Have you noticed the trend among communication companies to supply you with any and all the services it can find? Your television cable company, Internet provider and phone carrier are all clamoring to be your one source for all connections. They call it ‘service bundling.’ In our industry, it's called ‘best of breed.’
Due to the nature of the mortgage process, with so many separate functions – origination, closing, secondary marketing, servicing – a team of technology vendors to support all those different branches has always been the standard. With 20 years of experience in the secondary mortgage and capital markets under my belt, I've had my share of frustrations trying to find the best mortgage technology to fit my needs and requirements. This traditionally meant seeking the best of breed applications, and then committing the financial and staff resources needed to buy, imbed and integrate these solutions.
This approach has is not been without its shortcomings and incompatibilities. When you peek at the structure of the system, it is a group of different software packages, which all speak different languages. Sometimes they integrate smoothly. Too often they do not.
The good news is that now there are other alternatives.
Most notable is a software strategy that delivers performance, provides more flexibility and is considerably more cost-effective. It's called Software as a Service (SaaS). SaaS treats technology as a service that is hosted off-site and accessed on demand. On the other hand, traditional systems – such as word processing software – are an on-site product that must be installed, tweaked, upgraded regularly, debugged and eventually, reinstalled.
It was once necessary to host mortgage software applications in-house. Why? Because they often broke down and required the attention of highly compensated IT professionals. But now, thanks to the Internet, simple innovations and security advances in Web browser technology, some of the leading-edge mortgage banking software are a click away – available 24/7 and automatically updated.
Everyone is familiar with the World Wide Web. Now comes WWM – ‘World Wide Mortgage.’ Instead of purchasing a suite of office applications accessible to only those in the local office, all employees could access all the files needed for work online from any computer worldwide. This is SaaS.
Why the LOS matters
Traditionally, secondary marketers and originators only crossed in paths in the lunchroom – and often that was under protest! With today's increased focus on tighter investor guidelines and stricter credit requirements, originators are forced to pay more attention to what secondary marketers need to sell a loan. Likewise, secondary marketers are becoming more interested in the underwriting standards originators are using and helping guide applications that are more likely to be profitable through the pipeline.
Some of today's product pricing and eligibility (PPE) components are abundant, but the devil is in the fine details about who updates and controls the data in the PPE engine. Accurately finding and pricing loan products can have a huge effect on the availability of capital for more loans.
In the best-case scenario, a secondary marketer would be accessing the same information with which originators and closers are working on the same system. Experienced mortgage analysts would update underwriting guidelines based on changes made by the investors on the system. Through it all, secondary marketers could immediately adjust margins, profitability and lock periods. At the same time, bankers could flip a switch to control which products are available to each customer or broker at any given time.
It is also important to have a loan origination software (LOS) that allows for quick reactions to market conditions. With investor guidelines changing rapidly, an LOS that can react to daily investor changes can push that information to the originators, keeping all loans in the pipeline salable. If it is too complicated to disable a program, it is possible for an originator to accept a loan that can't be funded.
Advantages of SaaS
Speed and accuracy are everything in the current mortgage market. A lender who can take an application and price a loan in two or three minutes can immediately take the borrower off the street and into production. If that lender's secondary marketer can – at the same time – ensure the loan is salable based on investor guidelines, then the loan is processed from end-to-end within a few minutes.
SaaS is being embraced strongly by start-up operations because of the ease and swiftness of implementation. These end-to-end systems offer one installation, one code and one source for all automation needs. They are quick to install, and no expensive hardware or software is needed. They are also configurable and scalable, which reduces the need for IT staff, quickens the training time and allows for easy modifications to fit the individual business – all at a cheaper price than custom software.
Because no large-scale front-end investment is required, SaaS is particularly popular with small to mid-sized operations. But many larger lenders are also gravitating toward SaaS because it offers the capabilities to process large volumes, while ensuring compliance and salability to investors – with the same economic advantages experienced by smaller lenders.
The demands each mortgage professional puts on its mortgage workflow is unique and difficult to find in an in-house or best-of-breed system. But an in-house software application that is customized to address your workflow would certainly perform better than similar SaaS software, right? Again, not necessarily.
The main reason is that SaaS is overtaking in-house software is functionality. First, developments in Web connection speed and online functionality allow Web-based systems to be just as functional as in-house solutions. Broadband connections mean users can log in and access applications just as quickly as third-party software can.
Secondly, a suite of software applications that deliver end-to-end service online can perform many tasks in a functional and seamless way. An LOS built using several different codes is going to be more complicated to change and test than an LOS built using a single code. This means there is a constant monitoring and upgrading process to ensure that every element in the delivery stream is performing at the highest level and contributing to the total system delivery. This requires staff resources, and people may be able to access the same loan from different systems, creating conflicting files.
In fact, you could even make the analogy that SaaS is to mortgage software as the euro currency is to Europe: It is a common thread that simplifies doing business.
SaaS provider checklist
The advantage of SaaS is that configuring access to different portions of an LOS is a much cheaper and quicker approach than customizing in-house software with a software addition here and technology tweak there. Consequently, some vendors offering an SaaS model offer more end-to-end functionality than others.
So before considering any LOS system, mortgage bankers should focus on what is truly necessary to succeed – ideally no more than three top priorities. Keep those three issues in mind and make sure the LOS addresses all three.
Consider not only how the business is run now, but also any plans for future growth. If the office's best secondary marketer suddenly needs to work from home due to a family illness, can the system handle the change? If access to the LOS needs to be 24/7 and location-neutral, seek out a system that can be directly accessed, rather than one that goes through a terminal service.
In addition to functionality, be sure to consider compliance. Keep your company out of the headlines by asking questions about system security. Systems used by regulated financial institutions must meet SAS 70 audit standards. In addition, LOS systems with complete compliance monitoring can reduce the risk of buyback requests, saving money and time in dealing with difficult repurchases.
At a minimum, seek systems that automatically input into the system any information relied upon for underwriting, such as a credit score or credit card balances. Restricting the ability to alter information such as the FICO score adds an important layer to fraud protection. Multiple checks on the application also help a secondary marketer to present loans to investors that are certain to be error- and fraud-free.
Be sure to find out where backup data is stored and how it is encrypted, and ask for a copy of the firm's disaster-recovery program. On a user level, will the system give auditors a paper trail to follow by automatically noting when and who makes loan file and data changes?
In the end, mortgage banking software – delivered as an SaaS – is providing a single data stream, intelligent business rules and a stable system from any Internet connection – without the expense of customizing software and code to a server and various components.
Rob Pommier is senior vice president of sales for OpenClose, a developer of Web-based mortgage lending software. He can be reached at firstname.lastname@example.org.