We exist in interesting times: The mortgage-lending industry has entered an era rife with constant regulatory change and increased scrutiny by regulatory enforcement agencies. And, of course, this follows on the heels of perhaps the most damaging chapter in its history — at least from the perspective of the industry’s reputation in the eyes of consumers, lawmakers and mainstream commentators.
The result, justified or not, has been an extraordinary increase in time and cost for most, if not all, mortgage-related businesses. At first glance, those costs have not gone toward sales and revenue, but simply into the liability column: compliance, quality control, underwriting, auditing and so on. However one might feel about this new regulatory and operating environment, it is clear that it will not be going away any time soon.
Some would argue, though, that there is also an opportunity embedded within this sea change. The mortgage industry has always been universally considered part of the financial services segment. Even the flaky world of Wikipedia includes “banks and building societies” and “real estate” on a list of financial services that also includes accountancy, stock brokerages and tax preparation. It is also reasonable to say that a financial services firm is a trusted entity operating under a clear set of rules and regulations to protect a customer’s interests.
For centuries, this has been the role of the loan officer or mortgage broker: matching the consumer with the best mortgage product for his or her needs. Somewhere along the line, however, it is argued that some within the mortgage industry began to place sales before service. If this argument is true, or even perceived to be true by the general consumer, it would explain a great deal of the damage done to the mortgage industry during the years of the subprime meltdown and Great Recession.
It is now accepted by many outside of the mortgage industry that, during the refinance boom years of 2002-2006, too many originators considered themselves agents for revenue.
Many of these bad actors may have since exited the space, but in many cases they leave behind a number of ethical businesses that need to defend themselves against waves of accusations and complaints.
Like it or not, all financial institutions will now need to take on the costs and efforts associated with compliance, or face significant risks and penalties. And it is here that the opportunity lies. It also seems likely that those who go above and beyond the call of duty may find themselves with a real competitive advantage.
It is readily apparent that, if nothing else, protecting the consumer is at the heart of almost every action taken by the Consumer Protection Financial Bureau. Virtually every bulletin, public comment and regulation originating from the CFPB has gone to great lengths to explain the relation of its actions to the goal of consumer protection. It stands to reason, then, that those businesses that make institutional efforts to champion the consumer will stand out — positively — with regulators.
More important is the likelihood that financial institutions placing more focus upon the end user — or borrower — will be favorably received by the general consumer pool. It would be difficult to disprove the fact that many borrowers still go straight to the bottom line (cost, availability) when it comes to selecting a mortgage lender or originator. However, we are now seeing the cost of a damaged reputation — in the form of burdensome regulation.
Unfortunately, we have lost the benefit of the doubt in the eyes of lawmakers, regulators and consumers. Should mortgage businesses that take their roles as financial services providers seriously begin to really stand out in the public eye, perhaps we can win back some of that damaged reputation.
The growing need for mortgage-related businesses to comply with consumer finance law can be viewed as a burden or as an opportunity to differentiate. It could be a chance to convey to the consumer our value. Certainly, allocating time and cost will be frustrating at times. Getting our employees and managers to embrace increased training and implementation could be problematic.
Nonetheless, taking the opportunity to enhance the mortgage industry’s value as a financial services provider is strategically appealing on many levels.
First and foremost, it will provide a context within which to explain that the industry provides protections to trusted customers by way of training, data security and compliance.
Second, positioning our businesses as true financial services firms may well help those companies to generate wide-scale employee buy-in. Compliance and the implementation of the procedures necessary to achieve it can be painful for professionals who are also trying to maintain day-to-day activities. The financial services positioning can bring about a more positive outlook and perhaps even some sense of higher purpose than simply “following the rules.”
Third and finally, as noble as some of these justifications might sound, the transformation to financial services makes sense from a revenue perspective as well. It provides another way for mortgage companies to build a sustainable business with repeat customers.
The MBA Knowledge Base website offers an excellent definition of financial services: One of its characteristics, the website notes, is that “unlike any other service, financial services do tend to perish and hence cannot be stored. They have to be supplied as required by the customers. Hence, financial institutions have to ensure a proper synchronization of demand and supply.”
What does that mean for the mortgage industry? Speed, flexibility, efficiency and quality control. It means being able to take in a customer’s demand, and supply the product or information in the best, fastest and most efficient manner.
That means better coordination and oversight of the partners and vendors touching a mortgage transaction. That means better and more effective customer service at the point of sale and during the transaction. It means better servicing of existing loans. And above all, it means providing a compliant and appropriate product.
Mortgage-related businesses have always been financial services providers. But our clients, the consumers and even we haven’t always understood that. By rebranding what we do, we can do quite a bit to restore our position of trust with consumers and regulators.
Not every mortgage-related business will do what it takes. A very real opportunity is hiding amidst the swirl of regulatory activity. Seize it.