Over 100 mortgage executives came together to attend PROGRESS in Lending Association’s Fifth Annual Innovations Awards Event. We named the top innovations of the past twelve months. After that event, we wondered what would happen if we brought together executives from most of the winning companies to talk about mortgage technology innovation. Where do they see the state of innovation? And what innovation is it going to take to get our industry really going again? To get these and other questions answered, we got the winning group together. In the end, here’s what they said:
Q: Some say innovation has to be sweeping change. Others say innovation can be incremental change. How would you define innovation?
TYLER SHERMAN: Innovation comes from the Latin nova/novus, which simply means “new”. Innovation is a term that can be used anywhere anyone is trying something new. This doesn’t have to be new by global standards. What is new to one organization may not be new to another, but that doesn’t mean that the former isn’t innovating. Whether a firm is undergoing a comprehensive change or trying new things a little at a time, any time an old methodology is discarded in favor of a new one, it’s an innovation.
MARK HOPKINS: I think innovation could be both, sweeping and incremental. The most successful innovators I know are always aware of the value of iteration. That means they release a tool that’s very useful, but is really only a smaller version of their bigger idea – the seed. Then, they build from there to create innovations that are sweeping. Ideas can be innovative, but to be considered successful innovations, I believe the ideas must also be well-executed, and that often means executed incrementally.
ROB STRICKLAND: Innovation represents a new way of thinking about and solving existing and anticipated industry challenges. Varying degrees of value can be achieved in line with the number of problems solved, ease of integration and use as well as the improved results achieved. Because mortgage origination is an extensive supply chain, the greater the number of dimensions a single solution stack addresses, the more valuable and “sweeping” it will be. Conversely, if a solution addresses a few challenges, but that solution comes with its own limitations, what is the point? For instance, piecing together functional modules based on disparate stone-age technology may represent vendor progress, but its inherent architectural limitations would forever restrict it from being labeled as the “break-through transformation” the industry deserves.
CHRIS APPIE: The mortgage as a financing tool has been around for hundreds of years, and for much of that time the body of law governing it was largely based on case law. While statutory law has displaced case law as the tool that affects industry change in the last 50 years or so, that does not change the fact that the fundamentals of the mortgage system were built slowly over a long time period. Not surprisingly, changing that system and the processes around it takes tremendous time and commitment. Historically, ours is an industry of incremental innovations that lead to continuous improvement. That said, when there are significant innovations in our space, they are often implemented in response to a major regulatory change; the system is so complex that it literally takes government involvement to cause rapid innovation. I would say that innovations can be both sweeping and incremental but for our industry, the sweeping changes are almost always the result of major regulatory developments. It’s my hope (and the hope of many others) that our industry can somehow harness some of this energy and provide sweeping innovations to other parts of the mortgage system based on market conditions rather than governmental requirements alone.
CHERI BOOTH: Innovation is a new method idea or product to improve productivity, and bottom line profit. Sometimes you have an archaic process that consumes a large amount of labor and by innovating a new process you are able to get more productivity, which lowers costs and improves profit.
LISA BINKLEY: Innovation is identifying a need and creating the solution that fulfills that need. Some companies have solved market needs without identifying the need first. While lucky, that doesn’t count as innovation. Platinum, however, has a history of innovating. We identify marketing needs and produce solutions. We were the first to create an appraisal QC technology, and we’re still the only company to provide not only an AVM suitability testing technology, but also a free appraiser-facing appraisal review tool.
Q: How would you define the state of innovation in the mortgage industry? Is it thriving or in a state of decay?
TYLER SHERMAN: In terms of innovation, the mortgage industry as a whole is in a state of decay. There are some innovations to be found, but by and large, lack of innovation has been harming this industry for decades. While the size and global economic significance of the industry are well known, so are its outdated manual processes. A standard model has yet to emerge that accounts for the operational balance of human and technological resources and the best way to manage them, the hallmark of an industry that has yet to fully mature, even though the industry has existed for two centuries. Although spreadsheets, the chief analytics vehicle of the industry are considered primitive, and in certain cases are being discarded in favor of innovations like business intelligence, there is still a significant contingent that has yet to fully embrace spreadsheets. The degree to which pen and paper, or marker and whiteboard appear as the main record keeping vehicles with no digital counterpart serves to underscore and clarify the pronounced industry-wide reaction to regulatory or procedural changes like TRID. The new TRID rule basically asks mortgage lenders and brokers to be more efficient, essentially finishing loan files at least three days before the loan is scheduled to close. While some lenders are already doing this ahead of the deadline with considerable ease, most of the industry decries the change as insurmountable. This reaction is rooted in a lack of control that is emblematic of any underdeveloped firm or industry.
MARK HOPKINS: I think innovation in our industry is definitely thriving. As margins shrink and competition heats up, lenders and AMCs are hungry for technology that will solve their new compliance challenges, as well as reduce their overhead and improve operations. When there’s a need like we have in the industry now, smart innovators really thrive. The PROGRESS in Lending Innovation Awards are a great snapshot of what the industry is doing as a whole, and I think it’s clear we’re in a very exciting time for technology innovation.
ROB STRICKLAND: I think the industry is somewhere in the middle. There are many new entrants seeking to address parts of the origination transaction. There does appear to be significant interest in modernizing and improving the user experience, which is clearly warranted. I think the best results will come from firms who have significant industry experience and a knack for using newer technologies to address broader business process challenges.
CHRIS APPIE: I believe innovation is thriving in the mortgage industry both because of market conditions and governmental regulation. It’s an interesting time. Because of the CFPB’s focus on the needs of consumers, the regulatory landscape is evolving based on the perceived needs of consumers rather than a purely market-driven environment. That evolution is not going to stall and companies are going to be forced to keep up with those requirements. In addition, consumers are driving the technology they want to use in all aspects of their lives, including financial transactions. This bifurcation will likely require more innovative development to keep up with demand that is–either directly or indirectly from the CFPB–being driven by consumers. Those in the industry who can’t offer innovative solutions to meet these challenges run the risk of becoming irrelevant and fading into the background.
CHERI BOOTH: It’s all over the board, I think sometimes there is a tendency for innovation to be overwhelming and I think that is why most people don’t implement. I think you need to segment your business into parts and then look to that segment. I would choose the segment that is hurting the most and then move towards the next one, etc.
LISA BINKLEY: When we compare innovation in the mortgage sector with the level of innovation in the rest of the world, it looks like we’re lagging behind. That said, I wouldn’t go so far as to say that we’re in a state of decay. Sure, innovation can be slow in our industry. But that’s because our industry has traditionally been slow at adopting new technology. Rather than innovating and trying to coax a community of slow adopters, most companies play it safe by copying existing technologies that have successfully created or broken new markets. Being an innovator isn’t easy, but someone’s got to take the lead and move the mortgage industry forward.
Q: Lastly, if there was one innovation that you would say the mortgage industry desperately needs to happen over the next twelve months, what would it be?
TYLER SHERMAN: The best possible course of action for any mortgage lender and/or the industry as a whole would be to learn from every other industry on Earth whose survival has depended upon the adoption of new business tools rooted in data science. Mortgage firms inherently have a treasure trove of transactional and ancillary data that if properly leveraged, can clarify business concerns, processes, and decisions and revolutionize the way they operate. Understanding the nature of corporate data stores and their potential, along with embracing the tools and techniques necessary to leverage that data to its fullest should be the chief concern of every mortgage enterprise in the market today.
MARK HOPKINS: Obviously, all innovation to support lenders in meeting new compliance and investor requirements should be our top priority. There’s a basic level of need that must be met, and those innovations may take up the majority of the next twelve months, leaving very little room for much else. However, stemming from compliance requirements around transparency for borrowers, I’ve seen some exciting progress on innovations that could actually create more mortgage demand by engaging more potential borrowers in the process.
ROB STRICKLAND: I think the industry has been craving an agile integrated origination solution that can simultaneously addresses its core challenges of Processing Efficiency, Customer Satisfaction, Compliance Rules and Lower Costs. Most of today’s well known LOS solutions are grounded in outdated inflexible architecture so their ability to orchestrate automated digital processing is severely constrained. Newer Cloud solutions that can deliver an improved digital experience will be well received.
CHRIS APPIE: The next year is going to be focused on ensuring compliance with all aspects of Dodd-Frank without exposing lenders to more risk in the process. The industry needs to provide solutions that support business agility while helping lenders avoid the various and evolving risk types to which they’re exposed.
CHERI BOOTH: The loan originator needs to become the educator, not the sales person. The millennial is thirsty for information, but more importantly the right information, in short byte size chunks of video. The other thing that needs to happen is this customer requires a lot more patience on our part. They take a long time to make a decision. This borrower needs to research, absorb, research some more, make a decision. It is ultra-important for the word pipeline to be redefined, maybe even call it pre-pipeline.
LISA BINKLEY: A technology that leverages big data in the valuation sector. Virtually every other segment is using big data to make decisions. The mortgage industry, its components and it processes are at the crux of the American economy. Even so, the mortgage sector still fulfills the majority of the collateral valuation process manually. I’m not saying we need to rely 100% on technology. We need human talent, in the form of trained analysts in this segment. However, those analysts are missing out if they’re not leveraging big data analytics. Any entity that incorporates big data into their evaluations, whether the appraiser, AMC, lender or investor, will make better, safer—not to mention faster—decisions.