Even-bigger banks, connectivity and smart sourcing will be among the issues taking center stage in 2004 as our industry experiences some of its most dramatic shifts. Here are the key trends we expect lenders to be dealing with in 2004:
Bank Mega-Mergers
Bank mega-mergers will continue to shape the landscape. We foresee a continuation of the mega-mergers we've experienced over the last few years. These have, essentially, upped the ante on size and geographic reach.
Bank of America acquired its first strong foothold in the Northeast when it acquired FleetBoston Financial Corp. These kinds of mega-mergers set the standards for the bottom line, sending the message to those in the industry that you have to be huge to compete. Next year's mergers will be driven by geography as well.
There are still mega-banks with geographic "holes" that they believe need to be filled. Some are just strictly West Coast or Middle America and they feel the need to "Keep up with the Joneses" to cover the whole country.
The other driver for these kinds of mergers is shareholder return. Over the past few years, success was fueled by the extensive mortgage activity. But, we can't expect that kind of volume next year, so the banks will need a substitute strategy for growth that excites the capital markets.
HUD/RESPA Reform
HUD/RESPA reform continues as a hot issue. Although this persists as a critical issue, we do not expect the proposed new RESPA statutes to be adopted, sending regulators back to the drawing board yet again.
There's been a lot of heated discussion by industry sources about the merits of the current package, but the problem continues to be that there are a variety of different interests that simply can't agree. Expect to see federal regulators start from scratch next year.
And, although my crystal ball gets cloudy when it comes to what will be in the package, one thing that's clear is that it will fundamentally change the settlement services industry no matter what else HUD decides.
Bundled Services
Bundled services are here to stay. RESPA reform has planted the seed for bundled services. This year, most of our industry colleagues will position themselves for that change, no matter where they've stood on the issue in the past. Some will acquire companies to provide end-to-end services in a bundled formation through a single provider.
Others will partner with multiple product providers. Expect acquisitions of vendors to accelerate next year because the window will begin to close and only the strong will survive.
Mortgage Lending
Mortgage activity will be down. In 2004, we expect the breakneck speed of mortgage lending in general to slow down. Rates will go up and, therefore, we expect first mortgages and refinancing volume to be off from what where we've seen in the last couple of years.
Home equity lending will continue to be strong. Next year will bring a renewed focus by mortgage lenders on home equity lending. Mortgage lenders will move towards equity products because of the rate environment and their need to continually grow their businesses. Watch for some really active marketing in this area, even from institutions that never put much emphasis on it in the past. And don't be surprised if the secondary market GSEs take a deeper look at securitization of these assets to continue their market dominance.
Getting Connected
Connectivity will become a key issue in strategic planning for lenders and vendors. Whether it's XML, EDI or EPNs, the alphabet soup of connectivity will shape 2004.
Lenders will strive to transfer data between their systems and those of their vendors and vendor-to-vendor connectivity will become key. Watch for increased activity in this area as people look for the end-to-end solutions and bundled services they will need to connect quickly and provide multiple solutions.
Middleware portals, rather than developing connections to multiple vendors will be "hot" as one solution for eliminating one-off connections between vendors and lenders. Although this has been a key issue for our company for the past five years, 2004 will be the first time that having the technical talent in-house will be acknowledged as a competitive advantage for larger vendors.
We expect next year to be the time when those who can offer immediate connectivity support with all the bundled services will have a significant competitive advantage because they'll be able to price lower, set the standards for others who are behind the curve and drive clients toward being the most competitively priced option for the borrower.
Internet Lending
Internet lending will finally come into its own. Internet lending has become a proven channel for originations over the last couple of years, but next year will be the first one for the true end-to-end e-mortgage.
For the past few years, references to some sort of Internet-supported lending have sneaked into every one of our predictions. We believe that 2004 will be the year when true functionality for the consumer will come into being. This is because lenders will be focused on opening all origination channels as a means of capturing dwindling volumes.
Borrowers will be able to check the status of their loans, participate in electronic closings and vendors will be able to submit electronic documents to some registries. In 2004, the Internet will become more than just a place to submit an application.
It will be the place where hundreds of thousands of borrowers will apply, and eventually sign documents to close the loan, all in the virtual reality of the web.
Smart Sourcing
"Smart Sourcing" will be adopted as a management practice. With originations off, lenders can't make up slim profits with volume.
This year, they'll have to look for better, innovative ways of doing business. They'll need to maximize profit by either cutting staff, broadening product sets or outsourcing to create variable costs. Smart Sourcing is how you do each of these things. Smart sourcing starts with defining core competencies and pinpointing how they shape your competitive advantages.
This year it will mean rethinking business processes and workflows, deciding what falls outside of core competencies and deciding how to fill the gap with outsource solutions or new products. Do you hire more people? Ship the work to India? Use new technologies?
An example of that is how rapidly we've found acceptance of our QuickClose lien insurance product, which lowers costs by changing a traditional process in title management solutions. We didn't move jobs offshore, rather we found a way to use emerging technologies, and new workflows to supplement our key competencies, eventually lowering costs, while accelerating loan approval times for lenders.
Some Final Advice
If I had to pick one piece of advice on succeeding in business in 2004 it would be "embrace change." Everyone in our industry will have to manage to lower origination volumes, new bundled solutions, emerging e-mortgages, migration to more home equity lending and a whole new set of mega-lenders and corporate vendor configurations.
Andy Warhol said it best: "They always say time changes things, but you actually have to change them yourself." I agree, emphasizing that we had better get out in front and lead the parade if we want to prosper.
Lee Howlett is president of Integrate Loan Services (ILS). ILS, Rocky Hill, Conn., a provider of lending solutions to banks, credit unions and mortgage lenders. The company is part of Fiserv's Lending Systems and Services Group. For info: www.ils.com. or (800) 842-8423.
To share your views with readers of The Credit Union Journal, contact Editor Frank J. Diekmann at fdiekmann
