The Economic Realities of Transparency for The Mortgage Brood
April 20th, 2008 Categories: Business Models, Mortgage Boom 2.0, Mortgage News, Tranparent mortgage pricing
Transparency in the mortgage industry has become a hotly debated topic over the past 18 months. With major corrections in the marketplace, declining home values, volatility in mortgage securities, and a white hot media focus on the viability of mortgage professionals in general, we are primed for the paradigm shift towards the type of market transparency that has taken over the economics of other commodity markets.
Searching Wikipedia, Transparency has no less than 17 definitions; focusing on the ‘Economics’ classification:
“In economics, a market is transparent if much is known by many about:
- What products, services or capital assets are available.
- What price.
- Where.
A high degree of market transparency can result in disintermediation due to the buyer’s increased knowledge of supply pricing.
Transparency is important since it is one of the theoretical conditions required for a free market to be efficient.”
I was going to delve into it’s philosophical definition and application, but that would cause too many peoples heads hitting their keyboard out of boredom.
‘Web 2.0′ is all about augmenting the speed and lucidity of delivering #’s 1-3. The very expensive technologies that ‘disintermediated’ traditional commodity brokers on Wall Street are now readily available at far less cost to most any industry that deals in information, this much we know. I can today, while being out of the industry as a practicing mortgage broker, monitor what’s going on in the industry better than I could when I was in the day to day grind. Much of the valuable information that was available in ‘expensive’ short supply just 2 years ago is now readily available in buckets.
To a great degree, the resourcefulness of the trusted crowd in the re.net space allows me to maintain a keen perspective about the industry in a fraction of the time. Any consumer who reads the mortgage websites indexed under my re.net tab could assimilate 90% of the knowledge they need to select a mortgage product that is fit for their personal situation.
It makes me smile when I read affluent bloggers post about how valuable their advice is as they simultaneously give it away. Here’s six figures worth of advice, for free. I’ll even expound on Roberts advice:
Next time you take out a mortgage, commit yourself to making the payment a 30 year fixed amortizing loan yields (20 or 15 year fixed payments are even better if you can afford it) that your situation qualifies you for. Execute a 5 year ARM Interest Only (or ‘cheaper’) product, take the difference between your ‘qualifying payment’ and your actual payment, and invest it.
Thats valuable counsel, now its out there for free…I just disintermediated myself 
The mortgage industry, with it’s migration into the Mortgage Backed Securities arena of Wall Street, is square in the same cross hairs that pre dot bomb ’stock brokerages’ found themselves. The environment is strikingly similar: market has recessed substantially, quality information is getting easier and cheaper to find, and its ‘brokers’ are fighting for their careers.
Remember when stock brokers repeatedly uttered how ‘people need my advice’ to choose the right investment vehicle? If someone would have told them then that they would be selling mortgages (or real estate) in the near future, they’d have laughed so hard at you they’d cry. Speculative investment vehicles are far more difficult to evaluate risk in compared to a mortgage, yet I hear many of todays current mortgage practitioners repeating the same ‘people need my advice!’ jargon. Mark Twain said, ‘History may not repeat itself, but it does rhyme’…this is straight-up Nursery style.
Brokering information inherently gets easier, faster and cheaper. If you’re in the mortgage business and you can’t deliver more information to consumers easier, faster and ideally cheaper than your competition, your value is diminishing. The quicker a mortgage (and real estate) professional learns to become an uber resourceful information broker, the more ‘future proof’ you and your business becomes. Banks have already clued into this, they’re positioning themselves to crush the small to mid size shops, continuing to keep Washington in their pockets by lining it’s pockets, to keep the unscientific disclosure laws in place.
How does one compete in an industry that has disparate transparency/disclosure rules? Get lean, efficient and be more transparent than the next guy. It’s always been about survival of the fittest, today is no exception…you must offer more information, be quicker, better and cheaper than your competition.
Mortgage professionals had best stop trying to refine their image on the outside and instead get real personal with how they do business internally, or it’s on to yet another career…
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Great, great post Jeff..
As always something from the “zubi” kitchen :” I can’t even think to compare myself with Mark Twain, however, I say, History always repeat itself(sooner or later)” T.Z.
It’s also survival of the FASTEST.
My ten day team experiment proved that.
I totally agree. The guys in our office whining over the extra disclosures are just whining… Here in NC we are WAAAAY ahead of you guys on disclosing. If you’re having trouble now - just wait for the REG Z changes!