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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2017

Overlook Experience at Your Own Peril

Mortgage-savvy technology partners provide much-needed expertise


Imagine you or a loved one needed open-heart surgery and were considering two surgeons. Both have excellent training and technical skills, but only one has experience performing the actual procedure you need done. Which one would you pick?

Everyone can agree that experience matters. It’s no different in the mortgage industry when it comes to technology partners. All things being equal, most mortgage companies would prefer their technology vendors have leaders with real-world, mortgage-banking experience, the kind that ensure the intricacies of the business are taken into consideration with practical solutions.

 Choosing a technology provider that lacks industry experience can prove to be an expensive lesson for mortgage companies and originators alike. Consider the high price of an unsellable loan, a compliance violation or a hit to loan pricing. These easily can be avoided with the help of a technology provider that has “been there, done that.”

Part of the challenge with today’s mortgage-software landscape is the sheer number of mortgage solutions being introduced, quite a few of which have been developed by people who simply possess enough general knowledge about the mortgage process to be able to develop software that addresses basic needs.

It is one thing to be able to develop software that handles a specific business process. It is quite another to understand a mortgage originator’s unique business strategy, and be able to predict how changing regulations and shifting market dynamics can impact the lending process.

Originators on the front lines understand this all too well, and although they may not choose the technology vendors their companies use, the choice affects them directly, so their voices should be heard on the subject. Here are some facts to consider.

Climbing costs

The cost to originate a mortgage loan continues to rise. The average cost to originate a mortgage increased to a high of $8,887 per loan in the first quarter of 2017, according to the Mortgage Bankers Association (MBA). This is up from $7,562 in the fourth quarter of 2016. When you consider the average cost to originate a loan in 2008 was $5,985, it’s clear lenders and mortgage companies need all the help they can get to remain profitable.

The MBA also reports that a good portion of the cost to originate a mortgage loan stems from personnel expenses, which averaged $5,802 per loan this past first quarter, up from $5,001 per loan in the fourth quarter of 2016. This is one area where an experienced technology partner can make a difference. By making recommendations on process changes to streamline operations, the provider can help mortgage companies reduce personnel expenses, as well as technology outlays, which can shave costs from each origination.

Technology costs are increasing as well. Large banks, which typically have custom-built technology solutions, spend more than $1,100 per loan, according to data from MBA and the Stratmor Group. Independent mortgage bankers and smaller bank lenders spend an average of $300 to $350 per loan. Another Stratmor study also noted that less than 20 percent of lenders believe their loan origination software, or LOS, provides them a competitive advantage. Clearly, there’s room for improvement.

Impact on smaller companies

Most small and midsize lenders and mortgage companies have limited information-technology resources. Small companies typically have staff that wear many hats in the loan process. Often, their loan operations are left to an overworked team or even a single staff member who is also responsible for other day-to-day operational or loan tasks.

Dedicated project managers or business analysts are out of the question in these instances. Yet, even though technology is critical to many — if not most — loan processes, very little thought or resources are set aside to proactively establish best practices.

Successful mortgage lenders are stretched pretty thin. They simply don’t have time to bring vendors up to speed on the mortgage business.

A vendor with mortgage expertise often can come up with a solution in these cases that is streamlined and intuitive. The application has to be highly functioning right out of the gate, so the company isn’t burdened with managing and maintaining the system.

If an application requires a lot of configuration or maintenance, chances are it won’t be used. A good vendor will offer effective training and a support process, not just feature functionality.

Benefits of experience

What all of this comes down to is that — as mentioned earlier — experience matters. Here are just a few of the areas where mortgage lending experience and knowledge can add tremendous value in a technology partner:

  • Right-sizing resources: Recruiting and training decisions are easier with the help of a seasoned industry partner that can provide invaluable guidance on how automation impacts job skill sets and responsibilities. This can help companies recruit and train accordingly, ensuring an optimal return on investment (ROI), rather than just “throwing bodies at the problem.”
  • Practical knowledge: A vendor with experience in mortgage lending will better understand what companies and originators need, without needing to be told what to do. The vendor’s practical knowledge also can help prevent the lender from making serious mistakes.
  • New ideas: Technology providers with mortgage expertise can offer new ideas about how to make their lending partner’s business better. The provider can help mortgage companies understand what is needed to make processes run more smoothly, and can formulate a plan that fits the company’s staff and resources.
  • Professional recommendations: Experienced technology partners can recommend verified third-party vendors that produce significant ROI. Stringing vendors together can be tricky because many lenders have programs with several delivery options, so product and pricing engines, as well as closing-document vendors, must be tightly integrated with the company’s processes. The results can be expensive when a loan does not meet all of the end-investor’s requirements.
  • Industry best practices: A technology provider with industry experience can provide critical checks and balances to make sure all processes are being carried out accurately and compliantly. The concept of “trust but verify,” for example, ensures processes are independently reviewed to confirm they were accurately completed. This eliminates the long-established but antiquated practice of the “checkers checking the checkers checking the checkers.”
  • Time-saving efficiencies: Successful mortgage lenders are stretched pretty thin. They simply don’t have time to bring vendors up to speed on the mortgage business. It’s far better to work with a vendor staffed by people who have previously worked in mortgage lending. The vendor can then truly understand what is working and what isn’t, and can offer fresh ideas about how to make things better.

• • •

With the increasing costs of loan origination and loan technology, it’s clear that lenders and mortgage companies — particularly small to midsize shops — need to choose their LOS and other technology providers carefully, and these choices directly affect the originators working for these companies.

It may not seem as life or death as choosing a surgeon to perform open-heart surgery, but in today’s hyper-competitive and tightly regulated lending environment, finding a provider helmed by leaders with years of mortgage experience can make all the difference.


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