Meet the 21st century mortgage transactionChristopher MullinsLOS, loan origination systems, mortgage technology
A common saying used to describe the advancement of technology
is, "The world has changed more in the last 50 years than it has in
the last 2,000." Sometimes the numbers are different (20 and 200,
40 and 500), but the point is always the same. Things are changing
… fast.
That same saying is also often used when describing globalization.
Globalization, as defined by author Thomas L. Friedman, is "the
integration of capital, technology and information across national
borders." Friedman also contends that the advancement of technology
is the primary means by which capital and information are moved
across these borders.
Like the world we now live in, the mortgage industry is becoming
"globalized" at an alarming rate. And, like our current system of
globalization, advancement of technology is serving as the catalyst
for change. Both are changing … fast.
Though it can easily be said that the evolving mortgage industry is
itself only a small part of globalization, it is, in fact, the
world in which we live. It is a world where a lender's and a
broker's loan origination system (LOS) were once miles (and days)
apart. It is a world where information was once transmitted through
fax machines and mail. It is a world where doing business once took
weeks, not days.
In fact, in today's "globalized" mortgage industry, information and
capital are beamed back and forth through the Internet. Loans are
closed more quickly than ever before. LOS programs,
auto-decisioning engines and compliance interfaces are breaking
language barriers and communicating with each other like never
before.
New philosophies and new technologies
The events that led to this point in time are a result of both new
philosophies and new technical capabilities.
For decades, the focus within the mortgage industry has been
"cheaper, better, faster." Mortgage technologists have worked
tirelessly to develop the tools necessary to profit off of such
technology. Software that was once licensed on-site is now
available over the Internet. Loan applications can now be submitted
over the Web. Vendors are integrating with other vendors, creating
faster, better, cheaper ways of doing business.
All of these changes, however, have only fueled the fire. Now,
lenders and brokers are looking for "cheapest, best, fastest." The
technologists are doing their best to oblige.
Tools of the 21st century
Some of the fastest growing areas in mortgage technology
include:
•Data mining—Age, sex, income,
loan-to-value and average monthly mortgage payment are just a
handful of the thousands of data points regarding millions of
consumers at a mortgage lender's disposal. Additionally, the
technology to manipulate and use that data is becoming much more
efficient. The traditional method of generating leads through
newspaper ads and networking can no longer compete with data that
can be used to target borrowers in regions miles away who are much
more likely to purchase a loan within a given period of time.
•Process improvement—Process
improvement is self-explanatory. Automated valuation models have in
many cases replaced appraisals. Bundled services solutions can
provide a borrower with flood, title and other necessary insurances
without ever having to pick up the phone. Document imaging has
eliminated the need to find storage space for 37 years worth of
loan paperwork.
•Integration—Historically, LOS
programs, decisioning engines, pricing engines and the host of
other automated tools used in closing a loan have come from a
variety of different sources. For the longest time, these sources
did not always play well with each other. Today, industry
consolidation has left the technology providers that are not
gobbled up by larger companies with an uphill battle for survival.
With that in mind, mortgage technologists are continuously looking
for ways to integrate with each other. This integration requires
breaking the language barriers caused by independently created
software products.
•Workflow—Simply put, workflow is what
makes everything come together. Previously, workflow was the
greatest opportunity for inefficiency due to its reliance on
humans. Today, workflow management software keeps underwriters and
document preparers in line by notifying them when essential data
are ready for processing.
The payoff
All of these enhancements have led to a new era in mortgage
lending. It has happened so fast, some may not have even noticed
yet. For those who have, the benefits are already being reaped:
•Faster—Many will agree that the
Internet changed technology forever. In turn, the Internet changed
the mortgage industry forever. Loan data can be submitted to a
lender in seconds from Alaska to Alabama. Loan decisions that once
took weeks are now are being returned to borrowers in two or three
days.
•Cheaper—Reducing the cost of doing
business is a top priority for virtually every lender in the world.
Today, advanced lending systems are reducing the amount of
paperwork used in closing a loan. Automated compliance systems are
reducing the penalties lenders are paying for regulatory violations
and the amount of staff necessary to avoid them. Less paperwork,
less staff and less time equals a drastically reduced cost.
•More efficient—In today's mortgage
industry, a broker, working out of his or her home, can view the
status of loan data submitted to the lender by uploading the
information onto a personal digital assistant or cell phone. That
data can be uploaded to the lender directly from the broker's LOS.
That same data can then be input directly into the LOS from the
broker's home computer.
The challenges
While many lenders and brokers are adapting and thriving in this
ever-changing environment, others are failing. Some of the reasons
some lenders and brokers are not surviving or will not survive
include:
• Old school philosophies vs. new
technologies— Though the days of doing business with
a smile and a handshake are not over, they have changed. Brokers
who rely on networking within their local community for leads are
running into borrowers who receive three pre-qualified offers a day
through direct mail, e-mail or phone. Several of these offers are
for much lower rates than what the broker has to offer. The rates
are lower because the competition has embraced innovation, improved
its workflow and processes to reduce cost, and is using data to
effectively target loan prospects.
• Failure to make the right
investment— Investing in technology can be as
disastrous as ignoring it. Small brokerages that devote more
resources to workflow than marketing may suffer from a case of
mixed priorities. They may also suffer from an aching bottom
line.
• Failure to stay nimble— Regardless
of the direction technology moves in next, one thing is certain: It
will get there soon. Lenders and brokers who invest outside of
their means in technology may soon be obsolete as well.
Into the future
This is an exciting time for lenders and brokers. The industry is
booming. Lenders of all sizes are competing on the same field.
Technology is giving everyone access to the tools necessary to
continue to profit and grow. Business is being conducted cheaper,
better and faster than ever before.
At that same time, lenders and brokers must proceed with caution.
The rate of change continues to increase exponentially. As this
industry continues to cross new boundaries, break new barriers and
further integrate a once-disparate world, how lenders and brokers
embrace this change will determine whether or not it
progresses.
Christopher Mullins is executive vice president of Orange,
Calif.-based Master Financial Inc. He may be reached at (800)
244-8778 or e-mail
[email protected].
