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that superior customer service is more difficult to define and market than the more straightforward terms of product availability. The definitions of excellent customer service and the ideal sales experience can differ greatly from consumer to consumer, making a company’s niche harder to pin down. Likewise, if the QM framework has the expected effect of limiting eligible borrowers for those institutions not originating non-QM loans, true niches are likely to become secondary to the overall goal of finding qualified borrowers. The production volumes in 2013 appear to be below 2012 levels, so most lenders do not have the luxury of limiting themselves to exploiting a market niche. One consequence of the ATR Rule is that the first few months of 2014 will be defined by plurality. In the early stages of QM, we are all created equal. The regulatory environment is somewhat limiting to the individuality that, to some degree, built the industry. In particular, nonbank mortgage companies who depend on distinction and personality are jockeying for position in the new QM market. Competition is good for the market. It is good for consumers, because lenders competing for business create consumer advantages. It is good for 26 | Banking Solutions 2014

lenders, because it keeps us sharp. Furthermore, any rules or trends that limit competition generally draw criticism from the mid-sized and small lenders, who rely on such competition to fuel their business. Because competition is a necessity, the industry must find ways to continue to foster it, despite the challenging new regulatory climate. It is clear that existing niches have been largely pushed out because of new regulatory constraints. One would expect, then, that as existing niches have been pushed out, new niches would not find their way into the market. Yet, if “necessity is the mother of invention” is a truism, we should see niches reappear or develop in the market over the next year, simply because niches are the only way for mortgage companies to distinguish themselves and drive business. The shift between the markets before and after the new regulations is not that niches will cease to exist, but that they will evolve to take new shapes that allow them to foster business and drive competition – and also to respect the new regulatory climate without imposing undue risk on lenders. For the last six months, we have heard that in the first six months following the rules’ enactment, lending will be

defined by uncertainty. Nowhere is that more true than in relation to the concept of niches, whose effective elimination in their previous form will require institutions to reinvent significant aspects of their business. Though we do not claim to have the answer, we would expect the industry to start carving out distinctions, and also challenge institutions to be creative when searching for those news niches. Since competition has not been totally regulated outside the market, there is room for mortgage companies to begin to redefine their forte in the market. n Patti White is vice president of correspondent lending at Norcom Mortgage & Insurance, a Connecticut-based provider of residential and commercial mortgages and insurance policies. She may be reached at patti@norcom-usa.com or 860-899-3793. www.norcom.usa.com

Banking Solutions 2014  
Banking Solutions 2014