John Guzzo, Managing Director in the Financial Technology Group at Berkery Noyes sat down with MReport to share his insight on how technology is changing the mortgage industry.
MReport: How can the mortgage industry (lenders, servicers, investors, etc.) innovate and bring technology to the forefront of their business? How will this help their bottom line?
Guzzo: We’re observing several areas where technology innovation is occurring. One example is CRM and lead generation, which applies to the borrower in what they see from loan officers and lending institutions. These technologies are very much in demand, whether it’s for internal bills or customer acquisition, because you’re no longer seeing a borrower walk into a bank. Foot traffic is certainly down in all brick-and-mortar bank branches. They’re trying to get everyone to the virtual side through technology, which is where CRM technology comes into play.
There is also more back-office technology innovation related to compliance, especially with the Dodd-Frank Act and Consumer Financial Protection Bureau (CFPB) guidelines. Banks are under pressure to make sure they are compliant. Many times, especially with middle-sized and smaller banks, they don’t have the actual budget to create their own compliance technology so they rely on third-party companies to provide compliance solutions. This, along with the use of third-party technology to ensure their whole lending lifecycle is working in a compliant manner, is another big driver of innovation by the larger banks.
MReport: Tech innovation can be pretty pricey. Is the payout worth the cost? Especially for lenders that cannot necessarily afford an entire compliance operation or even among those than can dish out the extra money. Is it worth it to innovate and bring in that new technology?
Guzzo: From a long-term perspective, it’s always worth analyzing, whether you’re a bank or a credit union in the mortgage sector deciding to build the technology in-house or use a third-party company. What often happens is they create a product roadmap and then they decide whether it’s worthwhile to build it. It’s not just costly from a monetary perspective, but it’s also costly from a time perspective. Often it can take one, two, or more years to actually build this technology on your own. This is why you often see a lot of the banks using outside vendors to support their technology needs.
MReport: Let’s talk about the millennial generation, because you just cannot talk technology and not mention this younger, tech-savvy group of consumers. In what ways can technology help reach millennial homebuyers? How are mortgage businesses implementing technology that will appeal to them?
Guzzo: It’s really about the convergence of mortgage and real estate technology. Years ago, the two were kind of in separate sectors and operated pretty much on their own. Today, because of millennials, you often see more convergence, whether it’s a real estate agent or a mortgage company, trying to at least think about the other party. So if it’s a mortgage tech business, it’s starting to try to move up the supply chain to the actual homebuyer. There’s a lot of innovation happening there, and it has a lot to do with the millennials where companies are trying to reach them with more information to allow them to make better homebuying decisions. The convergence of mortgage and real estate tech seems to meet a lot of the objectives of the millennials.
MReport: How far has technology come in the mortgage space? Is there any progress to still to be made in this area?
Guzzo: Over the last five years, there’s been tremendous progress and innovation on the originations side of technology. Where you’ve seen less progress is on the servicing side of loans. Although there is some innovation from certain servicing companies that are well-equipped on the technology side, overall, from a high-level perspective, there has not been much innovation in servicing technology, at least when compared to originations.
Looking ahead, the mortgage industry needs to focus on ensuring compliance. Compliance is a must-have in today’s industry. In the future, mortgage technology will need to extend the supply chain, meaning that realtors and homebuyers are way upstream where the supply chain starts with the homebuyer. What you’re seeing is this lengthening of the supply chain where companies are trying to expand by moving up or down the supply chain. So, up the supply chain would be more of the homebuyers, and down the supply chain would be more toward the secondary markets. You do see this expansion among the largest of the tech vendors.
In addition, the supply chain will need to widen by offering more products and services to their customer base. This seems to be a major theme among vendors. They want to fill out their product suite and be able to offer more products to their customers.