Archives : 2010 : December

Politics and Not Business

Politics and Not Business

Financial reform is political, difficult to comprehend, expensive to implement. Tragically, policy mavens give little consideration to the technology and financial resources required to implement their well-intended but not-in-the-world ideas. New regulations, but no business plan to guide their implementation. Disorder the result.

The Treasury Department and Congress were slow to recognize the complexity of implementing operational requirements implied by the passage of the Emergency Economic Stabilization Act of 2008 and Dodd-Frank.  Lenders, particularly, small-town community lenders feel unduly encumbered.

Involving themselves more deeply into community financing operations, the federal government has a new set of customers–mortgage originators nationwide. I believe these new customers doubt that the government empathizes with the business and management needs that result from policy pronouncements.

The government has become expert in measuring – the economy, unemployment, national demographic changes, etc. But, I fear it has taken little time to measure the effect political action has on its constituencies. Their process of understanding is political and not scientific. Outcomes are negotiated not derived from fact.

As an offset, MORTECH2010 has interviewed a stratified random sample of lenders. The study shows clearly that the political process and regulatory reform has distracted lenders countrywide from making loans, from serving their markets, and from running their businesses more effectively.

Most Pressing Issue      In 2011	% of All Lenders	% of Lenders  Under $100MM
Demanding Regulatory Environment	39.9%	44.7%
Adopting Federal Product Guidelines	28%	23.7%
Source: MORTECH 2010                                                                                                                                 © MORTECH, LLC

MORTECH 2010 shows clearly that lenders are preoccupied with changing Federal regulation. The effect sought by regulators may not be what they have achieved.

No, it would seem that more effective lender operations will be impeded by capital, resources, and time invested in reacting to what lenders interpret as the intentions of regulatory reform. The outcome remains in doubt and gotten with higher operating expenses. The data show just that.

Research Shapes Up Technology Marketing

Marketing research, particularly business to business marketing research, is expensive. Technology vendors, often small, rely on their personal experience rather that investing in objective research. No, it is not a matter of one better than the other. Both can be brought to bear in market planning.

MORTECH, LLC wants vendors to be able to afford objective research. To do that we created MORTECH, The Annual Survey of Mortgage Lenders and Their Use of Technology. We invite up to twenty technology firms to share the cost of our “omnibus” surveys.

An omnibus survey is quantitative marketing research. Data on a wide variety of related  business and technology subjects is collected during a single interview. Multiple research clients sponsor the survey and contribute questions to be asked responding companies.

The advantages to omnibus study are clear and shared with all research subbscribers:

1. cost savings

2. sharing sampling and screening costs

3. information is fresh and timely

4. vendors get data on prospects in their demographic segments

MORTECH uses a stratified sample. We prefer to interview over the telephone. Our data comes from lenders of all sizes. We enforce segmentation so that sponsors can see what the industry is thinking and doing. Equally important, our research technique provides insight on lenders of all sizes.

MORTECH® is designed to support strategic marketing. We answer fact-based questions defining strategy:

1. How many potential technology buyers are in the market?

2. What are the key demographic, attitudinal and behavioral characteristics of the prospects?

3. How satisfied are prospects with their current technology?

4. What is the average technology spending for these prospects?

5  What vendors do they use now? Conversely, which vendors are vulnerable to shopping?

6. What information channels do the shoppers use to get information about technology?

Our research clients use the information that we develop to build marketing strategies:

a.Based on lender behavior, which marketing channels are preferable for executing a marketing strategy?

b.What message is most likely to resonate with your audience of prospects?

c.In view of what we learn about prospects, what capabilities and traits should be highlighted by marketing and sales teams?

Through MORTECH® 2010, we can see into segments of lenders and help calibrate targeted marketing. With the data it is possible to establish and verify the revenue objectives and possibly sales quotas. Hard data is indispenible to efficient planning and strategy execution.

Mortgage Technology Leaders Often Do Not Survive

Leaders Often Do Not Survive

By and large, mortgage technology vendors are small, very specialized companies. Typically they do not hold much in the way of market power. Mortgage technology vendors tend to operate craft-like rather than as professional product managers.

Now, the credit crisis of 2007-2008 has left vendors with little economic negotiating power in their markets. Mortgage end-markets suddenly became very concentrated. Vendors have little pricing nor contracting leverage as the federal government forced mergers among large institutions, such as between Wells Fargo & Co. and Wachovia Corporation, which became effective on Dec. 31, 2008.

Market power gives one buyer (or seller) in a market the ability to have influence over the quantity of goods and services traded or the price at which they are sold.

As lenders–and the government-sponsored enterprises (GSEs)–have become much larger, their ability to bargain with technology suppliers has grown immensely. The large firms simply overwhelm the smaller technology suppliers.

If a vendor wants to do business with what are now very large buyers, the vendor finds it must make price concessions, agree to supply customized services, and commit dedicated resources to serve the large customer’s needs.

As buyers of technology, greater concentration of lenders gives them increasing advantage (negotiating power) during a negotiation to buy a new system. Unless there is a countervailing increase in the size of suppliers (of technology), those suppliers or vendors will face a market imbalance that, over time, will destabilize their ability to compete.

In press releases and advertisements, vendors often claim to be the leading or dominant supplier of technology. Frankly, these claims generally are without economic validation. It is rare that a mortgage technology vendor undertakes a market study that validates share of total market or relative share of market.

The real problem is that market share does not necessarily correlate to being a profitable or long-lived company. Being a “leading” supplier ultimately is of some unmeasured and inconsequential standing in the market. By itself, share does not endow economic power.

In the past, we have watched many leaders–FiTECH Systems; Gallagher Financial Systems; Fannie Mae Software Systems; Saddlebrook Corporation; Lomas & Nettleton Co.; Framework Inc.; Contour Software; Dynatek Inc.; GHR Systems Inc.; INTERLINQ Software Corporation and so on–become names submerged in other entities or have left the business.

And, so it will be with many of the current crop of technology vendors. Economic cycles and federal mandates are changing the structure of the buy side of the mortgage industry. Unintentionally, these are forcing an equal and opposite reaction in the supply of mortgage technology. The “leading” vendors of today will soon disappear through merger, through acquisition, or, by exiting the business.