Leading Mortgage Bankers out of Chaos: Utilization of SWOT Analysis(Strengths, Weaknesses, Opportunities and Threats)Debra Gaveglio, Sr. Consultant at Actualize Consulting, dated September 27, 2011The new world order of Mortgage Banking requires the flexibility to adapt to evolvingconditions and to reinvent as market conditions dictate. In assessing the sustainable health of theMortgage Banking Industry, it makes sense to employ certain tools such as a SWOT (Strengths,Weaknesses, Opportunities and Threats) analysis. The relatively simplistic SWOT matrix wasutilized in the 1960’s and 1970’s by Albert Humphrey at California’s Stanford ResearchInstitute. SWOT provides valuable intelligence for the planning of business transformationstrategies. “Leading Change”, (John P. Kotter, 1996), adds value to the assessment with an eightstep approach. Kotter describes the guiding principles to mitigate the risk of change failure asMortgage Bankers adapt to the future state of the industry. To provide a relevant example of aSWOT analysis, four attributes applicable to the Mortgage Banking industry are discussed foreach of the four steps in the SWOT analysis.StrengthsThe first step in the SWOT is the examination of Strengths. Leading Change’s eight criticalsuccess factors bear a clichéd theme: “Tone at the Top”. Mortgage Bankers can utilize thisstraight forward approach methodology for business transformation. A key component insustainability is adapting to change. The first step is creating a vision with an urgentlycommunicated message communicated from the top down. The second step is to build a guidingcoalition powerful enough to effect change. The third step is to a strategy for change and thefourth to communicate the change vision with the coalition leading the charge. No mortgagebanking entity will be successful unless the buy-in of the masses; the guys in the trenches doingthe work. Action is taken in the fifth step to reduce obstacles that undermine the goals. Thesixth step is short term wins; grabbing the low hanging fruit. Short term obtainable goals fosterthe buy-in of the masses when change is visible. The implementation of short gains enables stepseven; which is the increase of business transformation. New projects are considered with astrong core team of change agents. The final step is anchoring change into the culture. Thesuccess of sustainable change begins with the Tone set at the Top.The definition of office space is progressing into a virtual world. Successful Mortgage Bankerswho embrace mobility and virtual office spaces can seek to increase efficiency and productivity.With a movement away from a traditional physical locality, a flexible lifestyle and an efficientworkplace can seek to meet in the middle.It makes sense for Mortgage Bankers to humbly self identify inefficiencies and gaps incompliance to affect change. Prudent project management plans can mitigate the identified risks
in the change lifecycle. From my perspective, a conservative approach to reserving for risk andrevenue sharing is the name of the game.Mortgage Bankers who embrace technology support an evolution towards increased transparencyand accountability. Stakeholders throughout the lifecycle of a mortgage asset can engage insystem and data integration efforts through digital service vendors, “COTS” (Commercial off theShelf) and customized technology tools. With increasing opportunities to share, store andtransport data in the internet “cloud”, a potential for cost reduction in infrastructure exists. It isnecessary to note that the security of data and protection of privacy in a virtual cloudenvironment is evolving. Mortgage Bankers who embrace technology utilize these key businessdrivers to succeed.WeaknessesThe next step is citing the Weaknesses. Inefficient transactional due diligence and post closingquality control poses risk throughout the lifecycle of a mortgage asset. Building a robust processfor the review of assets can be a costly and complicated process to implement and maintain.Once a settled asset is purchased and sold in the secondary marketplace, the lack of clarityaround certain representations and warranties adds risk. Buy in from the mortgage bankingindustry is necessary to support quality control plans which affect the cost of doing business. Theabsence of comprehensive analysis of significant findings must be mitigated. Significant findingsincluding early payment defaults, missing documentation, collateral and title issues, non-compliant high cost loans - exceed points/fee caps, inflated appraisals, materialmisrepresentations of assets, income and occupancy, undisclosed debt or litigation and instancesof fraud such as non-arm’s length transactions, real estate pyramid schemes and identityfalsifications). Repurchases, put back and mortgage insurance rescissions will continue to beproblematic.Without a robust process to insure confidence in the data transmitted throughout the lifecycle ofa mortgage asset, systemic risk cannot be prudently mitigated. The consolidation of “siloed” datathroughout a mortgage banking organization’s legacy systems is a complicated task if notgathered at the birth of a mortgage asset and maintained throughout its lifecycle. Lack of claritywith respect to the liability and identification of the legal owners of record as assets bought andsold adds risk.President Barack Obama’s “jobs” speech, the Debt Ceiling extension matter and proposed DoddFrank legislation add risk to the ability to accurately assess the impact of regulatoryrequirements. Ambiguity surrounding the legislation on the proposed skin in the game riskretention rule (Sec 941 of Dodd Frank) for example hampers risk mitigation. Proposed changesto the underwriting criteria for mortgage loans can have direct impact how the industry reacts.The Dodd Frank legislation will increase investor risk retention and regulatory oversight bygovernmental agencies on the financial markets.
The possibility of deregulation vs. increased regulation will depend on how government,government sponsored and private marketplace entities respond. These factors are difficult topredict. Historically, weaknesses in the housing market become systematically visible as theindustry is stressed. Market movements over time indicate the housing market will ebb andflow. When the check and balance system is laden with risk, the volatility can be severe with theaxe fall point and recovery period being unpredictable. With respect to data transmission andsecurity requirements, the assessment for any technology optimization and modernization shouldalign with current assessments of the regulatory environment.OpportunitiesThere is tremendous opportunity to affect change in the Mortgage Banking industry. SuccessfulMortgage Bankers will strive to increase the efficiency of the way they do business with back tobasic principles. Current housing market conditions support a conservative and balanced systemof revenue sharing with loss participation in transactional agreements. Establishing a strongfoundation of transparency and accountability from the loan origination application process toclosing and then to the sale of the asset makes sense for long term sustainability.A transformation project plan for successful Mortgage Bankers can capitalize on opportunitiesby aligning the business needs and requirements with the technology and the trifecta: toincorporate a robust risk and fraud mitigation program (This discussion I will save for a futurearticle).Successful Mortgage Bankers will adapt to the President’s “jobs” plan, Debt Ceiling extensionissue and proposed Dodd Frank legislative requirements by clearing establishing the roles,responsibilities and liabilities of the originators, sellers and servicers. The opportunity to evolveindustry best practices in this arena exist, it is the fiduciary responsibility of Mortgage Bankers totake part in solutions going forward.Modernization through technology bears mentioning one more time. The successful MortgageBanker should align the appropriate subject matter expertise to address the notoriously paperladen industry. This can promote an improved Best Practices approach for the reduction ofmanual and duplicative processes and for the quality of data available for analysis. These goalsshould incorporate business intelligence tools to promote robust reporting capabilities andvisually attractive dash boarding capabilities (i.e., summary data, think of a car dashboard).ThreatsThe final step is to identify the Threats to Success. Process snags, human capital and budget willimpact the success of business transformation and modernization initiatives. The success of aMortgage Banking business forward plan can be threatened by the sustainability of fiscalbacking.
The structure of organizational charts that exist in financial institutions is unpredictable.Volatility in the marketplace, loss of subject matter expertise through natural attrition,reorganizations, changes to senior management and to the business plan can impact the successthe Mortgage Banker. If the leadership of a given organization is inconsistent, so is the messagewhich will impair imbedding change in the culture.Will legacy credit losses ever sunset? The lack of clarity around liability and the cost of timeconsuming litigation spent determining such liability will continue to stress the industry. If thedetermination of who should bears the credit loss lacks clarity; the perpetuation of legacy loss isan ongoing threat.Dodd Frank calls for establishing thresholds of credit risk retention (skin in the game) and for themodification of underwriting standards that will disqualify certain mortgages from risk retentionexemptions The proposed levels of 5% will ultimately be passed on to the consumer.In conclusion, the SWOT analysis can be a powerful brainstorming exercise to foster change inthe Mortgage Banking industry. The identification of the Strengths and Opportunities canbecome the foundation for the next step: establishing a business plan, obtaining stakeholder buy-in, procuring the funding and engaging subject matter expertise to deploy results.[Citation: (Leading Change. Kotter, John P., Harvard Business School Press, Boston, 1996)]