Real Estate Financing Expected to See Dramatic Cha
Washington, DC, August 11, 2006--Over the next five to ten years, the real estate finance industry will face dramatic changes in the economy; in capital markets; in borrowers, products and processes; and in technology, according to the report of The Council to Shape Change released today.
The Council is an independent group of nineteen real estate finance industry leaders created by the Mortgage Bankers Association as a means of helping the Association and its members better identify and prepare for the changes that the $12 trillion real estate finance industry will likely face in the next five to ten years.
The Council was created in the fall of 2005 by Regina Lowrie, CMB, chairman of the Mortgage Bankers Association (MBA) with the mission of identifying and evaluating the major forces and trends shaping the industry; developing an intellectual framework to understand the impact of these forces and trends on the future structure, scope, products and profitability of the industry; and utilizing the resulting framework to provide strategic insights that businesses may use to optimize their planning and development efforts.
The Council was led by Andy Woodward, former chairman of Bank of America Mortgage and of the MBA. "The council was given a huge assignment: To identify the major forces and trends shaping the industry; to develop a framework for understanding the impact of these forces and trends; and to provide strategic insights that both the MBA and its members can benefit from," said Woodward. "The findings are broad and comprehensive, and the book is laid out in a simple and straight-forward way."
Among the key forces expected to drive change in the real estate finance industry over the next ten years are:
Consolidation: Industries such as real estate finance--with complicated products, demanding borrowers and sophisticated capital markets--will generally provide a competitive advantage to larger players that can invest the resources needed to manage and understand this complexity. While the industry will become increasingly consolidated, real estate finance processes will be broken down into a series of smaller component pieces that can be isolated, optimized, automated and outsourced. This tendency to break operational processes and procedures into smaller components will be matched by the increasing dis-integration of the cash flows and risks associated with mortgage investments. Capital markets will continue to innovate in tranching, distributing, pricing and reallocating risk.
Convergence: The holy grail of the large integrated financial services companies will be the capability to cross-sell a variety of financial products to existing customers, with the mortgage as a key product. This business model has yet to live up to its promise, but many institutions are getting closer. Borrowers increasingly will view their mortgage as one of a number of financial products they consume. Investors increasingly will view mortgages as one of a number of fixed-income investments they hold. Because borrowers and investors have access to a growing array of firms and products - and are more willing than ever to choose innovative products and companies that match their needs--the concept of "owning the customer" is and will be a faulty premise.
Borrowers: The shifting mix of borrowers will drive change in the real estate finance industry. Changing demographics include patterns of regional migration, an increasing share of borrowers who are recent immigrants, and a large cohort of boomers and older seniors will all act to change the demand for different types of single family, multifamily, and commercial properties and, as a result, will change the demand for residential and commercial lending. These borrowers will force the industry to adjust its products, processes, channels and workforce.
