In the Midwest, we have a saying about the weather, "If you don't like it, just wait - it will change any minute." Today, mortgage bankers are enjoying the industry's fair climate, but change is also imminent. As we approach a new century, what are the market conditions for which the mortgage banker must prepare?
In 1998, we experienced record origination volumes fueled by refinancing demands and strong housing markets in most regions. It is estimated that the industry originated $1.4 trillion in mortgages and reached record employment numbers.
But in the first quarter of 1999, we are feeling the impact of reduced refinance volumes, forcing some large lenders to announce staff reductions. More competitive pressure is being felt not only from a waning boom but also from a morphing lending landscape.
The Internet is positioning to open the floodgates to new originators. Consumers now have immediate access to unlimited information and more efficient price comparisons. Borrowers are challenging originators to match Internet pricing and are less likely to take product recommendations at face value.
Lead generation was the first notable benefit of Web sites realized by mortgage originators. Now, implementation of marketing strategies, such as branding, is emerging as a key competitive advantage in cyberspace. The Internet is helping the virtual mortgage banker learn more about consumer demographics and behavior, resulting in more tailored products and services.
As more on-line processing and outsourcing options become available, growth of the on-line mortgage banker will continue to reduce the need for complicated infrastructure and fully outfitted brick-and-mortar shops.
Also vying for mortgage revenue are insurance and financial service companies with large customer bases. Examples include H&R Block's recent entrance into the mortgage business and USAA's origination relationship with Cendant Mortgage. These companies typically have established brands, good marketing skills, and the ability to reach large consumer populations. The future surely holds further partnerships and alliances among these affinity players and mortgage bankers looking to diversify their operations.
New distribution channels are forcing originators to rethink their product lines and corporate architecture. No longer can the mortgage lender accommodate every borrower. And loan officers can no longer rely solely upon leads from real estate agents to be the lifeblood of their business. Increased consumer options and reduced origination volumes will keep pressures on pricing and require companies to improve customer service.
Mortgage lenders must meet consumer's demands for price, convenience, and professional services in order to prosper. Retail mortgage bankers need to develop better marketing skills and focus on the products they can efficiently deliver to the marketplace.
Originators should look beyond sales and seek ways to strengthen and retain customer ties. Now more than ever, the originator must be prepared to seize opportunities as they arise, such as a refi and further leads through the references of satisfied customers. The mortgage lender must look for ways to compete as a low-cost provider with high customer service.
This year's Mortech survey, published by Maryland-based SSP/RES Research, states the evolving mortgage industry requires expertise in dual disciplines: the business side of mortgage finance and applied information technology. Can mortgage bankers master both?
The size and scope of the mortgage operation will help answer this question. At Waterfield Mortgage, we have worked to integrate information technology and retail mortgage origination strategies. Waterfield, based in Fort Wayne, Ind., is the largest privately owned mortgage company in the country, originating nearly $5 billion in residential mortgages annually from 40 offices in 16 states and servicing more than $12 billion. The strategies that Waterfield has defined as important to competing in a changing mortgage industry are:
*Creating a more-targeted sales and marketing plan.
*Reengineering the corporate architecture to support new business models and processes.
*Applying the right technology to increase efficiency and support a new corporate architecture
All of these strategies are integrated and affect one another. The growing complexity of the mortgage business requires increasingly robust management tools. Waterfield identified the business processes necessary to support the goals of dramatically shortening the approval process for all loans originated, achieving high customer service and cutting the cost to process a loan. We then evaluated the available technology, and designed the new corporate architecture and processes to realize these results.
The most controversial decision we made was to centralize our processing operations from more than 40 individual centers to three regional centers that can each process loan documents from anywhere in the country. This removed our loan officers from daily involvement in processing operations. They are no longer responsible for tracking and pushing along the process. While this may be perceived as a loss of control, the loan officer knows exactly where each loan is in the approval process through integrated imaging, document management, and work flow technology.
This separation has given our loan officers more time to focus on building contacts, strengthening relationships and making sales. Waterfield has provided a data base management system to track past customer marketing and referrals, and each has sales support people available to assist in administrative duties and customer base marketing. We believe this will help create career tracks for our loan officers and management that can handle market fluctuations.
The centralization of Waterfield's operations centers also helped increase the company's efficiency, cutting the approval process from more than two weeks to a few days for all loan programs, including loans that are not approved by Fannie Mae's and Freddie Mac's automated underwriting systems. And the cost of processing an application has been reduced by nearly 35%.
We are now focusing on our retail sales plan. Our goals include: expanding the retail sales force into new markets; competing for most of the mainstream mortgage business, and facilitating relationship development with real estate professionals, past customers, and other groups. Mainstream business is defined as loans that can be sold into the secondary market. To achieve our sales goals, Waterfield has focused on customer service, sales training, and pricing strategy.
Waterfield uses several innovative tools, in addition to its integrated technology, to achieve high customer service levels. The company has initiated a customer service commitment agreement, which defines the steps in the loan process and explains the time frames for each process. This approach allows the customer to clearly understand the schedule of the loan process, and establishes service standards that loan officer and operations centers must meet.
We have also developed a national sales training department, dedicated to training and improving the professionalism of our sales force. Waterfield offers a two-week training program for all new loan officers, helping them become more productive and knowledgeable in a shorter amount of time.
Finally, loan officers aggressively compete on price. Waterfield has developed pricing models that allow the loan officer to consistently offer competitive pricing in a business where pricing continues to move toward commodity characteristics.
The mortgage industry is becoming increasingly sophisticated and the marketplace is undergoing continual change. To be successful, a company must have a solid business plan that incorporates focused sales, marketing, and operations plans as well as applied information technology.
Storm clouds may be on the horizon. It is imperative for today's mortgage originator to be ready for all weather conditions.
