Build A Better Tech Stack

The Infrastructure That Built An Industry

Mortgage lending was not always such a complex business, but over the years the changing needs of consumers and ensuring the safety and soundness of the system itself complicated things so much that paper forms became very difficult to manage.

With the passage of the US Electronic Signature Act (ESIGN) and the Uniform Electronic Transaction Act (UETA), the financial services industry was granted permission to conduct business electronically. Now, 20 years later, the industry is still making that transition.

What may appear to be a simple change, giving up paper in favor of electronic data exchanged between technology platforms, was in reality much more elaborate. It required not just new technology, but new ways of thinking about the process of originating a mortgage loan. It also required full acceptance by state regulators, consumers and even those lenders who were still clinging to traditional methods.

Over the years, the industry developed its paperless lending infrastructure in fits and starts, system by system. As each new tool was developed, whether it be for appraisal management, faster flood certifications, electronic asset verification or something else, it was cobbled onto the lender’s LOS. 

Lenders debated the merits of best-of-breed, where each piece of the puzzle was chosen from among all the available options, versus all-in-one, where the lender’s LOS provider made a more limited set of options available and took responsibility for integrating them into the LOS.

In either case, each time a new technology was added to the lender’s technology stack it complicated the process and provided the opportunity for increased friction. Correcting problems was expensive and time consuming because there was often no single party responsible. Even when the LOS provider took responsibility, the integrations were not trivial.

Much of the technology that has been developed over the past 20 years was created specifically to work around these issues. But better technology is only part of the solution. To be effective, the tools must be wired together in a manner that provides a complete solution. 

In effect, we need to reinvent our concept of a mortgage lending infrastructure for modern digital lending.

What A Better Model Would Look Like

Today, it is possible to construct a mortgage loan origination system that can interact automatically with third party data providers using a robust API layer. This reduces the friction and eliminates the problems the industry has experienced in the past. It makes it possible to do more with fewer people and do it faster and at a much lower cost.

However, this only works if the LOS is situated at the center of a well-designed ecosystem of technology systems, all feeding the required information into the central LOS. This is the infrastructure that will support the future of mortgage lending and it goes well beyond the third-party integrations required for loan origination.

In the future, successful lenders will not only choose the best loan origination technology they can find, but also factor into their decision the ecosystem it resides within. Without seamless access to the other systems that provide data required to close the mortgage, friction will remain, and efficiency will be impossible to attain.

The components of the ecosystem that the lender chooses to use in its specific process will depend upon its needs and will constitute its “secret sauce.” Typical elements will include:

E-Lending

The future of mortgage lending is digital and the ecosystem should be built around this concept, with seamless connections between components, partners, and systems. By gaining access to electronic data the institution already has on its borrowers, the process will go faster and the consumer will need to respond to fewer requests for information.

Web-based and mobile borrower experiences

Today’s borrowers are demanding a fully digital experience that follows them across mobile devices. This is a critical component that must be built into the ecosystem.

OCR & ICR

Even in the digital lending world, there will remain paper documents and borrowers who prefer them, at least for the foreseeable future. This means lenders will need easy access to services that can digitize those forms intelligently and efficiently.

Automated data gathering & analysis

Business analytics must be hard-wired into the ecosystem, for compliance and loan quality but also for harvesting business insights that will allow the institution to improve every aspect of its lending business.

Digital compliance analysis

Business intelligence has matured to the point that financial institutions can now pull important insights out of their data for many purposes. Chief among these is compliance due to the high cost of non-compliance.

AI & rules-based workflow

The days of a job waiting for a human to move it on to the next task in the workflow are over. Today, smart systems move the loan file through the origination process without the need for human intervention. The efficiencies gained in this way are massive.

Some lenders may require additional systems to be part of their ecosystem. In any event, both the ecosystem and the LOS are required. Together, they form the new infrastructure required for modern digital lending.

To be most effective, the lender will require a very strong processing hub sitting at the center of the mortgage ecosystem. This job has typically fallen to the lender’s LOS and we believe it will continue to do so for many years. The modern LOS is still the ideal technology to marshal the mortgage through the process to the closing table.

This is the answer we expect more lenders to arrive at as they take on the work of reinventing their firms for success in the years ahead.