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Looking Into the Future of Mortgage Banking By Rene F. Rodriguez




We hear all the time that the only two over the past few years. It has happened things in life we can count on are to other industries before us and it will “death and taxes.” Well, there is a third happen again in the future. One comthat is often forgotten and that is: mon factor of disruptive change, regardChange. Any time I am asked to reflect less of the affected industry, is a dust on the future of anything, my first storm of data that makes it virtually thought is, “Oh, how convenient it impossible to make sense of the change would be to have a crystal ball.” Since while it’s happening. A quick glance at none of us have one, we are forced to the headlines over the past few years rely on other methods to analyze and will illustrate this. Until very recently (and some would prepare for what we think might come. Unfortunately, for too many in our argue that we’re not even there yet), it industry, a question about the future of wasn’t clear how damaging the downturn would be, how many the mortgage banking banks would be forced industry has no meaning out of business, how to them. Many have many jobs would be lost already moved on, forced or how long would it take out of the business by a to recover. When one downturn so severe that expert would go on only those interested in record with an opinion, staving off public panic three others would step refer to it as anything up to refute it. Who are other than a depression. we to believe? But, for those of us still Everyone, including here who are still comthe federal government, mitted to earning a living “Heeding the advice seems bent on determinand providing a service to mortgage borrowers, of Albert Einstein, it is ing who is to blame and there can be a no more clear that we certainly what caused the meltdown. Personally, I don’t important question. cannot keep doing care about any of that What will the future things the way we because I believe it will hold for our industry? have done them in take years to work What skill set will be the past if we hope through all of that only to required to succeed here to succeed.” find answers that surprise and how can those intent no one. I choose to leave on achieving that success navigate the legislative minefield that that to the historians to figure out. I’m has resulted from the financial crash? more interested in the impact of the These are questions that I have person- crash and what it will take to move forally spent a lot of time thinking about. ward through this time of disruptive I’m not one of the chief executive offi- change into the future. cers who have “survived” this downturn. No, I chose to enter the fray after A clear path to the future the downturn had already begun and I Heeding the advice of Albert Einstein, it did it with the sure knowledge that this is clear that we certainly cannot keep industry does have a future and I could doing things the way we have done them in the past if we hope to succeed. lead a firm to success in that future. It is critical that we learn from the past, but the pathway to the future will not Making sense of violent be discovered if we keep looking into change Our industry is not the first to experience the rearview mirror. We’ll miss the wide the kind of change we’ve lived through open road ahead of us that is full of

opportunities. We’ve seen it happen already to so many firms in our space. Seeing a clear path to the future requires us to look at things in a different way. As we conduct our planning sessions, we look at the industry through the lens of the three major forces that are affecting our industry right now: Compliance (or quality), marketing and technology. Focusing our view through these lenses helps us better understand not only where we are today, but also where we need to be in order to stay competitive and add value.

The compliance (or quality) lens Most companies in any industry can succeed based on the power of their marketing departments. They have something to sell, and if they can sell it, they can stay in business. If not, they’re out of the game. That’s how it normally works. However, for firms operating in the U.S. financial services sector, it doesn’t work that way. Banks don’t need to spend all of their resources on sales in order to remain in business because they have something that most people want—Money. In banking today, success isn’t guaranteed to firms that can sell enough to stay in business. Rather, it all depends upon the way they do business. Toyota is a great example. After World War II, Japan was devastated and was forced to completely change the way it did business if they had ever hoped to compete in the global manufacturing market. W. Edward Deming, the father of the “Quality Sciences,” brought these game-changing methodologies to Japan after his unsuccessful attempts at convincing American manufacturing companies that they needed to adopt a quality approach. Toyota’s decision to adopt led them to become the powerhouse that they are today. That is not to say that Toyota is perfect given their recent issues, but the lesson here is in how they responded to that adversity, and more importantly, they had a business culture that could quickly adapt once again. We’ve seen the commercials and ads showing that they are spending “$1 million per hour” on improving their business.

Some have described the last few years as somewhat of a complete devastation to how we do business. As a case in point, take the recently announced lawsuit against one of the nation’s top five banks. The plaintiff alleges that because the bank didn’t take every possible action that might result in the borrower keeping his home, the institution violated Home Affordable Modification Program (HAMP) guidelines and is subject to forfeiture. It’s not clear yet whether this case will actually go to court, but the ramifications are potentially serious. This is but one example of a financial institution caught between those it serves and the brick wall of legislation and regulation that threatens to choke the life out of them. I would venture to guess that it will get worse before it gets better. To succeed in the future, companies need to see compliance as a “quality” problem. They must look beyond just compliance and re-assess the overall quality of their processes. What is it about their processes that would allow for poor quality? How can they leverage technology to improve and manage their processes to ensure quality and compliant work? Let me give you one more example. As a result of the new changes in compensation, many companies have increased the costs to the consumer to make up for the shrinking margins. This might work for the short term, but the competitive landscape will begin to squeeze that as well. I just heard someone recently talking about how they lost a client to someone who was willing to do a loan for $250. It is unavoidable that that kind of pressure will force companies to look inward to find inefficiencies that they can fix to maximize their profitability, which is just another way to say what I said above: They will be forced to assess the way they do business. Any successful firm in the future needs to have quality and compliance built into its DNA or they will simply cease to exist.

The marketing lens While everyone may want money, banks don’t exist to serve everyone. Knowing what markets an institution should be serving, at what price and