Tuesday, July 12, 2005

IT Investment Keeping Mortgage Rates Low?

This is a theroy that's been tumbling about in my head, but stay with me for a little while. And please forgive me for using terms that aren't quite correct (but feel free to add comments to correct me, I'd appreciate the lessons).

What if, the real reason mortgage rates are staying low is that lenders have found ways to reduce their overall costs of originating those loans.

The reason I think about it from this different perspective is that I don't really understand why the talking heads have been wrong about the rates. Too often I've heard...rates are going up...and they, well, don't. I mean not enough to be concerned about.

What if the real reason is competition and the drive of these companies to find ways to reduce costs. Costs of selling the loan, costs of originating, etc. Today you don't have to talk to a person to get a loan.

But that's not the whole story.

Backend systems, the ones that process payments, or do background checks are being moved off of hardware that is more costly to run. Not just from a programming/support resource standpoint, but from energy standpoints. They're being moved into Linux or Windows farms, which are easier to find cheaper resources to maintain.

Every one of the companies involved looks for ways to reduce costs. Why? Because then they can offer a better loan rate. They can offer something that their competition can't, and make a better profit. This competition helps to keep rates down. They're not "artificially low" by any means, investment in IT solutions to reduce overall costs is allowing products to be produced that couldn't exist 20 years ago, when the costs to run the back office were much higher as an overall percentage of operations.

Then again, maybe this is just a small zit on the rear of the mortgage industry. But for some reason, I think there's a little more to it than that.

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