Will Fintech Disrupt the Mortgage Banking Industry?
Articles by: Richey May, Jul 07, 2016
Richey May recently hosted our 7th annual Mortgage Banking Roundtable on June 8th in Denver, CO. The Roundtable is designed to facilitate peer-to-peer discussion among CEOs and presidents of independent mortgage banking companies from around the country on the most current topics and trends affecting the industry. One of the hot topics discussed at the event was the rise of the fintech industry, most notably by keynote speaker Anthony Hsieh, founder and CEO of loanDepot, LLC.
Fintech, or financial technology, is defined as the economic industry comprised of companies that use technology to make financial services more efficient, often disrupting incumbent financial systems and corporations that rely less on software. Hsieh discussed in detail how significant capital was flowing to the fintech market and bypassing the mortgage banking industry, an industry that is often viewed as a poor performing, over regulated, old school market. The poor stock performance of the main public mortgage banking companies, including Ocwen, PennyMac, Stonegate and NationStar ‒ all of which are heavily oriented towards holding MSR portfolios whose values have been battered by continuing low interest rates and regulatory compliance costs ‒ has not helped this reputation.
Fintech’s innovation in technology, personal loan products, and customer delivery is attracting lots of capital, in spite of the lack of profitability. So is the game over for the mortgage banking industry? We don’t think so. Richey May’s Tyler House presented benchmarking statistics at the roundtable from our Richey May Select participants, showing average returns on equity of 31%, 21% and 41% for the years 2013, 2014, and 2015, respectively. Impressive returns that hardly imply a dying market.
Likewise, we are starting to see mortgage banking companies using new technologies, such as Quicken’s Rocket Mortgage and cloudVirga’s Intelligent Mortgage Platform loan origination platform (currently in development), to compete against the offerings of the fintech companies. In addition, we are starting to see mortgage banking companies develop new personal loan products, as well as non-QM residential loan products, to broaden their offerings and capture business they have lost to fintech. Finally, we are seeing the beginnings of the CFPB and other financial regulators overlaying compliance and oversight requirements on the fintech industry, thereby helping to level the competitive field in this area. While fintech’s technology is impressive up to the point of sale to the customer, it’s lacking from that point forward ‒ an area of competitive strength for the mortgage bankers.
The growth in fintech has been a wakeup call for the industry, and it is starting to respond. Hopefully it can draw in some of the new sources of investment flowing into fintech to help finance the dream of owning a home for the new wave of millennials. The future still looks bright!
To learn more about the Mortgage Banking Roundtable, visit https://richeymay.com/resources/mortgage-banking-roundtable/.
Keith May is the Partner in Charge of Richey May’s Advisory Services practice and a founding partner of the firm. He is focused on delivering high value consulting services to mortgage banking companies, including mergers & acquisitions due diligence, performance improvement reviews, business process re-engineering, compliance reviews, and consultations on financial reporting and accounting issues.