Slashing Risk With Collateral Data

Housing outlooks are optimistic and we’re all entering the busy season. Every lender is focused on borrower experience while getting deals done, and the collateral valuation process is a critical part of your overall success. Make a mistake there, and someone will end up paying the price.

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With the appraisal process — and evaluating collateral in general — there is no such such thing as a zero cost mistake. Whether an error results in the need for re-disclosure, a returned appraisal or a compliance violation, each time a lender, AMC or appraiser takes action on incorrect property information, everyone risks lost time, lost money, or both.

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The problem is, mistakes are understandably prevalent when it comes to evaluating residential property. While some properties may seem similar, each has a distinct footprint. Each property you’re evaluating is surrounded by different neighborhoods and may have modifications or unique characteristics like lot size and views. These details can make a dramatic difference in the value of a property, and if they’re not recognized in the collateral valuation process it can mean losing a deal or making risky lending decisions.

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Fortunately, in the age of big data, the vast majority of properties have a unique data set consisting of thousands of pieces of data. If you want to make the right decisions, you need to be certain your information is correct. If you don’t have access to reliable, relevant data, it’s virtually impossible to understand a property well enough to avoid decisions that lose money.

You can get the data to verify your collateral valuation decisions very easily. Several providers offer software, property reports, and automated valuation models (AVMs). The technology is advanced enough today that you can integrate these systems and pick and choose the valuation verification methods you prefer.

Before you choose the collateral valuation and verification methods best for your lending institution and risk profile, make sure you ask the vendor these questions:

>>What makes this data or verification solution better than alternatives?

>>Can this solution be integrated with your overall process software so the entire collateral valuation workflow is easy to manage?

>>How is the data or solution verified? For example, if you’re using AVMs to verify appraisal report data, do you have a way to choose the best AVM for each individual property?

When you have a data verification solution in place, remember that collateral valuation is just one way to leverage your insights. Many lenders use the same solutions across the entire mortgage chain. With collateral data, you can determine borrower equity and LTVs in seconds. Before you disclose appraisal fees to the borrower, you will have a better idea of the complexity of the assignment. In post-closing, you can use the data to discover a property or neighborhood’s footprint for better due diligence during audits. Finally, in the loan servicing stage, the same data can be used to ascertain your portfolio’s value direction and determine ideal outcomes for properties in your portfolio.

The data you need to make the right lending decisions is out there, and it’s easy to integrate with your overall process. The cost is pennies on the dollar compared to the risks of proceeding blindly, so it’s time to take a step into big data to verify your collateral valuations.

About The Author

Eric Thompson
Eric Thompson is a Senior Consultant at Mercury Network, an online vendor management platform used by more than 700 lenders and AMCs. Eric has been in the industry for over fifteen years with a wide range of experience from appraiser training to owning and operating a successful appraisal management company. His appraisal management and compliance expertise spans smaller community banks and credit unions to the largest lenders and AMCs in the country. He consults with Mercury Network clients on appraisal workflow, compliance, and efficiency issues and he can be reached at Eric.Thompson@MercuryVMP.com.

The Regulatory Forecast

As of early 2017, the mortgage industry has already been affected by the 2016 election. We’ve seen rising interest rates, the rollback of a late-Obama administration move to lower FHA MIP rates, an executive order directing the Treasury secretary to review rolling back the Dodd-Frank Act, and an executive order instructing agencies to eliminate two regulations for every new regulation proposed. With changes coming fast, we can be certain that there will be more headlines in the coming months. As we see it, the focus will be on three questions: Will the Dodd-Frank Act be repealed; will this help or hinder innovation in mortgage solutions; and how will the US react?

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Chance of New Regulations: Low

Repealing or changing Dodd-Frank would require congressional action. Given the current split in the US Senate, only certain modifications can be made through reconciliation, a legislative tool that allows changes to be made with a simple majority in the Senate versus the traditional 60 votes. Additionally, as of this writing, the CFPB recently evaluated whether the recent executive actions apply to them and concluded they do not. This means, at least for the short term, no new regulations. If the CFPB determines that that they are not subject to the actions, then it will almost certainly lead to a court battle. Either way, it seems like the chance of new proposed or final regulations is low. But as a reminder, unless and until any rules are repealed, existing rules — even those with future implementation dates — are still in effect and financial institutions need to support the new HMDA reporting requirements.

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Chance of Technological Impacts: Medium

How about the impact on innovation? Fintech companies have established a new industry group to protect a small part of the Dodd-Frank Act within section 1033 (a) that states, “upon request, information in the control or possession of the covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including information relating to any transaction, series of transactions, or to the account including costs, charges and usage data. The information shall be made available in an electronic form usable by consumers.” The members of this group, as well as others, hold the opinion that this section allows them to access and retrieve, with the consumer’s permission, bank and financial information. The use of this section is reflected in the development of personal budget software tools that aggregate all of a consumer’s accounts in one location. The section is also a key driver of digital application and verification services in the mortgage industry. The potential repeal of this provision would have a big impact on mortgage technology innovation.

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Chance of State Law Impacts: High

Finally, compliance with state laws could become even more important in the industry. Just as we have seen state Attorneys General filing suit against the Federal government over the President’s executive order on immigration, Attorneys General from 17 states have committed to defend the CFPB in the PHH case. If the President works with Congress to repeal all or part of Dodd-Frank, it is possible that state legislatures could step in with additional statutes and/or regulations.

What does all this mean for the mortgage industry as a whole? Regulatory changes are not new to any of us. What will really define the future for lenders is the importance of continued partnership with quality technology vendors. Working in partnership to navigate regulatory changes and define process improvements remains the key to continued success.

About The Author

Seth Hooper
As Origination Platforms Product Manager, Seth Hooper is responsible for the strategic direction of both Mortgage Cadence flagship loan origination solutions, Enterprise Lending Center and Loan Fulfillment Center. In this role, he guides both product teams through strategic initiatives aimed at advancing our technology to stay ahead of industry trends. Hooper joined Mortgage Cadence in 2010 as a member of our Document Center team, transitioning to product manager of our reverse mortgage division, then advancing to Compliance Product Manager, overseeing the successful launch of Ability to Repay and TRID enhancements to the Mortgage Cadence product suite.

Home Flipping Reaches 10-Year High

Data from ATTOM Data Solutions shows that 193,009 single family homes and condos were flipped — sold in an arms-length transfer for the second time within a 12-month period — in 2016, up 3.1 percent from 2015 to the highest level since 2006, when 276,067 single family homes and condos were flipped.

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Home flips in 2016 accounted for 5.7 percent of all single family home and condos sales during the year, up from 5.5 percent in 2015 to a three-year high but still well below the peak in 2005, when 338,207 single family homes and condos were flipped representing 8.2 percent of all sales.

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For this report, a home flip is defined as a property that is sold in an arms-length sale for the second time within a 12-month period based on publicly recorded sales deed data collected by ATTOM Data Solutions in more than 950 counties accounting for more than 80 percent of the U.S. population (see full methodology below).

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The report also shows that 126,256 entities — including both individuals and institutions — flipped homes in 2016, up less than 1 percent from 2015 to the highest number since 2007, when 143,266 entities flipped properties.

Meanwhile, the share of flipped homes that were purchased by the flipper with financing increased to an eight-year high of 31.5 percent in 2016 while the median age of homes flipped increased to 37 years — a new high going back to 2000, as far back as data is available — and the median square footage of homes flipped decreased to 1422 — a new record low going back to 2000.

“Home flipping was hot in 2016, fueled by low inventory of homes in sellable or rentable condition along with a flood of capital — both foreign and domestic — searching for the returns and stability available with U.S. real estate,” said Daren Blomquist, senior vice president at ATTOM. “The combination of more home flips and a greater share of financing for flip purchases resulted in a 19 percent jump in the estimated dollar volume of financing for home flip purchases, up to $12.2 billion for the flips completed in 2016 — a nine-year high. Investors are increasingly willing to move to secondary and tertiary housing markets with older, smaller properties that are available at a deeper discount.”

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Progress In Lending
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Automation Is The Next Step, Still

To say automation is important in mortgage compliance efforts would be like saying air is important for people to live. Even though it is a known fact that technology is necessary and makes our daily processes run more smoothly and accurately, regulatory changes, economic uncertainty and the changing political landscape have lenders and servicers hesitant to want to consider any new innovations. However, this is the most crucial time to look to automation to remain compliant now and well into the future. Technology can help take companies to the next improved level of production.

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Many of today’s mortgage companies are finally becoming acclimated to the changes required by Dodd Frank and other regulatory agencies. Companies have the systems in place to help them ensure their day-to-day processes are efficient while adhering to these regulations. It would be safe to say that technology, even though it has not been completely embraced by every facet of the regulatory industry, has in fact saved companies millions of dollars by improving efficiency, reducing errors and making sure all processes are followed. This all prevents costly and unnecessary fines that can be imposed.

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The majority of systems on the market today allow lenders and servicers to meet with basic compliance requirements. Companies are working with third-party firms or hiring internal staff to complete the remaining requirements. Technology should be used to fill these gaps and automate the entire compliance process from beginning to end. Of course, there are certain areas where technology will never be automated such as the review of manually-signed documents, documents that are poorly scanned etc., which would still need the human eye for review, but those, are the areas where companies can have their staff resources shift focus.

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What is next on the horizon for the mortgage industry as it moves toward complete automation? It may be described as futuristic but not for long. In addition to true e-signatures, technology such as optical character recognition (OCR) and loan data analysis, such as auto answer questions based on multiple data elements, are being used by other areas in the financial sector. Once managers understand the true value of these systems, a company can collaborate with its technology partners or add qualified IT staff to take advantage of these new features.

If we take queues from the automotive industry, after its initial investment in technology, the industry reached an optimal level. The advantages were reduced staff, improved car quality, satisfied customers and increased brand image. Complete automation of compliance efforts in the mortgage industry could and would be similar to the automotive industry. It reduces human errors, increases the quality of the loans and translates into better pricing in the secondary market. And all of this makes for happier lenders, servicers and borrowers alike.

To successfully take the next step into making these new areas of automation a reality, mortgage companies should identify the critical areas of their business where there are failures or system breakdowns and the determine adequate staffing requirements. This could help companies prioritize their needs so they can create and follow a roadmap to completely automate processes that were once tedious and time-consuming.

About The Author

Pramod Karachur
Pramod Karachur is project manager at IndiSoft, a technology company that specializes in systems for the financial industry. In his six years at IndiSoft, Karachur has implemented various grant programs, worked with multiple servicers such as Wells Fargo and Bank of America and thousands of non-profit and for-profit counseling agencies. He can be reached at pramod.karachur@indisoft.us.

Getting The Deal

Have you ever thought: Why did I lose that deal? What did I do wrong? What could I have done better? We all have these thoughts. In the article titled “The 3 Sales Questions I Should Have Asked” by Jill Konrath, she reflects on her experiences.

She remembers: “In retrospect, I mistakenly let my own eagerness to do business with this marquis customer outweigh my common sense. I should have known better, but I was seduced by the opportunity.

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“Over and over again, I see other sellers make similar mistakes when they have a ready-to-buy-now prospect on the line. Like me, they expound on their capabilities and benefits. They willingly provide detailed information and do tons of extra work to create proposals or presentations—anything the prospects want.”

While this strategy puts you into the “nice” seller category, it doesn’t help your prospects make the best decision for their organization. Nor does it enable you to separate yourself from your competitors. You just come across as an overeager beaver. And usually you don’t get the business.

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That’s why, when these prospects contact you, it’s imperative to not let your common sense fly out the window. Here’s what you can do instead: ask questions

It’s good for both you and your prospect to dig in and ask the hard questions. At first, they often feel inappropriate; especially when you feel like you should be “selling.” But in reality, they are exactly what you should be doing—helping potential clients make the best possible decision for their business.

Here are three questions you must ask about—even if they’re uncomfortable:

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1.) Are they 100% sure they’re going to change—or are they trying to determine if it makes sense?

This is crucial in determining your next step. If they’re still trying to decide, your focus needs to be on the business case. If they’re committed to taking action, then the focus becomes differentiation.

2.) What other options are they considering—and have they ever done business with any of these companies before?

If your prospect has an existing business relationship, make sure to explore why they’d consider changing. It’s a lot more work than staying with the status quo and if they don’t have a good reason, they’re likely not going with you.

3.) What are their decision criteria – and why is each factor important?

When you find out what criteria they plan to base their decision on, it ultimately helps you:

>> Figure out which aspects of your own product/service you should stress;

>> Determine how you stand against your competitors; and

>> Uncover any possible misconceptions about the best solution for them.

Plan these questions now. Do it before you talk to a real, live, ready-to-buy-now prospect. You’ll also want to practice asking these questions aloud too. Ultimately, asking the tough questions will make you more likely to identify the opportunities with potential and thus close more deals.

NexLevel Advisors helps its clients bring strategic focus to the art of selling. We understand the need for your sales organization to deliver results today in a competitive and ever changing marketplace. Our dynamic and specifically tailored approach, repeatable process and insight into complicated selling propositions elevate your team to the next level.

About The Author

Michael Hammond
Michael Hammond is chief strategy officer at PROGRESS in Lending Association and is the founder and president of NexLevel Advisors. They provide solutions in business development, strategic selling, marketing, public relations and social media. He has close to two decades of leadership, management, marketing, sales and technical product experience. Michael held prior executive positions such as CEO, CMO, VP of Business Strategy, Director of Sales and Marketing and Director of Marketing for a number of leading companies. He is also only one of about 60 individuals to earn the Certified Mortgage Technologist (CMT) designation. Michael can be contacted via e-mail at mhammond@nexleveladvisors.com.

We Need To Get It Right This Time

I remember the late 1990s when everyone wanted to do an eClosing pilot. Everyone thought that eMortgages would blow up and go mainstream faster than you can imagine. Well, here we are over 15 years later and eMortgages are still not mainstream. But fear not, there is renewed industry interest and good things are happening once again.

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For example, DocMagic Inc. has successfully completed the mortgage industry’s first comprehensive eClosing in Massachusetts, which included both lender and closing/settlement agent documentation, for radius financial group, inc.

DocMagic’s Total eClose solution is a single-source platform that contains all of the components needed to facilitate a completely paperless digital closing. Paramount to achieving the end-to-end eClosing was eNotarization services provided by strategic partner World Wide Notary (WWN). Once the eClosing process begins, documents requiring notary acknowledgment are automatically grouped by the system and electronically executed in the presence of the notary. The entire process takes only minutes and can happen in the comfort of the borrower’s home.

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DocMagic’s solution includes all of the critical components required to execute a fully digital eClosing transaction: its dynamic eDocument library that features eSignature, eNotary, and MERS eRegistration capabilities, and the system automatically stores all data and documents within a secure eVault designed to make investor eDelivery as simple as a few clicks. The single-source platform creates a highly-efficient, transparent and fully compliant eClosing process that guides users through every step, logs all activities and creates an irrefutable audit trail.

Also key to DocMagic enabling radius’ first eClosing was the participation of Santander Bank, which served as the eWarehouse lender. “In addition to having integrated eNotary capability, one of the last remaining obstacles to adoption has been the reluctance of warehouse players to fund eNotes,” said Tim Anderson, director of eServices at DocMagic. “We helped test and implement an eWarehouse process to eDeliver acceptance of the eNote to Santander Bank within seconds after the eClosing was completed. This is an industry-altering achievement.”

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DocMagic maintains detailed evidence of TRID compliance from the original loan application and Loan Estimate (LE) to delivery of the final Closing Disclosure (CD) with data, compliance determinations, calculations and documents all stored within DocMagic’s eVault for proof of compliance.

So, it’s certainly great that the eMortgage is catching on again, even if it had to be re-branded and called the Digital Mortgage to get where it is today. Hopefully the industry will get it right this time.

Where do we go from here to make this effort this time around a success? More vendors and lenders have to move in this direction. The more vendors that offer an eMortgage solution and the more lenders that adopt it, the better.

And we are starting to see this happen. For example, NotaryCam has launched what it calls its eClose360 platform. “What we’ve done has cracked the code around that last mile friction in a real estate mortgage transaction,” said Rick Triola, president and CEO at NotaryCam. “Our eClose360 is an online notary platform that allows mortgage closings to take place online, completely, removing all associated stress and the friction of having to attend closings physically. Borrowers now attend anytime from anywhere in the World and we have legally completed tens of thousands of notarizations in all 50 states and over 65 countries.”

Over the past several years the system has been in a pilot program with top online mortgage lenders to close loans nationwide. “Having borrowers attend our closings from anywhere — even overseas, even at 7 a.m. on a Saturday — has been most rewarding. Our partners have been thrilled by the tremendous feedback from their borrowers and loan officers. Closing On Demand — they couldn’t ask for anything better,” Triola stated.

NotaryCam allows businesses and individuals to legally notarize, sign and execute documents and agreements online. Parties from anywhere in the world can connect to a live notary public in a secure virtual signing room. Identities and eSignatures are verified in a face-to-face web interaction to eClose real estate and mortgage transactions, notarize deeds, powers of attorney, health directives, and more. NotaryCam was developed in lockstep with the changing needs of the GSEs to ensure that eClose360 would meet all investor requirements.

I’m cautiously optimistic that this time it’s the real deal. This time the eMortgage, or the Digital Mortgage, or whatever you want to call it, will in fact go mainstream.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Tax Line Audits: The Benefits To Servicing Operations

Industry professionals still cringe a bit when they hear the word audit. However, that should not be the case with a tax line audit. This is an audit that can not only save in fees but time as well as improve customer service.

A tax line audit reviews of all tax line data elements that could affect the timely payment of real estate taxes or a correct escrow analysis. This audit should be completed 60 days before the real estate tax cycle begins. Since servicers are required to complete an annual escrow analysis on all loans in their portfolio, it is crucial to ensure that the data used to complete the analysis is accurate. The aforementioned is just one of the many benefits of auditing tax line data.

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The annual escrow analysis is a calculation required under Real Estate Settlement Procedures Act (RESPA) and determines whether the escrow account is in balance and if the borrower needs to pay more money to make up a shortage or if the lender has collected too much money and the borrower is entitled to a refund. If the tax data reviewed within this analysis process is incorrect, the monthly payment information provided to the homeowner will be incorrect causing overage or shortage conditions in future escrow analysis.

Servicers over time have experienced an increase in calls related to the escrow analysis and the subsequent increase or decrease in the homeowner’s monthly payment. Most often the tax payment made from the homeowner’s escrow account is the cause of concern. Completing a tax line audit annually will provide the answers to those difficult questions related to real estate taxes paid from the homeowner’s escrow account. The questions from the homeowner could now be resolved with only one call.

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The three key tax line identifiers that require the most attention and have the most impact on the tax paying process are the payee information (including where the homeowner’s tax payments are sent), the due date and frequency of the real estate tax payments and the tax amounts. All of these factors affect a true and accurate escrow analysis.

Payee – The U.S. has more than 25,000 tax agencies collecting real estate taxes for homeowners’ properties. These agencies, at times, will relocate changing where tax payments should be sent. The address information has to be audited annually to keep the lender’s records accurate to ensure future timely real estate tax payments.

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Payment due date and frequency – Tax collecting entities can change the due date and/or frequency of real estate tax payments that they expect to receive during a calendar year. The homeowner’s data also has to be updated to properly calculate the monthly collection of taxes during the annual escrow analysis.
Tax Amount – The annual real estate tax amount is the last vital field that will also require review to determine if there has been an increase or reduction in the amount of taxes the homeowner is responsible for paying. This amount could be affected by a homeowner’s exemption status or a reassessment by the real estate tax agency.

Although servicers will not see an immediate change from completing a tax line audit, the savings will show up during year two of implementing the audit process. Servicers will experience a reduction in customer service inquiries related to real estate taxes, as well as a reduction in staffing for the processing of real estate tax payments due to fewer exceptions during a tax payment cycle and the penalty loss liability will also lessen because of timely and accurate real estate tax payments. The additional work related to completing a new escrow analysis or repaying a tax payment that was incorrectly processed will also significantly diminish.

While this is one of the last operational changes that most servicers implement, there are substantial financial benefits and an overall improvement in customer satisfaction. It proves to be a win for the servicers as well as the customers.

About The Author

Dionne McBride
Dionne McBride has more than 20 years of service with LERETA working in various departments from training, tax operations and customer service. In her current position, which she has had for four years, is responsible for performing audits using the lender’s tax line data and completing a comparison to our tax tables to identify exceptions. The conversion/acquisition function takes on the responsibility of bringing on large acquisitions for lenders and integrating the new loans into their existing portfolio to begin tax servicing. She can be reached at dmcbride@lereta.com.

Fair, Unfair And Deceptive

With the announcement, earlier this year about the latest data additions to be included in all future HMDA reporting, the industry has been heavily focused on making sure that the necessary data is available within loan origination systems. Furthermore, the loan application form, commonly referred to as the 1003, has been updated to ensure that all this data can be collected from the borrower(s). This additional information, in conjunction with what is already collected, form the basis of regulators Fair Lending reviews.

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Fair Lending, is the federal regulation that requires all lenders to treat every applicant equally. For depository institutions, their lending patters must demonstrate that they offer mortgage opportunities in the communities in which they accept deposits. Additional analysis is also conducted on the areas in which a lender typically lends. This has traditionally been known as the lender’s footprint and is measured by racial population distributions within specific metropolitan statistical areas or MSAs. In other words, if an MSA is 50% Hispanic, regulators would expect to see that 50% of your applicants are Hispanic. This they believe demonstrates the “fairness” of your lending practices. There are however some very “unfair” issues associated with this analysis, many of which will more than likely be exacerbated by the collection of additional data and the scrutiny of the CFPB.

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The most obvious of these is the poor quality of the data. Although the submission process includes quality and validity checks, inaccurate and/or inconsistent data is rampant. While most lenders work diligently to ensure good data, there have been instances where manufactured and calculated data have been used. Furthermore, until this past week’s announcement, there has never been a way to identify if all required lenders have even submitted their data. If data is submitted late or corrected and resubmitted, the changes never make it into the overall HMDA database for the year. Imagine one lender’s surprise upon finding out that the entire LAR they submitted one year was not included at all.

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Unfortunately, even the bad and or missing data included in the HMDA database is used to analyze lenders. For example, not all applications have the monitoring data completed and since it is the borrowers’ prerogative to complete, few, if any lenders have all the race gender and ethnicity data for every application. This can lead to some very unfair conclusions. Recent comparisons of the number of loan applications compared to these completion of monitoring data found that these numbers just don’t add up. For example, if a lender has 10,000 applications but the breakdown by race shows that only 37% were minority, does that mean that 48% are white? If so, and the population is the MSA is 52% minority does this mean the lender is failing to meet regulatory standards? Without knowing the race of the remaining 15% of the applicants, it is impossible to tell. Yet this is a major part of the regulatory review. Isn’t this a bit deceptive on the part of the regulator?

Finally, regulators and lenders alike must reconsider the use of comparative footprints in conducting this analysis. When lenders and banks were primarily regionalized this may have made sense but with the expansion to nationwide lending and the use of electronic applications, this model is unreliable and in fact deceptive when reaching any conclusion. This must be changed if we are truly to identify any discrimination practices.

The issues identified here are clear indicators that the regulators are not accurately measuring a lender’s Fair Lending, but instead are conducting unfair and deceptive analytics themselves. To protect themselves, it in in every lender’s best interest to know more about their HMDA data then any regulator does.

About The Author

Rebecca Walzak
rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak, a leader in operational risk management programs in all areas of the consumer lending industry. In addition to consulting experience in mortgage banking, student lending and other types of consumer lending, she has hands on practical experience in these organizations as well as having held numerous positions from top to bottom of the consumer lending industry over the past 25 years.

Cutting Corners On The Way To The Cloud

It has been almost twenty years since Salesforce first introduced the concept of cloud computing to the business world. Despite its revolutionary concept, or maybe because of it, adoption of Salesforce and cloud computing in general was initially slow. Today, cloud computing is so commonplace that even the mortgage industry, a notoriously slow adopter of technology, has fully embraced it. But in order to truly exploit its potential, a little self-reflection is required: how well do you really know cloud computing?

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The Industry’s Indispensable Shift to Cloud-computing

In the early days of cloud computing, software vendors broadcast their applications through the internet to allow multiple users to access it using “virtualization.” In this model, a single copy of the application resides on a central server and lightweight “thin client” software is installed on each user’s machine. Virtualization was a big hit.

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IT managers loved virtualization because there was only one copy of the software to maintain. Business owners loved it because their IT costs were drastically reduced. Software vendors especially loved virtualization because they could “spin up” their old, on-premise software into a cloud subscription service with minimal cost and effort.

But in reality, virtualization represents an incremental shift in technological innovation. Other than giving users convenient access and their IT teams more free time, the core technology behind virtualized software does not change at all. It’s not as if “going to the cloud” turns legacy software into an entirely new application. In fact, you could take an 8-bit version of VisiCalc, broadcast it through a server and call it a cloud computing system.

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The Value Added for Vendors in a Multi-tenancy Solution

To realize the true value of cloud computing, it’s important to understand the way an application’s underlying database is structured. In a virtualized environment, there is a single, separate and independent instance of the software code and the database. Any upgrades, fixes or integrations to the software must be installed separately in each instance. This is known as single-tenancy.

In contrast, a multi-tenant database model is truly transformative because the software code and data resides in a single, unified database. Every user across multiple clients is using the same application simultaneously. Therefore, distributing updates, fixes or integrations requires virtually zero effort from the vendor because all of their users are in the same environment concurrently.

One of the main advantages of multi-tenancy is the ability to scale an application extremely efficiently. It is similar to fixing a centralized furnace in a 100-unit apartment building versus fixing each furnace in 100 single family homes. Multi-tenancy also ensures that every client is using the same exact version of the application and has access to the same integrations.

Just as having the ability to scale an application extremely efficiently, vendors can become active participants in the implementation, configuration and end-user operation of the system because they have direct access to a client’s system and associated data. The old “batteries not included” paradigm of software delivery turns into a white glove approach, where vendors embed consultative services into their product offering.

Big Data: The Next Level of Cloud-Computing

However, these advantages pale in comparison to the true potential of cloud computing: Big Data. In a multi-tenant system, all the data generated by every client resides in one database. This means that data aggregation and normalization become non-issues, allowing for analysis and forecasting insight that can approach clairvoyant levels.

Imagine being able to determine the precise cost of originating any given loan scenario. Or the secondary gains you receive when you know the exact date when every loan in your pipeline is going to close. This level of predictability can only be achieved using big data, and big data can only be gathered in a cloud solution that has a multi-tenant database architecture.

Is big data making an impact in the mortgage industry? Not yet. Big data is still in an evolutionary phase. Even industries with mature cloud computing capabilities are only beginning to scratch the surface of big data. But as we’ve seen before, technological advancements happen quickly. Moving to a multi-tenant cloud computing model is the first step towards big data.

While transforming a single-tenant database into a multi-tenant one takes time and money, it is important to build evaluating its place in the vendors organizations now. Legacy software vendors have no choice but to start from scratch, a monumental task, but one that is manageable with the appropriate planning.

Vendors should consider a few different things when planning to integrate a multi-tenancy database. First, how well prepared is their organization to support the business model? And secondly, can the vendor deal with client expectations that are completely different from their legacy model? Gone are the days of delivering pre-packaged software (including virtualized software) and expecting an IT professional to install and maintain it. Vendors should note configurability, not customizing, is the way in which caters to a streamline process, while delivering results. A multi-tenant solution operates as such just like the air conditioner analogy mentioned previously.

Twenty years is a long time. Salesforce and other “true” cloud computing vendors have already experienced and adjusted to the growing pains of delivering software in a multi-tenant environment. Legacy software vendors who are just entering multi-tenancy – even large, well-funded vendors – will discover how difficult it is to bridge the gap from their single-tenant virtualization model. Virtualization might be a shortcut to cloud computing, but multi-tenancy is the only path to a big data future.

About The Author

Linn Cook
Linn Cook is senior communications manager of LendingQB, a leading loan origination software provider delivering customer solutions that combine technology and good business practices. LendingQB is a provider of 100% web browser-based, end-to-end loan origination software that offers residential mortgage banking organizations faster closing time and reduced costs per loan. To learn more visit www.lendingqb.com.