WE’RE HEARING I have been enjoying writing about mortgage technology for the last few weeks, especially my continued use of plumbing as a metaphor for what ails the industry. After insulting plumbers for a couple of weeks, I experienced a bit of karmic justice when I arrived home from my last round of travel to find my wife complaining of a broken toilet. She did not understand why I found that funny, but was happy when I was able to fix it myself. So, in this example, the plumber was able to fix his own system, but I would have known to call a plumber for anything more complicated.
This week, I want to share another observation that relates to mortgage technology, specifically that a big part of the challenges of Loan Origination Systems stems from the fact that the companies trying to install them are not always skilled enough for the task.
At Mortgage Tech, we spoke to a number of lenders who were just not happy with their current plumbing, and by that I mean their loan origination systems. At Stratmor Group, we methodically track over 25 credible LOS vendor solutions across a wide range of attributes and key decision drivers. Now, I realize that lenders usually only bring their concerns to Stratmor when they are ready to switch and so we expect them to be less than satisfied with their current solution, but I was a bit concerned with why they were dissatisfied.
Len Tichy handles the technology practice at Stratmor and I’ll defer to him on specifics, but I was so concerned by the consistent stream of bad news that came with the lenders that paraded through our meeting suite that I deliberately blocked the door to the balcony so Len would not jump rather than have to deal with another litany of LOS complaints. Len is still recovering from the onslaught, so I will give you a business guy’s view of what I heard.
There are many reasons that an enterprise-wide LOS software solution doesn’t meet the expectations of the lender once it’s installed. But in the limited space I have available, I wanted to mention three observations. The first is about unmet expectations, some of which are the direct result of how the LOS provider sold the system.
We all know stories of “vaporware” in the industry, but there were many we spoke with that indicated that their system just does not work the way it was advertised. So, to go back to my plumbing metaphor, maybe the LOS sales effort should not paint a picture of the client lounging in a luxurious garden spa in a huge tiled bathroom sipping a glass of fine wine if upon implementation everyone is just drinking out of the toilet like my dog. Maybe that’s all the client needs; I mean it works fine for my dog (who is also happy I fixed my toilet, by the way), but the consistent pitch of “we can customize that” from an LOS vendor should give you pause and make you question whether the system will ultimately do what you need it to do.
The second category of issues involves the client—the lender—and their responsibility for ensuring the success of the LOS project. There very frequently are not enough resources or thought put into how the LOS should work, and those requirements are not always communicated consistently to the project team. For example, do you really want to do the process the same old way in a new system, or do you want to fundamentally change how loans are handled? So, does it make sense to try and automate a trip to the outhouse or to eliminate that step and install a toilet in the house?
Before a process is “automated” there should be careful consideration as to whether it can be “eliminated” or at least altered in a way that makes it work better for the end user. This is why Stratmor incorporates operational reviews as part of our engagements. These assessments are focused on “as-is” workflow processes with recommended “to-be” outcomes to optimize the lenders’ technical, human and financial resources as part of the overall project. Don’t implement new technology with the goal of continuing to do the same thing faster—take the opportunity to invoke positive process changes that complement and enhance the technology capabilities within your organization.
Finally, there is an issue related to ROI. Because of our experience and knowledge base, we are regularly called upon to help our clients with the vendor selection and implementation process. One of the key decision drivers in our analysis is the ROI for the actual effort, which should serve as the justification for the actual effort. The first part of ROI is the cost, or more specifically the relative total cost of ownership (TCO) for each prospective LOS. In our TCO analysis, we include all aspects of cost, including hardware, infrastructure, communication fees, software charges, implementation, professional services, maintenance fees and support. When it comes to ROI, the “R” plays a much bigger role than the “I”. And that is where the process of figuring out the business requirements becomes critical so we get some reasonable objectives for what is going to change and how that will impact the bottom line. Generally, if that is understood upfront, the project is viewed more reasonably.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience, from Fortune 500 companies to startups, including management of two of the most successful mortgage e-commerce platforms. He was formerly with Chase Manhattan Mortgage and ABN Amro, where he was a senior executive during the sale of its mortgage group to Citigroup.