Mortgage Vendor News & Views--July
By Scott Roller
July 8, 2019
Scott Roller founded 3W Partners LLC and is Co-Founder of Vendor Surf LLC (www.VendorSurf.com), each dedicated to revolutionizing sourcing of vendors in the mortgage and credit union ecosystems. The companies monitor and report on the service provider market to provide participants what they need to excel in today's market.
(Mortgage Vendor News & Views is a monthly feature in MBA Insights.)
In this ongoing article series, we report on mortgage and credit union vendor marketplace events and trends, and we then share our viewpoints. The theme for today's article is technology. It's an interesting juxtaposition. For decades, many have lamented about being 20-years behind other industries, yet arguably, the past 18-months (or so) have been a much different story.
We are in the midst of a Tech Blitz, a constant barrage of new technologies and applicability from long-familiar vendor names, as well as newer service providers in our space. Interestingly, many potential buyers are as uneasy as ever. Angst has shifted from having too few innovative tech options to now sifting through reams of demos, decks and due diligence tasks. Better off, yes--but angst remains.
Simply put, there is a sense of being overwhelmed and confused, causing a delay in action.
We have spent much of the past year trying to assess key technology options, implementations and the impacts of such deployments. Here are some conclusions:
Options are Great--Adoption is Not
There is something for everyone. Regardless of your size, budget or in-house expertise, the following technologies can be deployed a-la-carte or in coordination: Robotic Process Automation, Machine Learning, Artificial Intelligence and Blockchain. The least understood and deployed is Blockchain, yet it is often touted as the one with most potential to disrupt, especially across the title insurance domain.
A handful of industry participants are investing heavily in several of these technologies. Some have invested tens of millions in innovation labs, tech acquisitions and have hired a stream of brilliant minds out of Silicon Valley. Major venture capital is flowing here too, suggesting some long-term staying power.
The stark reality seems to be that many organizations are passively waiting for less confusion and more mainstream deployment successes. Adoption is slow. And, it's no wonder, when you glance at the selection of recent headlines below:
Intelligent Lending: The Rise of AI
AI Hype Creates "Wicked" Consumer Financial Protection Problems
How AI and RPA Can Help Lenders Process
RPA is Dead...Long Live the Integrated Automation Platform
In early June, we attended a Digital Mortgage Symposium in the Dallas metro area, held by industry icon Tata Consultancy Services. The private event was attended by some of the largest lenders, servicers and vendors, each at various stages of digitization. The dialog was rich and forthcoming, with a genuine intent to share best practices, use cases, advice and lessons learned--even among competitors in the room.
In his opening statements, Karthik Kumar, TCS Head of Mortgages, said TCS has been able to map and digitize the customer journey throughout the entire mortgage life cycle, from origination through servicing, and has created an ecosystem which they define as the "Future of Lending." We know TCS exceptionally well, and we can cite few vendors more proven and capable in technology and business process outsourcing in the financial services domain. They continually invest in innovation and emerging technologies like those mentioned in this article. TCS is a driver, not a follower. Kumar made it very clear that TCS is continuously engaging with like-minded lenders to redefine the future of lending.
Some key takeaways from the TCS symposium were:
--RPA is not dead, as we heard from a prominent vendor with several completed in-house deployments, and more in queue.
--Retail and health care industries are much further down the path and tech vendors are in position to help us benefit from such lessons already learned.
--We are just now barely consuming these technologies, in our infancy. Even today, we don't have a common definition of what it means to be "fully digital." And we celebrate when one lender announces a SINGLE loan originated completely digital. Further, in a very sobering moment at the symposium, the Chief Operating Officer from a Top-10 retail lender brought with her the entire printed file of documents from a completely digital loan. Shockingly, it was a compilation of about seven file folders that when stacked on the table was about 12 to 14 inches tall. Has me rethinking the "infancy" moniker, maybe we are still embryonic.
--Before you automate, you must obliterate. If you simply apply technology to existing processes and workflows, all you gain is getting to the same mediocre results faster. When planning your projects, consider the time-consuming process improvement work needed, and secure the executive buy-in up front.
--Most of the focus is currently at the point of sale, streamlining the loan application process. Only a few attendees had existing initiatives beyond this point of the life cycle, though by the event attendance, questions and dialog, that is likely to change soon. A top-notch event from TCS, as expected, certainly seemed to generate some clarity, confidence and motivation.
Our Take - Digitization of the Ecosystem
Most attention is on the numerous point-of-sale options out there, where we recently counted nearly 30 vendors. A wise place to start, however, it also seems to be a termination point of most digitization opportunity analysis. The POS focus is merely "table stakes" to first ensure you attract digital savvy borrowers, more of a do-or-die proposition. The real value in maximizing opportunity to reduce cost and increase quality lies beyond the loan application process.
Regardless of all else, four things will drive increased adoption rates:
1. 'Pain is the best provocateur.' We anticipate continued baby-steps toward tech during a falling interest rate environment. The tendency seems to be "get volume while the getting is good," and worry about all else later. (Hey, as entrepreneurs with limited budgets, we totally get it). When refi volumes dry up and margin pressure returns, more tech motivation will creep back in. Only a select few uber-committed and well-capitalized companies are likely to push toward meaningful digitization, regardless of rate environments.
2. Return on Investment has to be better defined. There has been very little published in the way of investment in tech and the related per-loan profitability gains. In fact, profitability remains as inconsistent as ever. However, we have continually heard about the upside to the borrower experience, which cannot be ignored. We suspect that ROI will also show significant improvements as more broad tech deployments span the enterprise. Small steps, small gains. Economies of scale are in play.
3. The return of more private investors in the secondary market. They have a reputation of being more open to aggressive deployment of technologies, especially those that will drive out cost and improve margins.
4. The pace and manner which Amazon, Zillow and other new lender entrants deploy technology will be a flashpoint for our industry. Other formidable names registered via the Nationwide Multistate Licensing System are Walmart and Apple. Waiting to watch what these leviathans do is ill-advised. Do you really want to try and play catch-up with some of the world's most recognized brands that have already mastered these technologies? You think Rocket Mortgage soared fast--warp speed ahead for these mortgage newbies. That being said, a few of these newbies that jump into our pool will not stay long. We predict a couple will exit within two years once they truly understand our regulatory gauntlet.
It is time to swiftly move past a ‘proof of concept' mode and begin designing your multi-phased digitization roadmap. We have our fair share of tech-leaders out there serving as ambassadors (e.g. Rocket Mortgage, loanDepot, others), helping to carve our path forward--like the trailblazers in the jungle with the machetes. We owe them immense gratitude and admiration, and we need to become fast followers.
Advice--Navigating the Noise
This is the dawn of the "best of tech times" for our ecosystem. Opportunity abounds nearly everywhere. Whether you are a lender, servicer, vendor or secondary markets participant, there is a sizable innovation menu for you to select from. Rid the angst and seize the opportunity--just act prudently and choose wisely. Stay away from the bright shiny lights (e.g. hype, headlines, far-out claims, etc.).
Here are some things to consider as you plot your digital journey.
Your Goals: Exactly what do you hope to accomplish--higher pull-thru, lower cost, more speed, improved quality or a better borrower experience? And, at what stage of the life cycle: Application, Processing, Underwriting, Closing, Post-Close, Loan Boarding, Secondary Markets, etc.? Let the "voice of the customer" serve as your compass and know their communication preferences, as most borrowers use multiple methods.
Political Capital: We all know there is a lot at stake on technology-based projects with big spend in play. Failure to deliver can potentially have negative job consequences. People support what they help create. So, build your project team and your project plan accordingly, to drive results and the navigation of political landmines. Those areas (or people) in the organization that cause you the most political concern, the deeper the stakeholder engagement to be sought. Snuggle up to the landmines and hold on tight--ensure you are in it together.
Vendor Due Diligence: Always do a Request for Proposal, and be extremely detailed in all aspects--your organization, strengths, weaknesses, problems needing solved, severity, what success looks like and anything critical the prospective vendor partners must know. The more you give, the more you will get from the RFP responses. There is no better place to mitigate your selection risk than a robust and revealing RFP, just ensure you have a solid non-disclosure agreement in place first. Also consider the ‘heavy lifting' your organization may be on the hook for. Not all vendor implementations are created equal. Lastly, before getting RFP replies from vendors, work with the project stakeholders to build a weighted average scorecard, a simple Excel spreadsheet, to objectively evaluate vendors.
Technology Selection: Really avoid the headlines and hype here, and just focus on your goals. If a simpler and ‘not so sexy' solution can deliver the goods, go for it! Fords work for some of us, while others prefer Ferrari. For most of the past year, we have heard that "RPA was dead" and AI and Blockchain are "all the rage." Yet at the TCS symposium, we learned of major success and new launches of RPA projects. Nix the noise. Don't allow yourself to get overwhelmed. Consider starting small, albeit at a large pain point, and build momentum. Keep the focus on your initial needs, and not what can be done to digitize the whole enterprise. There will be time for the broader discussion as your vendor relationships mature. The vendors likely have some vision you will ultimately want to consider over time.
ROI: Again, start small on some of the more immediate pain points. Get some early digital wins to help get you, the project team and the executives satisfied early. Build some momentum, get increasingly comfortable with your vendor partner and gradually pick up the pace. Set the expectation up front that meaningful ROI will only likely be achieved at a point of ‘critical mass' of new tech deployments.
I shall end with a quote from basketball legend, Ed Macauley, who once said, "A lot of us would like to move mountains, but few of us are willing to practice on small hills."
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)