The real estate and mortgage industries need to change. There is no going back to the old normal. Some get this. Many don’t.
But the fact remains that the markets we serve and the regulatory structure in which we work have undergone a dramatic transformation.
That change has made the old way of doing things incompatible with success in the new era. This is especially true from the perspective of the title and settlement services industry.
Although this is a strong statement for a conservative industry, there are several drivers moving us away from the old way of doing things.
Newcomers and the need for change
Whether justly or not, consumers have become jaded when it comes to interactions with mortgage-related businesses after the meltdown of the past decade.
Their elected representatives and appointed regulators have followed suit. The consumers’ expectations when it comes to real estate transactions are also rising after experiencing faster and more convenient ways of banking and purchasing in other segments.
We face not one but two waves of new homebuyers as immigration accelerates and the immense millennial generation comes into its purchase power.
However, both emerging markets have different tastes from those of previous homebuyers. Marketing to them will need to be significantly different, too.
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Finally, the heightened regulatory scrutiny our industry is facing will not go away anytime soon. The Consumer Financial Protection Bureau, stiffer penalties and increased enforcement, and dramatic rule changes altering the way we do business — this is the new normal, and it will affect what we need to do to succeed.
Inefficiencies of today
Whether mortgage lender or settlement service provider, the company best equipped for success runs lean, fast and smart. It runs with efficiency, and it adapts quickly.
Of course, lean, fast and efficient have become advertising buzzwords — verbal wallpaper or background noise used as sales puffery. Too often, the very business that claims to be these things is anything but.
However, it will be the firms that live up to those descriptions that survive and succeed in the coming years.
Over the years, I’ve come to learn that, because of inconsistencies or incompatibilities in the process, 20 percent of a typical settlement services firm’s working hours are spent on the “redo” factor.
In other words, approximately one-fifth of the firm’s man-hours are spent resending, fixing, refaxing, correcting, answering questions or addressing problems that occur because of errors in data entry or document preparation. Pretty expensive inefficiency.
The market leader of the near future will address the segmented and siloed nature of the mortgage transaction. Right now, too many vendors touch the transaction, adding time and cost.
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All too often, lender and partners use technology that isn’t entirely compatible. The result is delay, confusion, error and redundancy — none of which make sense to a consumer becoming increasingly impatient.
They know that other industries can facilitate purchases and loans much more efficiently. Why can’t we?
Communication is another word we like to toss around. But, on the whole, we don’t do it well. How many phone calls, faxes, couriered documents and emails go back and forth between Realtor, loan officer, closing agent and the like over the course of a home purchase? How many are redundant? How many are missed or misread? How many effectively move the transaction along?
The fact is that real-time data sharing remains, to a large degree, an aspiration rather than a reality in the mortgage process. The successful firm of tomorrow will change that using technology; better process and a collaborative approach with its partners, clients and vendors.
The cost to originate a mortgage, likely fueled by heightened compliance requirements and risk, is not going down anytime soon.
The market lender of the future
Although we will become familiar and more efficient with the requirements of qualified mortgages and TRID (mortgage disclosures rule), other rules will come along after them. Compliance will be a necessary expenditure, as well as more robust quality control and quality assurance processes.
The successful business of the next generation will accept these costs, and attempt to minimize its costs elsewhere. This could be in staffing, where employees will need to be versatile, motivated and knowledgeable.
Or maybe it’s in the process, where technology and improved processes eliminate some of the many inefficiencies that exist currently in the process.
Perhaps it’s going to be in an increased use of a partnership approach with vendors, rather than simply throwing important tasks over the fence in the hopes that vendors will perform efficiently and with minimal risk.
Finally, the market leader of tomorrow is forward-looking. It uses metrics, rather than paying them lip service. It knows what its clients, be they borrowers or mortgage lenders, want and how to deliver their products or services as efficiently and inexpensively as possible.
This leader has the capability to not only understand existing regulatory or legal requirements, but to anticipate the next wave of change. In this business model, change is the norm. The successful business accepts and embraces this and exploits each change as a race to competitive advantage.
The real estate and mortgage industry serves a unique demand. Unlike most other markets or industries, the “product” being sold is something to which many almost feel entitled.
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It’s unlikely that Americans will turn their backs on the American dream anytime soon or that the home will become obsolete. Because of that unique characteristic, however, the government will continue to be closely involved.
The impact of the meltdown in 2007–2008 ensured this would be the new reality. Those unable to accept that both market demand and regulatory requirement will remain in a state of rapid change for years to come and might find themselves on the outside looking in.
Patrick Stone is the president and CEO for Williston Financial Group.
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