The upcoming August 1, 2015, deadline for the implementation of the Integrated Disclosures is a little over 4 months away. In January, I thought that this was the opportunity for the mortgage industry to embrace change, improve the process, and finally move toward a fully electronic loan. In February, I wrote that I believed that this development might turn out to be a missed opportunity. Why do I say that? I have a feeling that some are approaching this sea change as just another regulatory form update. They are missing the point.
Constant change is a business reality, and organizations must continually adapt to their environments to stay competitive or risk becoming obsolete. Nobody likes change. It can be disruptive. You become comfortable with the way things work. People believe that when they change they instantly become less competent, effective, and efficient. But change is inevitable. How you handle it depends on whether you look at it as a threat or an opportunity.
If we look through history at the 1960 presidential election, for example, we see how important it is to embrace change. In that election the upstart young Senator from Massachusetts, John F. Kennedy, beat the seated Vice President, Richard Nixon. The key turning points of the campaign were the four Kennedy-Nixon debates; they were the first presidential debates ever and were televised nationally. Much has been made since on Nixon’s preparations, or lack thereof, for what Marshall McLuhan has called the “cool” media of television. Cool media requires users to fill in more missing information than “hot” media based on what they are able to interpret. In this case, Nixon continued campaigning until shortly before the start of the first debate. Despite a recent illness and hospitalization, the Vice President declined makeup. I don’t doubt that these decisions seemed logical, even shrewd to Nixon at the time. Onscreen, however, Nixon looked pale and tired, and in the cool medium of television, many viewers used that visual information to arrive at two conclusions: that Nixon was unprepared and weary, which in contrast made it easy to interpret his opponent as confident, relaxed, and forceful in comparison.
Historians estimate that 70 million viewers watched the first debate. While Nixon made adjustments in the three subsequent televised debates (which included the decision to wear television makeup), there were approximately 20 million fewer viewers to appreciate the difference.
Why do I tell you this story? It shows how important it is not only to embrace change, but to embrace it as soon as possible. Nixon was not used to appearing on television, so he prepared as if he was running an old-school election operation, where making a few more campaign stops seemed like a better use of his time than televised debate preparation. In the end, we all know the result of that election.
So, how can you succeed in an environment of change? Well, it all boils down to the culture of your organization and how it manages change. A recent article by Eric Feigenbaum at Demand Media stated, “Corporate cultures are very powerful things. Many businesses don’t even realize they have a culture because their management has never really thought about it—the attitudes and approaches were just shaped around the founders or core personalities in the business. Other companies’ managements take the time to sit down and strategize their culture in order to promote certain attitudes and values, such as having proactive employees.”
He goes on to say, “In order for employees to be proactive, they have to be empowered. Employees must feel they are trusted to do more, make decisions and take limited risks. The more people feel free to take action, the more likely they will do so. Managers should let their teams know they support an autonomous, empowered team. Cultures of empowerment are proactive cultures. By contrast, employees with very limited scopes and duties in a more bureaucratic or military-style culture tend to stay within their very specific duties and follow only clearly outlined procedures.”
Being proactive is taking initiative in anticipation of future events. Companies that are proactive are often trying to avoid a potential future threat or to capitalize on a potential future opportunity. Being reactive is when the company makes changes after some threat or opportunity has already occurred. Reacting to the past rather than anticipating the future is a very common strategy, or absence of strategy, that is sometimes referred to as fire-fighting. Of course, both proactive and reactive management styles can fail. But proactive management is preferable because success in business requires the willingness to take chances as well as the ability to manage risk appropriately.
The conceptual definition of risk involves change in mind, opinion, actions, places, etc. It involves choice and the uncertainty that choice entails. It concerns future events, both known and unknown, and the constraints of cost, schedule, and resource limitations.
As we continue this conversation we need to take a step back in time. Let’s identify a common problem in our industry and try to solve it using this train of thought. Let’s say the problem was a lost or misplaced original paper note. The solution was an electronic note replacing the paper note. It needed to look like the paper note, but have a data payload for hands-off processing. The challenge was to tie raw and unformatted data to the formatted presentation data that would be presented to the borrower. The concept of the Category 1 SMART Doc for the eNote was a gallant attempt. Its biggest accomplishment was to expose the industry to the concept of combining data and documents. MISMO V3 is a direct result of that effort.
This, in turn, led to the CFPB’s focus on the consumer and its work on the Loan Estimate and Closing Disclosure. The result is aesthetically pleasing documents that the consumer can read and understand, and more importantly, documents that can be compared easily.
Whether your organization is responsible for the solution for TILA/RSPA Integrated Disclosures (TRID), or you are relying on a third party to provide this solution to your organization, you have to ask these key questions.
- Is my organization proactive or reactive?
- How ingrained is the current culture?
- Are the leaders personally committed to the change?
- Who are all the critical stakeholders and what are their roles in the project?
- Does my organization have the capability and capacity to make the change?
- Will the change actually deliver the required documents?
- How is this change different, better, or more compelling than other propose changes?
- What is your Plan B if it comes to pass that Plan A doesn’t work?
In the end it doesn’t matter if you are building or buying a solution to this problem. The key is to be proactive and to embrace change. If you are using a third party’s solution, you need to know what that organization is doing and how that fits within your business. If you wait around, you’ll be the one left holding the bag. Similarly, if you are building something, you should be testing it now. The old saying goes: change is the only constant. In mortgage, that is so true. We all have to be ready to change on a dime these days. And in the end, how you react to change will make all the difference.
Next month we will tell you how MISMO should be part of your strategy.
About The Author
Roger Gudobba is passionate about the importance of quality data and its role in improving the mortgage process. He is an industry thought leader and chief executive officer at PROGRESS in Lending Association. Roger has over 30 years of mortgage experience and an active participant in the Mortgage Industry Standards Maintenance Organization (MISMO) for 17 years. He was a Mortgage Banking Technology All-Star in 2005. He was the recipient of Mortgage Technology Magazine’s Steve Fraser Visionary Award in 2004 and the Lasting Impact Award in 2008. Roger can be reached at email@example.com.