You Can Download This Article As A PDF HERE
It’s been a turbulent 2014, and the road ahead looks just as turbulent. Times are changing. Your grandfather’s mortgage process is not just outdated, now in some cases it’s non-compliant. In the midst of this change mortgage technology vendors have gathered to help lenders adjust. To this end, larger companies have merged and acquired smaller companies to better serve the needs of their lender clients. One prime example is the recent acquisition of Mortgage Cadence by Accenture. Nine months removed, how is the acquisition going? How is the company better equipped to serve the mortgage market? And what’s ahead for this new company and our industry? Trevor Gauthier, Chief Sales & Marketing Officer at Accenture Mortgage Cadence, sat down with us to discuss all of this and much more. Here’s what he said:
Q: Mortgage Cadence was acquired by Accenture nine months ago. How is it going?
TREVOR GAUTHIER: Very well. We say it all the time: we cannot think of a better company in the world to have joined. Accenture is a global management consulting, business process outsourcing and technology company with a solid reputation for helping clients improve their operations and providing better service to their customers. Those have always been our goals, too.
Accenture Mortgage Cadence, our new name, joins Accenture Software’s other software product lines, which span numerous industries including insurance, consumer goods, freight and logistics, digital services and health and public service. We fit nicely within Accenture Software for many reasons, especially our emphasis on SaaS delivery of all our technologies. In addition, Accenture Mortgage Cadence’s software serves as the core loan origination platform for Accenture Credit Services, a business service within Accenture’s financial services operating group that provides consulting, technology and outsourcing services to financial institutions. We are most certainly in good company — Accenture’s financial services group does business with 88 percent of the top 50 banks worldwide.
Another concrete reason things are going very well: we are developing new solutions as well as continuing to do all of the things we’ve always done best for our clients. It is truly an opportunity to build upon our success.
Q: What are Accenture’s plans for Accenture Mortgage Cadence?
TREVOR GAUTHIER: We’re moving forward even more aggressively to improve our technology and our services. Our end goal is to ensure we are providing our customers with true, measurable competitive advantage through our technology and our people.
Q: How do you see these plans changing Accenture Mortgage Cadence?
TREVOR GAUTHIER: Our plans are to continue doing what we have always done well. A great deal of work remains to be done within the mortgage industry. Costs need to be driven back down. Regulations need to be complied with. Borrower demands for a better, more transparent financing experience must be met. Accenture Mortgage Cadence is extremely well positioned to help the industry solve these challenges.
Q: It’s been an interesting ten years in the mortgage industry. What have you learned?
TREVOR GAUTHIER: Ignore hyperbole. Seems everything in the mortgage industry is the highest, the lowest, the biggest, the smallest, the new beginning or the end of times. The most important lesson I’ve learned in my career is to focus on the essentials for long-term success. Three things sum it up: create a better financing experience for borrowers — faster, more convenient and more efficient; help lenders lower their origination costs; and do both with a focus on rigorous compliance and risk management principles. It’s easy to get caught up in the drama. It is hard to maintain the long view, but, to be successful, that is exactly what it takes.
Q: What has the industry learned?
TREVOR GAUTHIER: It’s all about the homeowner and their home. During the boom years of the 2000s many lost sight of this, including many homeowners. Homes became temporary dwellings rather than long-term residences, getting flipped whenever profit could be had. Financing products emerged regularly to support the sport of house flipping, with little or no thought to the loan’s long-term viability. No one remembered the old game of musical chairs: the music stops and all but one person is left without a place to sit. The music stopped; many homeowners were left standing with unsustainable financing, and the industry came to a halt in a shocking way.
If the plethora of new mortgage regulations are not enough of a reminder that homebuyer mindsets have changed, we can count on them for extra admonishment. With some of the lowest rate mortgages since the 1940s and memories of the housing crisis fresh in their minds, homeowners once again see their homes as long-term shelter rather than an investment to be traded. They are choosing homes and financing partners carefully and acting more deliberately than ever in making what is, for most, the biggest investment of their lives.
Thriving in this new environment means playing a different game. Old strategies for managing through the refinance boom and bust cycles no longer apply. We need to learn to successfully navigate long-term purchase markets, something not seen since the 1950s. Some of the strategies from those days might actually work again, though both volumes and customer expectations were much lower, and regulations weren’t as stringent. What is clear is the focus must be squarely placed on providing a positive customer experience.
Q: Your organization has written extensively about how this changeover to purchase lending is different and that you see remarkable opportunity ahead. What’s your take on this?
TREVOR GAUTHIER: It is, or is about to be, very different. There’s broad consensus that rates are going to continue to rise, which means most of the homeowners who secured low mortgage rates during the last refinance boom are likely to hang on to those loans for as long as they possibly can. The perennial rush to refinance appears to be over, setting the stage for a potentially long-term purchase market.
This is why the rate environment is important and why the shift to purchase is different this time. We have spent the last thirty years schussing down the declining rate curve. Like good skiers and slope stylers, we enjoyed it. Making loans in a falling rate environment is easier — more profitable, too. We spent the last thirty years developing habits that will not necessarily serve us well in the next thirty years.
Rising rates are a very good example of what I mean by ignoring hyperbole. Rates have risen from 3.5 percent to 4.5 percent. To hear some people discuss this, you would think the sky is falling. It’s not even a bit lower. Rates remain at historic lows, even if they reach the mid to low 5 percent range later this year. The last time mortgage rates were in the 5s was the 1950s and 60s.
Housing affordability, though not at the peaks it reached just a few years ago, is still quite good. Low rates and affordable homes are a good recipe for a purchase market. Another ingredient is demand for homeownership. The 2013 State of the Nation’s Housing Report from the Joint Center for Housing Studies at Harvard University stated that household formation will return to pre-recession levels of 1.2 million per year for the remainder of this decade. While not every new household formation immediately equals a new homeowner, this will be true for approximately 65 percent, the national long-run homeownership rate. After a few years this should translate to over 750,000 first-time homebuyers entering the market annually. Employment also appears to be picking up steam, which is helpful to housing, though the new student loan debt variable may prove a deterrent for would-be first-timers as well as a drag on the overall homeownership rate.
We are optimistic for the purchase market and the opportunities for lenders. For the first time, the mortgage loan has the potential to truly become the relationship product. Home-buying consumers have many, many financial service needs both immediately and in the future. Mortgages will be longer in duration, which means borrower relationships have a chance to mature and to do so profitably. The mortgage is the door opener. Thriving lenders will seize the opportunity and sell into it today and tomorrow right through to when it is time for the next mortgage, be that a first, second or HELOC.
Q: You have been around the mortgage technology industry for a long time. How has it changed in the years you have been involved?
TREVOR GAUTHIER: The mortgage technology industry has divided into two camps. Those in the first camp began consolidating right before the recession or during the housing crisis. This is the camp we put ourselves in. Accenture Mortgage Cadence is the result of five companies combining to become what we are now. Several others have done the same thing. Those in the second camp remain largely as they have always been.
Q: Interesting observation, a market bifurcation. What differentiates the camps?
TREVOR GAUTHIER: It is a bifurcation. The companies in camp one came to an early understanding that massive change was afoot. I am not talking about the usual industry schizophrenia of purchase one year, refinance the next. What I am talking about are the significant shifts mentioned earlier. This is not the mortgage industry in which any of us grew up.
Recognizing the sea change, camp one looked at their existing portfolios, technologies, market positions, and expertise and made strategic decisions to be market leaders. They took the steps required to make that happen, including consolidation and investment, talent acquisition and lots of technology enhancements. It takes a long-term commitment on all fronts to become a market leader, but it takes even more to remain a leader.
Q: What about Camp Two?
TREVOR GAUTHIER: Camp two is also adapting, albeit at a slower pace. Given the enormity and scope of the market changes, however, the required investment and effort is tremendous. Even with strong backing it is hard to keep up.
Q: How does the mortgage technology market bifurcation benefit lenders? Consumers?
TREVOR GAUTHIER: The benefit to lenders and consumers alike is immense.
Lenders first. What is the single largest influence in housing finance today? Regulation and compliance. Loans that put some homeowners in peril of losing their homes and to potentially place them in financial ruin lead to a legitimate housing crisis. All industry-related regulations since, as well as those to come, are intended to prevent a similar situation in the future. The end result: it is a great deal harder, and more expensive, to produce mortgage loans. Sophisticated technologies designed to guide loans compliantly through the manufacturing process are now required. Camp one recognized this early on. In this market, lenders need financially able full-line generalists like Accenture Mortgage Cadence that can support increasingly complex requirements. The stakes are simply too high to risk errors. Nor can lenders rely on human effort alone to ensure rules are followed. At any volume, today’s regulations are simply too intricate to rely on people for error-free results.
Assistance with compliance is one lender benefit. Tackling the high cost of lending is another. Cost-to-originate has reached all-time highs. What we tackled in the previous decade has to be wrestled to the ground yet again reducing costs is another area in which comprehensive, purpose-built technologies are essential. Technology creates a consistent objective: an automated system for producing loans. When technology can manage processes that handle all but lending exceptions, we once again attain low-cost production. The long-term trouble with mortgage lending is it is far too subjective. Technology morphs the process from subjective to objective, the path to cost reduction.
Greater compliance and a lower cost to produce. We could stop there and proclaim victory except for this: consumers naturally assume these as givens. So while important to lenders, consumers cannot get as excited as lenders about either. What they can get enthused about is having the same, painless online mortgage shopping experience they have elsewhere on the Internet. They want it on their terms, wherever and from whatever device, from start to finish. To ensure this happens, an approval at the point-of-sale along with disclosures is a good start. Panoramic visibility during the entire process through closing makes for a good ending and memorable experience, one on which relationships can be built. This is entirely possible and available today, using the same comprehensive technologies that help with compliance and lower costs.
Q: Sounds expensive. With the cost of origination as high as it is can lenders afford such technologies?
TREVOR GAUTHIER: Lenders can’t afford not to have these technologies. Gone are the days when a lender spends ten cents, gets the dime’s worth of technology, and is able to get by. For the reasons I mentioned earlier, minimal investments in technology cannot support mortgage companies.
Lenders ask a tremendous amount of their mortgage technology providers. Yet meeting present and future requirements demands regular, ongoing product investment that so-called “inexpensive technologies” cannot make. The Qualified Mortgage (QM) and Ability to Repay (ATR) Rules provide a timely example. Just as borrowers expect a transparent, online financing experience, lenders would expect their technology providers to help with QM/ATR compliance. Some providers met these expectations, others did not. Accenture Mortgage Cadence spent the better part of a year understanding the regulations, talking with regulators, working with clients, educating the industry and adapting our software so QM and ATR are as natural a part of the mortgage cycle as submitting loans to Desktop Underwriter or Loan Prospector. Doing less, in our minds, means our customers become less efficient, their costs increase and their compliance suffers. Their customer experience suffers and risks increase too. Our customers spent a bit more than ten cents on technology and got five times their investment. On the other hand, lenders handling QM and ATR off-system or through a combination of off- and on-system got a nickel’s worth or less for their dime.
Know Before You Owe (KBYO) will be the next major compliance/technology hurdle. Likely bigger than the Qualified Mortgage Rules, we expect it will take more time, more effort and more customer and industry involvement to be ready. And we will be ready — our customers expect nothing less.
Technology that aids compliance and drives costs down while creating a better, more transparent and convenient borrower experience does not have to be expensive. We know from past benchmarking work we have done that comprehensive technologies, when used as designed by high-performance lenders, reduces the cost to originate by hundreds of dollars per loan. Looked at another way, the savings per loan pays for the technology several times over.
Insider Profile
Trevor Gauthier is Chief Sales & Marketing Officer at Accenture Mortgage Cadence. Trevor’s responsibilities include enterprise and mass-market software solutions sales, account management, the development and execution of marketing and communication strategies, building cohesive and recognizable brands, and recommending strategic approaches and executable plans to maximize sales activity and returns on investment. He previously held an executive marketing position at 3t Systems, Inc.
Industry Predictions
Trevor Gauthier thinks:
1. Market players need to be agile and innovative, anticipating and rapidly adapting to market trends and customer needs.
2. Lenders will leverage more online and mobile technologies that enable quick, easy interaction with customers, investors and other business constituencies.
3. Lenders will be more focused on the customer experience, proactively meeting their needs and exceeding their expectations.