MReport March 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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32 | TH E M R EP O RT FEATURE to fit one's business model. A do- it-yourself system can be changed and adjusted based on a com- pany's evolving business. Theoretically, leveraging the skills and experience of one's own IT staff and creating a custom- made LOS from scratch is the perfect solution for avoiding the limitations of traditional LOS products. The downside to this strategy, which should be obvious, is that it does not come cheap. If a lender wants to build its own system from scratch, it can and frequently does cost millions to hire the IT expertise and either license or purchase the rights to existing technologies. It will often take much longer to build than it would to buy software "off the shelf," so to speak. Another obstacle with building one's own technology or heavily customizing existing products is that it is often difficult to integrate new products and services. This is also true of traditional LOS products. When new third-party products and services become available, such as online loan appli- cation software or asset verification tools, lenders will try to "bolt on" these technologies with their LOS at a significant time and cost. The trouble is that different technologies do not all speak the same language, so they do not communicate very well with each other. Most LOS technologies were created before the emergence of application programming interfaces, or APIs. When new software be- comes available, and a lender wants to integrate it into its system, they typically have had to hire experts to do it or rely on their IT staff to solve the problem. Even then, the integration can take months. For all but the largest lenders, building one's own platform or licensing and patching together existing technologies to do the job is not financially or technically feasible. Even if a lender can suc- cessfully create or cobble together different technologies to create the "perfect" LOS for itself, it still needs the staff and resources to support it in an environment where technology changes almost daily. But for years, this was the only alternative to buying off-the- shelf software—until now. Cloud-Managed Technology T oday, lenders have access to mortgage technology that was initially built within and for a cloud environment. The benefits of leveraging this technology are wide-ranging as they are unique. For one, lenders that choose cloud-managed mortgage software will find themselves relying on the same technology infrastruc- ture that some of the largest tech companies in the world are using. Comcast, Adobe, and Dow Jones are just a few companies that are using Amazon Web Services (AWS), Amazon's cloud platform solution. Some of the most-used LOS technologies are still transi- tioning to these cloud services. As they make this transition, how- ever, they have had to use their existing servers, which creates an extra cost that is ultimately born by their clients. Lenders that choose a cloud- managed system also have access to open-API architecture that offers superior flexibility for any channel of business. With an open API ecosystem, lenders can access new technologies that are integrated by their LOS provider, behind the scenes, and in the cloud, at no ad- ditional cost to them. These systems can also be used by borrowers through borrower- facing websites, so that when a borrower keys in their data, it feeds directly into the LOS. And because all parties are using the same platform, lenders can also add online chat features and screen sharing tools that enable them to "follow along" with borrowers as they complete their mortgage applications online. If a borrower gets stuck along the way or makes a mistake when filling out their application, a loan officer can step in and provide help in real time. A third aspect of a cloud system is that it offers lower implementation and management costs at a time when lenders are facing rising costs of doing busi- ness. According to the Mortgage Bankers Association, it now costs roughly $8,000 to manufacture a mortgage loan. That's going to be particularly painful in 2019 when origination volume growth is expected to subside. Indeed, some of the nation's largest lenders are already announcing layoffs and cutbacks. Every lender relies on technol- ogy to produce loans, and there is no more important decision to make than choosing the platform they use to conduct business. For decades, their choices have been limited to two basic options–pur- chase off-the-shelf software and try to configure it to your busi- ness model, or build it yourself, either from scratch or more com- monly, by heavily customizing existing technologies through a "toolkit" approach. While both options have ben- efits, neither is having a significant impact on rising loan costs nor are they particularly well-suited at providing borrowers with the kind of customer experience they expect in today's highly digitized world. Slowly, more lenders are beginning to discover the third option I just described. One of them is PrimeLending, one of the nation's largest mortgage lenders. This past fall the company chose a modern cloud-managed system after determining the technol- ogy it offered was far superior to some of the industry's leading loan origination systems. At a time when profitability is of such critical importance, and when borrowers are more demanding and tech-savvy than ever, it's wise for lenders to evaluate their options carefully. "Tried and true" may be "tired and true," which could make a significant investment in widely accepted, old technology more costly than ever. STEVE OCTAVIANO has more than 30 years' experience in mortgage and financial services technology. He joined Blue Sage Solutions as CTO in 2016 to help drive growth and technical innovation projects. His career has been marked by the successful design, development, and delivery of complex and innovative mortgage lending and transaction management systems with a focus on product design, customer needs analysis, and enterprise-class IT performance. Lenders that choose a cloud-managed system also have access to open- API architecture that offers superior flexibility for any channel of business. With an open API ecosystem, lenders can access new technologies that are integrated by their LOS provider, behind the scenes, and in the cloud, at no additional cost to them.

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