An increasingly homogenized loan product environment is driving mortgage lenders down other avenues of competitive differentiation.
For lenders with yearly origination volume of over $500 million, customized origination technology can offer just such a competitive edge. With a customized loan origination system platform, lenders are better positioned to attract top-tier personnel, provide a better borrower experience via decreased turn times, and improve loan salability through multi-channel compliance.
Mortgage lenders that want to put their own stamp on compliant workflow and borrower experience need to think outside the box with their LOS. That means bringing the LOS in-house where it can be tailored to an organization’s unique model and opportunities rather than relying on an "out-of-the-box" solution designed for the mortgage lending masses.
LOS customization is never as simple as it seems. Lenders can certainly submit change requests to their LOS provider, but those requests can take months to process, and some may not happen at all. Rare is the LOS provider that makes true customization easy.
Some lenders may opt to self-customize, but that can be a challenging approach. Self-customization of a mass market LOS requires an expensive software development kit (in addition to paying the monthly access fee), and even then, the ability to modify the system is somewhat limited.
Bringing an LOS in-house becomes particularly relevant in the wake of the TILA-RESPA integrated disclosures rule, since lenders are forced to reconfigure operations to complete the new disclosures timely. There is no specific guidance from the Consumer Financial Protection Bureau on what operational changes lenders need to make so it stands to reason that each lender may create its own unique workflow.
Most mass market LOS platforms reside in a software-as-a-service environment, and even those platforms that offer an internally-hosted option are aggressively coaxing their users to migrate to the SaaS version. However, the SaaS delivery method can be severely constrained in terms of customization.
Even if a mass-market LOS has updated its system to comply with TRID, those updates cannot take into account necessary changes unique to each business. Lenders would have total control over their in-house LOS, including the ability to mold it to fit their organization's operations.
A fully customized, proprietary LOS extends functionality to third-party origination channels — something pre-packaged LOS platforms don’t offer.
Not only is this an added incentive to attract high quality third-party originators, but it also supports compliance efforts. When all origination channels are operating in the same environment and using the same workflow, the possibility of procedural errors or data-transfer issues that can compromise compliance is significantly reduced.
For the mortgage banker that wants to build a distinctive, differentiated mortgage origination experience, the idea of self-hosting a custom LOS is attractive. However, the decision to bring systems in-house should not be undertaken lightly. For a successful, self-managed LOS platform, several key elements must be in place.
First and foremost, IT resources that can support system implementation and back-office hardware maintenance must be present. This does not mean keeping an in-house programming staff — just the means by which to develop, implement and maintain the system.
In addition, there are several personnel resources required to manage an in-house LOS, though these need not be new hires. For example, two staff members can act as system administrators who can handle day-to-day management of the system. Staff members, such as an experienced or lead processor, can easily handle these functions in addition to their other duties.
A business analyst — ideally, a savvy compliance and operations staff person — to bridge the communication gap between end users and programming to ensure requests are not lost in translation.
One or two subject matter experts, preferably department managers, can serve as funnels to the business analyst to aid in navigating system development endeavors.
Last, a "floating" position crucial for a self-hosted LOS is an internal corporate system trainer charged with instructing users on system use.
As with any system migration, there are bound to be some hiccups and headaches along the way, but it is important to remember that total control over the customized LOS and over origination channels is the ultimate goal.
Jeff Bode is owner of Mortgage Machine Services.