Talking Industry Advancement

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Specialized Data Systems is a software development company that provides lending and risk management solutions to banks and credit unions. The company’s mission is to provide flexible and scalable software solutions to help financial institutions improve efficiency, maintain compliance, and stay current with the most up to date technology. The company’s products are classified as “remote” to emphasize their web-based accessibility, which are housed on the company’s secure servers. We talked to Marc Riccio, the company’s President, about the future of Specialized Data and the mortgage industry as a whole.

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Q: How was the name “Specialized Data Systems” created?

MARC RICCIO: In 1988, I stopped at a restaurant where the only food they sold were hotdogs; no burgers, no fries– just hotdogs. Customers were waiting in line out the door. It made me think: “Now this restaurant gets it…they specialize in one thing and they do it exceptionally well.”

Later that same year I started my own company focusing on that same philosophy. My purpose was to represent software companies that specialized in ONE area and to do it well. I created Specialized Data Systems to be an independent sales organization that represented small software companies that specialized in their space.

Originally, I was one of the first companies to sell a “rules-based” loan origination software, optical disk software and eventually a web-based loan application software. As a result, I have developed a reputation of promoting companies that provide innovative and cutting edge software.

Since that time, we have evolved into an integrator and software development company providing a “rules-based” loan origination software and risk management software. We have since become specialists in the loan and risk management software industry.

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By concentrating on these specific financial applications, we help mortgage companies, banks, and credit unions address both lending risk and operational risk and achieve our goal of effectively providing specialized data systems.

Q: What have been some of the biggest challenges since founding this company in 1989?

MARC RICCIO: The biggest challenge with providing banking software is keeping abreast of regulatory changes and providing timely updates. This requires a commitment of resources and expertise to ensure that we are fully prepared to provide complete and reputable software.

When TILA RESPA Integrated Disclosure requirements were released, we made the executive business decision to support the creation and generation of the Loan Estimate and Closing Disclosure documents head on, independent of a forms provider. This decision allowed us to become experts in the “Know Before You Owe” rule. We now have people in-house capable of citing the regulation, which provides us with a competitive advantage over other loan origination providers.

In a recent correspondence from a client, we learned that their auditor complimented their TRID implementation, calling theirs the cleanest exam they had completed since the introduction of the regulation.

Another challenge is the intensive process third party providers must go through in order to be approved by financial institutions. We recognize the complexity and time involved with implementing new vendors and maintaining existing vendor documentation. The approval process no longer solely relies on providing a contract and list of references; vendors must now provide everything from financials, SOC audit reports, business continuity plans, to security policies and beyond.

We took this opportunity to create a vendor management system designed to easily maintain and track all individual third party providers.

Q: What are the advantages of offering “rules based” loan origination software?

MARC RICCIO: “Rules-based” loan origination software, sometimes referred to as “lending rules” software, is the engine that supports a lender’s unique lending policies and workflow process. If the loan origination system is designed properly, the software engine allows lenders who don’t have programming experience to add or modify “lending-rules” without affecting the underlying code.

The key to delivering an effective “lending rules” based LOS platform is the rules are developed and maintained separately from its underlying codebase. Using this approach enables vendors to always preserve client-specific customization and protects their investment when customizing the loan origination system.

“Lending rules” can be different from one lender to another, and this allows each lender to have their own unique loan types, data field definitions, screens, tables, forms, reports, work queues and workflow process. A completely customized solution is designed to be scalable, which allows the system to grow with your institution as you expand your business model.

For example, as loan volume increases it becomes more and more difficult to manage your pipeline. By adding work ques within the lending platform, specific departmental roles can be broken down and more closely managed to ensure files are being processed as quickly as possible throughout the pipeline. RemoteLender allows the ability to customize these workques to accomplish this goal.

Q: A current survey conducted by Questsoft Corporation has revealed 20 percent of lenders consider switching loan origination software every year. Do you find this to be a high percentage based on your client experience?

MARC RICCIO: Based on our current pipeline and past inquiries, I find this statistic to be quite realistic. We find many of our new prospects in need of switching platforms due to the institution outgrowing their current system and looking for a more sophisticated and customizable platform capable of supporting mortgage, consumer and commercial loan types. We have been able to convert several clients from their original solutions to RemoteLender.

Fortunately, at Specialized Data Systems we find we have an extremely low client turnover. We are lucky to have a loyal client base, many of whom have been with us for over twenty years. We owe this loyalty to our “rules-based” technology, which allows us to quickly make adjustments in order to support new lending requirements including regulatory changes, competitive pressures, and changing workflow. A common sentiment we hear from our clients is that the only limitation of RemoteLender is their own imagination.

Q: What are the biggest challenges of implementing new technology?

MARC RICCIO: Delivering customized lending solutions definitely brings new challenges in regards to implementation of technology. Specifically, in regards to our RemoteLender Loan Origination System, one of the most challenging aspects is obtaining and understanding the lending requirements that are provided to us from the clients.

When I introduce RemoteLender to potential clients, I always tell them “the good news is, we can customize the lending rules to meet your specific lending requirements. However, the bad news is we can customize the lending rules”. I always seem to get a chuckle from the client, because they understand that it is very easy for “scope creep” to kick in.

“Scope creep” is when a project grows beyond its originally anticipated size. Once this process starts, it can be very difficult to recover. Scope creep may cause delays in meeting timeframes, changes in functionality priorities, and in some instances can even affect the budget.

Consequently, it is essential for us to have a solid understanding of what the client wants to achieve. You can’t be afraid to tell the client if they continue to add or change requirements, the schedule will be impacted and the cost may increase. It is imperative to define requirements and obtain an agreement functional to both parties. Once this is achieved, it is then our responsibility to stay on course and deliver on time and on budget.

In regards to RemoteComply, we have found that the most challenging aspect during implementation is managing customer expectations and client training. Both require a vast amount of time and resources on both our side and the client side. The client must be prepared to invest time to fully implement the system without rushing the process.

Project management is important to make sure business distractions do not interfere. Timeframes must be considered at all times and adjusted per the scope of the project. We have seen everything from change in staff, management change, internal personnel disagreements, auditors, and other projects create bumps in the road and create large obstacles. The most important piece of advice I can provide for implementation is always manage your time effectively and efficiently, no matter the situation.

Q: In addition to your loan origination software, you also mentioned your operational risk management suite known as RemoteComply. How does RemoteComply benefit the mortgage industry?

MARC RICCIO: In general, operational risk management affects all companies in the financial industry, not just banks and credit unions. Operational risk is an increasingly popular topic in today’s financial industry, and continues to grow. Operational risk management covers a span of processes including ways to identify, mitigate, and control risk associated with operating tasks. Traditionally, institutions would rely on manual processes to monitor their operational risk but with the growing concern with managing third parties and cybersecurity threats, more and more regulatory requirements are forcing institutions into re-evaluating their current processes and systems.

RemoteComply is our software suite which allows mortgage companies and all financial institutions to centralize operational risk management tasks onto one platform. The suite consists of four systems including vendor management, incident response, disaster recovery, and alert notification. The individual systems within the suite are flexible and scalable, allowing institutions to grow with the system. This eliminates the need to ever add on additional modules or purchase a different system. The suite provides other benefits including the ability to maintain compliance while only having to vet one vendor, reducing the amount of resources needed to manage all processes, and ultimately saving valuable time and money.

Q: What are the advantages of providing business continuity planning, vendor management, incident response, and alert notification on one platform?

MARC RICCIO: We have discovered many major issues in the financial industry due to institutions maintaining a narrow scope on operational risk management programs, resulting in miscommunication and gaps in the process. Instead of consolidating all operational risk management tasks and looking at the big picture, the different areas of risk are delegated amongst a large span of people. Because of this, people don’t communicate and products don’t communicate with each other which leads each individual to rarely maintain a complete focus on operational risk management tasks or they only focus on a small aspect of the larger picture.

Another issue in the financial industry is that operational risk management is often over-looked if the institution isn’t under an auditor’s microscope. Their approach to operational risk management is reactive and defensive, rather than proactive and offensive to auditors and regulations. They look for systems after it is too late, and they don’t have the resources to devote someone entirely to managing all areas of risk. This leads to panic and an impulse purchase of one system covering a small part of the bigger problem. The time and money is devoted into the system and then never used to its full capabilities.

Having business continuity, vendor management, alert notification, and incident response under the same roof allows the financial industry to easily manage all areas of operational risk management on one platform. Instead of spreading the job tasks across departments, the suite allows complete communication throughout the risk management process. The suite is designed for institutions to easily follow best practices and maintain complete compliance in one system. It eliminates the need to delegate different job tasks based on each area of operational risk management which inevitably saves time and resources.

Q: Where do you see Specialized Data Systems within the next five years?

MARC RICCIO: My goal is to leave my legacy within the financial services industry and evolve SDS into a major national technology provider for lending and operational risk management. This company has come a long way from the spare bedroom of my condo to a 5,000 square foot office with a state of the art training space. I have confidence in my staff of mortgage and banking professionals to continually grow this company. Today we have recognition primarily in the New England and east coast areas while in the near future I would like to expand the reach regionally and eventually even nationally. I will continue to focus my efforts on growing the company and succeeding at what we do best, which is providing excellent products and services within a specialized niche market.

Insider Profile

Marc Riccio, President of Specialized Data Systems, Inc., has over thirty years of experience providing software solutions to the financial industry. Marc is known for his forward thinking and vision of introducing new and innovative technologies including “rules-based” Loan Origination software, COLD/Document Image Systems, Internet Security Services on Demand, Cloud Computing and now Operational Risk Management software. Prior to founding Specialized Data Systems in 1989, Marc worked for several technology companies as a Systems Analyst, Account Manager and Sales Manager. Among his significant previous positions, Marc served as Senior Marketing Representative for FiServ-Connecticut and worked in the Retail Banking and Systems group for Bank of America.

Industry Predictions

Marc Riccio thinks:

  1. As the financial industry is flooded with new operational risk rules and regulations, intuitions will need to switch to automated solutions to adequately mitigate all areas of operational risk.
  2. In order to properly respond to the challenges of new rules and regulations lenders will need to invest in a more robust loan origination system.
  3. With the growing overlap between business continuity, vendor management, and cyber security risk regulations, financial institutions should consider centralizing all operational risk systems onto one integrated platform.