The real estate finance industry will become increasingly consolidated even as integrated financial services companies take advantage of convergence to sell a wider range of financial products to their customers, an industry think tank says in a new report.

The report, which attempts to analyze the forces that will drive change in the real estate finance industry over the next 10 years, also predicts that recent immigrants will make up a larger share of borrowers, and that entitlement programs like Medicare, Medicaid and Social Security could make capital scarce.

The Council to Shape Change, an independent group of 19 real estate finance industry leaders created by the Mortgage Bankers Association, issued the report, “Outlook for the Real Estate Finance Industry,” which is available for $125, or $45 for MBA members.

According to a summary of the report, the complicated products and sophisticated capital markets involved in real estate finance provide a competitive advantage to larger players.

“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,” the summary said. “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 re-allocating risk.”

The report concludes that while integrated financial services companies are getting closer to the “holy grail” of being able to cross-sell a variety of products to existing customers, “the concept of ‘owning the customer’ is and will be a faulty premise” because borrowers and investors have access to so many firms.

The “shifting mix of borrowers” will also change real estate finance, with recent immigrants, boomers and older seniors driving demand for a different mix of housing types and commercial properties.

Capital could become scarce, and the housing sector could become crowded out by government credit demands if entitlement programs like Medicare aren’t reformed, the report said. If reforms aren’t implemented, “it’s unlikely that the importation of foreign capital or domestic economic growth can prevent it,” the report concludes.

The intensity, scope and intrusiveness of regulation will likely increase for both residential and commercial lenders, the report predicts, which “may ultimately result in higher costs to the consumer.”

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