Consumer Finance International Retail Banking Wealth Management LoBue Technology				Mortgage Banking... CONSOLIDATION BRINGS CHALLENGES TO BIG AND SMALL PLAYERS With the ongoing consolidation of the financial services industry, the mortgage sector continues to struggle to keep up with the resulting changes. We have witnessed companies all over the country expanding their operations, and have even seen foreign entry into the US mortgage market. Financial service organizations continue to use mergers and acquisitions as a means to reach new customers in new markets and to achieve the synergies that commonly come along with consolidating the operations of two companies. However, with those synergies that growing companies often achieve comes a new issue that must be addressed: how operations and customer service will be affected by the new size of the merged entity. Is achieving greater efficiencies and cost reductions worth the sacrifice of personalized service that can create a lifelong customer relationship? The answer to this question is "no," but a lower level of personal customer service is typically not enough to justify ceasing expansion through mergers and acquisitions. It is extremely beneficial and profitable for an organization to achieve economies of scale to minimize per-transaction costs and maximize volume. This allows the organization to pass the cost savings on to the consumer who will pay a lower interest rate or a smaller fee for the origination of the mortgage, and will thus choose to do business with the large, efficient organization. While achieving these efficiencies, the close, personal contact between lender and borrower often diminishes. However, that does not mean that customer service erodes across all levels. There is, in fact, an increase in the quality of servicing loans when hi-tech systems with large volume capacities are in place. The presence of these systems are usually accompanied by employees whose functions are very focused and specific, such as opening payment envelopes and sorting checks. These focused processes greatly reduce the risk of error and help to assure the timely posting of payments. It creates a more "hassle-free" experience for the consumer. Advanced systems and focused business processes, however, do not guarantee an error-free environment. Large organizations that spend millions of dollars developing and implementing new technologies still make mistakes. It is here that a customer will experience the true difference between doing business with a small company and a large company -- the personal element. For example, the customer of a large mortgage operation who mistakenly receives a notice of late-payment will often feel lost trying to inquire about the matter. The customer may spend several minutes trying to dial his way through an automated call center to a customer service representative who is neither familiar with the customer or the account. Because efficiency and rapid processing of transactions is a priority of large mortgage operations, the customer is less likely to speak with an employee who demonstrates a genuine concern for his satisfaction; and more likely to speak with someone who is concerned about taking care of the matter and moving on to the next customer. If the same customer had taken a loan from a smaller organization, however, he or she would very likely speak directly to the officer who originated the loan, who may even send a personalized letter of apology for the incident. While personal contact is great for customer relations, smaller mortgage operations also have their issues when it comes to quality customer service. Because small organizations usually lack the sophisticated technologies of their large competitors, they are more likely to err when servicing loans. No matter how much personal contact a customer receives, if the account is serviced poorly on a regular basis, he or she is not going to return to that institution for a loan in the future. In addition to competing with the efficient cost structures of large mortgage companies, small lenders are faced with other competitive disadvantages as well. For example, organizations that have achieved economies of scale and have developed a large customer base frequently offer additional financial services through multiple affinities such as insurance or credit cards. While a "true mortgage operation" does not serve as a one-stop shop for financial services, the benefits of consolidating multiple products under one roof are a major convenience for consumers. These large organizations will often provide consumers with a wider variety of payment channels as well, such as mail, direct-debit, and ATMs, if the mortgage operation is a subsidiary of a depository institution. Smaller mortgage operations frequently offer mail as the only channel of payment, which is where servicing errors are most likely to occur. Both large and small mortgage operations have qualities that make them appeal to different customers. Some borrowers will sacrifice personal attention in order to obtain a less expensive, more error-free product, while others prefer to pay the extra few dollars to guarantee that their account is being serviced by a person who is familiar with it. While neither a large or small mortgage company will ever be able to truly accomplish maximum efficiency and a genuine customer focus, both can and should attempt to strengthen their competitive weaknesses. Small organizations should work to increase their efficiency by installing more PC-based technology in order to speed up the origination process and reduce servicing errors. Large organizations, on the other hand, should strive to give their customers a feeling that they are not going to be lost amongst a sea of other customers, at least during the origination process, when the most company-customer contact takes place. The fact of the matter is that organizations of both sizes need to address these issues in order to please their customers to the best of their abilities. In today's market, there are too many competitors lurking in the dark, waiting to steal customers who are unsatisfied with the service of their mortgage providers. return
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