The loan origination system is dated in the digital mortgage era
It's now been 40 years since the first "computerized loan origination system" was launched, which gave lenders the ability to match borrowers with different loan products. In the years since — and with the help of the Internet and other innovations such as data standards and web-based software — our industry has seen a tidal wave of change in mortgage production, leading us to the very cusp of completely digital mortgages.
Throughout it all, the LOS has stood as the central tool lenders, bankers, and brokers have used to build the trillions of dollars in mortgage sold to consumers. Today, just a handful of systems generate the vast majority of purchase and refinance loans sold to U.S. borrowers. But will it always be that way?
Since the Industrial Age, technology has continually disrupted every industry. And it's happening right now in the LOS market.
Whereas today's market leaders are relying on technology created a decade or more ago, a new wave of mortgage production technologies are empowering lenders to create a more personalized approach to loan production, regardless of their channel of business. After years of experimentation, development, and refinement, these technologies are bringing consumers into the mortgage production process and allowing loan officers to communicate, engage, and truly partner with borrowers in new, dynamic, and ultimately more effective ways.
Two of the principle drivers behind this trend are cloud technology and application program interfaces, or APIs, which essentially allow applications to communicate with other systems and applications. While API technology has been around for years, it's only recently that we’ve been able to truly leverage it to build more open, end-to-end mortgage platforms capable of providing a better customer experience while maintaining flexibility with a lender's evolving business goals.
According to a May article, "Creating a Best-in-Breed Technology Suite," Stratmor Group illuminated just how successfully APIs have transformed mortgage production, noting: "The advent of APIs and fintech have given lenders, even ones of modest size, the opportunity to create end-to-end platforms in ways that were not practical even a handful of years ago for all but the most technologically advanced companies."
In spite of these developments, many mortgage lenders continue to believe they have just two options for mortgage production — choosing a traditional LOS vendor or building a system themselves. And there are downsides to both.
Most loan origination systems were not built from the ground up to factor in the customer journey or have easy-to-use workflows that include the borrower in the process. At a time when consumers are demanding faster, more convenient financial services, the traditional LOS vendor has found leveraging and integrating consumer-facing technology that enables borrowers to self-drive their own mortgage process to be both difficult and expensive.
It's also no secret that LOS vendors have struggled to migrate to cloud environments, as their core technology was typically built before the cloud was an option. The traditional LOS has also proven difficult to adapt when a lender decides to change business models and add or drop certain channels of business.
The other option lenders have — building platforms themselves or patching together a system in a sort of "toolkit" approach — is typically financially and technically out of reach for most lenders. While the potential exists to create a highly customized platform, any lender that has attempted it has quickly found out it takes additional time, staff, and resources to not only build such a system but to support it as well.
But this is no longer a decision about either/or. By leveraging technology that has been built from the start in a cloud environment and offers open API ecosystems, lenders now have the opportunity to add an unlimited number of new applications quickly with minimal to no implementation and maintenance costs. Data entered by the loan officer or the consumer can now all be fed and shared through the same platform, which reduces errors and increases efficiency.
There's yet another reason why it's important to reconsider what mortgage production should look like. According to the Mortgage Bankers Association, lenders now spend more than $9,000 to manufacture the average mortgage loan. Keep in mind, this figure has been rising for years in spite of all the innovations you read and hear about in the LOS market. In an era of increasing competition for borrowers and escalating affordability issues, sticking to what has been "tried and true" could cost lenders dearly in the years ahead.
Consider that, in the years since the first LOS was created, countless brands that once dominated their industries are no more. Forty years ago, Atari was the leading home video game manufacturer, Kodak was the world's largest camera company and Pan Am was the largest U.S. air carrier. Where are they today?
So forget what you know — or what you think you know — about the LOS. It's time lenders start thinking more deeply and more broadly about what it takes to produce mortgage loans more efficiently and cost-effectively. Indeed, their futures depend on it.