PERSON OF THE WEEK: Dennis Boggs is executive vice president of CalyxSoftware, a provider of mortgage software solutions for banks, credit unions, mortgage bankers, wholesale and correspondent lenders, and brokers. MortgageOrb recently interviewed Boggs to learn more about the market penetration of cloud-based loan origination systems (LOS’) and what more can be done to smooth out integration problems between LOS’ and other systems, including core servicing platforms.
Q: What is the rate of adoption/penetration for software-as-a-service (SaaS)/cloud-based LOS’ in the mortgage lending space today? What are the preferred deployment models (network configurations) for lenders deploying new LOS’ today (when looking at just the core systems) – public cloud, private cloud, on premises, hybrid? What are the general reasons why certain types of lenders choose certain deployment models? Do these configurations sometimes change after initial deployment, and if so, what are the reasons why?
Boggs: Last year, McKinsey & Company did a study, “From box to cloud: An approach for software development executives,” that forecasted SaaS penetration across all industries could reach 72% by 2018. How quickly will it actually happen in the mortgage industry? I think different LOS’ will have varying adoption rates. Some are forcing their customers to completely move over to SaaS, so they’ll obviously accelerate SaaS adoption. Others, such as Calyx, are letting their customers decide if/when they want to make that switch. That said, we’re seeing more and more lenders move to cloud-based origination. For example, one of the reasons that lenders are switching to our new PathSoftware is that it is both cloud-based and data-driven.
As I mentioned, we’re letting our clients decide how they want to deploy our software: on premises (or self-hosting) or private cloud. Those who self-host want greater control over their data, particularly around privacy and security. Those who choose private cloud want the same basic benefits of a public cloud (i.e., not having to worry about updating or replacing internal servers, properly backing up data, or hiring someone to maintain the LOS application on their servers or desktops), as well as a dedicated server with firewall rules in place to help minimize security concerns.
So far, we haven’t seen any clients change from self-hosting to SaaS and then back to self-hosting. It’s not easy to go up to the cloud and then come back down to a self-hosted server. Quite frankly, it’s time-consuming to move your files safely and securely. So I don’t see that as a trend.
Q: Does the ease of uptake and rapid integration that today’s cloud-based LOS’ present necessarily make it easier/less costly for a lender to “switch out” its LOS? Will this ease of uptake result in more volatility and “vendor hopping” in the LOS software segment? Or will integration complexity continue to keep lenders more or less locked into their core systems as a long-term investment?
Boggs: In theory, yes, it is easier and less costly to switch from one cloud-based LOS to another, seeing as you’re not maintaining hardware or carrying as large an IT staff. But lenders probably won’t be vendor hopping every few months or every year just because they can. There are other factors to consider, such as the time and cost of implementing the new LOS (which, depending on the size of your organization, the efficiency of your vendor and the availability of internal resources, can take anywhere from 60 days to even up to a year), the time and cost of training staff (which can take days, weeks or months, depending on logistics and resources), and the new LOS’ compliance with the latest regulations (and ability to adapt to and comply with new regulations easily and more efficiently). So I think most lenders will continue to treat their LOS’ as a long-term investment, at least for the foreseeable future.
Q: I heard a rumor that some lenders have moved from cloud-based LOS’ back to premises-based (self-hosted) or hybrid LOS’ – what are the reasons why some lenders might do that? Is there any valid argument for a lender NOT to move its LOS to the cloud?
Boggs: There may be some lenders that might want to move back to a self-hosted LOS (those forced to move to the cloud when their technology providers sunset their self-hosted LOS offerings, in particular). But, as I mentioned before, I don’t think many will actually pull the trigger and make the switch back.
As to the second part of your question, there are a number of valid reasons for staying self-hosted. Lenders shouldn’t move to the cloud if they want to maintain total control of their own data security or if they’re uncomfortable with their data not being in the same physical location. Of course, some critics say that self-hosting opens lenders up to compliance issues, but aren’t all lenders on the hook for regulatory compliance regarding consumer data security anyway? We’ve seen many of our self-hosting lender customers actually pay even more attention to data security and regulatory compliance – they’re dedicated to maintaining proper policies and procedures while keeping up with threat deterrence.
Also, once you understand how the cloud works, you’ll also see it has some downsides, as well. The cloud is a hosted server or series of servers that allow users to run applications and/or store and retrieve data remotely over the Internet. So things can go wrong that are beyond a lender’s control. For example, your server or technology provider can have an outage. (In fact, a couple of years ago, one LOS experienced such an outage at month- and quarter-end – a critical time for lenders.) In addition, you also need high-speed Internet access and plenty of bandwidth for optimal performance. So if your Internet is down, so is your LOS.
Q: One problem mortgage servicers still face is the accurate onboarding of new loans – in particular, the loan data – due to the fact that many LOS’ still don’t properly “talk” with new and legacy core servicing platforms. It’s surprising this problem still exists to the degree that it does. To what degree do you think SaaS/cloud integration and new data standards will solve this challenge – and how soon?
Boggs: I think most of the highly publicized problems have been with servicer-to-servicer onboarding issues rather than LOS and core system issues, but those certainly occur, as well. Today, most, if not all, LOS’ don’t automatically, and/or easily, integrate with core, multimillion-dollar bank systems. This is when integrators come into the picture.
Where the data resides and how it’s transferred to the core system, assuming it’s done automatically and not re-keyed improperly, shouldn’t be an issue.
I’d agree with you that seamless integration between LOS’ and core systems seems like a no-brainer. But I’m not sure how much of a priority it is today. Unless the banks and the big core system providers start getting pressure from regulators and/or investors, this probably isn’t going to change in the near term.
Q: Mortgage business process outsourcing (BPO) providers not only have developed their own mortgage technology solutions, over the years, but are also strong adopters of advanced solutions. What are the benefits for lenders that work with BPOs that have deployed advanced (cloud/SaaS) technology?
Boggs: BPO providers usually work with the largest banks and mortgage banks that are looking to outsource during high-demand periods. So being able to deploy technology in the cloud makes it much easier for lenders to work with outsourcers because lenders’ systems can be more readily integrated with the BPO provider’s platform. For that reason, I’d expect BPO providers to be big advocates and early adopters of cloud-based solutions.
Q: Lots of progress has been made with regard to e-mortgage technology adoption in recent years – we’re starting to finally see some mortgages originated fully electronically, end to end, and e-notes are starting to see acceptance among banks and investors. What do you see as the final steps to get the entire mortgage industry fully on board with the e-mortgage?
Boggs: You’re spot on: A great deal of the origination process is now digital, and we are getting very, very close to complete e-mortgages. What’s the “mile issue”? I’d say it’s registering the mortgages and deeds at the county level. There are 3,144 counties in the U.S. – some can do this, but the vast majority are still running on very antiquated systems and can’t. It doesn’t mean that the rest of the processes all the way through closings won’t be done electronically, but filings will be the last step in closing the loop.