Photo credit: GotCredit
Efficiency, transparency and lower costs seen as by-products of coming changes
Seven years after the housing crisis, the costs of originating and servicing a mortgage is at all-time highs while customer satisfaction rates are falling. The Collingwood Group, a Washington, D.C.-based business advisory company, recently released “The Mortgage Industry is Ripe for Disruption”, a white paper.
The origination process has not fundamentally changed in decades, making the industry ripe for disruption in the face of increasing costs, decreasing profits, lost efficiency, and increasing regulatory hurdles coming together to make the business model too challenging. These emerging disrupters are innovators that are creating new ways and platforms to serve the industry. We’re at this stage in the mortgage finance industry.
“Disruption is inevitable in any industry, but is most predictable in an industry faced with a set of conditions that render the existing model too challenging, too inefficient, too costly, too unresponsive to the needs of consumers and businesses alike,” as stated in the white paper. “The best innovators recognize and capitalize on the opportunity presented by an increasingly ineffective approach and develop new capabilities to meet the needs of the marketplace. Mortgage finance has reached this stage.”
According to the white paper, disrupters are self-described as technology companies that provide business solutions and address pain points aimed at the consumer’s point of view rather than being a traditional lender that views technology as a business requirement. Crowd funders and marketplace lenders are two examples of emerging innovators that are building new platforms to address demand for mortgage loans and other consumer debt types in the mortgage industry.
“They are making their mark developing and utilizing new technologies to improve the consumer experience, enhance efficiency, expand risk management techniques, and provide a solid return on investment,” the white paper stated.
While marketplace and crowdfunding lending leverage private capital to make loans, crowdfunding companies serve as platforms to raise capital for a certain purpose. Marketplace lenders are the transaction intermediaries between investors and borrowers.
“Both types of companies are engaged in activities that represent the very essence of ‘disruption,’ engaging the average citizen in the development and expansion of products and services – fulfilling the new demand coming from an ever-needy population of consumers and/or permitting the general public to support the company’s offerings, by raising capital from individuals in addition to financial institutions or investors,” as stated in the white paper.
The big difference between traditional lenders and disrupters such as marketplace or crowdfunding lenders is that the disrupters view lending as an event which has been improved by their services and technology, with improved documentation, communications, usability, decision-making capabilities, making the mortgage loan’s approval an efficient, low-cost, transparent and completely online process. Traditional lenders have always seen mortgage lending as a complex and difficult process for all parties involved.
“All of these innovators strive to automate verification and validation functions to reduce costs, subjectivity, and to expedite credit decision-making, and closing,” the report stated.
The Collingwood Group’s contention is that while the mortgage industry’s goal of providing suitable, sustainable and well-priced mortgages to consumers haven’t changed, the means to achieving this goal and the subsequent platforms and services are changing.
“The key to harnessing disruption lies in the willingness of incumbents and new entrants to bolster their transformative capabilities to eliminate inefficiencies, reduce costs, and improve customer satisfaction,” the white paper stated.