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Wow.  What a difference a week makes.

As of today, it appears the GSEs are on their way out, or at least, to a small corner in the land of irrelevance.  The legal status of MERS-held loans changes on a daily basis.  And the building juggernaut that is the Consumer Financial Protection Bureau is spending more time winning public adoption of its message than it is in collaborating with our industry to understand it.

So, if you think what worked even in 2009 and 2010 will continue to work over the next few years, think again.

Now, I’m just a marketing guy.  I will disclose that I have neither an MBA nor an economics degree.  Instead, I chose to sharpen my mind by narrowing it in law school.  But I’ve been around the mortgage and title industry just long enough, and my blog is read by just few enough (hi Mom!) to allow me a few theories of my own.

I’m struck by the volume of the vitriol arising from several quarters of our admittedly conservative/traditional industry in response to change.  I’ll freely admit that few, including me, are absolutely comfortable with abrupt change.  We all find a comfort zone, and most of us hate to leave it.  But when it comes to topics like outsourcing, off-shoring, automation, diversification and streamlining, many in the industry have strong opinions.  And they express them loudly.  I offer no opinion here on these issues except for the following:  like it or not, all options need to be examined—even those once deemed unseemly or unpalatable—by the business that wants to remain relevant in the coming turbulence.

That’s right.  I said “coming turbulence.”  Because if you thought the last 2-3 years were bumpy, you ain’t seen nothin’ yet.

Let’s start with the facts.

1.         Justifiably or not, the mortgage and real estate industry is widely blamed by the masses for the Great Recession.  Usually, the understanding is not deep.  But ask Joe Sixpack why he’s not working, and he’s likely to mumble “banks” and “subprime” amidst a few expletives.  This is the kindling upon which the fire of anti-industry legislation/regulation/enforcement is built. 

2.         There is more regulation, legislation and oversight coming to our industry.  Some may make sense.  Some may not.  If it’s anything like the first wave to roll through, much of it will involve the ubiquitous “unintended consequences.” And most of it will be imposed by people who don’t truly understand the process.  But it will be shaped with an eye to fact #1.

3.         As the result of facts #1 and #2, mortgage lenders will bear the brunt of the negative consequences.  And, by the law of the jungle as applied to any industry, they will pass that along to their customers, partners and vendors.

Assuming my propositions to be relatively true, what are the potential results?

1.         Tougher operating margins and lower revenue for the average settlement service provider (and lender).  From the impending Dodd-Frank regulations and rise of the era of “plain vanilla” loans to the impending demise or decapitation of the GSEs, many expect higher interest rates, tougher lending restrictions, fewer housing starts, much, much less refinancing and, in short, fewer mortgage originations.  Did I mention the likely shift in Federal policy from “a home for every American” to “a home only if you damn well prove yourself worthy?”  There will be fewer dollars in the industry for awhile.  And the interest rates haven’t yet come close to the heights at which they’ll be soaring.

2.         More will fall by the wayside.  Based upon theory #1, it would make sense that our industry, which is still somewhat supersized as the result of the bloated volume it saw from 2003 – 2006, is likely to face even more contraction.  It doesn’t make me happy either, but fewer orders and smaller revenue mean that the tide will continue to recede.

3.         The survivors will need to be nimble.  Rapid change of conditions, fueled by a constantly roiling compliance landscape (not only is the CFPB going to be active—it will have a LOT of power, too.), will amount to a need to react quickly and decisively for firms that do make it in this brave new world.

So, if you accept my facts and theories (which probably aren’t too far out there), what will this mean for entities from real estate brokerages to home builders to title insurers to community lenders?  I humbly posit the following:

1. We’ll actually see new competition coming into the industry from the outside.  The low point is usually the point at which established, successful entities endeavor to enter a new market (say, for example, IBM or Google).  If successful companies outside an industry think they can meet the changing demand, or see that the existing firms aren’t adapting quickly enough, they’ll see opportunity and move.
2. “Streamlining” will no longer just be an overused noun imbedded within  marketing copy provided by technology developers. Firms of all sizes will simply have to do more with less.
3. Somebody, anybody, is going to have to finally step up and explain to the outside world exactly what the hell it is that the industry does, and why it is valuable.  Because nobody outside the industry gets it yet. This will take collaboration and leadership—two things that have been sorely lacking when it comes to carrying the industry’s value proposition to the outside world.  For this to happen, the lamb will have to lay down with the lion; NAMB will have to work with NAR, MBA and ABA, and so on, if the industry wants some breathing room from the hammer that’s coming.
4. Firms will have to consider wider service offerings and even new business models.  I’ve said this before, but anything legal and ethical should be on the table at this point.

I’m not trying to be the harbinger of doom-and-gloom to the 12 of you who read my blog.  If anything, there is great opportunity in change—a chance to be first-to-market in an industry which has seen little innovation in years.  But attempting to shout down the change will be fruitless, and likely only to give you a sore throat.  We will now see who the best and brightest really are.