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Cutting Through The LOS Clutter

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The LOS is the straw that stirs the drink for lending operations. Lenders that are in search for a new LOS platform and vendor partner, one that they can rely on and grow with for years to come, whether they know it or not, are hard-pressed to make the right buying decision amid a vastly different, ever-changing lending landscape.

We know that the cost to originate loans has risen substantially over the past year and keeping pace with changing compliance rules is here to stay. And given that the industry is so fluid with vendor consolidation, marketplace shifts, compliance adherence and varying technologies, how is a lender to know where to begin when evaluating a new LOS? What should a lender focus on? What works and doesn’t work?

SVP of Business Development and Strategic Alliances Rob Pommier of LOS provider OpenClose shares his perspective.

Q: End-to-end LOS platforms seem to have become a must have. What’s your take?

ROB POMMIER: People used to be of the mindset that no one vendor could be good at every piece of the lending process and thus best-of-breed was the optimal approach. While there is some merit to this viewpoint, it has waned significantly as end-to-end providers have advanced their systems over the years and no longer have the need for many partnerships and integrations. What’s more, maintaining lots of integrations often compromises achieving seamless interfaces. And, with an onslaught of constantly changing compliance rules, it gets really tough to ensure that multiple vendors being used are keeping up with implementing new rules and updating existing rules.

As a result of the aforementioned, over the last couple of years lenders have been leaning toward using a single platform to run their business because it gives them more control over their data and in the end it is more cost effective. Before the mortgage industry was hit with a myriad of new compliance rules virtually overnight, folks didn’t really understand the importance of data flows within a single system and how it interacts with compliance rules (i.e. QM, ATR, CIC) to ensure the consistent funding of quality, compliant loans. Using a single system with a single code base makes a huge difference in today’s market. On the other hand, using a mishmash of disparate technologies can create inefficacies, integration challenges, a propensity for errors, and compliance exposure.

Now, every LOS provider is going to require some type of integrations, but not like in the past. At OpenClose, we’re very discriminating about the vendors that we integrate with. We want our clients to get the best value from our system and if an integration is week, the product is sub-standard, or the company offers poor support, it’s not a partner we want to work with, which is in the best interests of our clients.

Q: What kind of LOS due diligence process should lenders use in today’s market?

ROB POMMIER: Before even starting to look at a new LOS, lenders really need to first understand what shortcomings, gaps, and bottlenecks they have not just in their current system, but within their own workflow and in different functional areas within their organization. Look closely at 1) Are we having issues because this is the way we have always handled the business? Or, 2) Is it actually a shortcoming of the software? This should be the first part of the due diligence process: understanding the needs of your own organization. Lenders have to open their minds up to developing better processes and ways to do things from a business perspective, and then rely on software to automate and run the business efficiently.

Selecting and implementing a new LOS is a big decision. If the wrong platform is installed that fails to meet your specific technology requirements along with your short and long-term business objectives, then you’ll be searching for a new LOS again. As a rule of thumb, I recommend that lenders don’t just let one or two functional areas make the buying decision. Involve all areas. How will the new LOS affect production? Underwriting? Compliance? Processing? Closing? Shipping? Secondary marketing? Servicing? IT and support? How does it function within each business channel from retail to wholesale, correspondent, consumer direct? What is the bottom line ROI from the CFO’s perspective?

Form a committee that involves all of the key areas/departments in your organization to work together to make an informed buying decision that effectively addresses all needs and pain points for your people. You don’t want to buy a platform only to find out that it isn’t satisfactory for some functions because you didn’t consult your people for input.

Once you’ve defined your processes and workflow, and involved the right people to help make the buying decision, then you can start evaluating LOS platforms.

Q: What is the value of using an RFP/RFI in selecting a new LOS and/or using a consultant?

ROB POMMIER: This is sort of a double edge sword. The use of RFPs/RFIs and consultants are good in some instances; however, they can often bring the selection process to a crawl and create “analysis paralysis.” We all know the usual RFP/RFI type of questions that are asked. In many cases they are just template-based. Typically, using an RFP/RFI doesn’t ask the right questions to effectively extrapolate the needed information to find technology that supports the business needs.

All too often we see companies send out large questionnaires to vendors, and once we get them, it’s clear they didn’t think through the right questions to ask. They don’t fully understand how to interpret the results, let alone use them as a basis to make an informed buying decision. The utilization of RFPs/RFIs can be helpful, but only if it is well thought out and provides useful information. More often than not, however, the RFP/RFI is done wrong and becomes but a time consuming exercise in futility.

When it comes to engaging with a consultant to help evaluate LOSs, as well as other mortgage technologies, we’ve found that some have a solid approach to due diligence that is very focused on and geared to a lender’s unique business needs. But generally, we simply see canned questions and suggestions which aren’t applicable to specific lender workflows and isn’t an optimal way of doing business for their clients’ unique needs.

In addition, some consultants end up slowing the selection process and in doing so spend more of the clients’ money by dragging it out. But in other situations we see consultants that are very efficient and really work to find the right software to fit the needs of their clients. Lenders also need to be cognizant that some consultants are impartial to just a handful of LOS providers. This could be because the consultant is more familiar and comfortable with those systems; or, in some cases, they may actually be incentivized by the software company to recommend their products. In any case, the wrong consultant can steer you in the wrong direction.

Q: Talk to us about mortgage banking experience combined with technology experience.

ROB POMMIER: There are a lot of LOS providers that employ staff that has software experience but not lending experience. Engaging with an LOS provider that has people who have worked in both mortgage technology and also for an actual mortgage banker makes a big difference. This is the type of human capital that you want as your vendor partner, starting with the salespeople who are courting you on through the technical people that will be implementing the platform and supporting you. Someone that just has software experience doesn’t fully understand lending.

It’s also important to look at the length of tenure and depth of experience of the vendor’s developers, architects, and support staff. Are they loaded with technical experience and possess a deep understanding of the mortgage process having worked at multiple organizations? It counts. At OpenClose, we employ staff that possess not just mortgage technology experience, but also mortgage banking experience working at actual lenders. As a result, we are able to better assess unique client needs and deliver a tailored solution with the business side in mind. We take a consultative, solution-crafting approach to our clients, from the lender’s perspective.

Equally important is that those involved on the lender side during the evaluation and implementation process need mortgage domain experience. They need to fully understand the lending workflow in order to get it right the first time.

Q: What is OpenClose’s value proposition?
ROB POMMIER: OpenClose offers a single solution software platform for all lending channels that doesn’t require multiple interfaces to make the software work. This provides for the cleanest and most efficient dataflow between all departments to ensure that valuable, clean data is delivered to all departments without re-keying or missing information. With OpenClose, loans effortlessly sail through the lending process without manual intervention, thus increasing employee productivity and reducing cost per loan. It allows for a highly efficient and effective workflow. And, we do this very well for all lending channels. I like to use the phrase, “Let technology run your business, not people run your technology.”

Our software is extremely flexible and configurable, which enables us to successfully reach a level of customization that most LOSs are unable to achieve. Every single one of our screens is extremely intuitive and user adoption is quick. We are proven to work well for both medium and large size lending entities and can easily scale up as they grow. You won’t outgrow our LOS.

In short, our system is easy to implement, easy to learn, feature-rich, uses a single code base, is very configurable and customizable, and establishes a completely seamless workflow and puts the lender in control of their data in all areas along with complete transparency. The system keeps clients in full compliance, maximizes organizational productivity, and scales as lenders grow. Our customers tell us that OpenClose is the last LOS they’ll ever need.

Q: How is OpenClose different than its competitors?
ROB POMMIER: First and foremost, our entire platform is 100 percent browser-based. There are no software installs. All components of our LOS can completely be accessed via a Web browser anywhere, at any time. Most LOSs have some sort of an install and often term themselves as “Web-based/Web-enabled/Web-accessible,” which is done to tip toe around not being a system that only needs a simple browser to operate off of.

We developed and utilize one code base throughout our entire system, which allows us to easily customize seamless workflows and enable straight-through processes for all business channels. It also allows us to implement much quicker than other systems. And, we do all of the configuration for the lender. We don’t put the onus on the client; we do it for them.

Notable is that OpenClose is owned, funded, and operated by the same founding principles. We’re not a big, slow-moving software firm that is controlled by a large acquirer. We are an innovative, nimble company with ample resources and very responsive customer support. You’re not just a number at OpenClose; you’re a valued, long-term partner.

In addition, OpenClose employs people that have both technology as well as mortgage banking experience working at lenders. Our people fully understand lending and are thus able to handle implementations in a consultative, subject matter expert fashion.

OpenClose is a true end-to-end platform. Sure. Every vendor lays claim to this in today’s market that now has end-to-end solutions in high demand. But many LOS providers have merely attempted to assemble a comprehensive solution using best-of-breed integrations, or simply by way of vendor acquisitions. Either way, they are disparate technologies that don’t always work well together. Everything is completely native to our system. We don’t have these technology issues.

Q: Do you have any “buyer beware” recommendations for lenders looking for a new LOS?
ROB POMMIER: I have quite a bit to say on this topic. First, make sure the LOS you select handles the top three components that are most important to your organization. Don’t settle for something less than you desire that has deficiencies in some areas. Take your time. Peel back the onion. Kick the tires and look under the hood before buying. Don’t just let the vendor give you a canned sales demo and make a buying decision off that. Watch them run a loan through the system from start to finish. Some tough questions to ask and key things to consider are below.

A good, mature, robust LOS should address all business channels, and should do it very well. Make sure the platform is centralized and fully automates each channel from soup-to-nuts. Look for a long-term LOS partner with strong customer support, not a vendor where you’ll potentially become “just another number” in a big software organization.

Is the LOS technology contemporary or elderly? What code was it built in and are there other types of code intermingled with it? Is the vendor a continual innovator and do they listen to their customers? How scalable is the software and how flexible is it? The application needs to be proven to handle increases in volume given lender growth. Make sure the vendor’s staff that you’ll be working with has deep mortgage domain experience and the company’s employee attrition rate is low. What is their customer support like? What are their average response and resolution timeframes? What is their average implementation timeline, specifically for a company similar to your size? Are there any lawsuits pending? If so, why and what is the nature of the litigation?

Corporate and management structure is also important. Some LOS providers are run by just a couple of people at the top calling all the shots. That’s a big red flag. Your LOS partner needs to have a formal management team in place that has mortgage experience.

Unfortunately, it’s a survival game right now for vendors that have older technology and are just trying to stay afloat in today’s ultra-tough business climate. There are vendors that dodge questions, sugar coat responses, and even outright lie. It’s up to you to perform the deep dive due diligence necessary to ensure that you invest in an LOS and long-term vendor partner which will grow with you for years to come.

Lastly, I’ll leave you with the age-old saying, “If it sounds too good to be true, it probably is.” There’s a lot of lipstick on a pig out there.

Q: Where do you think the LOS space is headed?

ROB POMMIER: Without a doubt, the entire LOS space is headed toward the software-as-a-service (SaaS) model. We can look at a couple of cycles here. After the crash, lenders stopped buying multi-million dollar platforms that took long implementation time frames, required significant resources to maintain, and had a high total cost of ownership (TCO). Less expensive LOSs began to gain momentum mostly due to them simply being cheaper. Lots of those LOSs claimed to be SaaS but really weren’t. It was just a buzzword they worked into their marketing speak.

Lenders’ appetite for technology was largely predicated on price. And who could blame them for looking at price first? Many didn’t even know if they could secure a warehouse line and keep the doors open, so why buy or continue to maintain expensive systems that they had to manage themselves? Given terrible market conditions at the time, it didn’t make sense.

That was then and this is now. Moving forward, I see the next wave of LOS platforms as all being genuine SaaS-based models. It’s shocking to me how many LOS vendors represent that they are SaaS but are not. Lots of “me too” LOS vendors are out there, so buyer beware. Lenders don’t want to be in the business of technology. They want the software to be completely managed for them and only a true SaaS model can do that. This will force vendors into extinction who claim to be SaaS but actually require installs of some sort.

We’ve had lots of recent consolidation in the LOS space with some good acquisitions and also some really bad ones. When the smoke clears, those LOS vendors that are antiquated will wane and those that are actually SaaS or are working to develop new platforms to be SaaS will be become the dominant players.

INDUSTRY PREDICTIONS

Rob Pommier thinks:

  1. True SaaS-based LOSs will dominate the market and vendors with antiquated technology will die on the vine.
  2. Vendors will get better at managing compliance, and lenders will leave it to technology to handle.
  3. Both vendor and lender consolidation will continue, but not at the rapid rate that we have seen in the last couple of years.

INSIDER PROFILE

Rob Pommier is SVP of Business Development & Strategic Alliances at OpenClose. A veteran of the mortgage industry, he has extensive domain experience holding executive management positions at GenPact, Del Mar Database, Lender E-Source, Fiserv, South Pacific Financial Corporation, and OpenClose. Rob understands both mortgage technology and mortgage banking through and through, drawing on knowledge from working for software firms as well as banks and lenders. He has successfully driven numerous technology initiatives and helped launch innovative solutions. Rob is a regular thought leader in the media and participates on various mortgage panels and roundtable discussions.

Progress In Lending
The Place For Thought Leaders And Visionaries
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Open Close

Founded in 1999 and headquartered in West Palm Beach, Florida, OpenClose® is a leading provider of an enterprise-class, purely browser-based end-to-end loan origination system (LOS) that delivers its solution on a software-as-a-service (SaaS) basis. The company provides a variety of Web-based solutions for lenders, banks and credit unions—from loan origination software to decisioning, reporting, website design and social media marketing. OpenClose’s LOS is completely engineered by the same company, thus avoiding assembling best-of-breed applications or acquiring technologies in an effort to create an end-to-end platform. The company focuses on providing lending organizations with full control of their data and creating a truly seamless workflow for comprehensive automation and compliance adherence. For more information, visit www.openclose.com or call (561) 655-6418.

Progress In Lending
The Place For Thought Leaders And Visionaries
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Magazine Feature: Chasing The Sun To Build Better Mortgages

*Chasing the Sun to Build Better Mortgages*
**By Rob Pommier**

***The sun rises on the U.S. East Coast, and work begins. As the day progresses, lenders, loan originators and underwriters all work in conjunction to move borrowers from application to closing. Automated systems cut slack out of the pipeline, as software runs underwriting checks, imports data from one program into another and generates documents and compliance reports.

****As the day ends, though, the work does not. A stack of disclosures stands ready to be processed, printed and delivered. The lender’s software instantly sends all the files to a fulfillment center in California, which spends the next three or four hours sending the disclosures out. As their day ends, the software once again sends the files across the Pacific to a settlement services shop, which begins the work of finalizing appraisals, title and insurance needs.

****By the time the sun rises on the East Coast once again, the staff of our intrepid office comes in to find their loan files a full day ahead of their competitor in the workflow.

****Science Fiction? Only available to the largest banks in the country? With the availability of hosted software and business services, not anymore.

****Follow-the-Sun workflow has been utilized by global companies for decades. Now, the decreasing cost of international communications and the efficiency of hosted, cloud-based software, is opening the door for lenders of all sizes to benefit. For the optimal mix of efficiency lenders can combine geographically diverse Business Processes as a Service (BPaaS) with cloud-based, data-driven software to maximize internal efficiencies and reduce the time spent preparing loans for closing.

****Step One: Maximize Automation with Data-Driven Technology.

****To get the most out of any loan process, the first step is to ensure that internal systems are as efficient, fast and accurate as possible. The challenge in today’s technology environment is that most legacy systems are built around the document, which was necessary in the pre-digital days, but creates bottlenecks as different departments wait on a document to be completed before they begin their portion.

****The beauty of digital data is its readability and usability by any system. Once an application is entered into the loan origination system (LOS), all data should be instantaneously available at every step of the loan process. By relying on data over documents, lenders have the freedom to work on pieces of the loan they want without having to wait on their partners to finish, thus reducing cycle time.

****By building the workflow around a central datacenter, the lender enables multiple departments to work on the loan at the same time. Data-focused origination also provides clearer transparency and more accurate risk analysis.

****As soon as an application is filed, underwriters should be able to evaluate the Automated Underwriting results and apply approval decisions. Investors should be able to automatically scan for adherence to their guidelines and evaluate risk and pricing. All of this happens, while the closing department is pulling the loan documents and submitting disclosures.

****The key is to use automated business rules to streamline the data entry, manual evaluations and quality checking at each step of the mortgage’s journey to closing. Mortgage technology should be able to automatically evaluate data within the context of business rules, thresholds and other data to render a decision. This saves manual work on the loan and for those loans that do not meet standard criteria or have other issues that need a more nuanced decision.

****Once an automated decision is made, the system should be able to take one or more of several actions: clear the check or condition, create a new task, request or obtains more data (i.e. additional property valuation or income verification), or notify someone of the decision. Implementing a data-centric loan platform, and then combining it with BPaaS, can trim as much as 30 percent off the time and cost needed to close the loan.

****Another challenge of most mortgage technology platforms is one of configuration. In an effort to reduce development costs, most platforms come packaged in pre-configured settings that must then be customized to meet the lender’s specific needs. This can be costly, as a change to the LOS can also mean a change to auxiliary software to ensure a strong integration.

****A more productive model is one that has become the dominant platform in personal computing technology. Since the introduction of Apple’s iPhone in 2007, phones, tablets and laptops have become centers of apps, all built on a base operating system.

****This philosophy works just as well in mortgage industry, since no lender has the exact same technology requirements as another. Instead of an older or legacy LOS, which dictates which third-party software it works with, lenders can now implement a “mortgage operating system” or MOS to meet their specific needs. Lenders can add and remove loan apps without affecting the functionality of the MOS and its remaining apps.

****Of course, some of these apps will be developed by the MOS vendor, but a true platform-based system will enable lenders to add third-party apps at will.

****Step 2: Rely on BPaaS to Maximize Efficiency.

****While cloud-based SaaS services are one of the fastest growing areas of technology growth, lenders can also benefit by moving business process services to the cloud. Traditionally, lenders who wanted to utilize a third-party service for processes, such as settlement services would have to sign extensive monthly contracts and pay for a certain amount of bandwidth, regardless of whether it was used or not. BPaaS builds on the benefits of cloud-based software by providing processes and expertise through a pay-per-use model.

****Much like SaaS removes the barrier of expensive installations, BPaaS does not require a heavy upfront investment in new infrastructure, which enables fast entry into new markets and smooth setup of operations in new geographies.

****For example, a lender can work with a BPaaS service to provide support for mortgage origination, enabling interaction between the many players and parties involved in the transaction. They could enhance that support with document management to streamline communications – and all of it is available on demand, in real-time.

****Ultimately, BPaaS enables lenders to have greater end-to-end flexibility and effectiveness in their operations and provides options that can dramatically improve processes without requiring a massive influx of capital.

****BPaaS can be as extensive or as minimal as necessary to meet the lender’s needs. Point BPaaS solutions can enhance individual parts of the process or retool the entire workflow into an effective end-to-end workflow. BPaaS is also a real consideration for lenders facing major changes, such as acquisitions or entering new states. The ability to apply the same technology standards easily across the entire enterprise makes a combination of SaaS and BPaaS a lower cost, lower risk option.

****The key to any successful BPaaS solution is in selecting the right provider. BPaaS companies run the gamut from niche, specialized services to global, multi-industry services.

****Lenders interested in BPaaS solutions should be able to answer the following questions before committing to a vendor:

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  • Does the provider have deep operations-level functional expertise in mortgage lending? Can the provider meet both the operational and compliance demands of the industry?
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  • Is the provider committed to continual improvement as practices evolve? The shift from document-centered lending to data-centered lending is a perfect example. Keeping up with the constantly changing regulatory environment will be critical to any lender using BPaaS.
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  • Is the solution stable and scalable? By entrusting processes to the cloud, the vendor must be able to prove security, redundancies and the ability to handle a lender’s growth.

****Lenders should also evaluate what technological support is available in addition to business process services. Most process innovations require technology solutions, such as the MOS. For instance, a lender may begin using BPaaS to underwrite loans for major investors, but by adding automated risk analysis tools, the lender can multiply the benefits of manually completing the analysis in house and relying on SaaS and BPaaS services to decrease the capital investments needed to build those capabilities.

****With loan volume still struggling to reach the pre-recession levels, lenders are of course sensitive to price. The increase in high-broadband internet connections and a decrease in the cost of sending data digitally have seen an emergence of innovative pricing models that can make BPaaS and SaaS attractive to lenders of all sizes. While high transition costs used to make the utilization of external service providers prohibitive for everyone but the largest lenders, pay-as-you-go pricing models with minimal upfront infrastructure costs are opening doors for small and large lenders alike.

****The drive to achieve maximum efficiency with cloud-based software and business processes is amplified by chasing the sun and utilizing geographic work shifting to ensure a true 24-hour workflow. Rather than settle for just simple replication of existing processes at a lower cost, lenders can transform their workflow with a global workload that scales volume up and down as needed.

****For some lenders looking to gain a true 24-hour work cycle, utilizing international business process centers provides the largest gains in efficiency. The 12-hour difference between Asia and North America provides a perfect overlap of handing off items at the end of one business day, having BPaaS services rendered overnight, and coming back in to a loan a full work day ahead of schedule.

****But chasing the sun does not have to be global. For some lenders, utilizing the three-hour difference between the East and West Coasts provides enough of a competitive edge, whether it is extending call center hours or relying on an extra half-day for processing documents, collecting payments or running compliance checks.

****Just as advances in network capabilities have lowered the price of cloud-based software and services that same infrastructure makes it more affordable than ever to rely on geographic shifting of work. Even for a regional lender working in one time zone, having an on-demand center to respond to customers submitting income verification documents or answer questions about their application around the clock, provides enhanced customer service and reduces the time spent by core staff handing those tasks the following day.

****And the on-demand aspect of BPaaS means that lenders are only paying for the services used, which can help keep costs affordable enough to benefit from the advantage of an extra workforce.

****So, don’t let the sun setting signal a stop in your loans’ march to the closing table. Combine the cost and time-saving benefits of stronger automation, business process services and time-shifting to gain the edge on your competitors and accelerate the climb back to the top.

Rob Pommier is vice president of Genpact Mortgage Services’s Quantum Mortgage Operation System (MOS). The Quantum MOS helps originators and lenders to automate and streamline major elements of the loan origination process, resulting in a shorter loan lifecycle and a more transparent mortgage asset. For more information, email Rob at rob.pommier@genpact.com or visit www.quantummos.com or www.genpact.com