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   ARTICLE   |   From Scotsman Guide Residential Edition   |   November 2014

Look Before You Leap

Weigh the pros and cons before jumping into cloud computing

Look Before You Leap

With the cost of data storage getting cheaper and cheaper, it may be enticing to pay a cloud-storage service provider to store your company’s information, including borrower loan documents and loan files. All states and the federal government require the storage of borrower files for some period of time, which can additionally make cloud-storage an attractive option, as storing old computer and paper files in your office or at a facility can be expensive and sometimes impractical.

Before you make the leap into the cloud, however, you need to do some research and weigh the pros and cons of cloud-storage solutions. As with any other business decision, it’s always better to look before you make the jump.

The first thing that you should do when looking into cloud computing is to find out if your state even allows electronic storage of files, or if it requires physical, paper files along with electronic files. Although the U.S. Department of Housing and Urban Development allows both ways of storing borrowers’ loan files, every state has different criteria for file-retention time and format. Once you have established your state’s requirements for format and storage requirements, it’s time to see if a cloud-based storage solution is right for you.

Security concerns

Borrower privacy laws require you to keep files secure, whether they are electronic or paper files. For paper files, this means storing loan documents in locked filing cabinets when not being used. E-files must be password protected, and the data should be encrypted for an added layer of security. In addition, you are expected to use password-activated screensavers to keep borrower information secure following a period of inactivity on your computer. The security level required for borrower information is one of the biggest concerns in cloud storage.

Before signing up for any cloud-storage service, read the user agreements carefully.

Cloud computing uses large bandwidth, global telecommunications networks to transfer data from a computer to a server farm, which is a huge building housing many data servers. These servers are memory storage devices that are rented out fairly cheaply to companies and individuals for storing files, running software or hosting operating systems. You don’t even need a desktop to access the server; all you need is a terminal with a monitor and keyboard. This meets the security standard because there is no port to copy data to a flash drive and no physical hard drive to take for dismantling later. There are other dangers, however:

  • Information can be hacked. There are many ways to steal electronic data from the cloud, including the “man in the middle” hack, which diverts any entry of data through the hacker’s computer before going on to the end user. Under some circumstances, a hacker can use free, open-source code available on some security sites to put a bug into the browser and divert secure data at will between a terminal and a cloud-storage farm.
  • Personnel can take advantage of cloud-stored information. The cloud can store almost any file format — from individual PDF files to entire databases of documents. That is a lot of private and valuable information. Server farms employ technicians to maintain and update these servers with new software, and these technicians can be bribed or coerced into uploading malicious software or downloading files with valuable information like Social Security and bank account numbers.
  • Natural disasters can destroy data. If you drove past the average server farm, you wouldn’t even know it was there. Usually, these companies choose locations where the rent or land is cheap. This could be located in any number of areas that are susceptible to theft, fire, natural disaster or even a terrorist attack. Make sure that the company you use has redundancy in its servers, so that data is storedsimultaneously in different locations. Then, if one site goes down, you don’t lose data.
  • Automatic-save features can pose problems. If you have been given free cloud storage with a new operating system, make sure you turn off the automatic “save to cloud” feature. Each company calls it something different, but if you don’t want to use it — or aren’t ready to use it — simply turn it off. This service will save uploaded, downloaded and scanned documents in addition to original documents, so don’t think it applies only to the documents you create.


Cloud computing has numerous benefits, too. In addition to providing storage space, cloud servers can provide software packages (i.e., software as a service, or SaaS), fill infrastructure needs (i.e., infrastructure as a service, or IaaS) and even build entire computer platforms for your company (i.e., platform as a service, or PaaS). These services can greatly reduce information-technology (IT) costs and hardware purchases. Some companies even offer pay-per-use or subscription services where you just pay by the user.

Software upgrades are quick with cloud services because they only have to be loaded once, which reduces IT personnel costs. Plus, you ensure that you are always using state-of-the-art technology without costly equipment or software updates. In addition, not having to purchase software, memory, your own servers or desktop computers with loads of memory can add up in savings.

Make sure you understand who owns the cloud services, however, and if they are private, public or a hybrid. Some cloud companies hire third-party companies to manage their cloud services, so know who really has control of your data.

Choosing the right cloud service

One of the main issues to consider when choosing a cloud service is the financial stability and the support commitment of the company you choose. If the company is new, do some research on its backing. If its funding comes from venture capitalists or angel investors, it may not be a proven company that can sustain itself and could end up selling your information or going out of business and taking your data files with it.


Software as a service (Saas)

SaaS provides applications running on a cloud infrastructure. The applications are accessible from various client devices through either a thin client interface, such as a Web browser (e.g., Web-based e-mail), or a program interface.

Platform as a service (PaaS)

PaaS allows a consumer to deploy onto the cloud infrastructure consumer-created or acquired applications created using programming languages, libraries, services and tools supported by the provider.

Infrastructure as a service (IaaS)

IaaS provides processing, storage, networks and other fundamental computing resources where the consumer can deploy and run arbitrary software, which can include operating systems and applications.

Source: National Institute of Standards and Technology

Before signing up for any cloud-storage service, read the user agreements carefully. They may say that any information stored on their servers is their property, and that if the company closes they are not responsible for returning your data files.

Even if this is not the case, check to see how they plan to dispose of servers that contain your data should they go out of business. It’s prudent to find out how they recycle their servers, because even if your cloud-service company does stay in business, it will still have to replace malfunctioning servers and upgrade equipment periodically. At minimum, make sure that they overwrite the whole memory drive seven times before recycling it.

On established companies, it is important to determine the company’s commitment to cloud storage. It is becoming increasingly common for companies to have multiple business lanes, so cloud storage may be an afterthought that could be abandoned at any time without warning. Companies can also re-adjust their goals away from cloud storage or simply decide that they no longer want the liability of hosting cloud storage.

Again, reading the licensing agreement and looking for information on who owns the data can be very helpful. Your borrower’s information is critically important, and losing control of it can bring financial penalties to your company, so checking the company’s commitment to the cloud-storage platform is a must.

Securing your data

The only thing protecting your data in the cloud is a password, so you need to take additional security measures to ensure data protection. Some cyber-security specialists have said that it’s become too easy to break a password and now recommend that you use passphrases as the first line of defense. Using biometrics such as fingerprint recognition or security icons coupled with questions are great barriers, as well.

It is also essential to change your passphrases or passwords every 90 days. Password-hacking software can take about one week to crack each letter in a password because it has to run through the entire alphabet, numbers and special characters to find each correct character without triggering any suspicion while doing so. Longer pass-phrases and passwords take longer to crack, but you want to change them before any hacker can even get close to cracking the correct sequence, which makes them start anew.

Comparing storage systems

If you’re still unsure whether to use cloud storage or on-site storage, here is a simple comparison of the pros and cons of both choices.

  • Cloud positives: little capital requirements; high speed of development; great flexibility and adaptability; known cost structure; best-of-breed security and disaster preparedness (in most cases); little to no obsolescence; industry-wide economies of scale
  • Cloud negatives: quality that’s dependent on the vendor; loss of control of data-file location; unknown real security and disaster-preparedness capabilities
  • On-site positives: control of data location and protection; high level of disaster preparedness
  • On-site negatives: major capital investment; major time commitment in set up; must pay maintenance and support costs; increase in staff training and oversight; inability to keep up with fluctuations in demand; blind costs and fast obsolescence

•  •  •

To make the right choice in securing sensitive borrower information, you must weigh the pros and cons of each option, research your state’s requirements, and determine how you feel most comfortable in storing your files. Above all else, the security of your data is paramount, so ensure that whichever option you choose, you use proper security techniques. Locked file cabinets or file rooms for paper files and proper encryption, passphrases and even biometrics for e-files will help keep your borrowers’ information safe and secure. 


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