The mortgage and real estate industry is an interesting place. While its risk aversion is fairly understandable—after all, at the heart of a mortgage loan is the anticipated repayment of borrowed money—you’ve seen me rail once or twice about an overriding reluctance to update, modernize or improve certain things. Yes, the fact that mortgage providers, especially those working in numerous markets, must deal with a tangled web of archaic state laws; well-intentioned but poorly executed federal rules and even municipal ordinances can certainly inhibit the deployment of new ideas without careful review.
But there’s really no good reason and, as far as I can tell, no legal requirement that we still use faxes or emails to send orders or collect data needed for the transaction.
Nonetheless, these barriers to entry may be part of the reason ours has been an industry that tends to rely on its own resources to develop new technologies. We are starting to see more investment from the “outside” recently, to be sure. But as far as I can tell, we’re still waiting for Amazon, Google or Tesla to enter the space and dominate. We tend to be home-grown. And that’s not always a bad thing. It’s great to see small companies grow into successful companies organically.
One phenomenon we’ve seen quite a bit of over the years touches on tech development. This is especially true in the title industry, but we see it in origination, valuation and most of the other segments as well. I’m talking about self-developed, proprietary technology. There are any number of title agencies, mortgage companies or even appraisal management firms that have, rather than seeking out the right fit (or, sometimes, in the absence of any useful technology for their needs), have created their own. And we can probably all name a few such technologies which eventually spun off of their parent firms to become their own ventures. Sometimes those spin offs work out. Sometimes they don’t.
However, one thing I do see over and over again in such cases, where a proprietary technology is spun into an independent (or semi independent) company providing for all comers, is a lack of preparation for the new outlook on the market. Or, worse, where the parent firm does not spin off the technology, yet tries to sell and share that technology while maintaining its core mission.
That almost never works.
First and foremost, I’ve always believed it’s best to stick to what you do, um…best! We at LodeStar are less a tech developer and more a closing fee expert. Our data—current, accurate data—is at the heart of our guarantee. Yes, we’re proud of our tech. But without great data, it’s just another tool.
But how many times have you seen a larger company field a reasonably useful but proprietary tool, and do it well? It’s a real challenge to be responsible for keeping that tech updated, future-proof and, eventually, relevant. R&D expenses can be a heavy burden for a company also trying to sell mortgage loans and battle margin compression. There’s also the dichotomy that comes with serving multiple masters. For the people or teams charged with developing, selling and maintaining that proprietary technology, what happens when a potential client is also a competitor to the parent company?
Making what had been a useful, internal tool into a product sold in the marketplace (or a service, in the growing instances of Software as a Service) takes a lot of time and expense, and that doesn’t go away with launch. In essence, a single company is now trying to be two companies (or more). This can muddle the brand message, market perceptions and even the mission of the parent.
So, still want to be a tech developer or a SaaS provider? It can be done. But not without a carefully thought-out strategy.
We at LodeStar are grateful to all of our clients, friends and colleagues who take the time to view Deeper Thoughts. Please consider having a look as well at some of our other great content, including our podcast, “LodeStar’s Lending Leaders,” and “A Tale of Two Mortgages: an original webcomic for the mortgage industry, presented by LodeStar.” As always, your feedback is welcomed and appreciated!