One of the most notable boom/bust cycles has been playing out over the last decade. Expected to take the next 10 years, the real estate boom and bust offers lessons and opportunities for financial services and most any industry with respect to business processes, due diligence, intelligence about customers and partners, and IT automation.
In the early 2000s, real estate became a major focus for increased investment. Several trends converged to create a mania – a belief that real estate only goes up, easy financing and an increasingly aggressive buying public. This mania drove prices far above traditional price-to-income and rent-to-price ratios and set up the industry and public for a fall.
Financial Services Industry Automates Easy Financing with IT
The financial services industry fed into this by providing the easy financing. The processes followed for securing financing light on due diligence, and effectively transferred risk from the banks to investors, and ultimately governments in some cases. Web-enabled mortgage application processing integrated to back-end systems with SOA techniques were built during this period, further easing the mortgage financing process. The light due diligence made building these mortgage applications fairly easy and these implementations spread with the proliferation of mortgage brokers and financing organizations.
While making it easy for the customers, the new mortgage business process and supporting IT infrastructure did a poor job understanding applicants, making it easy for anybody to gain access to credit. Those with sub-par credit status, as well as those intentionally trying to game the system, flooded the system. This helped drive the feedback loop of increasing prices while setting up many with mortgages they would be unable to pay down the road. As we have seen in a falling price environment, this lead to many defaults.
2011 Mortgage Business with a 2005 Integration Infrastructure
Starting with the Panics of 2007 and 2008 and going on through today, the financial services industry has been undergoing significant change. Governments and the market place have mandated dramatically improved due diligence about the mortgage applicants, markets, the real estate being financed, etc. Money to fund mortgage financing is now reserved only for applicants with sterling credit ratings and financial means. Mortgage companies and banks must deal with a growing number of business events enabled by new Internet applications such as social and mobile computing. Customers are demanding error-free service and self-service. Applications and some data now are hosted in the cloud. Bad actors are getting more sophisticated, driving requirements back into the due diligence process and its supporting IT.
The mortgage industry had to adapt to the new regulations and disciplines of the market. Much greater diligence and understanding of the application, financial condition and their ongoing financial activities while applying for the mortgage and purchasing a house needed to be gathered and analyzed. With the integrated web application infrastructure in place, these banks and mortgage companies automated what they could of the process, but forced applicants into faxing and/or scanning and emailing financial information that was already online. Moreover, these financial organizations needed ongoing visibility into the financial activities of the applicant over the assessment period to ensure they remained credit worthy and not pursuing fraudulent purchases or just making imprudent credit decisions. This paper work and manual labor cost the financial institution considerable time and money, not to mention costs to the applicant as well. In the end, after quite some time, perhaps a couple or more months, the good actor would get their mortgage, but at considerable cost of money to the bank and time to both parties.
Build an Intelligent, Integrated Mortgage Company
There is a better way. Businesses such as the mortgage company and/or bank in this example are bombarded with business events every day or even every minute or second. The competitiveness of the business and its value is truly dependent upon how effective the enterprise deals with these business events as they execute their business processes using IT. Many business do not handle business events in a rapidly changing environment well as we’ve seen with our 2011 mortgage company using 2005 web application and integration infrastructure.
A business must be able to not only observe business events, but also seamlessly integrate applications and services to effectively process those business events without unnecessary manual intervention. An enterprise service bus (ESB) and/or messaging fabric will do the job nicely. Using an ESB reduces cost and time, and will enable the business to delight its customers with near error free service. However the business must do more than just process the event, it needs to analyze the event in the context of a holistic view of the applicant. Virtualizing the financial data associated with the applicant and details on the house under purchase and presenting it to the applications and services processing the mortgage enable the lender to understand the applicant’s financial condition in depth. The business uses a business rules management system to determine eligibility and price of the mortgage. Adding complex event processing to analyze the ongoing applicant financial events gives the business the intelligence to approve or reject the mortgage application with confidence, responding with the proper business process to execute closure or the rejection of the deal.
The intelligent integrated mortgage company can process mortgages faster, with less cost and fewer errors than lender with a web application and integrated mortgage processing applications. JBoss Enterprise SOA Platform, Red Hat Enterprise Messaging, JBoss Enterprise BRMS and JBoss Enterprise Data Services Platform offer this value to the financial industry, as well as and many others. By applying intelligence to the IT infrastructure with data services, business rules and event processing, the intelligent integrated financial institution can delight its customers and win more business. Now that is a smart way to run a business!
To learn more about how JBoss solutions help the mortgage industry, watch this video.