The ICE — Black Knight merger creates the first end-to-end digital infrastructure that will reorder incentives and change how housing markets operate. New competitive pressures on long-protected positions will force many to rethink delivery systems and reinvent organizations. The digital future is unknowable, but we do know that information power moves to consumers, value resides in networks and data rights are the new currency. These principles of digitization will test the adaptive capacity of every element in this diverse ecosystem.
The most likely outcomes include:
Lenders: Fewer than 50 mortgage lenders will transition to a federated model that enforces the controls necessary for secure cross-industry interoperability. The cost and benefits of migrating to network centric production will be substantial. The ERP projects of other manufacturers offer examples of the change management challenges lenders will face. Networks that have earliest visibility at the consumer points of intention will capture the data to win loans, provide servicing, create content and build a loyal audience.
GSEs: The concentration of lenders will lead to new systems that may reach deeper into the primary market. Lenders will align with marketing and services partners to gain pricing power. New methods, metrics and marketplaces will emerge from the non-QM segment that challenge conforming orthodoxy. Investor expectations will change, and government entities will attempt to coordinate their response. Any future exit from conservatorship will confront issues beyond capitalization such as data monetization, risk parameters, secondary market design, FHA execution and the pricing of mortgage guarantees.
Portals: These destinations become marketplaces that integrate the supply chain and allow consumers and their advisors to choose and close within minutes – not months. Portals will authenticate identity, validate content, facilitate standard agreements, and ensure timely payments between buyers and sellers of homes and service providers. Audience assets will be valued based on transaction volumes and bundles of listings, lending, loan sales and servicing and trading content. Consumer profiles will describe the interests, intentions and preferences that signal future purchases for the platforms that dominate the homeownership supply chain. Google, Amazon and their networks want to know when buying patterns are about to change.
Title: Title may be best positioned to implement the “trust model” that defines the responsibilities of all parties to a complex transaction. Beyond reps and warrants this structure would assure the range of “soft” components required for digital transactions such as – interoperability compliance, security standards, credential criteria, data quality, payments reconciliation, sales and repurchase terms, limits of liability and audit requirements. These essential tools require a collective commitment. Will providers like MasterCard, that recently acquired Finicity, capture the opportunity to bring digital trust to the largest asset class?
Insurance: How will PMI and P&C firms address the opportunities as electronic marketplaces lower the cost of customer acquisition across a rapidly changing competitive landscape? Every ancillary service will rely on a deeper understanding of local environmental and credit conditions. Access and affordability may be dictated by the regulatory actions of higher risk states and the cost of increasingly ESG sensitive capital.
Brokers: Digitization puts middlemen in every industry at risk. Real estate and mortgage brokers will be marginalized as friction is removed. Advisory services based on relationships and unique insights will command price premiums in every metro, submarket and product niche. Effective local and national advocacy could allow agents to monetize their data and personal networks that extend across the entire homeownership cycle. MLSs must evolve from listing repositories that extend offers of compensation to become “Metro Property Networks” that serve the broader real estate interests of every major job center.
Housing can finally be rewired to make the leap to a smarter, safer, connected system. Networks that create richer data will change the game and control the trajectory of an AI powered future. Digital infrastructure arrives as earnings erode and liquidity risk forces change upon an unstable structure. Every leader in the ecosystem will be on a shared journey to a connected mindset. Thinking differently about digital will matter more than any technology.
Stuart McFarland is the former EVP Operations and CFO at Fannie Mae, EVP General Manager at GE Capital Mortgage Services, and CEO at GE Capital Asset Management.
