Before diving into the state of the mortgage business today and current
developments that will impact originators directly, let’s step back and take
in a few facts and trends.
n Fact: Nonbanks now originate more than 50 percent of the mortgages in
the United States.
n Fact: Large retail mortgage banks are consolidating at a rapid clip, developing massive economies of scale.
n Trend: Large private-equity companies have entered the mortgage business. Blackstone bought Stearns Lending and also sponsors Finance of
America as a roll-up vehicle, for example, and PIMCO bought First Guaranty Mortgage Corp.
n Trend: Online tools to prequalify and prepopulate loan applications are
being developed and rolled out.
n Trend: Big data is slowly entering the mortgage business in the form
of machine learning — to improve market segmentation/targeting and
credit decisionmaking. It also is playing a key role in the advance of artificial intelligence — to further develop decisionmaking algorithms that are
beyond the scope of individuals to identify.
There are more, but these are enough to start to see a pattern, viewed
from 10,000 feet, of where the industry is headed.
It is a cliché nowadays to reference what computer giant Apple did to the
music industry, what e-commerce innovator Amazon did to the book-selling industry, how the internet vaporized the travel industry, or how the
computer’s encroachment altered the selling of insurance. But — and this
is a serious but — mortgage brokers cannot ignore these trends, even if
they are deemed cliché.
Being on the front lines of the industry, mortgage originators take most of
the risk and are the first to suffer when markets take a downward turn. Originators compete on service, consumer advocacy and ethics, the same triad
of benefits that independent insurance and travel agents touted as competitive advantages. As with those industries, these advantages are at risk of being usurped by automation and big money entering the mortgage business.
From the trends happening within the mortgage industry, here is a likely scenario for what will happen: First, large, independent retail-mortgage
banks will get larger over time. Think of Quicken, Freedom Mortgage, Stearns
Lending, Guaranteed Rate and others.
These mortgage banks will require very deep pockets to achieve larger market share and integrated services to maintain national presences —
particularly if rates start to climb to natural historical levels. The capital for
this will come from private equity, such as Blackstone and PIMCO.
These private-equity companies are not going to be in the mortgage
business simply for the sake of mortgages, however. They see how the large
banks have been penalized since the 2008 downturn and have zero appetite to take on the same kind of regulatory and contingency risk.
Large retail-mortgage banks, therefore, will become asset and fee
accumulators for their private-equity overlords. The mortgage will be the
Trojan Horse used to get people in the door to cross-sell them more profitable non-mortgage products.
Don’t confuse this type of cross-selling with the practices used by Wells
Fargo, which got them into trouble last year. The future of cross selling additional products will be based on sophisticated analyses of individuals’
financial data, age, demographics, outstanding debt, etc.
Take the company loanDepot, for example. They call themselves
loanDepot and not mortgageDepot for a reason. They now offer unsecured consumer loans and closed-end seconds. It is not a stretch for a large
company to add one or more financial services from a menu of products,
including credit cards, student loans, auto loans and small-business loans.
Loren Picard is a consultant to the financial technology (Fintech) and
mortgage industries. Reach him at firstname.lastname@example.org
as well as via LinkedIn.
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56 Scotsman Guide Residential Edition | ScotsmanGuide.com | January 2017
“Being on the front lines of
the industry, mortgage
originators take most of
the risk and are the
first to suffer when
markets take a