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Moving Mortgages Away From Paper, Going Digital

This feature originally appeared in the May issue of MReport.

It’s no big secret that technological change happens slowly in the mortgage industry. One reason for this is that many companies are reluctant to change until it becomes a necessity. Another is that mortgages involve a lot of moving parts, in addition to many regulations and investor requirements. Even when new technologies are desired, they typically take time to implement, which comes with additional costs and resources. 

Right now, lenders are dealing with massive changes that are unlike any our industry has experienced before. Amid an unfolding global health crisis, the Federal Reserve has lowered interest rates to zero, and lenders are being swamped with refinance volume while trying to operate with remote staff. It’s a time of incredible volatility and uncertainty, and no one knows for sure where everything is heading. 

It is also a time of incredible change with new innovations enabling the industry to respond in more flexible, automated, and virtual ways, all of which will enable lenders to speed the loan origination process, control staff costs, and maintain compliance. These technologies, which can be implemented, maintained, and enhanced easily and quickly, offer even more value and less business disruption. The good news is they are available today and reside in the cloud—but perhaps not in the way most lenders would think. 

 

The Emergence of Cloud-Native 

Many lenders probably haven’t heard the term “cloudnative,” even though it is not necessarily a new concept in the computing world. It is, however, relatively new for our industry. If this is the first time you’ve heard the term, you might think cloudnative is the same thing as being “in the cloud” or cloud-enabled. But there are distinct differences. Ten years ago, when the mortgage industry first began embracing cloud technology, it was seen mostly as a platform for expanding capacity. Instead of maintaining on-site servers, which are expensive to own and maintain, lenders could host their data in the cloud through virtual hardware and servers. The cloud has since evolved into a means of delivering software through the web. 

Today, most loan origination systems (LOSs), pricing engines, and other software are hosted in the cloud and delivered through web browsers as Software-as-a-Service (SaaS). However, while many software providers are continuing to move their solutions to the cloud, they are only using the cloud generically. When you peel back the onion, it becomes apparent that being “cloud-enabled” does not take full advantage of everything the cloud has to offer. 

Cloud-native technologies, on the other hand, are different because they are native to a cloud environment. In other words, they were designed and built in the cloud, not simply made accessible through the cloud. Cloud-native technologies are typically hosted by large cloud service providers such as Amazon, Microsoft, and Google, which provide cloud-native services for software developers. 

These services enable software companies to produce and deploy code in the cloud much faster and less expensively than if they maintained their own IT infrastructure and simply made their solutions cloud-enabled. From a lender’s point of view, these services enable cloud-native solutions to handle an almost unlimited demand and scalability. Most importantly, lenders that use cloud-native solutions are also able to leverage new releases and functionality much more quickly than when using only cloud-enabled solutions with longer software deployment models. Cloud-native systems also provide lenders with solutions that are highly scalable and available to meet the changing demands of their businesses. 

 

The Advantages of Cloud-Native 

There are so many different aspects to the cloud when you start talking about user experience, scalability, and access to data and speed. These are all things that are associated with cloud technology. With cloud-native systems, you have an opportunity to use the best-of-breed technologies that are all available in a cloud environment.  

Cloud-native systems, for example, are far more cost-effective in the long run. For example, legacy software applications, even if they are hosted in the cloud, still need to perform maintenance and upgrades on all aspects of functionality tied to their operating system. With cloud-native technology, much of that functionality can be “outsourced” to the best-of-breed technologies generally accessible in the cloud. 

Things like identity management and a messaging bus can be leveraged instead of “built” into a vendor’s application. As a result, costs can be streamlined and overhead reduced. 

Cloud-native systems also speed up the development process. Software changes are more easily made with cloud-native technologies because code can be written and pushed immediately into the cloud and made available for lenders. At LoanLogics, for example, our cloud-native software development is done in two-week sprints. Because we know what our clients are looking for, we’re able to develop code, test it, and go into production rapidly. We don’t have to worry about long deployment cycles, memory, or capacity. It’s all automated in a cloud-native environment, so we can move nimbly and quickly. 

One potential downside to cloud-native development is that some lenders may not be able to keep up with the pace of new software releases and features. They still need people on their side to manage and test updates to software from an operations standpoint, so the communication and the cadence of new development has to be well thought out. 

That being said, with cloud-native development, technology providers are able to introduce new features and functionality and let lenders choose whether they want to adopt them. They can basically toggle new functionalities on or off, so they are not forced to adapt to new tools or features if they’re not ready to make the change on an operational level. 

 

A Perfect Time to Evolve 

Currently, cloud-native technologies are not being fully embraced by the mortgage industry. That’s likely to change quickly because the pressures lenders face today to lower costs are not likely to go away soon. 

Cloud-native solutions can be deployed rapidly and allow lenders to scale their businesses quickly, enabling automation that helps them process higher loan volumes at a faster pace without the need to add extra staff. For example, there are cloud-native solutions available to lenders today that allow them to automate the process of identifying and classifying loan documents as they are received and extract loan data inline and in real-time. 

Normally this would take hours for human staff to perform, but with cloud-native solutions, it can happen in seconds. This frees up a lender’s staff to focus on exceptions instead of managing each document individually for every loan file. So how do you know whether your software vendor is using cloud-native technology? You simply have to ask—but you must also be knowledgeable enough to understand the difference between cloud-native and cloud-enabled. Many companies will say they use Amazon or Microsoft, but is their technology built in the cloud? Is your provider leveraging all the different features available in the cloud? 

Are they taking advantage of best-of-breed database technologies or microservices that can be independently updated? Lenders need to be very savvy to ask the right questions and recognize the right answers. While cloud-native technology is just getting off the ground in the mortgage industry, at some point in the future, it will be everywhere. From both a cost and scalability perspective, the benefits are simply too great to ignore. 

Ultimately, the early adopters of cloud-native technologies will be able to reap the benefits of best-of-breed technology, a better user experience, and more frequent, less disruptive software enhancements. While we’re in a time of great uncertainty in our industry, the one thing we can be certain of is that technology will remain a key to success. Cloud-native is the latest advancement that is accelerating how easily technology can be adopted and adapted. Lenders that seek out solutions built in this way are likely to realize cloud-native’s value early, prioritize vendors who use it, and stimulate even more demand for new innovations in this space. 

About Author: Paul Vancheri

Paul Vancheri, EVP of Technology at LoanLogics, has over 35 years’ experience in financial services and Department of Defense IT and regtech. Vancheri has worked closely with executives and corporate boards in the financial services industry, including at Finastra and Fidelity Investments, to help them navigate through complex decisions involving technology, business strategy, and global operations.
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