Capital requirements, regulatory changes, demographics, and technology will have a profound impact on mortgage lending as we move toward the year 2000.

Among the likely consequences:

* Only companies with direct access to the capital markets will be significant home loan providers.

* Flexibility to meet a more rapidly changing environment dictated by investor, borrower, and regulatory demands will be critical.

* Technology will move borrowers and investors closer together, driving severe industry consolidation.

* Mortgage lending will be absorbed into consumer lending or retail financial services as only one product line among a broad array of offerings.

Significant structural changes will occur in the mortgage industry during the next few years.

For example, the excess capacity created during the past two years of extraordinary levels of refinancing will be reduced by at least 40%.

And the inefficiencies that characterize the business today as a result of the many layers of players and handoffs will be eliminated.

Meeting Other Needs

The aggregators and nontraditional players that can leverage the mortgage business into opportunities to meet other financial needs and services will be leaders in the next millennium.

In terms of industry structural changes, the big winners will be the aggregators. How and why will this occur?

The "how" part of the question may be a little easier to answer. The aggregators will definitely be well-capitalized companies with direct access to the capital markets, will have significant relationships with end investors, and will have a well-developed culture and track record of customer service.

GE Capital, Prudential, GMAC, and AT&T Corp. possess many of the requisite characteristics, but it is not certain by any means that they will be the aggregators of the future.

Companies in the process of transforming themselves into this role include Countrywide Credit, Bank of America, and NationsBank.

One common theme among the possible leaders of aggregation is that they focus on and have a successful track record related to the key drivers of the retail financial services business, understanding the end customer and the capital markets.

Technology and Scale

The companies identified as future aggregators will bring two other major strengths to the business: technology and scale.

These organizations will have harnessed such technologies as client-server systems, imaging, workflow management, and artificial intelligence.

These aggregators will also utilize their technological advantages and access to the capital markets to build operations of massive scale, utilizing strategic alliances or captive subsidiaries.

Why these changes will occur ultimately leads to the question of whether there will be a need for a stand-alone mortgage industry in the future?

One logical, but somewhat speculative answer is that the aggregators of the future have much broader designs than simply to be providers of mortgages. Without a doubt, many of the organizations are already pursuing other lines of business.

Segmentation Strategies

These organization have utilized or are developing robust data bases that facilitate the execution of well-defined segmentation strategies.

Much of the flurry of current acquisitions of mortgage companies by large banks and others certainly supports the notion that the aggregators of the future will be providers of multiple products and services. Will these organizations transform themselves into companies that fulfill a much broader range of retail financial service needs?

Fundamental Change

The concept of the comprehensive retail financial services entity is worthy of consideration. However, it does not take too much of a leap to see that many of the retail financial service businesses are moving toward common core processes to complete key tasks.

The mortgage lending business is experiencing fundamental change. This change transcends interest-rate induced cyclical adjustments.

Whether the industry remains separate or becomes part of a broader industry is an open question.

For today's participants, however, it is vital that they understand the current changes and what is driving these changes.

Prospective participants should do a strategic examination of internal strengths and core competencies in meeting customer needs to determine what mortgage role, if any, they will be able to play in the next millennium.

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