Archive for the ‘Innovation’ Category

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Proven Technology, New Paradigm

Tuesday, October 20th, 2009

By Mark P. Dangelo

www.Innovative-Relevance.com

One of the few bright spots in lasting recessions is the birth of relevant innovation. These are the new products and services that markets and consumers want, which are pragmatic and sustainable regardless of the economic plight surrounding them. More new businesses start in times of chaos than in times of prosperity. The seeds of the next wave of business processes and supporting solution sets are growing.

Yet, not all relevant innovation is from quantum breakthroughs in technology. Often times the most momentous advancements are those that involve the layering of proven technologies in new and unique alignments. Additional gains are made from using modified processes, procedures, and formulations. Finally, the remainder is driven by new educational standards, skills learned, or via collaborative intelligence.

Let’s explore two potential paradigms that are quietly emerging to those seeking new uses for proven technologies.

A Vision to Look Beyond Today

The markets have seen an explosion of solutions targeting fraud in all its forms – misappropriation, misstatement, bribery, corruption, identity, occupancy, income, appraisal, shot-gunning, and the list goes on. The advances in data aggregation, statistical modeling, and integrity have given originators and law enforcement agencies new tools to combat illegal acts. But, whereas these increasingly robust solution sets are eliminating fraud in new, refinanced, or modification loan originations, there are additional benefits yet to be booked with the potential extension of solutions.

For example, what struck me as having huge potential during the recent MBA Annual event was an announcement by MERS and Interthinx on their National Fraud Prevention Solution. Why did this standout? What was missed by the invited press was the underlying and potential supply chain altering principles beyond identifying fraud just during the origination processes.

When examined along the entire value or supply chain of mortgage processes – origination, servicing, securitization – the existence of a common source of aggregated information potentially offers touchpoints for bonds and equities, repurposing existing asset classes, insurance, government regulators, and of course, all aspects of complex servicing. In manufacturing terms, think of it as forward and reverse supply chains where parts are sourced in many places, but assembled in one place to create a working product.

Examined differently, if fraud information is good for the origination of a loan, why shouldn’t it be used for the same loan, borrower, and institution throughout its life-cycle? Case in point, if the loan is non-portfolioed and securitized with other “quality” loans, then over its life should the borrower or trustee overseeing the tranches (e.g., covered or hybrid bonds), all sourced aspects of the loan must be permanently accessible. The same will hold true for portfolioed loans and the new Basel rules requiring greater capital reserves in 2010 against held assets.

After all, the “originate and forget” model is dead – which is why private securitization went from nearly 65% of the market to under 5% in just three years. There are parallels and lessons learned in other industries – insurance, equities, and healthcare.

If fraud is rooted in risk mitigation, then the data for risk analysis will require a comprehensive integration of the entire data or mortgage supply chain for life. Risk analysis and the underlying agencies and regulators, which will be taking more active governance roles, require a non-siloed vision. A game-changing option is made available once we look beyond the “false” industry containers of information, and into the greater comprehension demanding new operating paradigms.

While the MERS and Interthinx announcement was positive, there is a potential for a permanent shift that reverberates across the industries – like a pebble being dropped into the center of a pond.

Think Differently, Act Aggressively

With nearly 1.7 million borrowers three or more payments behind last month, the challenges of loan modifications are still mounting. Whereas, the government has claimed success for on-going workout initiatives – albeit it permanent or temporary loan restructurings – according to RealyTrac nearly 940,000 were in foreclosure filings during Q2 2009.

In general, the optimistic industry personnel are trying to stress the positives – low interest rates, government incentives, and a hope that the bottom has been put into the market free fall. Others aren’t so hopeful. But whether you believe in a recovery or more pain, one thing is very clear – how do you reach out to a customer in trouble or those seeking advice?

The complexity and breath of answers stagger the imagination. However, what is evident is that no one method will work for all classes of loans or customers. A multi-dimensional approach using all available market and technology channels needs to be cohesively integrated to ensure the best for all parties involved – borrower, lender, servicer, and investor.

One proven technology that has been used to drive consumers to secure new loans was search engine optimization or SEO. SEO is well known to marketing professionals and ad agencies. Many users commonly associate SEO with Google, Yahoo, or other search engine rankings and ad placement. It worked great to drive potential lenders to sites during the “go-go” credit of this last decade, but does it have a use now?

The short answer is yes. SEO is undergoing a rebirth among a new class of innovative firms (e.g., Enquisite), which move beyond the mere generation of prospects and into ROI, analytics, and performance. The new solution sets employ “organic” and paid placements to arrive at a composite of contacts who may want assistance and who may have been doing research on your corporate “landing pages.”

The methods of achieving this result are beyond this article, but suffice it to say that there are fundamental shifts in the way SEO is being used – for today and tomorrow. Some additional uses for performance driven SEO are in support of compliance, loan modifications, servicing, and to address political concerns that the financial institutions are not doing enough to reach out and assist struggling homeowners and consumers at risk.

For those in the retail channels trying to assess their customer approaches, novel macro uses of SEO are beginning to capture the imagination, while influencing operating initiatives. Although, many thought they knew what SEO was, the rules are being rewritten by relevant innovators eager to assist and able to deliver.

In summary, SEO is increasingly becoming part of closed-loop systems for channel deployments and operating feedback supported by adaptive process improvement techniques. It has moved well beyond simple lists, clicks and conversions.

Adapting a phrase from history, it can be said, “I never knew SEO, but it knew me.”

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Posted in Continuous Organizational Innovation, Covered Bonds, Dashboards, Data, Financial Services, Innovation, Markets, Mobile Banking, Regulations | No Comments »

What Outsourcers Often Fail to Grasp

Tuesday, October 20th, 2009

By Mark P. Dangelo

www.Innovative-Relevance.com

With unemployment at over 15 million adults coupled with a projection of $80 billion in deficits among state unemployment benefits, expectations are high among a tax paying population that the use of outsourcing would be limited moving into the next decade. After all, with so many professionals out-of-work, productivity down, and the political will strong, why are we even talking about outsourcing at all?

Why indeed. Sentiments aside, the use of onshore or offshore workforces to provide a specialized or highly productive process augmentation continues to grow at a projected 10% for all of 2009 – but down from a traditional 20%+ compounded growth rate.

Outsourcing has been around for hundreds of years in various forms. However, with the exponential increase of global communications and ease of travel started in the 1970’s, outsourcing has mushroomed into an industry with lobbying clout and a combined economic revenue streams in the hundreds of billions. It reaches all corners of the globe including some places that seem strange.

Nevertheless, while the industry has flourished, they are facing a game changing shift that few outsourcers recognize and even fewer are prepared to act upon.

Culturally Challenged

Striking at a time when Congressional bills are being sponsored (e.g., 50:50) to limit the impact on domestic economies, many outsourcers fail to comprehend the need of diversification at all level of operations within their organizations. This is particularly true for offshore firms who prefer to use visa-sponsored foreign nationals rather than domestic workforces to promote a service or integrated product offering. These homogeneous outsourcers continue to “confront” their prospects with workers who frequently do not have empathy for domestic workers, nor understand the socio-economic realities confronting their proposed outsourcing solutions.

This lack of diversity within these foreign operations are often caused by the same mistrust they accuse domestic politicians of possessing. Until these outsourcers understand of the need for radical domestic restructuring and diversification in every country of operation, they will consistently be confronted by those who disbelieve their sincerity of assistance and the economic benefits they are proposing.

Old Market Ideals

Just five years ago, outsourcing contracts were much easier to obtain. For many, they presented a reasonable business case and then took an order for a multi-year, multi-million dollar contract. With an on-going two year global recession, these traditional approaches to the markets have been permanently changed.

This can be superficially witnessed in shifting wealth, government interventions, pay-limits, increased nationalism, and, of course, a rise in consumer poverty and household debt.

But, the go-to-market approaches and discussions for many outsourcers have not fundamentally changed. Why? Because success had instilled organizational overconfidence – and an adamant disbelief that their models might potentially be “out-of-phase” to developing markets and buyer requirements. The outsourcing world is no longer simply about labor arbitrage.

An Out-of-Phase Business Model

The discussions have changed, but the internal workings of how the outsourced business requirements are satisfied have not. The methods by which outsourcing employees are compensated have been largely untouched. Moreover, they also continue to believe “one-size” of outsourcing approach fits everyone. The models used to satisfy client demands fail to recognize adequate gain-sharing, proper governance, hybrid deployments, potential co-operatives, and highly flexible business orchestration.

In general, outsourcers fail to properly frame the need for domestic, onshore collaboration and partnering with existing workforces and future operations. Labor arbitrage is still the model being tightly clung to by sales forces as the way to gain a prospects attention.

For many, the use of non-conventional approaches that benefit both domestic and foreign economies (i.e., the new reality of globalization) are frequently feared and distrusted.

* * * * * * * * *

In summary, until outsourcers accept domestic diversification, new market approaches, and changing business models, they will continue to grow at the expense of country economies. This challenge has been noted not just by bankers, but by the IMF, the UN, and other international bodies all concerned about rising protectionism and in-county sentiments.

As the new decade dawns, the inflection point is being reached where consumer demand is aligning with political will against the wholesale export of jobs. The strange thing I see as a proponent of outsourcing and globalization, it can all be easily avoided where everyone wins.

It really is up to the outsourcing firms to engage domestically with a different discussion, personnel, and delivery models. Otherwise, in the mid-election year of 2010, they may indirectly find themselves under a new class of aggressive regulators and domestic watchdogs.

And yes, there are those firms that “get it.” There are progressive outsourcing operations that are making the needed changes against a new market and organizational reality. Those are the firms that stand the best chance of survival – and of benefiting everyone within the domestically and globally interconnected economies.

Let’s frame one last question. If you are an outsourcing entity, put yourself in your clients place. What bank receiving federal assistance wants to say they have taken taxpayer money and then displaced thousands of American workers? A balance must be achieved – very soon.

Posted in Business Model, Financial Services, Innovation, Mortgage, Orchestration, Outsourcing, Protectionism, Strategy | No Comments »

Peering Forward into the Next Decade

Tuesday, September 22nd, 2009

Seasons of Uncertainty Confronts all Aspects of Operations as We Enter 2010

By Mark P. Dangelo

www.Innovative-Relevance.com

Also published at the National Mortgage Bankers Association

What a rebound in markets and sentiments within a short 14 months – from Chicken Little (“…the sky is falling…”) to Mighty Mouse (“…here I come to save the day…”). Is the worse behind us, or yet to come in 2010?

It was just in July 2008, when the wheels started severely wobbling on the traditional finance and mortgage vehicles, and September 2008, when the axle came off causing a financial “pileup” not seen in nearly 80 years. Very recently, global and domestic central banking measures are being allowed to expire, or in some cases, wound down or withdrawn. Consumer beliefs in a rebound are bottoming out, and in some cases, moving positive once again.

The world is apparently reaching a new, constructive equilibrium, while undergoing a rebirth of social responsibility driven by worldwide wealth shifts – West to East. Sanity and risk-adjusted business practices have reached into all corners of finance and mortgage groups (FMG’s). This change has been not just domestically apparent, but globally, as evidenced by Libor inter-banking lending spreads, which have fallen back to 2007 basis point valuations. Last but not least, global commodity prices (e.g., oil, copper, steel) have stabilized, but they are at the mercy of “weed filled” economies, country agenda’s, and day-trade speculators.

Back in 2006, the Case-Shiller Housing Index reached its highest point with origination values exceeding $3 trillion, but since then, we’ve fallen nearly 40% across both indices. Moreover, the once heralded home ownership percentage has beaten a hasty retreat from over 72% nationally to just over 67% in just over two years.

Additionally, receiving widespread coverage last month was a prediction by Deutsche Bank that the worst may be yet to come – nearly 50% of homeowners will owe more than their homes are worth by 2011. Even more dire are increasing economic predictions of a very long and protracted recovery if not another recessionary dip (e.g., a “W” or double bottom).

Foreclosures are still at historic highs, and our own government very recently has predicted millions of additional foreclosures in 2010. Downward pricing pressures on homes are widespread as federal, state, and local governments supported by servicers try to “modify” the legacy of housing’s irrationality against a shell-shocked consumer. The commercial markets are foretelling an unpleasant nightmare yet to come, and per capita household debt is the highest in history – even after rebasing (not including the U.S. Federal deficit obligation of nearly $700,000 per household).

Nationally, it appears unemployment is going to break or hover near 10% for the foreseeable future, and the investment markets needed for lending might be ahead of the fiscal reality, which is still playing out. We’re happy and encouraged by the “news not being as bad as it has been.” We hope never to see this situation again in our lifetimes. Indeed, we are an optimistic lot.

Most recently, as government officials advertized a 17% return on $70 billion invested. I wonder if during the 2010 mid-term election year, if we will have a touted return on the other $2 to $4 trillion portfolioed in the Fed’s balance sheet and the multitude of Treasury programs?

Or, will it merely be a footnote on the $13 trillion in Federal debt (equaling current U.S. GDP and including $5.5 trillion in Fannie and Freddie guaranteed debt) already clogging the books, and the clouding judgment of foreign creditors? What will FHA add to the mix of woes in the coming years?

So, with trillions in capital equity still to be raised, but currently equaling the market value of all FMG’s (approximately $2 trillion USD), what can be done? Where should business and technology investment’s be made in a Western world still full of uncertainty, record deficits, and a falling dollar?

Are we peering into a West versus East recovery that will produce very, very different economies and consumers as we enter the next decade? Is the shine permanently off the housing apple — to be picked up by new entrants supported by new methods?

As we peer forward on a new decade, there are many stories yet to be written, and many roadmaps in need of navigating.

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Posted in Analytics, Architecture, Business Model, Data, Financial Services, Industry, Innovation, Markets, Outsourcing, Protectionism, Regulations, Strategy | No Comments »

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