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The New Gold Rush in Mortgage Technology?

Economists anticipate that higher rates might prevail for a longer duration than we expect, with their impact only mitigated by a deterioration in consumer credit, leading to an economic slowdown and a reaction by the Fed – arguably the best of worst-case scenarios.

Market dislocations, such as the ones we’re currently witnessing, often give rise to non-obvious opportunities born out of necessity. The most pronounced bear market in the US housing sector is heralding a generational shift in technology. Drawing from Carlota Perez’s insights, such technological paradigm shifts often arise post-economic downturns, reshaping entire industries. I believe the current wave in the housing sector will transform the landscape for both lenders and consumers alike.

The imperative to reduce operating costs due to declining loan volumes, and the need to replace antiquated systems with more modern infrastructure to boost margins and efficiency, align with Perez’s observations on the “installation period” of technological revolutions. During such phases, new technologies challenge the status quo, eventually leading to more efficient and prosperous systems. For the mortgage industry, this has never been more critical. An unparalleled opportunity for banks, originators, and non-bank lenders to redefine their competitive standing awaits.

Macro Shifts in Rates: As interest rates continue to fluctuate, banks and originators are fervently seeking systems that enhance data orchestration and introduce a revamped system of record. This is especially vital in a landscape where competitors are now vertically integrated technology firms.

Sector Transformation: The global mortgage industry is undergoing significant structural change. Taking cues from Perez’s studies on technological revolutions, during these turning points, there often emerges a temporary slowdown, offering players a brief respite. This “gap,” akin to Perez’s “deployment period,” is the ideal moment to revamp and upgrade systems, ensuring a robust and efficient resurgence post this transitional phase. Typically, such downturns also lead to unparalleled industry consolidation and contraction, as observed in her historical analyses.

The Quest for Efficiency: Modern mortgage technologies inherently lead to diminished operational expenses. Automated procedures reduce human error, streamline data management, and simplify compliance. By adopting these systems now, firms can achieve immediate cost reductions and strategically position themselves for future success.

As an active investor in mortgage infrastructure, we’ve observed an increase in customer activity, driven both by investment and the necessity for operational evolution. This isn’t isolated to a specific segment but spans numerous mortgage verticals. In our portfolio, this encompasses POS (Blend), LOS (Vesta), Pricing (Polly), Lending (Figure), Title (Qualia), Embedded Lending (Pylon), and Servicing (Haven). Many other firms, outside our partnership, are witnessing similar upticks in adoption as the market recalibrates to accommodate reduced volumes.

At this pivotal juncture, banks and originators must seize the moment. By proactively integrating with modern tech companies, they can architect the future and adapt to the emerging normal. History has produced similar transformations, forging winners and losers across various sectors like manufacturing, education, retail, financial services, travel, and supply chain, among others. This is about more than just maintaining the lead; it’s about reshaping the entire playing field.

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