Choosing the right LOSRob Pommierloan origination system, LOS, OpenClose Solutions, production software
Choosing new production software is a bit like shopping for a
new home. The first time you walk through, the model always looks
impressive. However, if you don't ask what is standard and what
costs extra, or you fail to think about how the things you already
own are going to work in the new home, you can end up making some
very costly mistakes.
The same holds true with loan origination. To compete
effectively in today's challenging market, you need to invest in
technology that stretches from the fingertips of your originators
to your employees in post-closing. As loans travel that route, you
want data to flow, business intelligence to emerge and the system
to protect your firm from errors. How do you know if a loan
origination system (LOS) will do all that? Like an informed
homebuyer, you ask the right questions before you buy.
Every mortgage workflow is unique, so it comes as no surprise
that no two customers ask exactly the same questions. What is
surprising are the questions potential customers don't ask. With
that in mind, here are some great questions to ask Rob Pommier of
OpenClose Solutions, or any other LOS provider:
Question: How will this system solve my top three
challenges?
Rob Pommier:Sure, your wish list is long. Narrow
it down to your three biggest needs, so vendors have something
tangible to address. Keep those three issues in mind as you shop,
and make sure the technology you buy addresses all three. It helps
you compare apples to apples, rather then get overwhelmed and
distracted with the bells and whistles.
Q: How will this system support my company's plans next
month, next year or five years from now?
RP:Consider not only how you run your business
now, but also, any plans for future growth. It is just like a
homebuyer planning for future kids or retirement needs. If your
best underwriter suddenly needs to work from home due to a family
illness, can the system handle the change? Are you running retail
and wholesale Web sites? Do you need broker support? If you want
your LOS to be available 24/7 to all employees working from
anywhere, seek out a system that can be directly accessed, rather
than one that goes through a terminal service.
Make sure your contract spells out what you'll pay to add extra
users and if there is a number of seats you have to buy when adding
additional capacity. I've heard of companies facing a $100,000 bill
just to add 50 users. That's just poor planning.
Q: How does this technology meet my regulator's or my
risk management team's demands?
RP:Think of compliance as your home security
system. These days, does even a month pass without news about a
breach of consumer information being disclosed? Keep your company
squeaky clean and out of the headlines by asking questions about
system security. A LOS used by a regulated financial institution
must meet Statement on Auditing Standards No. 70 audit standards,
and you can't go wrong with technology carrying that certification.
At a minimum, you want direct deposit into the system of any
information you rely upon for underwriting, such as a credit score
or credit card balances. The last thing you want is for a loan
officer or processor to have the ability to type in the borrower's
FICO scorea system like that just begs to be manipulated by an
employee who's going to claim his error was a typo.
On a macro level, ask where backup data is stored, how it's
encrypted and ask for a copy of the firm's disaster recovery
program. On a user-level, will the system give your auditors a
paper trail to follow by automatically noting when and by whom loan
file and data changes are made?
Q: Is the product LAN-based, Web-based or
Web-enabled?
RP:Speed and accuracy are everything in the
current market. An originator who can take an application and price
a loan in two or three minutes can immediately take the borrower or
broker off the street. I have to admit, I'm biased about the answer
to this question, because OpenClose Solutions is software as a
service (SaaS), meaning it resides and operates from the Web. If
you're thinking of a LAN-based or Web-enabled service, ask how long
it's going to take to log in and get an underwriting response from
the system. It's the housing equivalent of buying a log homeit's
quaint, but you have to hope there are no termites or heavy rains
coming.
Q: Who manages the product pricing and eligibility
rules?
RP: Who are you going to hire to maintain your
home groundsa professional lawn service or two high school students
with a beat up lawn mower? Many of today's systems have product
pricing and eligibility (PPE) components, but the devil is in the
fine details about who updates and controls the data in the PPE
engine.
Ask which investors are included and how much you'll pay to add
investors. Who controls pricing? Can you manage adjustments and
change profit margins on the fly? In the best of all possible
worlds, your system would have unlimited investors, with no fees or
nominal fees to add new investors. Experienced mortgage analysts
would update underwriting guidelines based on changes made by the
investors on the system. Through it all, you could immediately
adjust your margins, profitability, lock periods and flip a switch
to control which products are available to each customer or broker
at any given time.
It's important to have an LOS that allows you to react to market
conditions. If it's too complicated to disable a program, or it
takes too long, you raise the risk that you'll accept a loan that
won't be funded. Check the contract to see how rules get changed,
and consider the business implications if the LOS needs 24 to 72
hours to make changes.
Q: What reports are standard and optional with the
program?
RP:A LOS that uses loan-level data to create
pipeline reports can provide business intelligence to improve
profitability. For example, do you know which of your loan officers
or brokers require the most maintenance and create the lowest
profits for your firm? If the LOS makes custom reports based on
business channel, loan officer, underwriter or account executive,
you'll know how many loans each party handles, as well as the
status and disposition of each loan. In addition to knowing who the
productive individuals in your firm are, a good LOS can give you
enterprise-wide data. If you know how many loans you're funding per
employee, you can look at peer data from an industry source, such
as the Mortgage Bankers Association of America, to see how your new
technology is improving your productivity.
Pipeline reports can also benefit wholesalers. With the right
pipeline report, a wholesale manager can look at 10 account
executives and know what type of customers his brokers are bringing
in, how many of those customers qualified for loans and how many of
their loans locked, but didn't make it to funding. It's wise to ask
if tracking reports and modules are included in the standard system
or if you'll pay extra for those.
Q: What are the up-charges to make this system my
own?
RP: No software is perfect right out of the box
for your business. Inevitably, you'll want to add new fields, your
own welcome letters/proprietary forms or just change the look and
feel of the LOS. If you have more than one channel, you might want
different "skins," so your retail doesn't appear to be competing
with your wholesale side. All those changes are going to cost you
something, so ask how those tasks get accomplished and how much
you'll have to pay for each.
Q: How does this system interface with my servicing
system and my investors' systems?
RP: Depository institutions that retain servicing
typically build custom exports from the LOS into the servicing
system, starting with the standard Fannie Mae file upload. If you
want additional fields or a custom interface, you'll pay extra, so
ask what that charge is going to be. The key is to differentiate
what customizations come with the system and what doesn't. Mortgage
bankers will sometimes buy a system because they like the demo
without asking about interface costs. When you ask about interface
costs, get the answers in writing.
Q: When they say training, what do they mean,
exactly?
RP: Training and support vary widely in cost,
coverage and execution. Again, it's important to identify what's
included and what you'll pay extra for. Ask how updates are handled
and how much the vendor charges for new functionality, updates and
applications. If there an annual support charge, what does that
cover? Look for updates that are at least semi-annualquarterly is
better. A company that updates its software once a year will miss
out on market changes. Obviously, on-site training is more
convenient for your staff than off-site training, but you may be
charged more to have the vendor come to you. It floors me how often
people don't ask about the number of days involved in training or
the resources that are used.
Q: Support means many things to many people. What does
it mean to you?
RP: Suppose a company tells you it offers 24/7
support. What are you really getting? In our case, it's a
technician whose Blackberry is turned on while he's at home, and
like certain politicians, he's ready for your call at 3:00 a.m. Our
system also monitors your system, in case you don't have anyone
awake and watching at 3:00 a.m. to know your Web site just went
down. Our system is going to call our technician and let him know.
My point is that you need to ask not only about the hours support
is available, but who is providing the support and what kind of
monitoring is being done when everyone is asleep. If there's a
limit on the number of hours of support you can have, you'll want
to know that before you buy, not when your time runs out.
Q: How many different codes are used in the
system?
RP: Take a peek inside the data architecture of
any system before you buy. Will you find one code used from end to
end or several kinds of code and interfaces? A LOS built using
several different codes is going to be more complicated to change
and test than a LOS built using a single code.
Q: Is this system smarter than a processor? Does it have
eyes in the back of its head?
RP: Suppose you're doing business in a wet funding
state. You have a customer whose rate lock has expired, but one of
your employees asks the system to pull documents anyway. If the
system fulfills the order and generates and sends the documents to
the closing agent or attorney, you could be obligated to close that
expired rate lock. Cases like those inspired LOS creators to come
up with business rules and business intelligence applications. A
smart LOS will prevent your processor from going on to the next
step and pulling closing documents if the rate lock has expired. If
the rate lock is still good, it will pull the appropriate closing
documents, along with final state and federal disclosures, and
check that the stipulations were met. A brilliant LOS has
hindsight. Take the case of a property that is a single family
residence at application, and changes to condo units when it's
appraised. A smart LOS will alert everyone in the system that the
pricing or eligibility of a loan has changed and additional
consideration must be evaluated to ensure that your loan is
salable.
In the end, the right LOS for your company can't do your
thinking for you, but it will allow you to translate your thoughts
and business intentions into deeds. The key to finding that perfect
system is to not only know what you want, but to ask the questions
that will tell you what you need to know before you buy.
Rob Pommier is senior vice president of sales and marketing
for OpenClose Solutions. He may be reached through his company's
Web site, www.openclose.com,or e-mail
[email protected].
