Sept./Oct. 2019 Issue

Disruption In Lending – Hailing A Mortgage

The ride-hailing industry demonstrates the speed and  impact of disruption. Disruption occurs quite quickly, and the transformation affects all  industry participants (including lenders!). Let’s take a dive into the ride-hailing industry and see how one company’s innovative adoption disrupted every taxicab in our major cities.

In 2015, Uber arrived on the scene and ridership of yellow cabs fell precipitously in Philadelphia, Chicago, New York, and Boston. Taxicabs saw competition as never before and two years later, Uber’s ridership surpassed the New York Yellow Taxi ridership. LYFT and other ride hailing services entered the market to capitalize on Uber’s market expansion success. As shown below, more individuals  turned to Uber for transportation.

And it’s not over…. Companies like Uber and Lyft continue to innovate and reshape their business model. As mentioned in the book Strategically Transforming the Mortgage Banking industry, “Your Business model works until it doesn’t.”  Uber like many other businesses, has to be innovative and move forward or face the new disruptors and risk being left behind like  taxi cabs, block buster, retail stores etc. For this reason Uber partnered with Daimler and researchers at Carnegie Mellon to work on autonomous cars” (Marketwatch). LYFT has partnered with Waymo and General Motors with the mission to tap into the autonomous car space of the ride hailing industry.

Uber’s Advanced Technology Group is solely focused on implementing self-driven cars to cut down cost on each ride significantly, in part by having self-driven cars on the road 24/7. Innovator Elon Musk announced Robotaxis a week before Uber went public.  Musk’s goal is to capture the growing profits in ride-hailing industry with self-driven cars. Tesla wants to find a way to increase margins by automating and competing based on price. Today’s cost per mile is $2 to $3, but with Tesla’s ‘The Tesla Network Robotaxi,’ Musk expects a cost of less than 18 cents per mile.  And by the way, this is not a good time to be a legacy taxi cab medallion lender.

Ride hailing disruption has a direct parallel in the mortgage industry; mortgage bankers are finding ways to drive profitability in a turbulent market. Mortgage bankers are reshaping their business model, ultimately automating, eliminating, outsourcing, or optimizing their current operations.

Similar to Uber and LYFT, companies like Quicken have reshaped their business model and are looking for ways to lead innovation. In this case, every ride hailing company wants to be like Quicken, who has successfully created an online platform, reducing/eliminating manual efforts of loan officers (taxi drivers) and enabling loan officers to focus more on their customers by implementing disruptive technology- resulting in #1 in Customer Satisfaction for the ninth consecutive year.

 The compensation model for LO’s remains stagnant, and loan officers are still given 120-150 basis points regardless of the size of the loan. As David Stevens, former President & Chief Executive Officer of the MBA noted in Strategically Transforming the Mortgage Banking Industry( ): “Loan Officers make a couple of hundred basis points for a one-time origination without any obligation or risk downstream for performance or duration risk…” He continues, “If you are building this from scratch, you wouldn’t build the model the way it works today.”

In today’s highly competitive mortgage market with fluctuating rates and increasing costs, it’s essential for mortgage lenders to know loan officer, branch, and product profitability. But how?  Lenders need a solution that quickly analyzes data and searches for patterns that drive profitability and reduce risk. Teraverde’s Coheus Profit Intelligence Platform is the first of its kind to provide actionable intelligence to drive profitability  and help   mortgage bankers to make effective decisions. Like Uber and LYFT; it’s essential for mortgage lenders to identify areas in high demand. Uber utilizes demand concentration and applies surge charges to increase profitability. Lenders are using Teraverde’s Coheus solution to visually identify product concentration, revenue leakage per area, all the way down to the loan level. Lenders can visualize big data from multiple sources and access visual analytics from a cell phone or desktop. Coheus lets users look at revenue, costs, and profitability by product, loan officer, channel, and branch through easy to use graphical interfaces. This delivers high-powered industry insights, superior workflow management, which allows executives to go beyond cost per-loan to make strategic decision in a timelier manner to drive profitability.