A Green Environment will Remake the Mortgage Industry -- February 13, 2007 (Also appearing in the MBA NewsLink)
To say the world has gotten a “green conscience” during the last year is an understatement. Conservation and environmental friendly business solutions are now in vogue and in the minds of our consumer base. Reinforced by statements and directions set forth in the State of the Union Address, the world meetings in Davos, and the constant barge of marketing messaging appearing in the media, we are all keenly aware of a growing worldwide environmental event and its interrelated problems.
Irrespective of the discrete message and the company or celebrity promoting a “green” solution, the end result cannot be dismissed – it is working and we’re beginning to change our behaviors. After all, how many of us have already switched out all those old incandescent light bulbs for the new generation of fluorescents that last longer, consume less power, and greatly reduce CO2 emissions?
For the mortgage industry, a similar consciousness has taken place breathing new life into stagnant efforts and slow adoption of end-to-end paperless management. However, this delay of adoption allowed for the maturing of electronic standards, passing of legislation, development of supporting technologies, and management time for business assessment. With the average number of pages per loan conservatively estimated at 120 to 130 (with ranges from 75 to over 250), the adoption of increasingly greener approaches can materially impact not just the environment but the bottom line of origination, settlement, closing, and even securitization processes.
According to a University of Michigan article, a single ton (i.e., 2000 lbs) of paper reduced or recycled can save 17 trees, 380 gallons of oil, three cubic yards of landfill, 4100 kilowatts of energy, and 7,000 gallons of water, not to mention the 250 lbs of CO2 that those trees absorb each year if left alive. If we reduced just 25% of the paper produced in the loan cycle and multiply it times the estimated 10 million loans originated each year in the United States, the industry has the potential to save annually 320 million pieces of paper or an estimated 16,000 tons (i.e., 272,000 trees).
The reality of this environmental situation is that the adoption of paperless or streamlined processes is no longer in the hands of the organizational technologist or standards setting committees. For tomorrow’s organizations and today’s business personnel it is about improving efficiencies, reducing costs, and gaining a sustainable advantage wherever practical. The business of being green is no longer an option or one that can be debated by committee.
With history as an indicator, there will be three discrete corporate profiles which are adopted by proactive business and technology personnel:
- Conservative Development: By embracing an internally focused approach that benchmarks themselves against other “in-class” competitors, these enterprises will incrementally adjust their operations. Believing that there is no benefit or profit from showing green leadership, they will adopt changes only when the industry has made commonplace environmentally friendly solutions and customer interactions. Within this classification, there will be an abundance of risk aversion towards new and unfamiliar processes, while seeking comfort in traditional operational methods.
- Business Optimization: These organizations will capitalize on the green initiatives already taking place within there current and planned offerings. Leveraging rudimentary initiatives such as electronic and household statements, business and marketing savvy firms will take bold initiatives to eliminate paper processing, document scanning, storage, and offshore post-processing. They will move beyond the historical adoption into digital source capture, processing, archival, and destruction from “cradle to grave” for mortgage information entering their architected systems. Driven not by just technology, they will instead concentrate on creating a lasting culture that will identify and drive out paper systems and elemental processes.
- Disruptive Adopters: Leveraging the idea of “business optimization” above, these enterprises will radically change their processing using structured and proven improvement disciplines such as Six Sigma to identify green advances. Disruptive organizations will increasingly seek lessons learned from other financial services verticals outside the mortgage industry. For those individuals that struggled with the equity trading adoption of STP (Straight Through Processing), T+3 (trade plus three days settlement), decimalization, and the modernization of the NYSE to name but a few, there will be parallels for adoption of disruptive green mortgage solutions. For those enterprises that innovate holistically and leverage cross-industry lessons learned, they should recognize superior performance versus those organizations seeking organic or incremental elemental process improvements.
While the above classifications are academically interesting, most organizations will adopt all three in various forms depending upon their business unit, market position, and individual brand leadership. The exact “mix” of the aforementioned category adoption will determine who benefits from the green revolution -- resulting in a remaking of the industry offerings and leadership rankings.
A wild card for the green solutions will be the vendors, start-ups, and outsourcing groups. Those providers who recognize these demanded changes will quickly streamline and change their existing solutions and pricing structures. With the explosion of global resources and compartmentalized processes, robust solutions (people, processes, and technologies) utilizing electronic legislation and technology improvements will become the norm starting in Q3 2007. However just as we witnessed within the imaging explosion back in 2004 and 2005, not all offerings will be mature resulting in benefits for previously established providers and larger suppliers.
Even if you are a skeptic of green solutions and their environmental impact, ask yourself, “what would happen if we could process our loans 25% faster, reduce errors by 50%, achieve electronic settlement and closing in days versus weeks, cut labor arbitrage by 20%, and decrease lines of credit by 15%?” Perhaps this is one potential “win-win” situation that really is a “win-win?”
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