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					 Success Strategies for the
 Independent Mortgage Banker

 Learning from the Past – Planning
 for the Future


Scott Cooley.
                                     1
Cooley Consulting
www.scooley.com
Paths for the Independent Mortgage
Banker
I. Technology Past and Future

II. Economics – A
  Technological Perspective

IV. How Can We Not Destroy
 Our Industry Again

                                     2
            Video Conferencing
• Originally hailed as the future for mortgage
  banking

• All the rage 12 years ago

• Ultimately more costly

• Poor substitute for building a relationship

• Wasn’t as simple as first thought – KISS

• Performance wasn’t (and still isn’t) acceptable
                                                    3
       E-Lenders
• Initial surveys expected them to garner 40%-60% of
  originations by 2003. Ended up with under 5%

• No one thought it would increase costs

• No economies of scale

• Ignored the importance of relationships with borrower and Realtor

• Worked well in refi market with repeat or experienced customers in
  concert with call center

• Borrowers want their hands held and need trust

• Mortgage.com, iOwn and hundreds of others lost hundreds of millions if
  not billions

• Few technologies have truly changed the way our industry conducts
                                                                           4
  business
Revolutionary LOS’s
        • Dozens of companies have sought to reinvent the LOS

        • Existing LOS’s difficult to displace because of stickiness,
          experience and refinements

        • No new significant entrants since pre-1992 – dozens
          have failed

        • Existing LOS’s adopt to industry changes

        • Don’t fall for the “new technology” marketing coming
          from new vendors


                                                                 5
     Transaction Systems
GE’s Netoriginate, OpenClose,
 nCommand, Xpede, BridgeSpan and
 several others missed the boat

Remember CPI Interchange, GSE VAN’s
 and others

20 companies where only 2-3 finally
 survived

LOS’s own the ports

Beware of future tech fads
                                       6
 ASP’s For Lenders
Of 14 companies, only a few survived

Participants were/are Dexma, Dorado, eCloser,
 GHR, IMX, Lending Tree, LION, Loan Trader,
 mortgagebot, ncommand, OpenClose, Sollen,
 Ultraprise and Xpede

Solutions were overpriced at $50+ per loan

Market is solid though much smaller than initially realized - $350m
invested into a market that might total $50m per year

Lenders burned – consider customers of those gone


                                                                       7
• A alliance that attempted to legitimize eMortgages
• Most great standards and developments come from private
firms
• Why were they doomed to fail?
• Stated cost savings of 60%, was way over stated
• Their goals sounded great
10 firms trying to cross market solutions just won’t work




                                                            8
 www.MortgageTechGraveyard.com
6/01
                  07/01
Loan Trader
                  Xpede
                  Oakland, CA

11/01
Pedestal Inc.       12/01
Washington, DC      NetOriginate 9
 www.MortgageTechGraveyard.com
11/00             8/00
Mortgage.com      iOwn
Florida           San Francisco, CA


3/01                   07/01
nCommand               Xpede
San Mateo, CA          Oakland, CA    10
 www.MortgageTechGraveyard.com
03/02             8/02
OnePipeline       Ultraprise
Salt Lake City,   Dulles, VA
UT
                     6/03
10/02
                     FiNet
HomeAdvisor
                     San Ramon,
Seattle, WA                      11

                     CA
 www.MortgageTechGraveyard.com
12/04               1/05
Framework Inc.      eKomas
Terrytown, NY       San Jose, CA

3/05                  01/06
eMortgage             Atone
Alliance              Software
Laguna Niguel, CA     Rancho     12


                      Cordova, CA
 www.MortgageTechGraveyard.com
02/06             03/07
TruApp            LoanCity
Pensacola, FL     San Jose, CA

                     12/07
 09/07
                     ARC
 Portellus
                     Systems
 Irvine, CA
                     Austin, TX   13
Key Current Tech Trends
• Social networking like Facebook, will have a major impact for
  loan officers – Facebook wins out over Twitter

• Web based LOSes are finally offering reasonable performance
  – just took ten years

• Major market share shifts among LOS vendors. Brokers
  fading as banks are picking up market share

• Software firms are not able to afford any significant R&D –
  many are in trouble. Many have become “quiet”

• Don’t expect any major technological changes – it’s about
  survival

• Normally, regulatory changes are easily handled by the tech14
  vendors – not this time.
II. Economics – A Technological
Perspective




    $300 Million in expected revenue for mortgage technology   15
    vendors has disappeared – MORTECH Study
Technology Used for Evil?
AUSes in the 90’s changed the rules

Rules modified from recent experience

Round and round we go

Inevitable boom & bust

Missing rule: hyper home inflation, absent an increase in rates, could
 result in a bust

Where’s the bottom?

Will this housing led recession turn to a full depression?
                                                                          16
Aren’t R.E. Cycles
Normal?             Yes, normally

                    Did we calm the market or stoke the fire?

                    Liberalized on the way up - constricted on
                     the way down

                    28 over 36 and the GSE’s

                    Others blame Wall Street, Lenders, the
                     Fed and Consumers

                    Credit reports and those foreclosures –
                     soon forgotten

                    Loans today are still not viable
                                                           17

  “We will do it all over again” – Angelo Mozillo
We Knew This Would Happen
“changes in the      In 2002 I lobbied Congress of the perils of the
technologies we      GSE automated underwriting systems and the
use have created     GSE’s in general
a very dramatic
housing bubble      In 2003 I gave speeches and wrote articles on the
and now what I       perils of the AUSes and a pending housing crash.
believe will be a
very dramatic       In May of 2004 and April, 2005 I wrote in Mortgage
housing bust”        Banker that the GSE’s are causing a forthcoming
Mortgage             housing crash
Technolgy, 04/07
                    In 2004-2005 I placed millions in short bets on
                     subprime lenders, builders, MI companies, credit
                                                                     18
                     card firms and mortgage lenders
All Vendors Are Hurting – Look
Out For These Issues
         • They get real quiet – no updates, newsletters,
           web site stagnant, etc.

         • Support personnel are mostly gone

         • Press releases and JV announcements
           disappear

         • Poor communications with compliance updates

         • Sales/collection calls get more aggressive
                                                            19
         • Rumors circulate
What Shouldn’t Change
 • Customer Service Levels

 • Major conferences

 • Required infrastructure

 • Regulatory updates


                             20
How Can You
Help Your Vendor
       • Use slow periods to implement additional solutions
         from primary vendors

       • Require frank discussions on the situation

       • Consider a user led stock purchase to raise cash

       • Escrow or buy source code

       • Forward pay future maintenance fees

       • Keep supporting your important vendors

       • Don’t expect cost reductions – a quickly shrinking
                                                              21
         market means fewer clients to spread costs
Mergers and Acquisitions Are a Positive
    • M&A in the technology sector is at a standstill

    • Acquisitions allow firms to survive in this market

    • Doesn’t have to mean a fire sale

    • Buyers are competitors, investors and mortgage
      technology conglomerates

    • Though there are few new entrants, there is no
      better time than now to start or acquire a
      technology firm.

                                                           22
  The Future of Mortgage Brokers

• The fall guy syndrome

• Still the lowest cost originators – that won’t
  change

• Until investing in mortgages can become
  profitable again, the mortgage brokers will
  be under pressure.

• Another 2-3 years of difficulty before turning
  around

• Perhaps they bottom around 15% of the
                                                   23
  market for loan originations
Share of Originations by
Mortgage Brokers, 1998-2009
70

60

50

40

30

20

10

 0
     1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
     Source: Access Mortgage Research Studies, 1998-2006. Estimates for
                                                                          24
     2007-2009
Dire Economic Times Ahead
• Commercial loans are the next shoe to drop

• Damage to community banks will ensue

• Bailouts to continue: FHA $50b+, FDIC,
  much more from the GSE’s, etc

• The ballooning deficit will bankrupt our nation like a 550 FICO
  subprime borrower in a 2005 built Hovnanian golf course mansion

• There will be a run on the U.S. dollar causing rates to skyrocket

• Higher interest rates will further depress our industry and home
  values overall. Perhaps we are little more than half way through
  the drop

• It’s still not the best time to buy a home
                                                                      25
• Market concentration and dominance for originations will have
  consequences
III. How Can We Not Destroy
Our Industry Again?

              This recession is the first
              time that, we as an
              industry, have been
              primarily responsible.
              The world is paying for
              our mistakes.

                                        26
 Preventing the Next Bubble
Regulating the markets will primarily just
 make loans more expensive

Current new regulations will have no impact
 on preventing future bubbles

Most new regulations will ultimately hurt the
 consumer and our industry

For socialized mortgage rates (core market),
 underwriting standards do need government
 oversight and control

AUS decisioning must be made public and
 remain static for the core mortgage market

The existing GSE model should be modified
 per MBA’s newly released
 recommendations.                                27
 There Must be a Better Way
Curbs are used in many financial markets like the NYSE

Increase down payments when hyper home inflation
 occurs

A curb would calm cycles and prevent busts

Higher down payments protects lenders, reduces
 defaults and reduces demand from speculators

Adjusted monthly and by county

A 10% increase in home values and a CPI
 of 2, would require 25% down.


           Down Payment = (HPI-CPI-3) * 5
                                                                          28
    HPI=Home Price Inflation / CPI=Consumer Price Inflation / Trigger=3
  Industry Must Commit
Too much pain for borrowers, lenders &
 investors

Curbs would increase value of mortgage
 firms and stabilize our industry

Today’s AUS technology could be used to
 help

The housing market would be far healthier

Consumers would be protected

The world economy would be protected        29
     Questions / Comments


Scott Cooley.
                            30
Cooley Consulting
www.scooley.com

				
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posted:11/3/2011
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