Just a few years ago, only a few factors complicated the lives of mortgage bankers: volatile interest rates, origination volumes, profit margins, and local competition.

Now, we have new information technologies, emerging nontraditional delivery channels, changing dynamics in real estate brokerage, and escalating competition from unexpected quarters such as credit card companies and insurers.

Take a look at how people are beginning to buy homes today.

Thanks to the growing acceptance of home video presentations, banks are preparing to put this technology in their branches to let prospective homebuyers browse at their leisure.

The implications for real estate and mortgage brokerage are unsettling. This could effectively neutralize the mortgage originator's primary source of new business - realtor referrals. The whole supply chain collapses.

To survive, mortgage bankers will have to scramble to find new ways to secure access to prospective customers and to sell products. For most, this means increased investment in technology.

But restructuring the mortgage origination function requires more than dropping a few hundred thousand dollars into information systems. Mortgage bankers must answer several key questions:

*How will the changes in your marketplace affect your current business?

*Who are your competitors, and what are their key competencies?

*Are your customers, and why do they buy from you?

*What products do customers want? What value do you create for customers?

*What economic value can you capture for your owners/shareholders?

These questions may seem basic, but far too many mortgage professionals can't give convincing answers. As a result, they base important business decisions on unexamined - and potentially dangerous - assumptions.

We recently worked with a bank-owned mortgage subsidiary that learned this lesson the hard way. Although its origination volume had grown from $239 million to $400 million a year, the bank's competitors were voraciously eating away its market share. The bank was targeting loans of $150,000 to $300,000 when most originations in its market were at the $77,000 level.

As a result, realtors did not perceive the bank as a committed originator and, accordingly, failed to refer customers.

The initial response of the mortgage bank's management?

Before intervention by holding company executives, management was preparing to acquire mortgage originators in other geographic markets. The new customers would have been completely out-of-market for banking purposes. Thus, no incremental economic value would have been realized.

Bank-based residential mortgage banking has historically operated as a separate, cohesive business with four distinct functions - origination, intermediation/securitization, servicing, and portfolio management.

Today, those four functions are scattered to the four organizational and marketplace winds, often outsourced piecemeal by any given lender to highly diverse and specialized providers.

In the emerging environment, few mortgage banks will succeed with the traditional, vertically integrated business model because it will not capture enough economic value from new borrowers.

To survive, mortgage participants need to reposition themselves in light of market changes. For most, that means looking at total customer needs, building a new and diversified product line, and creating delivery capability to capture and fulfill these broader needs.

Mortgage lending can and should be pivotal in financial services retailing. Being great at home finance/mortgage lending will bring customers in a bank's door. This is one of the few gateway products that can lead to a long-lasting and profitable relationship.

But as a bank-based or independent mortgage banker, if you're not paying attention to fundamental, systemic changes now beginning in the home sale/purchase marketplace, the only thing you're mortgaging is your company's future.

Mr. Partridge directs Towers Perrin's financial institutions practice.

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