The term “innovation” isn’t usually applied to the loan origination system (LOS). The LOS is often viewed as the system of record that is a necessary evil when operating in the mortgage industry today. Further, the term “return on investment” is not often used when talking about an LOS. What do I mean exactly? Few lenders are really happy about their LOS, but the prospect of changing to a new LOS can be daunting, so lenders put off the switch until things get critical. However, it doesn’t have to be that way. Things are about to change for the better.
Carmine Cacciavillani recreated the LOS space when he developed Palisades Technology Partners, which served five of the top 10 lenders. He successfully sold that company to IBM. Today, seeing the tumult in the mortgage industry, with the onslaught of new regulation and the drop-off in loan volume, Cacciavillani could not stand idly by. Now is an ideal time to once again recreate the LOS space. As is often said, innovation is born out of necessity and market conditions in the mortgage industry today certainly necessitate innovation. But innovation alone is not enough. The next-generation LOS has to produce results, as well. Lenders looking for increased transparency, efficiency, straight-through processing, ironclad compliance, etc., should be able to get all of that and more from their LOS.
Realizing this need, Cacciavillani has developed a new LOS called Blue Sage Solutions. This new company is focused on leveraging the latest in Web, Cloud and Mobile technologies to help mortgage lenders succeed in a more competitive, more regulated lending market. In 2013, Cacciavillani’s in-depth lending experience allowed Blue Sage Solutions to deliver its new platform in record time for two initial customers and the company is now engaging the mortgage industry in a time of rapid change to provide both a comprehensive and robust LOS.
Right about now you’re probably asking: Does the mortgage industry really need another LOS offering? Why is Blue Sage Solutions so next generation? And how does Cacciavillani see the mortgage market evolving? Well, he sat down with our editors to discuss not only his vision behind starting Blue Sage Solutions, but also where he sees the LOS and the larger mortgage industry going over the next few months and years. His thoughts are very insightful. Here’s what he said:
Q: You have been delivering mortgage solutions for nearly 30 years. How has the industry and technology changed over that time?
CARMINE CACCIAVILLANI: Having been in the mortgage business for 30 years, I have witnessed dramatic change. In the 80’s when I started, interest rates were relatively high. The largest lenders had good market share and borrowers were not nearly as sophisticated as today. Few executives understood the business value of technology-based solutions, but those who did reaped rewards. As an example, while working for a top 5 lender in 1985, we created an application to laser print dynamic commitment letters, replacing clunky error-prone typewriters and pre-printed forms. In a period of one month, this lender was able to reduce its headcount from 40 to 3, redeploying resources elsewhere.
The opportunity to innovate always exists. Lenders need to embrace technology-based solutions as a means of gaining a competitive advantage. Over the following two decades, the emergence of new technologies allowed our teams to design highly automated and interconnected systems that significantly increased productivity across the entire origination supply chain. Today with Cloud delivered solutions, responsive browser-based UI’s, mobile devices and, widespread adoption of MISMO standards, lenders can leapfrog to the next generation. I believe there is an immediate opportunity for lenders to enrich the way they interact with customers as they deliver compliant mortgages, through an intelligent loan manufacturing platform.
Q: How have changing market conditions impacted technology’s role?
CARMINE CACCIAVILLANI: Today lenders struggle to do more business with fewer resources; and quite frankly I believe that is precisely the environment where well-designed and architected technology solutions can shine. Look at how Smartphones and mobile devices have positively affected our personal and professional productivity and the intelligent sensoring of automobiles is delivering superior driving performance, fuel efficiency and safety.
Today’s sluggish economy and rigorous regulatory environment mandate that mortgage lenders innovate or be left behind. The good news is technology innovation can be a strong countermeasure to today’s challenging market conditions. While lenders’ compliance burdens and processing costs have grown steadily, so too have flexible technology solutions available to them.
I believe lenders will require partnership with high-performing providers experienced in both the mortgage business domain and true systems design to transform their business. The technology tools and platforms exist to deliver a lending process capable of attracting new customers, addressing compliance requirements, increasing productivity and providing a full digital audit trail necessary for regulatory and investor inspection. The opportunity to deliver the future is now.
Q: How did the purchase of Palisades Technology by IBM and the eventual creation of Blue Sage Inc., impact your viewpoint of what lenders are looking for from their LOS provider today?
CARMINE CACCIAVILLANI: IBM acquired us for a few key reasons: First, they wanted immediate credibility in the mortgage lending space and they knew we had high performing teams well versed in the business of mortgage lending. Second, 5 of the top 10 lenders used our platform to close tens of thousands of loans per month, proving performance and scalability. The acquisition validated our view of how a lending platform should be architected, designed and used to deliver ROI. One customer of ours with 2,000+ users improved productivity from 11 to 21 loans per FTE, per month. Technology for technology sake is not particularly valuable. What is valuable is how a solution transforms the way lenders do business. For me personally, working at IBM helped shape my view of how to continually add greater value for customers.
Our team is comprised of veteran business leads from large lenders and forward-thinking technologists. Together our people focus on designing intuitive, scalable solutions that drive greater automation through integration and collaboration. We have always done this. To IBM we were proven. Our POS/LOS platform allowed large multi-channel lenders to quickly train new associates, acquire new customers and ultimately establish their brand in a positive light.
Our goal at Blue Sage is to use the next generation technology to deliver this solution on a broader scale and at a lower cost.
Q: Rules changes are happening at an astonishing rate. How does BLUE SAGE’s approach and technology assist lenders in staying ahead of these constantly changing rules and regulations?
CARMINE CACCIAVILLANI: While the regulatory environment is clearly more onerous than ever, we have a long-standing history of delivering the requisite compliance functionality. We deliver system intelligence by injecting the regulatory requirements into our lending platform, accessing the applicable functionality and data to verify and validate throughout the process. Because of our open design we can quickly calculate key values and maintain a complete “digital history” on each loan.
The first step in the process is to align our teams with regulatory bodies, legal entities and partners to clearly understand the legislative requirements and implementation timelines. Then we design and test appropriate rule sets for efficient, rapid execution and maintainability. Where appropriate we integrate to proven third-party compliance providers as well. This approach maximizes compliance capability with business agility into the future.
Q: What are the biggest challenges that mortgage lenders face today and how can technology be used to address those challenges in your opinion?
CARMINE CACCIAVILLANI: Aside from regulatory compliance already mentioned, lenders need to differentiate themselves. As they staff up on the sales side to attract new purchase money customers, they need to simultaneously increase customer satisfaction and close ratios while keeping costs in check. Attracting younger borrowers is the Holy Grail as they represent longer-term relationships with the opportunity for cross selling. Lenders will need to fine-tune their marketing using analytics to attract new prospects and then service the transaction through direct to consumer portals and mobile applications to close the deal and drive the loyalty and referrals desired.
I truly think an intelligent loan manufacturing platform designed for integrated functionality between Consumer Direct Websites, Loan Officer CRM capabilities and a highly automated back office Loan Fulfillment platform can be the right solution to help these lenders win.
For 15 years we have used rules, events and workflow to connect and guide borrowers, loan officers, processors and underwriters through the transaction. For example, at the point-of-sale, the system automatically provides a list of qualified products for borrowers to choose or loan officers to recommend.
Once in process, the system then maintains the list of required data and documents, based on automatically generated conditions, and proactively assigns granular tasks throughout the process to assure productivity. The system expertly guides all parties to actively contribute to the transaction thereby compressing cycle times, increasing customer satisfaction and minimizing the need for costly training. I think system intelligence is key to winning in the future.
Q: You talk about the significant difference between installing and implementing an LOS. Can you explain what you mean by that? In addition, how does that impact a lenders business and their ROI?
CARMINE CACCIAVILLANI: Based on industry observations many lenders seem to be settling for vendors that install outdated software packages delivering an application that requires significant mortgage knowledge to properly execute manual entry. One lender recently indicated his user was forced to refer to a 10-page document, go to 5 external websites to key in data and then wait an extended period for documents to render. These outdated systems are dangerously error prone and very difficult to maintain.
Conversely, our approach has always been to execute an insightful, predictable implementation that configures lender business model preferences for products, pricing, fees, workflow, documents and partner interfaces, allowing the system to be the expert. As the system intelligently automates core functionality, validates data, and distributes tasks, the lender manufactures high quality loans more efficiently with far fewer employees and less training, driving ROI significantly higher.
Q: What should lenders be asking vendors as they do their due diligence when researching a new LOS?
CARMINE CACCIAVILLANI: Lenders should seek to work with partners who have an extensive track record of proven success assuring no failed implementations or legal issues to worry about. If history is a valid predictor of the future, then past experience should count for much in terms of delivering the agreed upon functionality on time and on budget.
Clearly, lenders should investigate how providers deliver compliance today and into the future. Additionally, lenders in growth mode might consider the usability, system performance and scalability of the vendor solution. The industry has seen many vendor platforms falter under the weight of significant loan volumes.
Q: What do you expect the LOS space to look like five years from now?
CARMINE CACCIAVILLANI: Overall, I see some contraction in the space. It feels like the LOS vendors with significant industry experience and willingness to invest will thrive. I think the platforms engineered for the Cloud can deliver the functionality and price performance needed to win. A vendor putting older architecture in the Cloud represents the proverbial lipstick on a pig. Trying to make outdated architecture flexible and scalable is impossible as the foundation was designed for an era gone by.
Further, lenders need more bang for their buck so vendors extending their solutions will inherently extend their value. In addition to Loan Fulfillment functionality, I see leading providers delivering a broader set of capabilities.
Also, as the industry moves to standards across the board, integration capabilities to take advantage of structured data intake will be important. The systems embracing standards to maximize interoperability will lead the way.
Lastly, LOS systems will become a formidable source of digital data for analytics providing a detailed transcript of borrower preferences and the overall transaction. This data will be valuable to lenders seeking an advantage in honing their customer acquisition and processing models as well as investors wanting loan performance assurances.
Q: On a separate, but related note, there have been a lot of mergers and acquisitions. Do you expect that to continue and how do you think it’s impacting the space?
CARMINE CACCIAVILLANI: Acquisitions and mergers are a fact of life. Buyers have different strategies and ways of valuing acquisition targets. Firms seeking LOS functionality need to understand where they fit into their strategy and the true capabilities of the platform they intend to acquire. I am amazed by the number of platforms acquired and then isolated, shelved or divested.
Today, there are vendors attempting to be all things to all lenders, but a look under the covers reveals woefully inadequate and disparate architectures resulting in limited automation and flexibility for their target market. Despite this, I think acquisitions will continue as services firms seek ways to broaden their offerings and deliver greater value for their customers.
Q: What is BLUE SAGE’s biggest differentiator as you see it in the marketplace?
CARMINE CACCIAVILLANI: First and foremost, we have an established team with decades of mortgage process and technology experience and we take pride in delivering intelligently designed platforms that drive true ROI for our clients. Our core group has been working together for over 25 years. Second, our view is the system of record should be an expert in mortgage process execution minimizing manual input. With this in mind, the team purposely took a step back to consider emerging market conditions and technology trends. We met with lender executives, consulting firms, regulatory bodies and current vendors to better understand industry challenges and system shortcomings. Our goal was to develop a vision for how new integrated digital solution sets: Consumer Direct Websites, Smart Mobile Apps, CRM platforms and Loan Fulfillment functionality, designed for the Cloud should support lenders and investors in the future.
As a result, we engineered a new robust consumer centric data model to support all mortgage channels and lines of business. We think this is a game changer as it provides the foundation for our agile, scalable Cloud-Based platform and can support all lending products. On top of the model we layer reusable components across all our solutions, and orchestrate with rules, event triggers and workflow to deliver seamless productivity and transparency. We also invested significant time and effort to optimize usability assuring borrowers, back office users and partners could all actively contribute to the origination process. In the end, our mission is to deliver an intelligent end-to-end loan manufacturing platform to help lenders differentiate and win in this new highly competitive era. We are successfully executing this strategy with customers today.
Carmine Cacciavillani thinks:
1.) The CFPB is here to stay and future regulations will require reporting greater details about the entire lending transaction.
2.) There is no short-term catalyst to return to the loan volumes of the previous 5 years and therefore lender competition will continue to increase and profit margins will continue to tighten.
3.) Younger millennial borrowers want to use lenders that provide a rich online digital experience.
Carmine Cacciavillani is an industry veteran with nearly 30 years experience designing highly automated origination systems. He is currently the CEO of Blue Sage Solutions, focused on corporate strategy and overall operations. Prior to Blue Sage, Carmine founded Palisades Technology Partners, implementing the Impact POS/LOS at 5 of the top 10 lenders. Palisades was sold to IBM in 2006. Carmine’s vision is to deliver a superior integrated digital lending solution to drive value for Borrowers, Lenders, Partners and Investors.