One company's loss is another's opportunity -- certainly in the mortgage technology space, anyway. As lenders find themselves in the throes of the credit crunch, the ill effects are trickling down to the lending technology vendors, ushering in a realignment in the space.
"As lending volume drops and lenders reduce their operations, it will affect mortgage technology vendors across the board," says Craig Focardi, research area director, consumer lending, with TowerGroup (Needham, Mass.). Focardi predicts a shift by lenders to more Fannie Mae and Freddie Mac products, for which there is relatively less risk and more-uniform underwriting standards compared to the subprime space.
"There's a contraction in originations, and this will hurt many vendors," adds J. Brian King, SVP and practice manager with Atlanta-based Benchmark Consulting, who expects lenders to cut back or even stop originations of new business. "In the coming months, there will be an impact on servicing portfolios from a default-management perspective," he explains. "This will be very painful, especially as lenders start doing vintage origination analysis for loans from a few years ago."
But there is a bright side for vendors that are able to adapt their business models. For instance, says TowerGroup's Focardi, vendors can exploit new opportunities that will arise in the collections area as business shifts away from originations. "As delinquencies go up and lenders look to field a higher volume of calls from consumers, some vendors can respond by offering call center services," he relates.
Furthermore, Focardi says, he sees a movement among vendors to offer more end-to-end lending solutions, rather than offering solutions for just parts of the lending process. "These vendors will want to do more processes per loan to increase their revenue per loan," Focardi asserts. "Also, you'll see some acquire ancillary businesses they're not [currently] in so they can sell software services to lenders to get more revenue from the lenders' pipeline."
In With the New
Of course, new players will come on the scene as others fade away or are absorbed by their more-solvent counterparts. IBM (Armonk, N.Y.), for example, launched its own mortgage services division, IBM Lender Business Process Services (Charlotte, N.C.), earlier this year. The company uses a variety of service models, including outsourcing, to assist its lender clients. In September, it received approval to process Federal Housing Administration (FHA) loans for its clients, an important element in IBM's lending formula given the current state of the market, according to Greg Sullins, the division's executive director. "In the subprime market, we see a renewed interest in FHA lending -- not just as the historical solution for low-income borrowers, but for refinancing as well."
Then there's document technologies giant Xerox (Rochester, N.Y.). While the firm has been helping lender clients image documents for some time, according to John Kelly, president of Xerox global services, the company saw the importance of digitization of the entire loan process -- not just imaging the documents, but also making them available online, Kelly says. It was with this in mind that it acquired Advectis in October.
Advectis' BlitzDocs Collaboration Suite is at the heart of its offering and allows the various parties in the lending process to collaborate more efficiently, according to Greg Smith, cofounder and CEO of Atlanta-based Advectis. "Unlike conventional collaborative tools, ours works outside the lender's four walls," he claims.
Smith acknowledges that the current market does present opportunities for the right providers. "There's now an opportunity to give more predictability, control and auditability of documents to clients," he notes. Still, Smith concedes, he expects to see more vendor consolidation, especially for those that built their businesses around catering to the subprime market.
But this is not necessarily a cause for alarm among lenders, says Benchmark's King. Rather, "I have seen more mortgage vendors looking to expand into the home-equity space and vendors on the origination and servicing side looking to move into the mortgage space," King relates, adding, "Many banks would like to have one solution."
CHALLENGED by a down market, lenders increasingly are seeking ways to strengthen customer relationships