Residential Magazine

Build it or Buy it

Borrowers and originators are affected by a lender’s choice of technology

By Robert Greenberg

Taking a loan from the initial lead to closing is a complex business, one involving many steps. Compounding this is the ever-evolving technological landscape. Many lenders choose to build their own loan origination software (LOS) systems. Others buy from outside vendors. There are advantages and drawbacks with either route. Originators should pay close attention to the direction their lending partners choose to go in this area.

Building a proprietary LOS system isn’t for the faint of heart, but it can offer mortgage lenders a level of customization they can’t get from a third-party provider. LOS systems offered via third-party technology companies have been around the traditional mortgage sector for decades.

The advent of third-party LOS offerings geared to the unique needs of private or hard money lenders is a much newer phenomenon, with new players still emerging and finding their niche in this sector. When it comes to loan origination software, the question of “build or buy?” is undoubtedly one that lenders will need to grapple with to offer originators and borrowers the most efficient process possible.

Third-party mortgage LOS systems continue to see technological advancements. The mortgage industry, which some would argue has entered the digital age kicking and screaming, is still getting used to the idea of a fully digital online mortgage. Beyond the online application, digital documentation and processing, the final step (e-closing) remains elusive for most lenders.

As loan origination technology evolves, however, complete digital workflow management from an integrated customer relationship management (CRM) system — which does every-thing from capturing leads up through the final step of the loan process — is becoming more of a reality than ever before. As private lenders mature and improve their LOS technology, they are able to create efficiencies, reducing both the time and costs required to originate loans and better serve their clients.

Online peer-to-peer private lenders emerged in the wake of the Great Recession and some of these lenders, often referred to as fintechs, have leveraged technology to develop sophisticated online platforms with complex algorithms designed to help make lending decisions in hours and days, not weeks or months. As private lenders that rely on third-party solutions move from fledgling startups to stable and established lenders, they will need to decide if third-party LOS systems can continue to serve their needs for technology that provides a competitive edge, especially in a world where it can cost more than $8,000 to originate a loan. With such high loan-processing costs, profits are getting squeezed for even the most efficient lenders.

Due diligence

As private money lenders evaluate short- and long-term business strategies, due diligence for selecting LOS technology should be part of the evaluation. It could be that a third-party provider that specializes in private lending makes the most sense. Or, it could be time to consider whether the lender has matured to the point that a proprietary solution is a better choice.

Loan origination is a complex process. It involves multiple steps that need to be addressed, so lenders will want to evaluate each step and whether it is best served by a third-party solution or an in-house proprietary system. The steps to consider when considering alternative LOS solutions include looking at the CRM tool, loan application and submission process, application processing and underwriting, as well as quality control, funding and closing.

Mortgage companies also should consider the ease of use for repeat clients. It’s imperative to streamline the process for these clients, thus avoiding the hassle of asking for information provided in a previous loan application. Think of it this way: If a person goes to the same doctor year after year, he or she doesn’t want to fill out a new set of medical documents if nothing about their medical history has changed. Yet experience shows that many doctors’ offices require patients to annually complete this time-wasting exercise.

Although third-party vendors offer the ability to configure their systems to meet a lender’s needs, configuration comes with limits as these systems are often designed to function in a particular way. This means a lender using a third-party provider may have to adapt their loan-processing practices to match how their LOS provider has decided a loan should be processed, even if it’s not the lender’s preferred process.

Proprietary route

Two of the main reasons for a private lender to create a proprietary LOS would be if third-party solutions and configurations cannot address inefficiencies in the mortgage origination process, or if they cannot provide the desired level of customization.

For instance, a proprietary system can integrate components offered by tech experts without the need to reinvent the wheel for certain parts of the CRM and origination process. For example, DocuSign pioneered e-signature technology and is an expert at automating the document-approval process. Its technology can be integrated into a proprietary system as can other third-party solutions such DocGen, which can dynamically produce quotes, contracts and proposals, as well as auto-assign tasks to help make sure nothing falls through the cracks.

An integrated CRM tied into the LOS allows lenders to track where their best leads are coming from in order to more efficiently spend their marketing dollars. A third-party system might mean that originators are forced to go back and forth between a CRM and LOS that don’t speak to each other.

While these requirements are just the tip of the iceberg relative to the full capabilities and functionality of a loan origination system, they help illustrate the degree to which technology can offer a competitive advantage and deliver a best-in-class lending experience for both originators and borrowers. A mortgage company’s engineering team also can discover pain points with a proprietary system and move to solve them. Proprietary solutions also can be the best way to access borrower information from prior loans and then repurpose that information into a new loan application for repeat borrowers. 

Discovery mode

The length of time to evaluate a proprietary LOS system will vary from lender to lender. It can take years of discovery mode working on both proprietary technology and customizing third-party solutions before defining the exact requirements for a truly proprietary solution.

The result can be a unique LOS system that connects to industry-leading software providers for certain tasks, yet lives on an internal platform that can be optimized and customized in-house. This can help the lender, its clients, its products and its partners to have their specific needs met.

Although there are significant upfront costs in developing a proprietary LOS, a proprietary system can offer significant cost savings to the bottom line. This occurs by eliminating the expenses of a third-party system, and by having the ability to be increasingly nimble when addressing client needs and creating the best possible experience.

Lenders will have to decide for themselves if it makes sense to develop a proprietary system. Maybe a third-party offering does everything they need and they do not have the information technology staff to provide this kind of customized system in-house. If a third-party solution isn’t meeting the needs of mortgage originators, then it may be time to strategize whether a proprietary system is the direction to go. In today’s highly competitive market, technology only continues to transform businesses and separate the companies moving forward from those that are falling behind. 


  • Robert Greenberg

    Robert Greenberg is chief marketing officer at Patch of Land. He is responsible for overseeing the company’s sales and market efforts, including loan originations, branding, corporate communications, lead generation, and sales and marketing automation. Prior to coming to Patch of Land, Greenberg led the marketing efforts for Blackstone’s B2R Finance, where he helped originate more than $1 billion in real estate transactions.

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