When lenders choose a technology provider, they are making a big investment, not only of their money but of their time and labor. The typical contract for technology providers is between three to five years and lenders and originators want to be sure they are receiving the support and top-tier technology for which they’ve paid.
It’s important that they feel confident in the decision, as it will likely stick with them for years to come. The task of switching providers is an arduous one and lenders and originators don’t want to be forced to jump ship. Especially in today’s market, lenders cannot afford a technology stack that will hold them back or make them stagnant.
Lenders need providers that will work with them and ultimately help them complete more deals while differentiating themselves from the competition. When choosing a new loan origination system (LOS), there are a few questions lenders and originators must ask.
Roadmap ahead
When evaluating a loan origination system, of course, lenders are going to consider what their current tech stack looks like. Equally as important is how that tech stack will evolve and what is on the roadmap for its future.
The first question lenders should ask is if the provider even has a roadmap? If not, that can be a red flag. Lenders need a partner that is looking to the future and planning for growth and improvement. Next, what is on that roadmap? Does the tech provider’s future plans align with your goals? What new things on the roadmap will have a positive effect on your business? If the answer is nothing, they may not be the right partner.
Technology providers need to keep up with industry trends. For example, how are they approaching tools like artificial intelligence? Sooner or later, AI and machine learning will be deeply engrained in most industries and a loan origination platform should be no exception. AI continues to revolutionize various industries, with an expected annual growth rate of 37.3% between 2023 and 2030, according to Grand View Research, a market research and consulting company. This rapid growth emphasizes the increasing impact of AI technologies in the coming years.
There is still room for growth for the mortgage lending space. Nearly two-thirds of lenders in 2023 said that they are familiar with AI and machine-learning technology, according to Fannie Mae’s Mortgage Lender Sentiment Survey. Significantly fewer lenders in 2023 — only 7% — said they have deployed the technologies.
Finally, how does the LOS provider interact with clients on roadmap items? Do their clients help shape the roadmap? Do they have an advisory board? Lenders should want to partner with the technology provider rather than simply purchase a product. They should want to have a say in the future of the technology and working with the LOS provider on a product roadmap is a key way to do that.
Security precautions
Lenders should ask about the underlying technology and its security. No one should ever assume a vendor has every precaution in place. Ask upfront — this should be a question that gets addressed at the very beginning of an engagement, not in the last phase of due diligence.
This is especially important when dealing with new technologies as, many times, new technologies start working with independent mortgage banks rather than going through the rigorous process of passing all a depository’s regulatory requirements. No matter who they work with, make sure these providers are still being held to a high regulatory standard.
Also consider how many different systems you’ll have to use. Any time data is moving from one platform or program to another, there is more risk for compromise.
Having a single system of record that they can trust will keep lenders and all their borrowers’ data safe. Lenders and financial institutions have vital personal data in their systems that could be detrimental to people if the wrong people get their hands on it. Social Security numbers, birthdates, addresses and more are at stake and it’s the lender’s job to make sure they are protected.
Nearly 4,000 new cyberattacks occur every day, according to cybersecurity company Astra. Every 14 seconds, a company or organization falls victim to a ransomware attack, which can result in devastating financial losses while 560,000 new pieces of malware are detected every day. This information is important to remember when evaluating future tech partners. Security is not an added benefit, it’s an essential part of any technological platform. The data makes it clear that it’s not a matter of if you will get attacked, but when.
Continuing compliance
Navigating regulatory changes is a critical aspect of any LOS’s performance. The ever-evolving landscape of regulations can make or break an organization, often leaving minimal time to adjust.
The industry post-pandemic has seen many changes in how lenders operate and technology must keep up in order to be effective. In assessing the effectiveness of an LOS, lenders must examine how well it has kept pace with regulatory shifts and whether any missteps occurred.
Lenders operate in a challenging market where their attention is stretched thin. The last thing they want is the added concern of compliance issues. In order to take compliance off their plate, lenders need to have full trust in their technology provider. Trust is the foundation that allows lenders to focus on the many challenges present in their industry without the constant worry of regulatory pitfalls.
Selecting and integrating an LOS is a large undertaking and, lenders need to know what they’re in for and how the relationship will work — not only during the onboarding process, but throughout the lifetime of the relationship. The technology provider needs to be there when times are tough and proactively work with you on items such as contracts and platform development.
How does the technology vendor view the lender and its originators? Will you work together to reach goals? Will you have consistent relationships, or will you be just a number?
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There is so much work that goes into selecting an LOS, it’s critical to make sure lenders are selecting the right one. Asking these questions can help lenders and their originators find a partner that will be with them for years to come, through good times and
bad. ●
