Mortgage Lending: The Latest Silver Bullets

Despite our experience to the contrary, we continue to believe in the myth of “silver bullet” technologies. These latest and greatest hardware, software, discoveries, processes or ways of thinking appear to be the solution to a wide range of problems, and we jump in with both feet. They promise to be shortcuts, cost savers and productivity enhancers which will give us an edge in the market.
They are also revenue generators and capital-attractors for those consulting, service provider and FinTech organizations which can convey expertise in these new shiny solutions. And the R&D cycle is a virtuous one for these organizations –similar to planned obsolescence in the manufacturing industry. Once the new thing comes along, you’d better embrace it or you risk being an anachronism. Can you imagine a financial services organization today saying, “We’re going to hold off on Blockchain”, or “Agile development? No thanks.” Despite the actual, quantifiable benefits being difficult to foresee, there’s a market perception cost to being late to the party and an excitement about finding a “unicorn”.
Financial services firms may fall victim to the belief that they can provide the next best thing – making the investment in these new whiz-bang technologies worth it in the end. Analogous to the pharmaceutical firms spending huge on R&D in the hopes that they’ll produce that one blockbuster drug. But at its core, financial services is a commodity business – it’s about acquiring short term money at low rates and lending it out long term at higher rates; investing money today in hopes it will be worth more tomorrow. We’ve seen the results of trying to engineer “new” financial products.
Wouldn’t money be better spent trying to deliver existing financial services products faster, more cheaply, and with a better customer experience? I would point to index stock funds as an example – these provide many of the same benefits as actively managed mutual funds, but at a lower cost, and for most individual investors they are better. Mortgage is one area where we haven’t quite figured it out – the products being originated today are fairly vanilla FNMA and FHLMC products, but the processes most lenders use to originate them are still costly, clunky and antiquated. Rocket Mortgage is a step in the right direction, but it’s still the exception, not the rule. And it is necessarily limited in its scope – not all borrowers bank with institutions which can share their information electronically, not all warehouse banks accept eNotes, and mortgages can’t be electronically recorded in all jurisdictions, as examples.
Until the day comes when all of our data is available in structured, standard electronic form, we are all comfortable sharing it, and our networks and institutions are capable of protecting it, the promise of FinTech will elude us. Until then, technologies which “bridge” the analog and digital worlds – the human-readable and the machine-readable worlds – provide the best opportunity to reduce cost, streamline processes and provide a more pain-free customer experience.