Academic journal article ABA Banking Journal

Mortgage IT: Not This Year's Hot Property: Will a Retreating Market Provide "Silver Lining" Offerings?

Academic journal article ABA Banking Journal

Mortgage IT: Not This Year's Hot Property: Will a Retreating Market Provide "Silver Lining" Offerings?

Article excerpt

With ebbing property values, fewer originations, and stalled loan servicing volumes, the invisible hand that turned the crank on the mortgage industry eased back on the pressure. Way back.

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"All the 'levers' that drove high loan volumes and the need for technology 'got turned off'," says Jeff Lebowitz, founding consultant with Mortech, who built his business in Guilford, Conn., and has recently relocated to Oregon.

"Roughly 10% of core technology spending in the mortgage sector disappeared over 2007," says Lebowitz. And the sudden loss of a rambunctious subprime sector has resulted in an environment where there are more vendors of interesting technology than takers of it.

While Lebowitz agrees no one can predict market timing, it will be some time, he and others say, before a stable housing market pushes mortgage-related IT spending up again--probably until the next boom.

When pressed, the consultant is firm in his pessimism. "Sure, there will be some down market lenders that need to update their systems," he says. "There may be some spending related to system consolidation, but that's all 'back fill'."

Paul Schaus, president and managing partner with Catalyst Consulting Group, Goodyear, Ariz., essentially agrees. "There are certainly some progressive banks out there that are doing great financially, which may take the time to make systematic upgrades to their lending environment so they can leverage their strong position and be as choosy as they want. But those banks would be the exception. Most aren't making IT upgrades. They aren't spending, period. They are just finding ways to cut back on any extra staff they may have hired during the boom."

In that vast unstoppable cycle that is the economy, "every banker I talked to during the lending boom knew the bottom was going to drop out," says Schaus. "They were simply surprised that it fell so fast and so far from what seemed liked a very strong period. Eighteen months later, we're all still wondering."

The widely reported housing and mortgage finance predicament is a study in complication. "Issues vary from region to region," says Bert Ely, a banking industry consultant based in Alexandria, Va. "You saw outright fraud in some places and long-term economic decline aggravating the crisis in others," he says. Certainly, Ely says, not every lender was touched and many continue to deal with the conforming segment that tends to be trouble free.

"Securitization won't be wiped out, but it will shrink," predicts Ely. "The mortgage finance market is under a great deal of pressure and everything will get conservative." Now that the "pass the buck" mentality of the recent boom won't be tolerated, Ely sees the possibility of dominant reversion to portfolio lending.

Needed: case management systems

Peter Davidson, founder of Brooks FI Solutions, Downingtown, Pa., isn't as vivid in his characterization, yet he agrees that the current market is hard to read. "Under ordinary economic conditions, you might be able to say that we've started to recover," says Davidson. "Yet with oil prices, layoffs, and the stress that the financial services sector is under right now, it's hard to know how the secondary market will work and what types of products will become more widely used."

Davidson says that there could be a role for automation in a market trying to right itself and avoid foreclosure via "haircuts, workouts, and new arrangements."

"There really aren't any vendor systems that can support a bank handling any volume of client workouts." Offering an example, Davidson talked about case management systems that banks could use where the bank cuts interest rates to keep the homeowner in residence but shares upside potential down the line when the property is sold. "That's the sort of workflow and reporting tools the market could use now," says Davidson. …

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