Housing and the Holidays
(Mark P. Dangelo is president of MPD Organizations LLC, featuring books, industry reports and articles. He is a strategic management consultant, outsourcing advisor and analytics specialist with extensive process, technology and financial results and is a frequent contributor to MBA NewsLink. He can be reached at mark@mpdangelo.com or at 440/725-9402.)
Leadership during times of economic opaqueness, scary events and political drama can lack efficacy. What worked in the past is a poor roadmap into the future–whack-a-mole urgency will widen the gaps between enterprises. Innovation and automation may be the only certainties over the next 18 months.
While presidential elections energize the party faithful, it once again has exposed the considerable demographic ideologies within and between states. The dictional definitions that separate candidates also provides fodder for shocking theories and damaging dialogues now impacting confidence, purchases and future projections.
The business impacts are great, and the efficacy of political messaging has seeped into all corners–U.S. borrowing limits, modern monetary theory, interest rates and repos (i.e., U.S. Federal Reserve), foreign business operations (e.g., IEEP Act), foreign investment and trade wars. In general, there is more than enough posturing and events to keep news reporting and pundits on sugar highs long before Halloween arrives. Yet, what should we do as the zanier gets caustic and the investigations become actionable? What should the focus of initiatives, customers and budgets be as 2020 rapidly approaches?
Rationale for Perpetual Halloween?
Trick or treat, this scaring of constituents is having a very material impact on innovation and efficiency investments, not including the current loss of 300,000 U.S. jobs on the way to one million by 2020 (primarily due to Chinese trade disputes). Put a different way, GDP is now estimated to be at 1.6% moving into 1% by the end of 2019–down from 3.5% at the end of 2017. Our $22 trillion GDP, representing nearly a quarter of global GDP, is at risk for a correction.
Moreover, with new home prices significantly increasing over the past two years, it is not a leap of faith to look at the disputes with lumber, imported merchandise, appliances, raw materials and finished products to see a major factor of why variable costs within starter home pricing continue to escalate. Increases are also attributable to buyer demand and limited availability in the starter home brackets, but to ignore trade impacts on materials and increasingly integrated home innovations is misleading. Even with mortgage rates materially down from a year prior, confidence in the future monetary outlooks are waning as politics become economic realities.
For homeowners, those looking for homes, sellers, real estate agents, economists and mortgage lenders, the government and political disturbances taking place domestically and internationally resemble the characters of a terrible reality show. It’s hard to rally around a person, a party, a purpose when the dialogues are all about “me.”
The results are beyond those directly benefiting, or hoping to benefit, from these “boss-battles”–EPA, immigration and oversight. The results are evolving and won’t likely be known for years–investigations, regulatory rollbacks and climate change. The results continue to spread the illness of division, uncertainty, risks and fear–market valuations, business and investment decisions, consumer confidence and purchasing. So, what should be done while we wait? Sufficiently concerned? I am.
However, there are two lifeline classifications that can always be undertaken in times of distress–innovation and automation.
Innovation to Hedge, Innovation to Lead
With a high probability, the end-goal for mortgage lending and for closing is instantaneous processing, funding and closing. Whereas, the push-of-a-button processes are years away, these disruptive, iterative innovations remain the goal–not the competitive standard just to keep pace.
Since 2011, we have witnessed fintech rapidly being expanded and adopted with innovations that prior to 2007, were thought to have been optional–AI, big data forecasting, digitalization, QA/QC testing, complex rule deployments and machine-cognition reviews. As innovation expands due to the latter cycle of Moore’s Law (the next 10 years may bring forth an exponential equivalent of 200 years of prior advancements), the reliance and deployment on layers of advancements will be the norm. Meaning that small, compartmentalized improvements will be incorporated into complex solutions benefiting consumers, risk management (e.g., error reduction and due diligence), and real time compliance and auditing.
Stating the obvious against caustic political and business dialogues, innovation is apolitical–or at least it has been. Innovation is a direct result of market movements, technological advancements, regulatory compliance and investor capitalist seeking the “next” trend. Critical for the innovations across the mortgage supply chains are what can be done with the vast amounts of data on a consumer and homeowner–of which only 35% is directly controlled by financial services and banking organizations. As accessibility drives intelligent use of big data against rates that create more information in two to three years than all human history before it, so does the increased scrutiny of privacy, government overreach, unregulated non-industry markets (e.g., voluntary genetic testing) and the legal risks of violating trust without clear guidance.
While it is imperative that financial institution executives conduct themselves methodically and with ethical conduct, leadership must also recognize that innovation in times of crisis and polarization is a hedge against the unknowns. Therefore, investments must be made in short bursts, not grandiose initiatives betting the future of the enterprise on emerging trends. The exception to short bursts rule resides within the cybersecurity and governance protections needed to safeguard informational assets as well as the accuracy and confidence of transactions during times of pervasive public breeches.
However, one innovation that is taking place in science labs will also be rapidly introduced into business environments beyond a hedging strategy–use of sophisticated AI applied to existing big data to uncover previously hidden patterns, insights, risks and opportunities. The data already identified commonly through ETL methods now processed with increasingly robust AI will aid with decision making and marketing. Of course, I should mention how blockchain will revolutionize transactions and delivery transactions, but who doesn’t? A similar tone might be struck with IoT and it being ubiquitous within a home and across homeowners–problem is, financial institutions aren’t involved (representing 25 billion devices generating over $1 trillion by 2021).
Automation–It’s Not Just About Efficiency
When the term automation arises in mortgage lending, and nearly every financial institution business process, it is the amount of direct and indirect labor that is often targeted for efficiency. Yet, when it comes to functions and the processes within, the rise of aggregated data and third-party sources have launched corporate initiatives that involve more than just technology, standards and interfaces. The data gathered and aggregated must be vetted and transformed into actionable tasks and supporting intelligence otherwise it is just more labor and technology about data.
Therefore, when it comes to automation during times of crisis, traditional ideals will surface. The need to automate the entire lending process, from first touch to close, involves comprehensive digitalization, but it also involves the removal of unnecessary steps. Moreover, the inclusion of due diligent, artifact information must also be automated to augment the streamlined processes. Direct labor arbitrage will be reduced using partners, cloud delivery and LaaS (lending as a service) solutions to arrive at compartmentalized actions than can be layered and expanded (or contracted) as needed. Think of it as an Amazon AWS for the industry, rather than the traditional management principles of outsourcing.
Key to these automated, provisioning solutions will be education and training not only of the “as a service” component, but for any internal personnel who will be the architects and overseers of the assembled solutions. What started out as an enterprise “banking as a service (BaaS)” will now emerge into vertical specializations within a larger umbrella allowing third-party fintech and outsource providers to leverage their unique offerings. As these offerings are deployed, their robustness of automation will also expand forcing all participants in the market to adopt new delivery strategies–or perish under the weight of in-house, slow-cycle initiatives.
Automation during times of chaos requires nimbleness. Lending and banking operations can hunker down like they did in 2008-2011, or they can recognize the fallacy of automation (e.g., margins and cost-controls) through internalization. As I wrote in my last article dealing with digital omni-channels, there are fundamental shifts taking place within banking and lending that are being ignored during times of stability. As economic realities take a rapid bite out of the housing markets, those enterprises that invested will survive those that merely concentrated on volume production.
Should I mention collaborative research labs carved out within the enterprise? Should I discuss automation of the mortgage lifecycle? Should I advocate the merits of document automation (i.e., digitization) and seamless underwriting? Should I talk about a resurgence of cooperatives that allow smaller operators to mitigate size and capital disadvantages? Should I talk about the bonding with innovations by consumers and homeowners now creating a future data tsunami that will drive most new products and services for financial institutions by 2023?
I should, but if the automation principles above are not accepted, no amount of pressure applied to the wound would likely save the patient. It may keep you alive, but at some point, the likelihood of becoming one of the 200 to 250 Federal Deposit Insurance Corp.-institutions lost every year (in times of “prosperity”) for the past 20 years increases. So yes, automation still requires adherence to efficiency axioms, but the outcomes are moving non-traditional players into the embrace of non-financial ideals and participants especially during times of political transformations.
We know that as bankers, lenders and homeowners, we initially embrace changes tentatively until we can grasp the implications. Frequently, we find the alterations a bit fascinating. We then move into anxiety and fear wondering how this might individually impact us and our business operations. We then wonder how the data will be used, made available and then leveraged for benefits–and advantages. It is a model of progression that continually benefits society whether you are seeking to improve the environment, make credit available, helping the disadvantaged or promoting a new product or service.
Innovation and automation will be the two primary rocks to cling too as the storms of election and governance turmoil move into Category 5 destructive forces. Consumers, investors and the markets they operate within are getting scared and doubtful. It’s like a flu pandemic waiting to unfold. Can we vaccinate ourselves, our operations and our customers from contagion? Will we accept that the remedies needed for emerging omni-channels are atypical? Or will we hope that the estimated 13 million individuals along the domestic shorelines at risk from rising water levels will need to build new homes over the next two to four years thereby ushering in a new housing boom?
I guess that really is up to us.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)
