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Starting from Scratch

Editor’s Note: This feature originally appeared in the May issue of MReport, out now.

For years, lenders have made the best of a poor situation by incorporating massive database transformation projects, managing dozens of specialized integrations, and hiring countless consultants to help figure out how a 20-year old loan origination software (LOS) platform can perform at a level that is considered “adequate.” But the amount of effort and cost for these Frankenstein platforms only grows each year, especially as newer technology becomes available. At what point does it make sense for lenders to start from scratch with a completely modern approach? Increasingly, the disconnect between digital mortgage lending and legacy platforms has become more recognizable. Now is the time to transition from legacy LOS systems that still dance to the tune of Milli Vanilli and embrace modern platforms that are built for today’s API-centric environment.

The Challenge of Legacy LOS’

Today’s LOS is the epicenter for automating, tracking, storing, and processing data at every step of the loan process, which is a step beyond its original role of generating mortgage documents. Banks, credit unions, and independent mortgage bankers are realizing the legacy LOS technology can no longer keep pace with the demands of a mobile economy and digital lending environment. The one-size-fits-all approach has evolved into a square-peg-in-a-round-hole situation, forcing lenders to invest heavily in ancillary technology projects just to keep pace. To truly improve automation, tracking, storing, and processing data, lenders should dump the legacy LOS and adopt one that features modern, multitenant database architectures and open application programming interfaces (API).

The Value of an Open API Architecture

An open API architecture enables LOS vendors to integrate with best-of-breed vendors both quickly and with greater functionality. Providing vendors with a simple web service method to exchange data and access key functionality within a LOS not only improves a user’s access to a service but actually enhances the vendor’s own product because it can invoke certain LOS tools within their offering. A good example of this is a point of sale (POS) solution that can order credit reports, upload documents, or generate initial disclosures that all originate from within the LOS.

The advantage of a multitenant database architecture is even more valuable. In a multitenant structure, all lenders are using a single copy of the LOS software in a hosted environment. What this means from an integration standpoint is that the LOS provider and the service vendor only have to build the integration once and all clients instantaneously access the service. Gone are the days of single, point-to-point integrations that increase the complexity and fragility of a LOS platform, where the lender is largely responsible for troubleshooting their own integration issues.

The Ability to Change Nimbly

The conceit of digital lending is that it promises borrowers a revolutionary, almost magical mortgage experience, but is also prone to the fickleness that today’s digital consumers tend to exhibit. Lenders that operate on legacy systems are less likely to respond to consumer behavior and needs because of the difficulty in modifying or creating new integrations. In an API environment, however, lenders can more easily swap out one integration with another, or add an entirely new integration, at a much lower resource and opportunity cost. While true ‘plug and play’ integrations are not here yet, open APIs are definitely a step in the right direction.

Lenders can achieve true digital lending with legacy LOS systems, but the cost to realize this will increase every day until an organization deems it unsustainable. At a certain point, lenders must look inwards at their LOS technology and ask themselves whether they are a mortgage company or a technology company. Very few lenders have the ability to be both. Modern LOS platforms with open APIs provide lenders with a cost efficient and effective alternative that only requires the willingness and courage to say “Switch!” It’s 2018, are you stuck in the ‘90s or are you ready to dance to a new tune?

About Author: David Colwell

David Colwell is VP of Strategy at LendingQB. He has consulted and worked in the mortgage banking industry for over 20 years with extensive experience in mergers and acquisitions, organizational management, project management and business development. He can be reached at davidc@lendingqb.com.

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