Few industries have changed as little as mortgage lending has over the past few decades.

Even with the advent and growth of the secondary market and the record number of loan closings during the past two years, not much has changed. Today, the basic tasks associated with mortgage lending remain the same; loans are originated, processed, underwritten, funded, and serviced.

So what changes in the mortgage business can we expect as we approach the year 2000? Among the most significant trends:

* Few of today's participants will be around in five to 10 years.

* Many of today's business processes will become obsolete.

* Companies not now involved in the industry will be joining as significant participants.

* The viability of mortgage lending as a stand-alone industry will be seriously tested.

After two years of a robust refinance market in mortgage lending, we are seeing that alltoo-familiar pattern of boom and bust. Even the largest and most profitable lenders of the past few years are now in a reactive mode. If the cyclical nature Of the business is so well known, why do mortgage providers consistently struggle every time interest rates increase after some prolonged period of decrease or stability?

The basic reason is a lack of a long-term strategic vision. As a consequence, little investment has been made in approaches used by other industries to ensure continued viability. Mortgage providers typically have not been particularly adept at:

* Developing a good understanding of the needs and expectations of their two primary customers: borrowers and the ultimate mortgage owners (pension funds, mutual funds, etc.);

* Implementing changes in culture critical to successfully adopting and integrating reengineered and redesigned processes critical to creating competitive advantage.

* Transforming key business processes to support strategically defined objectives enabled by technology.

The result has been only small improvements and few major innovations over the years.

Today's mortgage industry includes multiple parties or entities involved in inefficient and oftentimes duplicative processes. The result is very expensive, with many middlemen adding little value to the two primary customers.

In the current structure, there are five parties with fairly welldefined roles: investors, packagers, aggregators, suppliers/facilitators, and borrowers.

Product needs are defined primarily by investors (pension funds, insurance companies, mutual funds, and others), with some minimal input from borrowers. Wall Street serves as the translator of the investor needs and packages mortgages and mortgage derivatives to meet those needs.

The aggregators gather large numbers of mortgage loans for ultimate sale, primarily to Wall Street. These companies are typically involved in collecting and securitizing loans; buying and selling loans in bulk transactions; and acquiring or keeping the servicing rights of the loans that are purchased, securitized or sold.

Today's aggregators are typically large, well-capitalized organizations that have achieved special advantages through access to capital, economies of scale, or implicit government guarantees.

Obviously, this includes the Federal National Mortgage Association, the Federal Home Loan Mortgage Corp., and companies like GE Capital, Prudential Mortgage, and GMAC.

These aggregators have also added a degree of standardization of the business, particularly related to underwriting considerations and product specifications.

The next tier includes the suppliers and the facilitators thrifts, banks, mortgage bankers, brokers, appraisers, escrow companies, etc.

The last tier is customers. In many ways, this is a reality as opposed to being symbolic. Despite all of the laws designed to protect the borrower, only in recent years has the borrower received much attention. This has largely been the result of two factors:

* The needs of investors have dictated many of the product characteristics and choices available and in effect have driven the mortgage business.

* Mortgage providers have generally not made an effort to understand borrowers' needs.

In many cases, the result was a one-size-fits-all approach, not only to products, but to all facets of the business. The focus on the customer will be critical to the future of the industry.

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