MReport November 2020

TheMReport — News and strategies for the evolving mortgage marketplace.

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18 | M R EP O RT FEATURE I n some ways, the financial services industry has lived in somewhat of a technological bubble. A fast-moving tech- nology goal line has kept lenders on their toes at the same time compliance concerns have tied their hands. These and other fac- tors have combined to keep our industry behind many others, but that is starting to change. As more fintech firms from outside of the traditional financial services bubble make their way through the membrane, banks and credit unions are seeing their customer and member bases threatened. The technology is, in some cases, better, but what's really threatening the status quo is the new ability for these firms to use technology to form stronger relationships with consumers. The older technologies many traditional lenders are still using for mortgage loan origination, for instance, are not giving them the power they need to protect those critically important relationships. It's Time for a Change A nd mortgage lenders work- ing in all types of institutions are ready for a change. In our discussions with executives across the industry, we have heard them voice concerns with rising costs. They know that a refi boom, like the one we're experiencing now, can hide cost structure problems, but when rates rise—as they eventually will—lower volumes will again bring those problems to light. Lenders know they must find a more efficient way to manufac- ture their loans if they ever hope to increase their profits. It's easy to imagine how more flexible technologies will give lenders the ability to better adapt to a chang- ing market and the ever-increasing costs it seems to bring with it. Lenders are ready for that innova- tion now. Let's take a close look at the state of innovation in the mortgage lending business, the impact this is having on lenders, and the technology that is even now poised to deliver what these institutions really need. The Perceived Risks of Innovation H ighly regulated industries find change more painful than businesses operating markets with less oversight. The concept of failing forward fast takes on a sinister aspect in industries that pay a high price for failure, espe- cially when it comes to regulatory compliance. In light of that, it makes perfect sense that technology firms serving the U.S. home finance in- dustry would move slowly when asked to make changes to systems that are compliant in their exist- ing state. But non-compliance fear isn't the only impediment to innovation in this industry. The cost of building new mortgage technologies is extraor- dinarily high. While programmers and project managers are highly valued everywhere, the additional costs involved with rigorous test- ing and QA/QC put a premium on technology development in the mortgage space. Hiring qualified developers and a project manager to oversee the work is expensive and time-consuming. Add to that the fact that writing code for the mortgage industry requires a base level of subject-matter expertise in the space that can be hard to find. Without experienced guides to lead the development effort, the results won't meet the specialized needs of the market. While new software development efforts take this into account by using an iterative approach, the longer the initiative takes to code, test and implement, the more it costs. Finally, innovation in our in- dustry has been hampered by the success of legacy systems. It may seem counterintuitive to point at past success as a hurdle to future innovation, but it can be very difficult to build new technol- ogy on top of older architectures, especially given the changes we've seen in software architecture over the past decade. It's like trying to build a four- story home on a foundation that was designed for a single-story home. It simply won't hold up over time. Another analogy might be moving a bridge while a great many people are using it; migrat- ing users off legacy systems can be very difficult, time-consuming, and expensive. With that said, starting to code a new platform from scratch is a larger task than many are will- ing to take on, for many good reasons. However, change is re- quired, now more than ever. The old adage of "don't fix what isn't broken" doesn't hold up when new entrants are threatening your market share with new, superior technologies. All of this explains why most mortgage lenders are originating loans today on technology that is fundamentally the same, and in many cases exactly the same, as it was a decade ago. For the most The Time for the Next Mortgage Innovation is Now After more than a decade of stagnation, lenders are ready for what's next. By Andrew Weiss

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