As a result of the most recent economic crisis, many mortgage companies have turned to IT service providers to improve their processes with increased efficiencies and accuracy. One of the most salient impacts of the crisis has been the decrease in profit margins due to the cost of maintaining compliance with new regulations and the penalty for underwriting errors. With the cost of inaccuracy increasing, automated systems are needed to help decrease the risk of human error, assist in mitigating the risk of fraud, and complete complex calculations to attain the full potential of profit in every transaction. In order for IT service providers to properly position themselves to provide such solutions, it is important to understand the ever changing landscape of the mortgage technology industry.
In the past, the industry has undergone periods of extreme growth due to low barriers to entry and high demand. Recently the industry has experienced a time of low demand due to increased regulations and scrutiny in underwriting, forcing many mortgage companies out of business, and with them, many of the IT service providers which counted these companies as clients. To highlight the constant changes in the landscape, Mortgage Technology magazine states that its list of the top 50 service providers in 2011 included 24 providers that were not on the 2010 list. Given this high rate of churn, many providers began relying heavily on the mortgage broker market, but that strategy has proven detrimental since the number of brokers has decreased rapidly--as much as 49% year over year from 2010.
Although the current environment has forced many of the service providers out of business, it has also allowed for new players to enter. Given the increased number of defaults and foreclosures, new players have sought to enter the market by positioning themselves in the servicing and default technology space. While this approach may fill an immediate void, it is unlikely to be a successful long-term strategy.
There continue to be changes in the landscape, as acquisitions and flexibility in a company's offering have become a common strategy. The current landscape includes large scale, full service, and specialized providers. Full-service providers aim to provide consultative services while implementing a new system. Large scale providers have software solutions for any and all loan related issues and many have been transformed from a specialized provider to large scale through acquisitions. Specialized providers have limited software solutions and may aim to fill a niche or position themselves as experts in one small part of the loan transaction.
There is no doubt that the barriers to entry are growing as service providers are being asked to represent and warrant the outputs of their systems. The focus on accuracy, efficiency, profit, and overall strategy is critical to being effective in the changing environment. As the environment continues to change, so will the needs of mortgage clients, reinforcing the need for flexibility among mortgage technology providers.