Talking Digital Mortgages

There is renewed interest in the digital mortgage, but most LOS players aren’t ready. “When considered in the light of the pressing demand for digital mortgage capabilities, the areas in which today’s originations systems fall short become even more glaring,” noted STRATMOR Group Senior Partner Garth Graham. “When STRATMOR is consulting with clients – typically within the context of reengineering or establishing new origination platforms – we work toward implementing specific digital mortgage functional capabilities organized primarily around sales and fulfillment processes. Very few can currently be found in a commercial, off-the-shelf LOS.” So, we took Garth at his word and instead turned to an expert document provider to dissect the best way for lenders to embrace the digital mortgage. Here’s what Jonathan Kunkle, General Manager of LenderLive Document Services, told us about this and other hot industry topics:

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Q: Why did you first decide to enter the mortgage space?

JONATHAN KUNKLE: Funny question… I think the mortgage industry chooses us, not the other way around. (Did you not hear the giant sucking sound when it captured you, as well?) I was recruited into the industry from another field by the President of Guardian Mortgage Documents. My first role at Guardian was in sales, and I loved it from day one. At first, I didn’t speak mortgage; in fact, in my first meeting I wrote down three pages of acronyms I didn’t understand.

Q: How has the mortgage industry changed since you first got into the business?

JONATHAN KUNKLE: The Internet was relatively new when I started at Guardian and we’d just deployed one of the industry’s first web-based applications. It was technically sophisticated then, but technology has evolved so quickly that today’s software is light years ahead of where we started. In fact, I remember getting my first Blackberry, moving from analog to digital cellular mobile service, and dual computer monitors (the biggest technological leap in mortgage, according to Garth Graham at STRATMOR Group.) Obviously, technology has had a significant impact on lending and servicing. Today, we’re closer to the reality of digital mortgages and all things ‘e’, aka paperless. What I find most interesting is that the advent of technology has not driven down the costs of originating a mortgage or servicing a loan. Maybe, a better way to look at the lack of cost savings afforded by technology would be to consider that the fully-loaded cost of compliance and regulation is actually an offset to the cost savings that technology actually afforded the industry. Imagine the cost to originate a loan today if we didn’t have the efficiencies these technologies have afforded the industry to date.

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Q: How do you define digital mortgages?

JONATHAN KUNKLE: This is a great question, because in my mind the definition isn’t very clear across the industry. I think of a digital mortgage as one that is data-enabled. Data enablement or enrichment starts at origination, through a digital, borrower online application. This digital application needs to empower the process through digital data gathering (e.g., Yodlee, Plaid, Intuit, etc.), use the data for analysis, and only push exceptions to a human. A digital mortgage should interact with the consumer digitally: eSignature of the intent to proceed, eSignature of the loan estimate disclosures, and scheduling and follow up through the web interface, text, or other means of the consumer-selected communication path. Then the digital mortgage should be seamlessly processed, underwritten, and closed with minimal human interaction because the entire process is data enriched. Moreover, as more and more counties adopt digital notary acknowledgements, a true digital mortgage should be able to be executed as simply as an auto loan is executed today.

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Q: What are the benefits of offering a digital mortgage?

JONATHAN KUNKLE: First and foremost, the consumer demand for the mortgage loan buying experience is shifting to digital (queue the Millennials). Even though it may be the most important financial decision of someone’s life, the advent of technology allows for a personal, guided experience online. The lender should not lose sight of a critical point: when the borrower needs guidance, a human loan officer is a must-have component of that buying experience.

Steep cost reductions are another benefit: producing and manufacturing a digital mortgage should be a fraction of a traditionally originated, processed, underwritten, and closed loan. Why? Because it’s much more data-centric and less human-centric, thanks to automated decision making. Loans of the past required a human to make the cognitive decisions. With a data-enriched process, the human can focus only on exceptions.

And finally, a digitally executed mortgage has considerable benefits to the lender.  For example, a recent MBA study showed lenders save $1000 or more when closing loans digitally.

Q: What key hurdles still need to be cleared before the industry can go fully digital? For instance, Fannie and Freddie issued a survey identifying the lack of readiness from servicers, document providers, custodians and title/settlement agents as a key challenge.

JONATHAN KUNKLE: There are a still quite few hurdles for eMortgages, but I wouldn’t put the vendors in the mix of impediments. For example, our firm is ready for eMortgages today. The challenges are:

>>State and county adoption of digital notary.

>>Permissibility of eSignature on the SSA 89 form.

>>Investor readiness (and willingness) to buy digitally closed loans.

>>Warehouse line readiness to fund digital loans and take interim ownership of an eNote.

>>Adoption industrywide of the readily available eVaults. I know many lenders are anxious to start closing all loans digitally and many servicers are already onboarding loans with eNotes.

>>Title adoption of augmenting the closing package with eSign-enabled title documents.

Q: In building digital mortgages, what other considerations should lenders be thinking about?

JONATHAN KUNKLE: Regarding the digital front end, here are some critical thoughts:

>>Does the application process let the consumer pause and come back at any point in the future (without restarting the entire process)?

>>Are the connections to data sources (asset, income, collateral) capable of collecting data and images and both?

>>When the consumer opts out of data collection protocols, does it support image or document upload of the needed source doc?

>>What are the security features – does it support multiple authentication means and/or two factor?

>>Does it support home equity (HELOCs) through a more limited, TRID-free application process?

>>Can it seamlessly integrate to your product and pricing engine?

Is there a means to accurately estimate closing fees (i.e. accurate LE/CD production)?

>>Does it provide a means to communicate with the consumer in their chosen means?

Is it mobile enabled?

>>Does your consumer prefer an app or a mobile-enabled solution?

>>Does it interact with the AUS or does that remain in the LOS?

>>How does it drive a seamless workflow and can exceptions and escalations be routed back to the consumer?

>>Can it enable a compliant preapproval for purchase transactions?

Will the digital experience interact with your compliance service or does that remain in the LOS or doc service?

>>Does it integrate to your chosen eSignature application so that the borrower experience is the same throughout the entire process, including the loan closing?

>>What is the lender’s strategy to drive traffic, retain the applicant, and close the loan (i.e. Quicken’s Rocket Mortgage advertising)?

Q: What role does technology play in creating a digital mortgage experience?

JONATHAN KUNKLE: It doesn’t. Kidding… The technology will determine if the borrower can stay on the rocket path or exit to the self-propelled scooter circa 1950. Seriously, technology and digitization are totally transforming the mortgage experience.

Q: Where is LenderLive headed in the digital mortgage space?

JONATHAN KUNKLE: As a private label mortgage fulfillment provider, LenderLive needs to interact with multiple digital front ends. Our bank clients each have different strategies on consumer interaction and will choose a front end best suited for their strategy. Their consumer direct digital experience will also be critical to capture market share of the predominately purchase-driven market. As such, LenderLive is building a message layer to interact with the client’s selected front end. Moreover, LenderLive is preparing for the data-enriched process by enabling its back end processing to be free of the bondage tied to the traditional paper-based mortgage process.

Q: How is LenderLive freeing itself of that legacy process?

JONATHAN KUNKLE: We’ve invested heavily in our FACTCheck rules engine, that ingests source-of-truth data and runs complex rules and analysis on it to automate much of the cognitive thought process in the traditional mortgage. The FACTCheck solution in the market today is exclusively an income calculation tool, but we’ve already build asset and collateral valuation as well. The concept of FACTCheck is to take the available data, find normalcy in it, and then route exceptions for processing… but only when needed. We have proven that FACTCheck can eliminate 75% of the human processing needed if the origination channel is data enabled. This automation enablement will finally provide a technological lift in the cost of loan manufacturing.

Industry Predictions

Jonathan Kunkle thinks:

1.) There will be more than 1000 eNotes closed to date.

2.) Close a few dozen complete, end-to-end eMortgages in 2017 (with digitally signed and notarized security instruments)

3.) See multi-vendor-threaded versions of Fannie’s Day 1 Certainty and a Freddie version of the program.

Insider Profile

Jonathan Kunkle is general manager of LenderLive Document Services, one of the business lines of LenderLive Services, LLC. As a trusted premier services provider, LenderLive partners with financial companies to transform their day-to-day operations by delivering services and solutions that improve efficiencies, reduce operational errors, and mitigate compliance risk. In this role, he is responsible for client relations and the overall strategy of the company’s Document Services line of business, as well as their sales and client integrations. Kunkle has more than 25 years of experience in senior management roles, with 14 years in the mortgage industry. He joined LenderLive as vice president of sales in 2008 when the company purchased Guardian Mortgage Documents. There, he was responsible for all of the company’s sales initiatives.

Follow The Leader

I have been critical of the industry’s inability to move forward on eMortgages, or what is now called a Digital Mortgage, without other lenders going first. Today there is great buzz around going digital so I’m shifting my earlier concerns. To every lender today I say: Please follow the leader and go digital. My hope is that we have reached a tipping point where not going digital is more of a risk compared to finally making that transition to digital mortgages.

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In order for lenders to make this transition there first has to be clarity around the term Digital Mortgage. “There is still quite a bit of confusion in the marketplace as to what a digital mortgage is actually comprised of,” noted Dominic Iannitti, President and CEO at DocMagic, Inc. “Put simply, a truly comprehensive digital mortgage involves zero paper whatsoever, from start-to-finish. That means from the time the loan is originated at the point-of-sale to when the loan is closed and the eNote is delivered to the investor, nothing is papered-out. This includes fully paperless eClosings for borrowers, which absolutely must contain eNotarizations. Also, another important component of the digital mortgage process is an integrated mobile strategy.”

Recently DocMagic, Inc. completed North Carolina’s first 100 percent paperless eClosing. The DocMagic-driven eClosing was completed on Friday, May 5th at North State Bank and was carried out in the presence of borrowers Jason and Karen Boccardi, the North Carolina Secretary of State, a closing paralegal, an eNotary, and members of the media who documented the historical event.

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Attorneys from the Hunoval Law firm attended via interactive video. The entire eClosing took only about 20 minutes to complete.

“Millennials in particular want the ability to start the origination process on a phone/tablet, check status, eSign documents and complete the closing process,” added Iannitti. “That technology needs to be integrated with the document preparation provider, eClose technology vendor, LOS, as well as other third party vendors.”

DocMagic’s Total eClose, which contains all the components to facilitate a fully compliant, 100 percent paperless digital closing, served as the single platform that enabled the entire transaction in North Carolina. eNotarization was facilitated by long-time DocMagic strategic partner World Wide Notary (WWN).

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In fact, DocMagic facilitated four of the five statewide-first eClosings, as well as the CFPB’s eClosing pilot program. The North Carolina eClosing was part of a state sponsored eClosing Pilot Program that was established in 2016 by North Carolina Secretary of State Elaine F. Marshall to create a best practices guide for mortgage lenders seeking the heightened security, speed and efficiency of eClosings.

“For the record, a comprehensive digital mortgage is really just a new term for an end-to-end eMortgage process,” stated Iannitti. “The reality is that most of the digital mortgage technologies that are currently available for lenders are hybrids, so paper is unfortunately still involved. However, the technology to go fully digital is here today. The biggest hurdle is still educating all the players on the benefits, the technology solution exist today. The CFPB was very helpful in evangelizing for lenders and vendors to embrace eClosings, which is now well on its way.”

Valerie Saunders, Vice President at NAMB – The Association of Mortgage Professionals and President at Title ClearingHouse of Jacksonville, agrees that a digital mortgage is a mortgage that is transacted 100% electronically, including digital signing and electronic notarization, with no semblance of paper, whatsoever. And while there is still jockeying among some over the definition of the term Digital Mortgage, nobody disputes the return on investment associated with adoption.

“Digital mortgages are a lot faster and more efficient than traditional mortgages,” pointed out Saunders. “It’s also a lot easier for lenders and settlement service providers to manage and keep mortgage files secure without all that paper.

“As far as the consumer goes, paperless mortgages allow more time for borrowers to review the documents they’re executing prior to affixing a signature. In a typical transaction, unless the borrower specifically requests it, the first time they’re seeing those documents is when they’re at the closing table. With a digital mortgage, borrowers can take the time to digest the information and ask questions well in advance of closing.”

That doesn’t mean that there are no hurdles to adoption. “I think the major hurdles are cost and necessity,” noted Saunders. “We need to remember the role that states and counties play in electronic mortgages. In order to transact a fully paperless mortgage, states need to allow for both electronic recordings and electronic notarizations, and counties need to be technologically equipped to accept those electronic documents.

“Technology is the foundation of a digital mortgage, so it plays a major role in how that experience is going to play out. That said, lenders and settlement service providers also play a key role in assuring that the digital mortgage experience doesn’t replace a personalized experience.”

Put simply, the digital mortgage is about the customer interaction. “Customers will interact how they want on their timetable,” noted Josh Friend, the founder and CEO of InSellerate, a Costa Mesa, California-based CRM provider that helps companies maximize their sales leads and convert them into closed customers. “The second part of the digital mortgage is the use of big data. Tax returns, pay stubs, w2s, etc. is all in the cloud. You need to leverage platforms so that documentation can be downloaded through the web without the borrower having to provide that. Third, is the technology required to take in and process all the loan data. You want to make the mortgage process easier.”

InSellerate is a specialized customer relationship management system that delivers incremental sales and revenue by optimizing consumer direct lead channels, increasing prospect conversion and maximizing sales opportunities through an automated nurture program. With InSellerate, companies can immediately connect to leads while the prospects are actively in the decision-making process, manage their sales team real-time for maximum efficiency and ROI, and build strong customer relationships through trigger-automated nurture marketing campaigns. InSellerate is SSAE 16 certified and built to satisfy the most closely regulated businesses, including community banks with mortgage subsidiaries.

“The cost to originate has increased,” noted Friend. “Having accurate closing fees upfront will allow us to be more accurate at closing. The digital mortgage will also lower buybacks significantly. From the view of the consumer, if they can go online, see accurate pricing, fill out the documents and submit the trailing documents online, that would be a big benefit.”

So what will it take for digital mortgages to finally go mainstream? “You need to tie the business and technology together,” concluded Dr. Rick Roque, President and Founder of MENLO, a firm that advises mortgage lenders on their M&A strategies. “You have solid technology, but there are failures in how to apply that to the business process. It takes a unique intersection in how the business process can be designed and reimagined with the use of technology.

“Lenders have to look at the net tangible benefit. Lenders may go after the latest technology, but don’t look at how it can be operationalized. A digital mortgage is not a switch that just gets flipped. It’s a progression.”

About The Author

Email Marketing Isn’t Dead

As a lender you are constantly looking for ways to attract new borrowers, engage with them so that they stop shopping around and ultimately get their new loan from your organization.

I just read a wonderful article from Josh Brown of Infusionsoft, titled “6 Email Formats that Attract and Engage Customers and Reduce Churn”.  In the article he states” I can hear you now: I thought email marketing was dead… I don’t blame you for thinking that way; I definitely ignore 99 percent of the emails that come through my inbox on a daily basis. But I don’t ignore them because I hate getting email. I ignore them because, quite frankly, they don’t really offer much value at all. But the 1 percent I do open almost always gets me to engage further with the sender, whether it be an individual or a company.”

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He makes a great point that “email marketing isn’t dead. But it’s not 1997 anymore, either. The novelty of receiving email has worn off.” Therefore, if you want to attract and engage new borrowers, your email marketing approach needs to change with the time.

“In 2017, you can’t just slap together an email blast and assume everyone on your mailing list is going to immediately stop what they’re doing to read what you have to say—unless you give them something worth checking out.

Before we get into discussing the email formats that are most successful in engaging customers, here are some of the hard facts:

>>The conversion rate of emails is higher than that of direct mail, social media, and most other forms of marketing

>>81 percent of online shoppers are more likely to make a purchase after receiving a targeted offer through email

>>Email open rates increased to 34.1 percent in 2016 (click-thru rates, however, decreased)

That last statistic tells you one thing: Consumers are still willing and eager to receive correspondence through email, but you need to follow through with value when sending them.

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So, now that we know email marketing is still alive and well, how do we effectively implement it to build and grow a business?

Let’s take a look at the six types of emails that work best to get your customers on the hook and ready to engage further with your brand. I’ll also provide best practices for creating these emails, and give prime examples of companies that have mastered the art of email marketing.

  1. The welcome email

Perhaps the most obvious email to add to your arsenal is the welcome email, to be used immediately once a prospect or customer has interacted with your brand for the very first time.

Your welcome email should simultaneously represent your brand while also treating your customer as an individual. If your brand is fun loving and quirky, your welcome email should have some whimsy. If your company is more serious, tone your welcome email down a bit. But, above all else, remember to write the email as if you’re writing to a friend—that’s what your customers will notice.

A welcome email is also a great way to “set the stage” for what’s to come for your new customer as well as help with the onboarding process.

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Use it as an opportunity to explain exactly what your company is all about, how to get started with your product or service, and to gather insight and feedback from your customers. Then, follow up with an offer and a call-to-action that lets your new customer dive right in and see for themselves what you can do for them.

Len Markidan, head of marketing at Groove had the following to say about their welcome email: ??“Like most welcome messages, this email thanks the user for signing up and lets them know how to get started with Groove. But most importantly, it asks a critical question: Why did you sign up?

With this question, we’ve been able to transform our messaging based on what we learned is most important to new customers, and we’ve been able to build deeper relationships with those customers by helping them with whatever unique goals or challenges drove them to sign up.”

  1. The post-purchase email

Once a prospect has officially become a paying customer (or a return customer has made a new purchase), you have a ton of options for how to reach out to them and spur further engagement with your brand.

First and foremost, take the time to thank them for their business. After all, if it weren’t for your paying customers, you wouldn’t have a successful business in the first place.

You can also use a post-purchase email to provide further instructions for how to use the product or service in question. Or, at the very least, let your customers know your support staff is only an email, phone call, or tweet away.

For further engagement, you might choose to include any of the following:

>>Cross-sells and supplemental offers

>>Options for customers to share the purchase with friends via social media

>>Options for customers to provide feedback to your company

By providing all of this after your customer has already given you their money, you prove that you’re goal is to make them happy—not just to make a quick buck.

  1. The newsletter/announcement

Your customers are busy people who have a lot going on in their lives. So it’s entirely forgivable that your brand isn’t always the first thing on their mind.

But, by sending them an occasional newsletter, you can remind them not only that your company exists, but also that you’ve provided value for them in the past—and that you continue to value them as a customer.

Newsletters can be used to provide the following:

>>New product releases or service offerings

>>Improvements and other changes made to current products or services

>>Special offers and discounts

A quick caveat regarding newsletters:

Sending out recurring newsletters for the sake of sending an email doesn’t work. Simply put: Your customers don’t care about the goings-on at your company unless it affects them. There’s no point in wasting time and energy putting together a newsletter unless you have something important to tell your customer base. This approach will most likely be ignored, and it might end up getting future emails sent straight to your customers’ spam folders.

  1. The educational email

It’s no secret that producing educational content can help you position your brand as an expert in your industry. But simply producing such content is useless unless your customers actually see it.

By sending out email blasts that either include or link to such content, you increase the chances that your customers will not only see your content but that they’ll take the time to engage with it.

Such educational emails could include blog posts or videos that you’ve created in-house, or they could include curated roundups of valuable pieces of content others have created.

The main goals of educational emails are to deepen your customers’ understanding of your industry, and also to make them even more aware of how your company could be of service to them. Or, as mentioned above, you might just provide further instructions for how to get the best use out of the products you offer.

  1. The celebratory email

Want your customers to be happy? Give them something to celebrate!

Celebratory emails can be sent on occasions in which the customer didn’t really have to do anything (such as birthdays and brand-related anniversaries). Or they can be sent after a milestone has been reached (either on your customer’s end or your company’s).

You might also choose to share the success of other customers with the rest of your customer base, as well. Such success stories can keep customers motivated, and also provide real-world proof that your services are, in fact, incredibly valuable.

  1. The re-engaging email

Email marketing allows you to re-engage with potentially lapsed customers in a non-intrusive, but still attention-getting, manner.

Re-engaging emails need to be ultra-personalized in order to be effective. The typical “We miss you!” email doesn’t work, as it offers little to no context to remind customers of what your brand has to offer, or why they engaged with you in the first place.

Instead, such emails need to refer back to previous interactions and purchases a customer has made from your company—and then provide incentives for them to re-engage. Perhaps you’ve made improvements to (or completely revamped) a product they purchased in the past, or maybe you’ve developed a new product that goes hand-in-hand with a past purchase. As long as you can provide more value to your ready-to-churn customers, the re-engaging email could be a lifesaver.

A quick note on saying goodbye

Sometimes, there literally isn’t anything you can do to get a churning customer to change their mind. But you can squeeze one last drop of value from them by giving them the chance to fill out an exit survey once they’ve “officially” decided to sever ties with your brand.”

Josh ends with, “going back to what I said at the beginning: Email marketing isn’t dead.

What is long gone is the assumption that your customers will check out your email just because you send it to them.

But, implemented correctly, a proper email marketing strategy can do wonders in terms of moving customers along the buyer’s journey and keeping them within the customer lifecycle loop.”

Email marketing can be a very effective tool when looking to attract new borrowers; the key is implementing the right email strategy that engages today’s borrower.

About The Author

An Interesting Look At The Future

If it is true that the only constant thing in life is change, then the twenty-first century is proving to be a predictably constant time in which to live and make a living. Our industrial revolutions have always been about dramatic changes in the scope and scale of the technology platform supporting societies: water, steam, electricity, electronics, and information technology—all have transformed our standard of living even as they have irrevocably altered the business landscape. And if we look at the timeline of human civilization, we can see that those revolutions are all grouped in the more recent past, with the time between sea changes becoming shorter as we get closer to the present.

And why not? There are mathematical laws about exponential growth that govern our understanding of everything from how an avalanche will cascade down a mountain to how a virus will spread through an unvaccinated population. Change won’t just keep coming; it will keep happening more quickly. Some are even referring to the new industrial revolution as the Exponential Age because of the exponentially accelerating technologies that have the potential to disrupt industries that seem isolated and protected from the trends affecting the more obvious “technology” sectors.

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An interesting look at the future: Singularity University is a Silicon Valley think tank founded in 2008 at the NASA Research Park in California and is supported by NASA and Google. Udo Gollub, a German writer and entrepreneur, documented his thoughts after a Singularity University Summit. Some of his thoughts are included below to provoke thought and discussion within your organization.

Software will disrupt most traditional industries in the next 5-10 years. Every organization, both big and small, in every conceivable line of business face a very daunting task of deciding how much time and effort should be spent on their current marketplace and product line. My previous articles were focused on looking at new opportunities. You need to ask yourself if the business space in which you want to operate will exist in some form in the future. If you think that it will, what can you do to future-proof it from a fate like Kodak’s?

In 1888, George Eastman founded Kodak. In 1998, Kodak had 170,000 employees and sold 85% of all photo paper worldwide. Within just a few years, their business model disappeared and they went bankrupt. What happened to Kodak will happen in a lot of industries in the next 10 years – and most people don’t see it coming. Did you think in 1998 that 3 years later you would never take pictures on paper film again? Yet digital cameras were invented in 1975. The first ones only had 10,000 pixels, but the technology followed Moore’s Law. So as with all exponential technologies, it was a disappointment for a long time, before the technology advanced enough to gain mainstream acceptance in only a few short years.

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Moore’s law is directly related to computing. It is an observation made by Gordon Moore that the number of transistors in a densely integrated circuit doubles approximately every two years. More loosely, Moore’s law here refers to the exponential growth of technology.

What happened to Kodak will happen in a lot of industries: product and service leaders will be blindsided by revolutions that have been hiding in plain sight for some time, but are only now reaching critical mass. Let’s look at some examples and thoughts offered by Gollub.

>>Uber is just a software tool, they don’t own any cars, and are now the biggest taxi company in the world.

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>>Airbnb is now the biggest hotel company in the world, although they don’t own any properties.

>>Bitcoin will become main stream this year and might possibly become the default reserve currency in the future.

>>In 2018 the first self-driving cars will appear for the public. Around 2020, the complete industry will start to be disrupted.

1.) You don’t want to own a car anymore. You will call a car with your phone, it will show up at your location and drive you to your destination. You will not need to park it, you only pay for the driven distance and can be productive while driving. Our kids will never get a driver’s license and will never own a car.

2.) It will change the cities, because we will need 90-95% less cars for that. We can transform former parking space into parks.

3.) Most car companies might become bankrupt. Traditional car companies try the evolutionary approach and just build a better car, while tech companies (Tesla, Apple, Google) will do the revolutionary approach and build a computer on wheels.

4.) 1.2 million people die each year in car accidents worldwide. Insurance companies will have massive trouble because without accidents, the insurance will become 100x cheaper. Their car insurance business model will disappear.

5.) Real estate will change. Because if you can work while you commute, people will move further away to live in a more beautiful neighborhood.

>>The price of the cheapest 3D printer came down from $ 18,000 to $ 400 within 10 years. In the same time, it became 100 times faster.

>>Electricity will become incredibly cheap and clean: Last year, more solar energy was installed worldwide than fossil. Solar production has been on an exponential curve for 30 years, but you can only now see the impact.

1.) This represents a smooth doubling every two years of the amount of solar energy we’re creating, particularly as we’re now applying nanotechnology, a form of information technology, to solar panels.

2.) The price for solar will drop so much that all coal companies may be obsolete by 2025.

>>A generation ago students at MIT all shared one computer that took up a whole building.

1.) The computer in your cellphone today is a million times cheaper, a million times smaller, and a thousand times more powerful.

2.) That’s a billion-fold increase in capability per dollar that we’ve experienced. And we’re going to do it again in the next 25 years.

Computers will become exponentially better in understanding the world. Let’s take a moment to compare linear steps with exponential steps. When we take 10 linear steps (1, 2, 3, etc.), we get to 10. If we take 10 exponential steps (2, 4, 8, etc.), we get to 1024. The difference between the two rates of growth becomes staggering in a relatively short period of time.

The exponential growth of computing predates Gordon Moore and applies to any technology with measurable information properties. People have asked about what happens after Moore’s Law comes to an end. The answer, as always: we will then go to the next paradigm.

In the 1950s, technology was shrinking vacuum tubes, making them smaller and smaller. They finally hit a wall; they couldn’t shrink the vacuum tube anymore and keep the vacuum. And that was the end of the shrinking of vacuum tubes, but it was not the end of the exponential growth of computing. We went to the fourth paradigm, transistors, and finally integrated circuits. When that comes to an end we’ll go to the sixth paradigm: three-dimensional, self-organizing, molecular circuits.

Our current generation of business leadership must be able to navigate these industry evolutions faster and more effectively than any time in the past if their organizations are to survive and thrive.

Next month, we will examine the impact of Artificial Intelligence on technology innovation.

About The Author

Buy Vs. Build

I frequently speak with risk officers from financial institutions across the country about their operational risk management approaches and potential solutions to minimize risk within their organization. In the past, many of these individuals would manage third party due diligence, business continuity planning, alert notifications and incident reporting through a host of spreadsheets and reports via their own custom solution.

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As the influx of rules and regulations has increased and the fervor at which auditors are scrutinizing potential risk within the institution, the complexity of managing these processes internally has become daunting. This has forced many risk officers to consider weather to buy or to continue to build on their own operational risk solution.

Risk officers need to consider a host of items before making a long-term decision about building or buying. These include: Do you have the resources, technology background, and expertise needed? What is the time to market when you build vs. buy? Have you evaluated the on-going cost to maintain the solution? How will you keep up with industry trends and innovation? Are best practices incorporated into the solution from a diverse group of experts? Is there greater risk if you build it yourself?

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These, and a number of additional considerations, should be reviewed before moving forward. In an article entitled “The Buy Vs. Build Decision: Choose Wrong And Put Your Job At Risk,” Dan Simerlink, a Business Value Consultant for Teradata, discusses additional points to consider.

“When evaluating software solutions, businesses need to determine if they should build or customize their own software, or buy from a vendor. Making the correct choice will deliver a strong ROI, enable competitive advantage and earn accolades for the decision maker. However, the wrong selection can be costly for the business—and for the career of the person spearheading the project.

Buy versus build decisions used to be straightforward, partly due to limited options. Organizations would assess their needs and the IT staff’s workload and make a decision based on a total cost of ownership (TCO) analysis. These days businesses need more accurate methods to keep pace with a labyrinth of ever-expanding choices.

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Project Risks And Career Perils

When organizations build or customize a solution, they should expect a 10% to 15% error rate, according to an article on The article also notes that in the U.S. alone, an estimated $75 billion a year is spent on rework and failed or abandoned systems. For example, poorly tested software caused transaction process problems for millions of online customer accounts and resulted in widespread email phishing attacks that cost one large multinational bank more than £50 million.

On the other hand, purchasing a solution reduces the likelihood of time and cost overruns and the possibility that the project will fail because:

>>Conversations between vendors and their customers identify the pros and cons of the solution

>>Many of the errors and bugs have already been worked out

>>Vendor specialization in deployments eliminates a long learning curve

Although the cost of failure is usually not considered in the buy versus build analysis, thousands of hours can be sacrificed on a project that will never launch. Even if the project does see the light of day, time and cost overruns can impact people’s careers.

In terms of career stability, the riskiest decision is for the company to build its own software. This exposes the decision maker to much more scrutiny than a “buy” scenario. When a company buys software, the vendor shoulders part of the risk and assigns additional resources if the implementation timeline slips (assuming a reputable vendor with a track record of success is chosen).

Narrow the Choices

The abundance of customizable software solutions now available has erased the hard dividing line between buy and build decisions. As technology matures and business models evolve, default modes for a funding model for buy versus build decision making need to be re-evaluated.

Increased competition, shorter time-to-value cycles, and the rapid pace of innovation are forcing organizations to look at the speed and agility of their software deployments. In fact, these factors can be parlayed into a competitive advantage, which means the project must be carefully planned so that advantage is not devoured or sacrificed to failure.

The decision-making process should entail estimating the TCO for the software. A good starting point is to create a list of criteria for each potential option that weighs factors such as time to value, solution functionality, the technical expertise required, and funding. The value proposition for the buy, build or customize options can help narrow the choices.

Considering the time to value, which is erroneously omitted from many financial business cases, helps make a more informed project decision. Including all costs, along with ROI and time-to-value evaluations, enables decision makers to reach the most informed conclusion.

Critical Decisions 

The proliferation of software vendors and solutions has greatly complicated the selection process. To make the best choices, organizations need to quantify options and approaches to determine the total costs and benefits. The right choice will deliver substantial value to the business and could launch a career. At the other end of the spectrum, the wrong choice can cost a lot of time and money—and put your job at risk.”

In a blog published by Rex Chekal of TableXI, he looked at the buy vs. build decision from this perspective. “Our software build vs. buy checklist: When we’re looking to make a buy or build software decision, we don’t rely on a complex matrix or framework. Instead, we ask four straightforward questions:

>>What are the must-have features for this software? Then we determine if an existing product can deliver enough of those features to get the job done. If yes, we move on.

>>What’s the timetable? The feature set will determine what’s going to be faster–off-the-shelf or custom. A super-tight timetable may make the decision for us.

>>What’s the build vs. buy cost analysis? Once we know the features we need and the time we have to build them, we can start scoping out what it will cost to buy vs. build.

>>What’s the ROI potential? This is the biggest question we need to answer: Will this product make enough money to justify its costs? Sometimes this answer will push us toward custom or off-the-shelf. Sometimes it will force us to return to step one and rethink our features until we have something we know will turn a profit.”

As you can see, there are many factors that need to be considered before making the decision to buy vs. build. One thing is clear though: the old way of throwing together a few spreadsheets for due diligence, business continuity planning, alert notifications and incident reporting and thinking it will meet auditors expectations for operational risk management is no longer true. The time to make the right decision about buying vs. building is now, before the auditors come knocking.

About The Author

Get Noticed

It’s tough out there. If you want to get a lender’s attention you have to be on your game. What does that mean? It means that when you write a blog or any content, you need to make sure that it gets read. That seems easy enough, but it isn’t. Everything starts with a good headline.

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In the article entitled “How to Write Catchy Headlines and Blog Titles Your Readers Can’t Resist” by Corey Wainwright, he says, It’s one thing to write great content, but it’s another thing to get it read and ranked, which is where nailing the title comes in.”

Titles are what sell the content. They represent it in search engines, in email, and on social media. It’s no surprise, then, that some of the most common questions we get concern crafting titles.

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How long should my headline be? What words should I use? What words should I avoid? Should I optimize it for search, or for social? Or both?

Luckily, we’ve come up with a simple formula for writing catchy headlines and blog titles that you can reference from here on out. So let’s just dive right in, shall we?

1.) Start with a working title.

Before you get into the nitty-gritty of coming up with a perfect title, start with a rough draft: your working title. What is that, exactly? A lot of people confuse working titles with topics. Let’s clear that up:

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Topics are very general and could yield several different blog posts. Think “raising healthy kids,” or “kitchen storage.” A writer might look at either of those topics and choose to take them in very, very different directions.

A working title, on the other hand, is very specific and guides the creation of a single blog post. For example, from the topic “raising healthy kids,” you could derive the following working titles:

>>”How the Right Nutrition Can Strengthen Your Kids’ Bones”

>>”A Parent’s Guide to Promoting Your Child’s Social, Emotional, and Behavioral Well-Being”

>>”X Recipes for Quick & Healthy Dinners Your Teenagers Will Gobble Up”

See how different and specific each of those is? That’s what makes them working titles, instead of overarching topics. It’s also worth noting that none of those titles are perfect, they should just be specific enough to guide your blog post. (We’ll worry about making it clickable and search-friendly later.)

2.) Stay accurate.

Accuracy is critical when trying to finesse a title, because it sets clear expectations for your readers. While I’m sure lots of people would love to click into a post that said “10 B2B Companies Killing Facebook So Freaking Hard They Don’t Need Any Other Marketing Channel” … it’s a little bombastic, no?

Unless, of course, you truly did find 10 B2B companies rocking Facebook that hard, and you could confirm that all 10 of them had stopped using other marketing channels. First and foremost, your title needs to accurately reflect the content that follows.

One way to ensure accuracy? Add bracketed clarification to your headline.

So if you remember nothing else from this blog post, let it be this: The most important rule of titles is to respect the reader experience. If you set high expectations in your title that you can’t fulfill in the content, you’ll lose readers’ trust.

Accuracy encompasses more than just hyperbole, though. With the example working title above, you’d also want to confirm all of the examples are, indeed, B2B. Or even that they’re all companies, instead of, say, individual bloggers that target B2B audiences. See what I mean?

3.) Make it sexy.

Just because you have to be accurate doesn’t mean you can’t find ways to make your title pop. There are a lot of ways to make a title sexier.

Of course, all of this hinges on understanding your core buyer persona. You need to find language that resonates with them, and know what they find valuable.

Once you’re armed with knowledge of your buyer persona’s preferred style, try testing out some of these tips for making your headlines a little sexier:

Have some fun with alliteration. The title and header in this blog post, for instance, play with alliteration: “Foolproof Formula.” It’s a device that makes something a little lovelier to read, and that can have a subtle but strong impact on your reader.

Use strong language. Strong phrases (and, frankly, often negative ones) like “Things People Hate,” or “Brilliant” pack quite a punch. However, these must be used in moderation. As one of my coworkers likes to say, “If everything is bold, nothing is bold.”

Make the value clear. As we mentioned above, presenting the format and/or contents to a reader helps make your content a little sexier.

Make it visual. Is there an opportunity to include visuals within your post? Make that clear in the title.

Focus on the “who’s,” not the “whys”. Want to intrigue your audience? Focus on the “who”: Headlines including the word “who” generated a 22% higher CTR.

4.) Keep it short.

There is no one-size-fits-all answer to how long or short your title should be. It depends what your goals are, and where your headline will appear.

Do you want this post to rank really well in search? Focus on keeping the title under 70 characters so it doesn’t get cut off in search engine results.

Are you trying to optimize your title for social sharing? According to our own analysis, headlines between 8–12 words in length got the most Twitter shares on average. As for Facebook, headlines with either 12 or 14 words received the most Likes.

5.) Try to optimize for search and social.

I say “try” because, sometimes, trying too hard to optimize for these things can make your title sound strange. Remember: You want to optimize your title for your audience above all else, but if you can optimize for both search and social, that’s great.

The secret to thinking about all three at once? Focus on keywords that you know your audience is already searching for, then look into the search volume for those keywords.

Once you have a keyword in mind, you’ll want to be sure to place it as closely as possible to the beginning of your headline to catch your reader’s attention. (Again, you should keep your headline under 70 characters so it doesn’t get cut off in search engine results.)

6.) Brainstorm with someone else.

Once you’ve refined your title using the tips above, it’s time to come up for air and connect with another human. Title brainstorming is an essential part of the process.

The final step before scheduling a blog post is pulling another member of the team into a back-and-forth title brainstorm in a chat room. One member of the duo will post the title they recommend into the chat pane window. The other person will then refine that title even further, or suggest other angles. After several back-and-fourths, the duo will agree on the title that’s accurate, sexy, concise, and SEO-friendly.

It’s essential to put your best foot forward with each post that you publish.

About The Author

The Trump Effect On Servicing And Beyond

With each new presidential administration, the financial services industry becomes filled with some combination of optimism about the future, and a degree of uncertainty about potential changes in policy. Typically, the level of optimism is connected to the anticipated changes in monetary and fiscal policy. With most presidents, much of their policy and priorities are well-known and predictable prior to their election. President Donald Trump assumed office with little political experience, a vast business background, and a host of ever-evolving policy positions. He also came to office with a promise of returning the regulatory environment to something that was more business open – something that would accelerate GDP growth, expand job creation and ultimately grow a decade plus of stagnant wages; key components in reinstalling consumer confidence and the corollary consumer spending.

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Now that the Trump administration nears five months on the job (more if you count the three months of transition), it is a good occasion to review the impact the president and his team have had on both the broader economy and the mortgage servicing industry, as well as a look ahead to what changes could be in store for the market.

Government impact – to deregulate, dismantle, and disassemble or not?

After his surprise victory in November, President Donald Trump repeatedly vowed to shred the federal regulatory apparatus, promising at one point that he would cut regulations by 75% or more. Additionally, his campaign (and now administration) made tax reform a priority, promising hefty cuts in taxes to businesses. Throw in his desire to spend nearly $1 trillion on infrastructure improvements, and it’s no wonder that Wall Street and the bond markets initially responded with nearly unbridled enthusiasm. After the first 100 days, the S&P 500 had gained nearly 5%. By comparison, the index typically gains less than 1% regardless of party – 0.9% for Republicans and 0.3% for Democrats. There was good reason for the optimism: improving labor market, promise of restoring some regulatory normalcy, and solid projected GDP growth.

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Since then, however, the growing uncertainty that clouds the administration is taking its toll on the economy. Questions about the steadiness of the president’s public statements, various investigations, and a lack of tangible successes with an ostensibly friendly Republican Congress have conspired to deflate much of the optimism about the president’s lofty agenda.

Just recently, the president announced the nation will be withdrawing from the Paris Agreement on climate change. While popular with his base, the shift will have negative unintended consequences and further a sense of economic isolation and ambiguity. The daily dose of volatility has also sent a message of uncertainty to stock and bond investors, who have begun to hit the brakes. In particular, no-nonsense bond traders seem unconvinced that major infrastructure projects are in the offing. The Financial Times recently reported that “stagnant sales of bonds by local governments and authorities as they focus on budgetary discipline have helped fuel unexpected strength in municipal bond valuations.”

On the regulatory front, there is a good deal of uncertainty as well. While many business leaders would be happy to see some form of relief, there is great danger in calls to dismantle or dramatically scale back regulations that companies have spent years and billions in resources to comply and adapt to. For mortgage servicers like RoundPoint, the Consumer Financial Protection Bureau (CFPB) is one of its most important regulatory relationships, and there is much uncertainty when it comes to the future of the CFPB. Will the administration’s regulatory review, led by Treasury Secretary Steven Mnuchin, recommend wholesale changes to the structure, scope, and mission of the agency? Will Congress take action to replace the single director with a more standard (and likely more stable and healthier) commission-style leadership structure? Will the eventual outcome of the closely-watched PHH vs. CFPB case make that a moot point? With the president’s first budget proposal recently released, he’s made clear his desire to see change at the CFPB. The administration would see funding for the CFPB not only slashed by $145 million next year, but by as much as $700 million by 2021. Additionally, the president and Republican allies in Congress are in agreement that funding for the CFPB should go through the regular Congressional appropriation process and not through the Federal Reserve, which is not accountable to Congress by design. We’ll see how much of the president’s regulatory priorities become realities.

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Time for reform

One way that the administration could make a positive impact is by encouraging and prodding regulators to provide businesses with more clarity on compliance. Recall that in the immediate aftermath of the TRID rollout, mortgage companies had hundreds of millions of dollars of loans on their balance sheets, in part because warehouse lenders and investors were concerned about their potential liability on even the smallest of TRID errors. So, whether for TRID or other issues, if the industry had a better understanding of the regulatory community’s risk assessment of possible issues, we’d have a transparent situation and consistency across the industry. That would translate directly to an improvement in consumer experience, as lenders and servicers could operate with more confidence, and focus on better products and solutions.

Another way that the administration can make a positive impact on the mortgage and financial services sector, is by embracing reform of the government sponsored entities, or GSEs. For too many years, Fannie Mae and Freddie Mac have languished in conservatorship with an uncertain future. The administration should be working with Congress to pass reform and allow Fannie and Freddie to be recapitalized and reborn as independent companies that are able to safely support the private mortgage market.

Macroeconomic and mortgage market trends

The big question that continues to drive both business and consumer behavior is where interest rates are headed. The good news is that in many ways we should be pleased that the Federal Reserve is planning to raise the target rate a couple more times this year – it indicates the central bank is convinced that the economy is gaining strength and that consumer activity will lead to further GDP growth. But are rising rates good or bad for the mortgage industry? For originators operating in a GSE-dominated market and heavily dependent on retail origination or refinance activity, it is likely going to be a challenging road ahead. Rising rates will mean decreased production and slimmer margins.

For the pure subservicer, this may lead to flat or even negative growth. As rates rise, mortgage servicing rights (MSR) duration extends, so borrowers will stay on the platform longer, making the MSR more valuable. However, many lenders will find themselves needing capital and will resort to selling the MSR to an aggregator or another servicer or capital provider for the needed operating capital. This often creates a loan transfer from the pure subservicer. This phenomenon accounts for the rapid growth in the MSR market in recent months. Buyers have had the opportunity to pick up product at prices that are still reasonable, and may now have more confidence in a higher and increasing long-term rate environment.

For fully integrated mortgage banking institutions, however, rising rates are good. As mentioned, mortgage bankers will find that the duration of the assets on their books will be extended. This will leave the lender in a decent position, with origination activity supported by its owned MSR position. The MSR valuations increase as duration and cash flow prolongs.

Bottom line: rising rates are great for balanced institutions. They reflect a strengthening economy, a confident consumer, and more opportunities in purchase originations and alternative products.

Foreclosures continue to fall

Another reason that MSR values have increased is the continued decline in default rates. The Mortgage Bankers Association (MBA) reports that homeowners are defaulting on their mortgages at rates not seen in a decade. Just 4.71% of all loans are in the foreclosure process, down six basis points from one year ago. Even states with lengthy judicial foreclosure processes, like Florida, New York, and New Jersey are starting to work through their backlog of foreclosures. Considering that home values continue to improve and wages have been steadily, albeit slowly, increasing since 2015, it is reasonable to expect default and foreclosure rates to continue to either fall or at least stay flat.

That also has implications for the growing rental market. While wages are increasing, they are not keeping pace with rising home values in many markets, leaving plenty of rental opportunities. Increases in interest rates will further exacerbate this, and many Millennials, already the largest cohort of homebuyers, have until recently been putting off homeownership, thanks to high levels of college debt, delayed family formation, and other factors. First-time homebuying is expected to be strong in 2017 – credit bureau TransUnion anticipates nearly 3 million new buyers this year, many of them Millennials. The Millennial “wave” still hasn’t even crested, as number-crunchers at NerdWallet note that only one-third of Millennials are 31 years old, the average homebuying age, and almost 1 in 4 are still under 25.

The increase in Millennial homebuying, however, is not happening in geographic symmetry. While there’s plenty of activity and movement in the more-affordable Midwest and South, coastal city home prices are out of reach for many young buyers, making rental housing an attractive investment.

What is “next” for mortgage servicers?

Looking ahead, in the near-term consumers are likely to see changes in both government regulation and technology-driven improvements to user experience. First, barring any immediate changes at the CFPB, expect to see adjustments to the CFPB amended Mortgage Servicing Rule, including:

>>New statements will now be sent periodically to consumers in bankruptcy,

>>Additional loss mitigation protections availed to consumers more than once during the life of the loan, and

>>Confirmed successor-in-interest in the mortgaged property will be extended same rights as consumers under Regulation X & Z.

In a world that is rapidly accepting on-demand mobile services like Uber, mortgage originators and servicers must do more to reach younger homebuyers who expect a more transparent and accessible process that extends far beyond the close of the loan. Servicers will begin to leverage technology to improve how they communicate with borrowers, reach out to those struggling to pay their mortgage, and find new and innovative alternatives to delinquency and foreclosure. Additionally, servicers will continue to maintain high levels of security to protect their customer’s data and information in the face of the constant threat of cyber-attacks.

Evaluating any president’s record on the economy and specific sectors like housing is an inexact science. What we do know about this president, however, is that he is advocating for major regulatory change at a time when lenders and servicers are already responding to the market’s demand for change.

The Geography Element Of Branding

Marketers and branding experts in the mortgage space take good care to think about various elements of their brands: What feelings do the colors evoke? What are people’s reactions to the logo? What are the brand values?

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Another important aspect of branding is the “where,” according to an infographic produced by B2B product-comparison site Market Inspector.

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The term used in the infographic is “geographic entanglement,” and we’re all familiar with this concept, even if we don’t think about it frequently. For example, Volkswagen deliberately uses German in its international slogans to maintain the “country of origin” effect, which can strongly influence buying decisions, the infographic says.

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It goes on to explain that geographic entanglement matters to brands for various reasons, such as the idea that “positive geographic associations can be a long-term competitive advantage that is hard to imitate.”

Here’s how geography impacts branding:

Something To Think About

This may not be on your radar but Spiegel Accountancy Corp., a professional accounting firm that serves the mortgage industry and small businesses nationwide, reminds mortgage lenders who are selling MSRs to do an analysis to determine if they can report a portion of the sale as long-term capital gains.

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“If a lender has maintained the servicing rights for more than 12 months, which is considered long-term, and has a significant portion of those loans in their sale, then they can take a tax position to report a portion of the tax gain as long-term capital gain as opposed to ordinary income. Oftentimes, this will save the lender up to 20 percent in federal taxes,” stated Jeff Spiegel, Principal at Spiegel Accountancy Corp.

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In addition, when selling a portfolio, the lender needs to make sure that it has accurately evaluated its portfolio to take a position to report capital gains. It is recommended to document the following to substantiate the capital gain position and to avoid any penalties should the IRS challenge and disallow:

>>Having “reasonable basis” for capital gain filing position

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>>Analyzing and documenting your specific facts and circumstances in determining your tax reporting position

>>Obtaining a third-party valuation of MSR portfolio with a separately stated value of “reasonable compensation” based upon the lender’s specific portfolio, servicing costs, etc.

>>Disclosing the tax position on Form 8275 attached to your tax return.

>>Consider obtaining a tax opinion letter supporting the tax position from a qualified law firm

Spiegel Accountancy Corp. is a professional accounting firm based in the San Francisco Bay Area with a national practice specializing in the mortgage banking and small business sectors. Spiegel’s senior-level CPAs are actively involved and readily accessible to the firm’s clients. Their deep understanding of business for audit and tax purposes makes them uniquely qualified to share best practices, meet mortgage companies’ needs and exceed their expectations.

About The Author

Deeds Are Destroying Your Organization

Captured on camera — a passenger being dragged off a plane goes viral instantly, and an international brand-tarnishing moment is made.

As a leader such a scenario is a shining opportunity for a CEO, business owner or senior executive to seize control of the situation, and turn it around.

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Instead, far too many executives lose their cool, shift the responsibility and fault others — often relegating the situation to “regrettable actions of employees” or even blaming the victimized customer. In other words, the leader’s sense of self-importance and corporate rightness reigns supreme.

Case in point: The initial response by United Airlines CEO Oscar Munoz regarding employees forcibly removing a passenger from a recent flight was originally positioned as regrettable but necessary. Then there’s the Uber CEO who was videotaped aggressively arguing with his own driver when he complained about corporate decisions to cut fares for Uber’s premium service. Instead of empathy or even tolerance, the driver’s comments were met with scorn. Finally, Wells Fargo’s results-at-all-costs mindset led to millions of fake accounts being created.

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These are glaring examples of CEOs whose focus on financial and personal success damaged their company’s culture and bottom line — and then they blamed others when things went poorly. While highly public company crises are somewhat rare, each and every day C-suite executives and business owners worldwide are falling victim to their own egos — egos which are preventing them from making sound business decisions, unconsciously setting poor examples for their employees and creating a culture where poor customer service and underperformance are an acceptable way to work.

Every organization must decide whether they will allow their companies to be determined by an ego-driven culture or one that is ego free. Many of the employees at the organizations we’ve worked with are talented and hardworking, but have underperformed in their potential in proportion to the severity of these four dysfunctions.

Below are four ego-driven personality traits that, at best, are undermining a company from realizing its full potential and, at worst, can cause executives to irreparably damage their business’s reputation and performance.

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1. Dismissing Feedback

The Symptom: Not listening to other points of view can lead to negative unforeseen and significant consequences in profitability, reputation and employee morale.

The Source: Every leader knows they should listen, but the ego wants to win, be right and avoid appearing incompetent or stupid. When these ego threats are triggered, it is almost impossible for leaders to constructively hear others and take to heart what will be best for the overall business. In the case of Munoz, his initial public response regarding the passenger pulled from the plane was to criticize the passenger and the lack of “proper tools, policies and procedures.” Deflection by a leader is invariably an ego-driven disaster in the making.

“When leaders are defensive or abrasive, it triggers similarly dysfunctional behaviors in their colleagues. It doesn’t matter what poster you put up on the wall. Dominant organizational dysfunction will not decrease until leaders identify and overcome their personal ego-system reactions,” says Black.

The Solution: A culture of trust and transparency starts at the top. This means that the CEO, executive or business owner must be highly — and visibly — receptive to input and feedback — especially when they disagree. For example, notice when you are sure that you are right and ask your team to tell you what you are not seeing or hearing.

2. The Blame Game

The Symptom: When things go wrong, our ego involuntarily points the finger at others. Our focus is on who’s incompetent, doesn’t get it, or never should have been put in that role. Painting a bleak picture of the company, co-workers, our customer base, etc., may make us feel better, but often makes us look worse.

The Source: For the ego, being wrong or at fault (especially in public) can feel like death. Let’s face it: Everyone wants to be the hero and no one wants to be the fall guy. When blame is the name of the game, it is the rare leader who can own his or her responsibility first.

The Solution: A leader must first call out the fact that the blame game is going on, making it too risky for anyone to take responsibility for anything. By humbly owning their (or the team/company) part of the problem, the leader sets the example for others to “look in the mirror.” Leaders who are secure enough to say “I screwed up” create a culture where employees hold themselves accountable.

How much better off would Munoz have been to acknowledge that his policies directly or indirectly contributed to passengers being deplaned in such an un-customer-focused way? Or what about recognizing from the start that this was not an action consistent with the values of the company? Owning a problem requires doing the right thing above the ego-driven goal of “looking good.” All leaders know this intellectually — but when the ego is threatened, the brain stem takes over and we react ineffectively.

3. Us. vs. Them

The Symptom: Human Resources is frustrated with Operations, Sales ignores HR, and everyone is mad at IT. In this common climate of mistrust, performance issues don’t get addressed, and departments fight over who’s in charge instead of coming together to achieve the organization’s goals.

The Source: While everyone may complain about turf wars, there is a hidden side benefit to the ego. Any lack of performance can be passed off as the failure of another person, group or department, and we get to be right that if they had just listened to us, everything would have turned out fine. The unchecked ego will choose being right over making progress.

The Solution: One way to break this deadlock is to acknowledge the conflict and seek to understand how you are contributing to the problem. How are the other side’s frustrations with you true? What are the consequences on the organization’s performance of your turf war? What common goals can you align on? That other group you think doesn’t get it actually feels just like you do. If you put your ego aside, they more than likely will too.

4. Avoiding Conflict

The Symptom: Performance and interpersonal issues don’t get addressed directly. Too often, leaders sugarcoat, vent to others or just move folks from role to role. As a result, productivity suffers, employees feel unengaged and important matters are left to fester.

The Source: Almost no one wants to appear mean or uncaring, and even senior leaders resist being disliked. So we tell ourselves that we don’t want to hurt the other person’s feelings by being too direct. At a visceral level, we avoid putting ourselves in the uncomfortable position of having a direct discussion about a delicate issue.

The Solution: “There are three steps to overcoming this ego threat,” says Shayne Hughes, co-author. “Start by sharing with the other person the discomfort you feel at bringing up the issue. Then let them know what your intention is for the conversation,” says Hughes. “Finally, state your observations about their behavior, not your conclusions.” One leader’s vulnerability can lead the way for someone else to face their fear of conflict, and encourage them to be more open to feedback.

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