How burdensome regulations now mean survival of the fittest


Even today, the consequences of the mortgage crisis of 2008 are resonating throughout the mortgage industry. In the wake of the subprime meltdown, a new variety of super-agency was formed — the result of sweeping legislation.

Existing regulators and enforcement agencies also turned up their activity levels. Investment firms, burned by toxic portfolios once before, ramped up their due diligence and imposed stricter requirements on their originating lenders.

Lender and vendor alike were forced to set aside massive amounts of capital to overhaul their quality control and compliance processes — often in the form of staffing and technology, as well as new policy and procedure.

However, the biggest impact from the tidal wave of reaction to the meltdown is not what mortgage related businesses are forced to do to meet the requirements of government and customer alike.

Rather, it is how firms have changed their game plans to adapt to an environment of sudden, dramatic and ongoing change. Most will agree that there will be more “TRIDs” or “ATRs” which may or may not have similar disruptive effects on the industry.

But it is how a business plans for the unknown that may become the true differentiator.

Whether one’s business is in servicing, lending/origination or ancillary services, the first principle of succeeding in today’s environment is adaptability.  The Consumer Finance Protection Bureau already showed amazing resilience in combination with an affinity for change. 

A number of state regulators, as well, ratcheted up their enforcement efforts. Throw in the continuing potential for GSE reform and there’s a recipe for long lasting turbulence. It therefore falls to the business itself to adapt and more importantly, build a culture and infrastructure that embraces change. 

Flexibility is an essential component of a firm’s makeup today.  Whether that manifests in flexible staffing; scalable technology or extensive contingency planning, it’s critical that a business in any segment of the mortgage industry be ready for the next curveball.

A second very real development resulting from the tremors shaking the mortgage industry is a shift in strategic focus.  The go-go days of the refi boom in the early 2000s bore witness to a sales-first, sales-always emphasis that put revenue over profit. Those days are gone. 

A combination of significant cost increases resulting from compliance and client demands; a purchase market still waiting for Millennials to arrive and the always-looming threat of devastating enforcement penalties supporting murky regulations have seen to that.

Instead, today’s savvy mortgage business is always seeking to improve margins without sacrificing quality control. That means investing in flexible, scalable and, above all, easily upgraded technology and embedding it within its major processes. That means driving out redundancy and inefficiency on an ongoing basis. It’s always been fashionable to talk about operating as a “lean” entity.

Today, however, firms need to live up to that billing. It’s about profit over volume now.

Of course, with most businesses unwilling or unable to simply throw staffing or cash at the challenges of fulfilling high volume orders, another path must be found. The businesses leading the way—whether lenders or otherwise—have found ways to multiply their output and service levels. Technology is the obvious fulcrum. 

But the prudent use of qualified partnerships and networks is a manner of fulfilling the largest of client requests without having to undergo the inefficient process of “staffing up.” In today’s market, almost every element of a business must be scalable. Another means of replacing the big capital, big staff model comes with the savvy use of data resources.

It’s true that knowledge is power, and nowhere is this truer than the mortgage industry. The best firms procure access to key data; protect it; refresh it and, most importantly, use it to their benefit. Now more than ever, “winging it” is a sure-fire recipe for failure.

So where do we see the practical results of this strategy of adaptability? 

We see it in the tech-enabled business, faced with a dramatic new regulatory requirement, which is able to simply upgrade its programing and training without needing to invest in new systems.  We see it in a choppy market, where spikes and dips make increasing and decreasing staff a nightmare. We see it where lenders, attempting to reduce their risk exposure from service providers, put their trust in the vendor best equipped to handle volume and show documentation of their compliance efforts.

There are two ways to address the seismic changes our industry is undergoing today. Some have, unfortunately, chosen to fight change or complain about it, hunkering down and hoping for the good ole’ days to return. 

Waiting for the next administration to reign in the CFPB or the next historic re-fi boom is not a strategy.  It’s an exercise in fantasy and nostalgia. Instead, the thought leaders of our industry are already adapting. Adapting is not to be confused with reacting.

Anyone still in business has reacted to the stimuli forcing change. But those firms which are adapting — preparing for the environment rather than each individual change — will be the success stories we’re talking about for years to come.

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