Some members of blogging and other community platforms I belong too tend to misinterpret my MO…calling me ‘negative’, an ‘idealist’, ‘mud-slinger’, etc. Contrary to popular belief, I’m not the Grim Reaper, although my posts may have a sensationalist, tongue-in-cheek, even rapine roll to them; so at times it is hard to convey what should be viewed as ’serious’ content over general and random opinion. Few people like to entertain the guy who trashes their business model as antiquated, especially those within the industry who currently enjoy a comfortable margin of success doing business under the self-prescribed ‘right way’. So, let me simply say that I am here to help, not just pee in your Cheerios. Maybe I’m guilty of a little too much self-promotion, but you can’t get mad at the kid who tries to answer the tough questions, whether invited or not, and offers a solution for everyone else to openly poke holes in/at/through.
‘Disintermediation’, a word I filed in my vocabulary base this week thanks to others in the blogosphere, is another in the long list of progressive business practices that seem to become more debated by the day in this ‘underground’ real estate related community. As the mortgage industry moves towards the path of greater transparency, outsourcing for less expensive labor practices is becoming a required task more than an option or debatable topic. Globalization hit the mortgage service industries a few years ago, if you hadn’t noticed. Anyone can outsource file processing (from Indiana to India) at far less expense than employing an in-house processor, with less errors :| This is only the tip of the iceberg, the risk (or opportunity) is far greater.
Much like the traditional stock broker middleman, the mortgage broker/banker middleman is a species who is facing a slaughtering wave of attrition, and for very similar reasons. The mortgage bubble has popped, and as the market scales from historical demand back into some balance with supply, only the strong and/or adoptive will survive…specifically…those who can do more for less, in less time. In the case of the mortgage industry, new and inexpensive technology is mandating transparency and forcing disintermediation from traditional ways. Instead of looking over the entire landscape, many within the industry refuse to look further than past what they can currently see.
Too often I hear comments like: ‘No piece of technology is going to replace me!’, ‘I’ve been very successful for years, why would I change?’ ‘It’s not practical to do business like you suggest’, ‘My customers love the way I do business’, ‘People don’t mind paying my fee.’
The internet has only been around for apprx 11 years, it is still in it’s infancy. There were plenty of people 10 years ago that dismissed Information Technology in a similar fashion, and PC cynics before them.
The demographic that has grown up online is just now entering the mortgage marketplace. They don’t value the traditional relationship as much as information. It, not you, is recognized as the most valuable resource. If they can get around you on the cheap, they will, and someone will be there to sell it to them for less than you’re capable of. Think of it this way, fathom doing business without the net and still being as efficient and effective as you are today? Impossible.
Dot com era businesses (and their plans) blew up at the introduction of transparency into it’s inflated numbers and projections. Company’s with P/E ratios and other fundamental baseline measurements that made 0 economic sense imploded.
The stock brokers who were making huge rips under cloak were exposed and marginalized or eliminated from the industry. I got along great with my stock broker, that didn’t mean I felt obligated to pay him 2-3 times the amount I now pay to buy and sell my securities. I found a way to do it faster and cheaper. His job and fees were marginalized to the point he joined the mortgage industry. Now he’s looking at me like, ‘What’s next?’.
Quid pro-quo; What is the benefit of changing how you do business now? Market share, and alot of it. However, early adoption of disruptive technologies that promote transparency and as a result, increased loan volume, requires disintermediation from current mortgage broker labor compensation models and business processes.
The new mortgage market consumer will demand more efficient, less expensive, point and click, intuitive interfaces to gain their business. If your cost per loan acquisition is $1,200+, you have a shelf life of about 1 year. Insist on continuing to charge points instead of a fixed fee for (multiple) services? Get relegated to fighting for ‘whats left’. Own or working for a brokerage that pays some type of 30%-70% split? You’re pricing yourself out of competition.
Seth Godin postulates that integration of new technologies, business ideas, products, and paradigms generally move into general usage/acceptance along a traditional bell curve, which seems more than reasonable to believe.
Lets put the transparent, efficient, cost effective, and intuitive mortgage business model into the curve as a whole, assuming that what I have laid out becomes remotely true.
Where will you or your Company be in this curve? Among the late majority, or cynical laggards who die a slow death or play perpetual catch-up?…or among the innovators and early adopters who are positioned to capture significant market share….a market that is primed for a huge correction, the beginning of which we are just now seeing.
The e-myth demonstrates that a business owner, and thats all of us in mortgage services nowadays, must work on his/her business, not in it, to become successful. The Innovators Dilemma discusses the dangers of getting too comfortable in your current success model, and why the big traditional players in the market fail to innovate, recognize, or implement disruptive technologies, to their detriment. The dot bomb explosion has demonstrated what happens to those pimping overvalued products, impractical revenue models, and non-transparent policies.
Disintermediation and/or transparency aren’t nouveau business process concepts whose effects have never been studied, they can be seen in a number of recent events . Considering the mortgage market is many times the size in volume over it’s equities counterpart, totaling some $8+ Trillion dollars, the overall effects and shift of wealth will be proportionately huge.
Will you get swallowed by the wave, or ride it into future sunsets?
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