With the passage of the Affordable Health Care Act (an oxymoron), the health care industry has come even closer to being run by the federal government. Is Banking headed down that same path? (Dodd-Frank Costs). You’re probably wondering where I’m going with this one.
Under the Affordable Care Act, everyone is forced to carry health insurance coverage. The coverage required is determined by the Federal Government, the cost for now is still set by the healthcare insurance providers. But, since the cost is determined by the coverage required, and coverage required is determined by the law, isn’t the cost then at least partially determined by the federal government?
Since the government pays subsidies for those who cannot afford the coverage, how long before the government determines the rates? The conspiracy theorist in me says the federal government then takes over the administration of our health care. Stick with me here.
Under Dodd-Frank, the federal government set the standards and requirements for the banking and the financial services industry, including the securities markets. In doing so, they determined requirements for what banks and lenders must do when providing goods and services to their consumers. To comply with these new requirements, banks, and mortgage lenders have had to modify how they do business. This has put a tremendous burden on their resources, increasing costs and decreasing profits for many small to mid-size entities, pushing them to the brink of extinction.
The small to mid-size banks and lenders are shrinking while the major players are growing, both in size and profits. Can to smaller players survive the continuing onslaught of new regulation and the increased scrutiny from regulators? It’s a challenge and one that is costing these companies quite a bit of money.
In the end, will we be left with a few major banks which determine what products and services are available and at what costs. Since the federal government will dictate how and what these banks do, in essence, the government will be determining the services available and the costs for each. Think of what happened to student loan lending.
Hey, maybe I’m wrong. If so, no big deal, just the rantings of a madman. But, what if I’m close? The backbone of mortgage lending has been its individuality. Independent Mortgage Bankers and Brokers have brought goods and services to consumers at varying levels and prices, and into many markets underserved by banks. These are products and services needed by consumers.
To continue to provide these services, the smaller lenders must adapt to change and learn to do more with less. Increase productivity while decreasing expenses.
One area is in defect control. They must manufacture a quality product to bring the best price in the secondary market at the lowest possible cost. This can be done through a smart investment in constant and ongoing employee training supported by automation and technology.
Pre-Close audits become ever more important. The time and money spent to carefully review loans before they close will result in increased returns with fewer delays, fewer problems, quicker deliveries, and fundings, needing fewer people to do so. Overall, you should achieve a decrease in expenses which, in turn, should increase profits.
According to Billy Joel, “I may be right; I may be crazy; but it just might be a lunatic you’re looking for…” Don’t get caught standing at the station when the train pulls away. The game has changed; play different.