As industry consolidation continues to happen both among mortgage lenders and mortgage technology vendors, choosing the right loan origination system (LOS) is very important. Further, with lending volume declining and regulation increasing, the LOS is a lender’s literal lifeline these days. So, what makes for a good LOS? Binh Dang, Founder and President of LendingQB discusses how the LOS space has evolved, what’s to come and what makes an LOS unique.
Q: How has the LOS space changed over the past five years?
BINH DANG:Certainly there has been a lot of carnage. The players who were dominant like DataTrac for example, are obviously no longer dominant. In fact, DataTrac is likely to go away at the end of the year. Pretty much there’s one large LOS and there are other players still competing in the marketplace.
Q: What do you expect the LOS space to look like five years from now?
BINH DANG:Personally I break the LOS space into two models, two philosophies or two kinds of clients. You have the client who wants to build an LOS without having to do a lot of the building. The lenders that fall into that camp go for the LOS that gives them the ability to customize. Those lenders will always exist and those LOS companies that cater to that type of client will always exist.
The second type of lender wants something that works more or less out of the box. So, they will go with something like an Encompass or LendingQB. When all is said and done, I think there will be just two LOS players left that cater to those lenders. It’s not uncommon for most markets to eventually reduce themselves down to two key players.
Q: On a separate, but related note, there have been a lot of LOS mergers and acquisitions. How do you think it’s impacting the space?
BINH DANG:From a lender’s perspective, I think the PC Lender acquisition is good for lenders who are counting on PC Lender to have a product that will be maintained and enhanced. From a competitor perspective, we typically do not run into PC Lender in our market-space, so that acquisition doesn’t have an impact on us. Regarding Mortgage Builder, from a lender’s perspective, if I was a lender I’d be uncertain of my future on that platform. Altisource is a large company and they bought Mortgage Builder for a very specific purpose. I don’t think their reason for buying that technology is to provide it as a separate platform to the client. I think their goal is to use that as a tool to provide a bundled BPO service offering, meaning you use it to do your processing, your underwriting, your closing, etc., and by the way here’s a tool, Mortgage Builder, that you use for that purpose. Also from a competitor perspective, again we typically do not run into Mortgage Builder in our market-space, so it has a very limited impact on us.
Going forward, the LOS has to be much more aggressive when it comes to using the latest technology in order to survive and keep the faith. There’s a lot more work to be done these days, you can’t really have a 2- or 4-man shop running an LOS like was the case 20 years ago. There will probably be more LOS consolidation. I don’t know how many LOS players are left. Last time I checked it was probably like 10 that fall into the out-of-the-box category. In the end you’ll have two or three independent LOS players left standing. When I say independent, I mean a company that is not owned by a larger company like Altisource, or CoreLogic, or a company like that.
Q: Rules changes are happening at a staggering pace. How does LendingQB stay ahead of these changes?
BINH DANG:First, we have to maintain awareness of the changes. We work with a law firm to help us be aware of those changes that come down the pike. From there, we just make sure we allocate sufficient resources into our pipeline to address them. I’m sure it’s the same approach that every other LOS vendor has. Client compliance is a big deal, and every LOS vendor recognizes that they have to make sure that their technology can help their lenders comply if they want to have the better product out there in the market today.
Q: What is LendingQB’s biggest differentiator as you see it?
BINH DANG:Our biggest differentiator is our view of the mortgage industry in terms of what we see lenders doing, or more importantly what they are not doing. We see lenders reinventing the wheel a lot. They are trying to create the “most efficient” process. In our view, if there are a thousand different lenders, we do not think that we need to have a thousand different products or processes in the market. Most likely you need about a dozen. We believe in lean lending and industry best practices. I think that sets us apart.
For example, our competitors may choose to go down the route of trying to be all things to all companies. As a result, they are adding third-party services to their system like docs for example. That will be their approach, but our approach is different. We recognize that different vendors out there have certain expertise, so we want to be very careful to not assume that a single service provider will be able to meet all the different needs of all the different lenders in the market. We have to incorporate technology into our system that makes those integrations to best-in-class service providers seamless. Our competitors will have similar integrations, but they won’t be as tight because they want the lenders to use all of their services for everything.
Q: When lenders ask about the ROI associated with migrating to LendingQB, what do you tell them?
BINH DANG:Clients tell us that the ROI associated with LendingQB is up to 37% in terms of reducing their cost of labor. More importantly than the ROI is how quickly they get up and ready on the system. With our unique approach, we have a process where we can get the lender up and running with our LOS within six months. We provide a solid methodology combined with industry best practices to guaranty ROI.
Q: As lenders look to get more purchase business, how can LendingQB help them capture that business?
BINH DANG:Purchase business obviously comes from Realtors and Realtors are looking for lenders that can provide them with certain tools to make their business go faster. So that is where we come in. As an example, we are the only independent vendor that can deliver a pre-approval 24 hours a day. With other LOS systems you can go online at anytime to apply, but you have to wait until the next business day to get a pre-approval.
When the Realtor needs to get the pre-approval letter to package a deal, they know that they can get it at any time if the lender uses our system. Realtors want to deal with lenders that offer borrowers the ability to self serve. Realtors don’t want to have to wait for the lender. As a result, the faster lenders will get more of their business.
Q: How would you define an innovative LOS?
BINH DANG:An innovative LOS is an LOS that gives the lenders what they want. Lenders don’t want technology, lenders want a solution that will help them increase customer service levels. So, when I use the word “solution,” I use it in a more holistic stance. The good LOS offers a process, not just a platform. The LOS vendor that is just focused on technology is missing the boat.
Q: Why would you say that LendingQB represents the LOS of the future?
BINH DANG:Because we recognize what it is truly that lenders look for. We recognize the nature of lending. We know the character of lenders and what sets them apart. We know how they think. And because we have this deep understanding, we can offer a true holistic, industry solution.
Binh Dang thinks:
1.) There will be more consolidation among mortgage lenders. The cost to do business has gone up and volume has gone down.
2.) The door will open for more aggressive loan products. It won’t be a return to subprime or alt-a, but there will be different products.
3.) I see more consolidations in the LOS space. I truly think that within five years there will be maybe three LOS players in total.
Binh Dang is founder and president of LendingQB. His vision is to develop LendingQB into the dominant 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 or call 888.285.3912.