 3 approaches, it is clear the vast majority of companies are behind and won't be ready for TRID. They may be able to technically calculate numbers and generate forms, but they won't be able to do it at a price even close to reasonable, so the first thing that will occur is that profits will suffer.
"The mortgage industry is being transformed through process, regulation and market demand for service. Lenders that rely on the old ways are going to be left behind."
As the industry moves through the first quarter post-TRID, these businesses will question the point of the new rules and why they are doing any of this. At the same time, a minority will have enough vision to see they can provide more service and make more money through innovation and the use of technology. Given the results of the CFPB’s eClosing pilot program, that use of technology is most likely going to take the form of a digital closing platform. Not only does this type of platform provide the monetary and efficiency benefits lenders will need, but it also provides an opportunity to provide transparency to the process and bring together ALL players in the transaction–borrower, real estate agent, lender and settlement agent–to facilitate better communication and a much smoother mortgage closing overall.
When this minority begins to show the opposite results of everyone else, they will begin to take market share and the industry will take notice. The question is, “Will it be too late for those that didn't have the vision?” Time will tell, but the reality for those who show up late will likely be costs rising at a dramatic pace, that will put companies out of business, and it won't take very long to do that.
The decisions mortgage lenders make today are going to have a tremendous impact on how they weather the next six months to a year. The heavy majority are consumed with fitting TRID into the existing mortgage paradigm, but almost no one has stopped to think that perhaps it is the paradigm that needs to change, rather than the legislation.
This is also the same time at which millennials will accelerate their move into the housing market. When they realize there are those that can provide an efficient, high-end, technology-rich experience, the market will shift dramatically. This results in the industry looking forward to a rapidly shifting environment where they are basically "betting the farm" on the decisions they are making right now.
The mortgage industry is being transformed through process, regulation and market demand for service. Lenders that rely on the old ways are going to be left behind. However, by making one innovative change through adopting a platform where everyone can be educated and participate in the process, that has the potential to solve 80 percent of the post-TRID issues lenders will face, and position them for growth rather than stagnation.
This one principle has proven true in every other industry and in every other process. When people communicate, they work better together. One decision may dictate lenders’ futures and where they will be placing their focus next year. Rather than just waiting for it to happen and dealing with the fallout after the fact, now is the time take action. Choose a different path. Diverge from the herd.