Magazine article Mortgage Banking

Is It Real Change?

Magazine article Mortgage Banking

Is It Real Change?

Article excerpt

More than once a month an article appears chronicling both the principles of a successful corporate metamorphosis and the transgressions of botched attempts.

As always, the challenge is to learn from other industries and undertakings to assess appropriate applications to the mortgage banking industry. What would qualify as an effort to change in an industry embedded in change?

Most simply, a transformation is when strategic intent, a common vision and a shared commitment are applied to a blank sheet of paper. In the hands of the right managers, a new approach is born exemplifying the future. The plans for a different approach are designed, communicated, nurtured and implemented, and a culture for continuous improvement is established.

A transformation consists of specific stages (that cannot be skipped), and nothing is left to serendipity. It involves a lengthy time line and a communications process that of itself is a transformation. And, most important, its mandate carries a sense of urgency that cannot be dismissed.

For our industry, a merger or acquisition, a system conversion or integration effort, and reengineering undertakings can trigger major transformations. The internal adaptations for consolidations are transformations that require serious changes in the way problems are identified and solved, in decision cycles, and in information needs. More subtle transformations could come from a change in key management personnel or even from tactical responses to changes in the industry.

Often industry or business shifts interrupt transformation efforts, and it is easy to slip from an organized effort into something comfortable, when any of the underlying principles of transformation are skipped. The difference between a effort to change and a reaction to change is in how one perceives one's position on the following question: Do you separate "we live in an industry full of uncertainty" from "it's time to change"?

In an industry where operational and financial profiles can gyrate with a 1 percent drop in rates, we display remarkable flexibility. We adjust for the crests - restructure here, add some staff there, hook up some technology - and try mightily to let someone else identify the troughs before we adjust in the other direction. Planning, communications and implementation are urgent and carefully thought out. But it's industry status quo - everyone goes through this.

For some, the status quo is not acceptable. Not only is the composition of the mortgage market swiftly metamorphosing with the aging population and increase in immigrant prospects, but, for most of the industry, the market itself is getting smaller. According to Inside Mortgage Finance, the top 30 originators produced 41 percent of the loans. In 1994, the top 50 originators produced 51 percent of the loans. In 1995, the top 30 servicers claimed 41 percent of the market, nearly an 18 percent increase over the previous year. Several origination monoliths have promised that 20 companies will contribute 60 to 65 percent of all production by the year 2000.

And with best-in-class per loan origination costs hovering around $1,100 for the giants, the rest of the industry is looking at a very different, smaller and more costly marketplace. Those adopting the "it's time for a change" stance view these events with a great sense of urgency, a veritable mandate for change.

Experts suggest the status quo is unacceptable when three out of four senior managers agree that certain ominous business signs are present. These signs might include: the potential for a severe drop in revenue (including pricing subsidies), a competitor exits the business (whose costs didn't look so different from your company) and an increasing share of the business is likely to come from emerging markets (that you're not in). The aggressive cooperation of key individuals is the second must, after the urgency wake-up call.

While many more will be needed to achieve progress, it takes no more than a carload to jump-start the call for change. …

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