The mortgage industry is moving to a consumer-centric model. Technology will be key to paving the way again to a $3 trillion origination market. It's harder than it sounds, but we've been through it before.
In light of newly implemented federal regulations, the cost of compliance and technology implementation has been rising. This has brought stagnant origination growth, increased operational complexity and heightened risk by mortgage firms attempting to predict the road ahead. [paragraph] That sounds like a pretty accurate description of the present landscape, with the Truth in Lending Act (TILA)-Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure rule (TRID), new Home Mortgage Disclosure Act (HMDA) rules, diminished origination profits, increased costs of technology and the lack of uniform enforcement and clarity from regulatory authorities. [paragraph] But, in fact, it's a reference to 1998-1999--a time when managing risk under the Gramm-Leach-Bliley Act and managing consumer privacy regulations dominated the headlines.
Back in 1998-1999, the focus for technology was on contact management solutions and the exchange and control of consumer-sensitive information. The focus of the mortgage industry, back then, just prior to the largest economic expansion in the history of the housing market, was in two key areas:
* Establishing seamless technical relationships between affiliate organizations to protect consumer-sensitive information; and
* Performing automated due diligence and controls over third-party vendors, such as appraisers, title insurance companies, closing agents, subservicers and more.
Ironically, 1998-1999 origination volumes hovered between $1.4 trillion and $1.5 trillion, amidst a declining economy (the tech bubble) and a market share swing was underway from what was a historically dominant segment for mortgages, the depository/thrifts, to the non-depository mortgage broker or lender.
This narrative is once again playing out in 2016, while the status of mortgage technology is in the most precarious and volatile stage it has been in since the late 1990s.
The cycle of innovation is largely driven by necessity. This periodic effect begins amidst regulatory forces and the response from the industry to understand, assimilate and innovate through such changes.
The net effect is a pendulum swing from long origination cycle times and increased compliance costs to leaner operational efficiencies and reduced compliance costs. The main driver is an accelerated technology cycle that meets these demands, automates decision making and streamlines processes.
Technology innovations at the turn of this century were the supporting framework that fueled the expansion to $3 trillion-plus in residential mortgage originations. With the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a new wave of technologies is setting the path once again to achieve $3 trillion-plus production years over the next decade.
Regulatory influence on technology growth
The establishment by the Dodd-Frank Act of the Consumer Financial Protection Bureau (CFPB) in 2010 brought an increased focus on regulatory changes to protect the consumer. The CFPB has had the last few years to analyze, plan and implement; now the agency's consumer-protective regulations are all coming to fruition.
As a result, lenders have an increased burden to comply with a plethora of new requirements. Lenders have no choice but to comply or close down, thus spurring adoption of new technology.
During the past 20 years, the mortgage industry has seen the evolution of existing technologies largely introduced in the 1990s, and this has led to a relative stagnation in new innovations--a phenomenon the market crash of 2009 and subsequent regulatory changes only frustrated further.
However, since 2010 the need for new technical innovations has been significant, and the pressure on technology vendors has increased to...