Mortgage Industry To Scale Back IT Spending

With interest rates rising, the mortgage industry will scale back its IT spending as it braces for a large and steady drop in lending volume, a new study says.

The mortgage industry, facing as much as a 50% drop in loan originations between 2003 and 2005, will increase IT spending--particularly for loan-origination technology--by 1.3% this year, according to a study released Wednesday by the research advisory firm TowerGroup.

Mortgages represent the second-largest IT spending category among retail banks, and had the largest dollar increase in IT spending last year, Tower says. Though the growth in IT spending among mortgage companies will slow, that's not the case among the very largest lenders, which will boost their tech spending by 12.6% in the coming year, says research report author Craig Focardi, TowerGroup senior analyst for consumer lending and bank cards. "These lenders can more easily realize large financial benefits in loan origination and servicing efficiency, along with portfolio analysis for outbound mortgage marketing and cross-selling initiatives," Focardi says.

According to the research, mortgage lenders invested in new or upgraded loan origination systems, wholesale Website technology, and automated loan fulfillment systems to reduce capacity constraints as loan volumes rose rapidly from 2001 to 2003. This year and next, TowerGroup says, most lenders will see those supply constraints disappear, as total lending volume declines by 30% to 50%.

IT investment will continue to be essential for all lenders, TowerGroup says. However, the focus is shifting toward areas such as improving operating margins to maintain profitability, portfolio management, direct marketing and cross-selling. Retaining mortgage customers will remain a major concern in the post-refinance market, since the retention rate when mortgagors buy a home averages 10% in contrast to an average of 30% when mortgagors refinance.