The Race for Market Share: Traditional Lenders vs. Digital
By Mike Sorohan
April 11, 2017
If you're a mortgage loan originator, Vishal Garg, founder and CEO of Better Mortgage, New York, has some bad news.
"The loan officer position, in its present form, will no longer exist in the future," Garg said at the recent MBA National Technology in Mortgage Banking Conference & Expo. "It might take 10 years, but it will happen."
Joshua Tatum, director of mortgage business development with Sofi, San Francisco, agreed. "We think even the realtor will be phased away," he said. "We think the retail loan officer could be phased out in the next three to five years."
But replaced with what? Garg suggested that many lenders will move to a fee-for-service model; Tatum said continued digitization will make loan officers and realtors unnecessary middlemen. "We try to engage customers early on and retain them through lower costs and transparency," Tatum said. "That's what buyers really want--a transparent transaction."
These are the kinds of discussions taking place in the mortgage technology field. If, as Steve Case, chairman and CEO of Revolution LLC, Washington, D.C., said here, "Every company is a technology company now," then the rapid change in mortgage technology seen in just the past 18 months could accelerate even more in the next few years.
And if rapid technology advancement is reshaping every lender as a fintech company, can established players reinvent their consumer experience before digital native startups erode their market share? And can start-ups master large-scale marketing, compliance, credit discipline and investor relationships before established players catch up with them on technology?
"Technology is influencing business models," said Julian Hebron, executive vice president of sales and marketing with RPM Mortgage Inc., Alamo, Calif. "The Sofis and Better Mortgages of the world are turning the mortgage technology field upside down."
Nikolaos Athanasiouo, COO of Guaranteed Rate, Chicago, warned that many retail banks face obsolescence. "You've seen the trends over the past 18 months," he said. "We have to evolve with them. Our task as leaders is to meet the customers' needs. There are so many components, but at its basic level is meeting their needs. To do that, we have to adapt."
Dominick Marchetti, chief technology officer with loanDepot.com LLC, Irvine, Calif., said while lenders have been responsive to market pressure, it's a different game with technology pressure. "We know that most loan applications start on a smartphone today, so we have to be responsive to their needs," he said. "Being able to enable our originators to drive relationships is critical to our overall strategy."
Garg noted in the travel business, for example, there is no clear market dominator. So it will be with the future with the lending community, he said.
"There is no more retail channel," Garg said. "Fundamentally, the commissioned loan officer is going away. The replacement will be some sort of fee-for-service model, which will open up a very large market for any digital entity that wants to fill that niche."
Garg said such disruption is necessary, as the mortgage industry shakes off a model that has more or less held up for the previous 80 years. For example, he noted, both Best Buy and Amazon listed initial public offerings 15 years ago. "Initially, Best Buy performed better," he said. "Now we know Amazon is doing many times better. Disruption takes time. As you see the consumer drive the process going forward, it's going to be increasingly difficult to serve three masters--realtors, consumers and capital. And that's why we only serve the consumer. We're going to serve the consumer better than anyone else."
Athanasiou disagreed. "All three are important," he said. "The mortgage process is not like ordering plane tickets...you see Amazon now opening storefronts. That's because they know there are some products you simply cannot buy online. They want to experience it, see the tangibles. And that is our challenge as lenders. There's the component about bringing efficiency to the process. Until we achieve that, we can't write the epitaph for the loan officer yet."
"The mortgage process is a complex transaction," Marchetti said. "Millennials start the loan process online but at some point they want to speak to someone. Conversely, the Baby Boomers, who have been through this process before, want to finish the process online. We need to achieve a balance."
Is scale important? "It's more important, the larger you are," Marchetti said. "Everyone in the pie has to be on the same boat--whoever is not makes things difficult."
"At 30-40 times the size, the value component becomes more compelling," Garg said. "Can that be done by machine? Yes. Will it be done? Initially, no."
Athanasiou said "tremendous" room exists for digital providers to grow. "The runway is very long," he said. "But there are a lot of pieces that have to evolve to make it happen."