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EST ANALYSIS OF QUICKEN LOANS

Pest Analysis Quicken Loans

Isis C. Harvin

Southern New Hampshire University

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September 18, 2016

PEST ANALYSIS OF QUICKEN LOANS

An environmental scan of the mortgage industry shows the close relationship between banking and lending, as well as how the mortgage industry grew from being a department in a bank to its own entity. The three largest mortgage firms in the United States are Wells Fargo Mortgage, DiTech, and Quicken Loans Inc. Quicken Loans offers retail mortgage lending solutions online in the United Statesoffering mortgages and home buying programs such as refinancing options as well as adjustable-rate mortgages, fixed-rate mortgages, fixed-rate VA loans, VA adjustable-rate mortgages, jumbo loans, reverse mortgages, and others. It serves veterans, service members, and their families through iPhone and Android applications. The company was founded in 1985 and was formerly known as Rock Financial Corp. In December 1999 the Detroit based company changed their name to Quicken Loans, Inc.

The continuity of progression and success of an organization is based in sufficient strategic management. The field of Strategic Management & Entrepreneurship deals with the creation, growth, transformation and performance of firms and industries, and investigates the effectiveness of various attributes and actions of an organization and its top management teams in order to gain competitive advantage and achieve organizational goals. A strong component of strategic management is the ability to conduct and use a SWOT analysis as well as a PEST analysis. SWOT is the acronym for Strengths, Opportunities, Weaknesses, Threats or Trends.  A PEST Analysis is a “simple and widely used tool that helps you analyze the Political, Economic, Socio-Cultural, and Technological changes in your business environment. This helps you understand the “big picture” forces of change that you’re exposed to, and, from this, take advantage of the opportunities that they present

PEST Analysis is often linked with SWOT Analysis, however, the two tools have different areas of focus. PEST Analysis looks at factors that might influence a decision, a market, or a potential new business on a larger scale. SWOT Analysis explores some of the same factors, but more in-depth on the business product-line or product level. These tools complement one another and are often used together (PEST Analysis: Identifying “Big Picture” Opportunities and Threats, 2016).

Political factors

            Due to several changes in congress between 1990 and 1998 the housing market experience exponential growth. This is mainly due to congress loosening the banking/lending laws which allowed banks to give credit to high-risk borrowers. In 2007 the housing crisis contributed to the downfall of the US economy. During this time many people who could afford high interest loans in 1998 could no longer afford to pay their mortgage in 2007.  However; new laws or regulations take a minimum of two years to take effect on the industry. For example “The regulations, drawn up in 2013 by the Consumer Financial Protection Bureau, are now in effect.The gist of one of the main rules is simple: Lenders will be required to ensure that borrowers have the ability to repay their mortgages. In return, lenders will be protected from borrower lawsuits so long as they issue “safe” mortgages that follow guidelines(Kerner, 2016).”

            The home loan industry now has to adapt to new mortgage rules that offer borrowers much needed protection against lender abuses and reckless lending standards. Some of the new mortgage rules will influence qualification requirements and the types of mortgages that borrowers get. For example, the Truth in Lending Act which is part of the Consumer Credit Protection Act is a federal law that sets forth certain written disclosure requirements like the finance Charge, the Annual Percentage Rate (APR) of the loan/mortgage; the total amount financed; the total number of payments; and the total sales price. Although the Truth in Lending Act was established in 1968 recent updates to this act also sets forth advertising requirements for lenders as well as rescission rights for consumers. The rescission rights allow consumers 3 business days to back out of a loan transaction.The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth in Lending Act (TILA) to address abusive practices in refinances and closed-end home equity loans with high interest rates or high fees. “Since HOEPA’s enactment, refinances or home equity mortgage loans meeting any of HOEPA’s high-cost coverage tests have been subject to special disclosure requirements and restrictions on loan terms, and consumers with high-cost mortgages have had enhanced remedies for violations of the law. The 2013 HOEPA Rule also implements two additional Dodd-Frank counseling requirements that may apply to creditors regardless of whether or not they make high-cost mortgages(Kerner, 2016).” Specifically, these provisions require or encourage consumers to obtain homeownership counseling for other types of loans. “Users of this guide should keep in mind that these homeownership counseling-related requirements are not amendments to HOEPA, but are separate amendments to the Real Estate Settlement Procedures Act’s (RESPA’s) Regulation X and the Truth in Lending Act’s (TILA’s) Regulation Z that apply to different types of transactions(HOEPA Lender Compliance Guide, 2013).”

Economic Factors

There are several economic factors that have a direct correlation with the continuity of Quicken Loans. For example, Quicken Loans is headquarters is located in Detroit, Michigan. The City of Detroit has been plagued with an unstable economy for more than a decade due to high unemployment rates, unscrupulous politicians and a historic surge of Detroit residents relocating to other regions. This lead to homes being abandoned and being vandalized. As the city began to attempt to make strides towards restructuring, the city council was able to offer businesses operating outside the city limits incentives to move their business into the city.  Quicken Loans owner then invested “$1 billion over three years, bought some 2.6 million square feet of commercial space in the downtown area and moved 7,000 employees there in a bid to make that vision a reality (Page, 2013).” Now the company has not only an invested stake in the community, it is also a visual imprint on visitors and residents all of whom can be potential customers. In order to help increase a failing residential rate in the city, the company gives employees “who buy property in the city a gift of $20,000 on condition they live in the city for five years. Residential real estate occupancy rates in the downtown and midtown areas are close to 100 percent. That’s helping to fill in the public services, cut as part of Detroit’s attempt to stave off bankruptcy. Quicken has installed cameras and hired security teams to ensure employee safety (Page, 2013).” As more businesses move into the area it creates the need for more residents near or in the local area.

Social Economic Factors

The population is going through a consumer shift, millennials are graduating from school and will be looking to purchase homes, baby boomers are relocating to smaller homes, condos and assisted living facilities. The rise in millennials ready to purchase or invest in real estate, leads the way to more aware technically savvy buyer that would be more likely to spend more time on the internet rather than in an office face to face. Quicken Loans recognized this shift and changed the way mortgage lending operates and processes. Because the home buying market is becoming stable, the strengthening economy is not the reason for the average home buyer to run out and purchase a home, the novelist idea is that there is a relatively stable relationship between local home prices and local salaries that it is the best time to buy; in retrospect when this occurs, it is the best time to invest in real estate. Investors who buy when homes are priced below the Income Price are more likely to make a good return. This would be a good time to capitalize on millennials wanting to start investing in real estate properties.

This is an opportune time to capitalize on the mortgage market and continue to drive innovation in the mortgage industry. The company has been ranked three years in a row as the number one place to work in IT in the world, the company was also ranked as best places to work for African Americans. The company has more than 200 open positions and even though they are ranked as the best place to work the positions are difficult to fill due to the gap between available talent and employment needs. As stated earlier, between 2000 and 2010 the population of Detroit reached historic lows due to lack of employment, crime, and the lack of available resources. Many of the migrating residents are college graduates looking for more than just a job but more so a combination of a healthy working environment, promotions and pay, as well as community involvement. Quicken can invest in an internship program for Veterans and local college students to attract talent and provide insight or input on specific course curriculums to close the gap between available jobs and available talent.

Technology

The organization is the first of its kind to offer the complete mortgage process through the web. The process even has a smart phone app for potential buyers on the go. After investing in a state-of-the-art technology center the company is the best place to work in IT. It is commendable that Quicken Loans recognized the need to have the most reliable IT support possible because the company has invested in marketing the ability to complete the entire mortgage process online, however, the organization should be careful not to overemphasize the technology center and center their resources on what gives the company maximum return on their investment which is their human resources and their clients. There are so many new technologies on the horizon the company did make a wise decision to employ and invest, this will give the organization the opportunity to stay in line with fast changing technological needs. Now that the company is maximizing their client base by offering the use of an app there will be a considerable need to be able to redeploy upgrades to keep up with the changing technology in cell phones. There may be a point in time when the competitors will be using the same technology. The organization needs to continue to invest in research to maintain their dominance in the mortgage industry.

Conclusion

In conclusion the PEST analysis of Quicken Loans has revealed several strengths within the organization, such as technology, community involvement, research, and strategic management or planning. The PEST analysis also revealed the most dangerous weakness which is their human resources. Although the company is ranked as one the best places to work. Quicken Loans should a note from the lessons learned by the IT giant Google, concentrate your resources on what brings the maximum return on investment, continue to invest in technology, but invest more in their human resources.

References

DuPlessis, J. (2016, August 3). Nonbank Lender Competition Builds. Retrieved from Credit Union Times: http://www.cutimes.com/2016/08/03/nonbank-lender-competition-builds?page=3&slreturn=1471887036

HOEPA Lender Compliance Guide. (2013, June). Retrieved from http://hoepa.org/hoepa-lender-compliance-guide/

Kerner, W. (2016, August). New Mortgage Rules: How They Affect You. Retrieved from : http://www.bankrate.com/finance/mortgages/new-mortgage-rules-affect-you-1.aspx#ixzz4I5QrO1bM

Page, N. (2013, February 19). Dan Gilbert And Quicken Loans Invest In Detroit Real Estate, Bet On Downtown Urban Center. Retrieved from The Huffington Post: http://www.huffingtonpost.com/2013/02/19/den-gilbert-quicken-loans-detroit-real-estate_n_2715609.html

PEST Analysis: Identifying “Big Picture” Opportunities and Threats. (2016, June). Retrieved from Mind Tools: https://www.mindtools.com/pages/article/newTMC_09.htm

Quinstreet, Inc. . (2016, February). Mortgage Laws And Regulations To Protect The Consumer. Retrieved from City Town Info: http://www.citytowninfo.com/mortgage-articles/mortgage-process/mortgage_laws_and_regulations_to_protect_the_consumer

 
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