Last week, I had a dozen phone conversations with lenders who are concerned about the future of mortgage banking. Some managers believe looser financial regulations are coming back. Others contend that we are in a more transformative period. Whatever comes to pass, one thing is clear: the mortgage banking landscape of the future will not resemble what we are familiar with today. To successfully navigate the new challenges ahead, companies will need to make some hard decisions.
Senior executives haven’t had to think about the really tough decisions in a long time since refinance lending has been the dominant business driver. As a result, companies and their leaders seem to be taken aback or shocked that their old world is changing so quickly. In the face of dramatic change, how should companies prioritize? Where should they focus their efforts? Based on what I’ve seen in my sales consulting practice of more than 20 years, these are the trends that will dominate mortgage origination in the next 18 months:
First, just as Walmart is struggling to compete with Amazon Prime and its online business model, companies must meet customer demand for faster delivery of goods. In our industry, 45- to 60-day loan closings are way too long. While many lenders are finally recognizing the issue, are they making changes fast enough in their process or investing in what is needed to differentiate themselves in the marketplace?
The “faster, better” mantra is not a new idea. Case in point, the cell phone industry refined mobile technology in a mere five to 10 years because customers wanted “better” and companies invested to make it happen. Many mortgage companies are on the fence when it comes to sticking with an unstructured process or improving it. Certainly adopting Day One technology would help address delays and incompetence but what about sales teams who have not incorporated digital selling techniques?
Improving the sales process will be mandatory if mortgage lenders want to succeed in the years ahead. Customers are demanding speed and many current originators will not be a match to deliver it. Slowness will be a company killer.
Second, lead generation is also undergoing rapid change. The lender that gets to the consumer first wins. Simple as that. Recently, Quicken purchased Lower My Bills, a lead generation company that many mortgage companies purchase leads from. Why would Quicken acquire a lead generation company when they probably have the number one brand in mortgage lending? In my view, they recognize that getting to the customer before anyone else is critical. As most lenders know, if they have purchased a lead from a lead generation company, you must contact the consumer in seconds and not minutes if you want the business. I think you will be seeing more and more of these types of transactions in mortgage lending because the smart companies recognize that even real estate agents are being locked out by the Zillows of the world. Getting referrals from real estate agents will be increasingly difficult.
Predictive technology is fueling early consumer outreach efforts. Consider that Zillow and Redfin are selling leads to real estate agents and then holding them in line by having their customers rate the agents. Before long, many realtors will be affiliated with firms like this and only niche players will be independent. Originators will be hard-pressed to get customers from agents if Zillow has already partnered with a lender. On the other hand, Redfin has started a mortgage company. The old days of an originator just stopping by a realtor shop is not going to work. Those days are over and producers will need to rethink referral sourcing.
Finally, companies must address the future structure of the sales organization and the role originators will play. I think that it is pretty clear that great originators will have a prominent role in this new world because they will adopt new technologies and will join lenders who are using the latest operational tools to close their loans. The average originators will not survive.
Likewise, distributed remote locations need to be looked at closely. It is hard to see how this strategy can be successful when a company’s brand depends on consistent message execution. As mentioned, the very best originators of course will continue to be in demand but I envision smaller sales teams with better quality producers. Frankly, it is difficult to manage personnel and develop their sales skills at remote locations.
In my opinion, there will always be room for niche lenders and their originators because some customers don’t value speed. However, niche markets are a difficult arena to make money in when you are dependent on a smaller customer base that requires a higher infrastructure cost to handle it. Regardless, the reality is that mainstream customers want speed and quality. It is up to lenders to make the investments needed to transform their business model so originators can deliver the goods. The change train has left the station.