The competitive nature of the financial services industry has sparked a metamorphosis, especially in real estate lending. Technology is driving most of the changes.
The use of the Internet, E-mail, value-added networks, and other electronic media offer greater efficiency that is allowing business to be conducted in shorter time. With the ability to transfer information electronically, it has allowed companies in the financial services industry to operate from central locations.
In title insurance, historically decentralized because of local real estate practices, technology is beginning to allow for centralization. Because financial institutions are requiring communication in real time, vendors will need to service accounts faster and more efficiently.
In the past, mortgage companies, bankers, servicers, and suppliers functioned on a regional level. But with regionally based real estate lenders being purchased by larger, national companies, mortgage services are now being conducted from one site. To support this trend, vendors are trying to provide standardized services and products that cover their needs on a national basis.
National title insurers are feeling the impact of this shift toward standardization and face a difficult challenge, because the industry is dependent on local real estate customs and practices and is regulated on a state-by-state basis.
This poses a challenge to national lenders, which are typically not well informed of various regional differences. To assist these lenders, many vendors are developing national product experts and coordinators whose job it is to assist lenders with the diversity found on a national level.
Lenders are asking for standardized products from all servicers and vendors. However, because of regulation differences among states, this is not always possible with all products.
The title insurance industry is dealing with the situation by implementing technology allowing for the standardization of the following: title ordering, the placement of an order to a local title office, tracking the transaction, monitoring policy delivery, and coordinating the overall process.
Another issue confronting national vendors is competition. As the large mortgage companies centrale operations, they are looking at vendors with a national presence to handle larger percentages of their business and multiple product lines.
Those vendors doing this successfully are using more technologically advanced systems and, as a result, are providing a higher level of service. As national lenders use fewer vendors, more profitable contracts are being developed for both lenders and vendors.
Another factor driving centralization is the changing relationship between lenders and outside servicers. As deals become more complex and technical, this relationship is shifting from the customary deal-by-deal basis to exclusive partnerships. The parties are forming closer alliances to decrease processing time, administrative costs, and assure loans get funded.
It is advantageous for lenders to develop these long-term relationships, because if the vendor is intimately involved in its business, operations will function more smoothly.
Controlling cost, providing consistent quality, and examining the economies of scale are some of the demands to which vendors are responding. Secondary market agencies also are pushing for such changes because of the need to drive down the administrative costs of funding a loan. From a management perspective, it is also easier and more efficient to manage one processing order center rather than numerous centers.
All vendors supplying national lenders must strive to provide standardized services while meeting rigid turnaround schedules. This will be a difficult, but it is necessary to stay competitive.
Mr. Gilmore is the vice president and director of Lenders Advantage, a division of First American Title formed to address the title and escrow needs of lenders' residential properties. First American Title is a subsidiary of First American Financial Corp.