CABO SAN LUCAS, Mexico — The Department of Housing and Urban Development tried to push real estate settlement service providers to offer bundled loan origination and closing packages, by reforming the Real Estate Settlement Procedures Act, known as RESPA. While that effort faltered famously last year, lenders, title insurers, real estate brokers and others are developing bundling programs on their own as market forces propel the changes regulators weren’t able to mandate.
Some of the industry executives who have developed bundling programs described their experiences during United General Title Insurance Co.’s “Mid-Winter Thaw” conference here last week. The panelists, representing different segments of the settlement services arena, explained how they are using bundling in different ways to compete in a changing industry.
For the First American Corp., bundling is a mechanism for “developing new ways of approaching the mortgage process. Bundling creates opportunities,” Craig DeRoy, president of FAC and a director of its largest subsidiary, First American Title Insurance Co., explained.
A Unifying Process
The drive for bundling initially came from the need to make the company operate more efficiently, DeRoy said. “We realized that delivering our products and services through a single process would eliminate steps, reduce costs, and improve quality.” But DeRoy also described bundling as “a unification process,” for First American, which, he noted, has grown primarily by acquiring entities offering different settlement services. Bundling, he said, “has provided a means of bringing our company together.”
First American subsidiaries recognize that “it’s in their best interests to approach customers together” by participating in bundled packages, DeRoy explained, and the company’s statistics explain why. “We sell 1.3 products when we offer them individually; we sell 3.1 products when we talk about bundles; and we sell 5.2 products when we sell bundles. Every product First American offers is available in a bundle,” he noted, “and every bundle we create is a new product. That’s how we sell our products.”
The communication that bundling requires of participating subsidiaries fosters attention to customer service and innovation, “and that deepens the value proposition we offer,” DeRoy said. Bundling also addresses the need to communicate a clear vision of the future. “Customers know the world is changing,” the First American executive continued, “and they want you to tell them where you are and where you will be in the future.”
Bundling communicates that vision, DeRoy said. Equally important, it helps combat the view of mortgage products as commodities by offering a value proposition in which “the sum is greater than the individual parts. Bundles change the perception of what we offer.”
A Competitive Necessity
For much smaller settlement services providers, bundling provides an essential competitive tool, according to Bill Moody, president and CEO of Lenders First Choice. A provider of title and settlement services to national and regional mortgage lenders, and a self-described “small” player in that arena, Moody said his company can’t compete on price with companies like First American. “They own all the parts of the process. We have to compete by being the best in class in all the parts of the process we touch.”
Because he can’t own those parts, Moody said, he has to partner with other entities representing “best in class” in their sectors. By bundling those services and products, “I can deliver what lenders need in the time in which they need it.” Because he can’t compete on price, he has to find ways of adding value to the services he offers, and a large measure of that value comes from his ability, through bundling, to guarantee that the prices he quotes at the beginning of the process won’t change.
The primary goal of bundling, Moody contends, is not to reduce mortgage costs – “No one knows if it will do that.” The goal, rather, is to provide “peace of mind” both to borrowers and to lenders “who don’t want surprises at the closing table either. If bundling provides that certainty, Moody said, “then it’s good for borrowers, it’s good for lenders,” who gain a competitive edge by being able to guarantee pricing for their customers, “and it’s good for us. This is how a small agency competes in a bundling world,” he explained.
Controlling the Pieces
Hiram Blomquist, president of The Guarantee Title and Trust Co., agreed that the primary goal of bundling is not necessarily to reduce loan costs or to increase the profits of service providers. “We’re still trying to figure out how to make money on it,” he admitted. Bundling’s real benefit, he said, is the capacity it gives title and settlement services providers to deliver “as many pieces of the process to the lender as possible.” That is crucial, Blomquist emphasized, “because if we can control the individual pieces, we will succeed” by delivering what lenders need and what consumers want. “But if we lose control of the individual steps, we will lose our ability to simplify the process and eliminate surprises for consumers. Consumers have no need for bundling,” he added, unless it achieves those goals.
Citing the evolution of affiliated business arrangements as an example, Blomquist noted that the ABA ventures that have succeeded are those in which the participants recognized that the goal was not to increase the profits of participants, but to enhance the delivery of mortgage products and services. With bundling, as with ABAs, Blomquist said, “we will make a profit if we do it right. But if we put profits first, we may not.”
He also emphasized the need to approach bundling thoughtfully – “If we try to be everything to everyone, there is a danger we will lose sight of our core competencies” – and cautioned against joining the rush to be first in the bundling line. “If we move too fast,” he warned, “we risk confusing customers or providing products that don’t resonate with real market demand.” That was the painful experience of the telecommunications companies that got too far ahead of their market, Blomquist said, “and it provides a good lesson to us.”
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