NEW DATA CONNECTIONS

CONNECTING YOUR LOS TO YOUR WAREHOUSE

By Barak Engel, CEO, DataDialect

In a fiercely competitive environment like that of the mortgage industry, every advantage matters. The ability to act quickly, to remove barriers between customer and lien holder, to process error-free loan applications is more important than ever. Speed and accuracy become even more critical in the secondary market, where margins are higher, and where customer satisfaction and retention is paramount. And yet, many brokers still spend countless hours dealing with a myriad of communications standards and connectivity issues hindering their ability to focus on the most important priority – increasing their business.

Mortgage executives are under increasing pressure from new market forces and different forms of emerging competition. Internet brokers are progressively acquiring a larger portion of the traditional broker’s customer base, relying on data marketing firms that gather and sell them customer information – about your customers. Realty Times columnist Kenneth R. Harney recently reported that the credit bureaus are taking the application data submitted by bankers, and “...turning around and selling it to direct competitors of the lenders who made the credit inquiries in the first place," delivering consumer profiles, and ”bought and paid for” data scores to rivals within 24 hours of a loan application, securing a receptive audience.

With major technological shifts underway it is crucial to understand current trends, and to use technology effectively to retain a competitive edge. The right technologies not only provide faster loan processing, fewer errors and better service to your customers, but also streamline your operations, and increase profits. Making the right technology decisions today will increase productivity and open new doors with mortgage warehouse partners to expand your services, improve margins, and lower costs.

The First Step: Connecting the LOS to the Credit Bureau

large, institutional marketplace. In the mid-90’s, pioneering developments delivered seamless integration, connecting credit reporting institutions to loan origination software technologies to enhance automation and improve approval times.

Over the past 10 years, credit-reporting companies have created technologies to provide attractive transaction pricing to even the smallest of brokerage firms. Efficient new, low-cost software solutions were now available to everyone. As a result, system-to-system and web-based software products succeeded in making credit checks faster and more efficient.

Credit reporting companies made the decision-making process simple for brokers: “Work with us, use our technology, automate, or, get left behind.” To remain competitive, mortgage warehouses have been forced to request similar sacrifices of their broker-partners, to connect electronically with the warehouse systems. Under current conditions, fax machines are giving way to web-based data input interfaces and other new methods of interaction.

The Second Step: Connecting the LOS to the Mortgage Warehouse

What loan origination process remains overlooked? There is still a “disconnect”, a missing link, in the communications between the LOS platform and the mortgage warehouse. Why are the printed page and the fax machine still consuming significant resources in the loan origination process? Some brokers and LOS vendors have started developing tools to send data directly from the funder to the warehouse, automating the transfer and lowering overhead costs. By 2004, the one missing link to the automation puzzle was being addressed. New software was in development to connect disparate technologies while taking into consideration existing loan application processes within the brokers’ domain.

The missing link: a Customizable, or Flexible Connection?

Large financial institutions possess a wealth of IT resources, knowledge workers and access to expensive industry-specific software products. The decision to create customized connections for loan processing was simple because of the unquestioned value. Banks and lenders possess the capital and the capacity to create customized web-based or system-to-system connections with their high volume clients.

While brokers have fewer resources and options available, they share mutual objectives: faster decision-making, improved accuracy and enhanced customer service. Unlike the big players, smaller brokers and broker bankers have a number of factors to consider before determining how to connect with mortgage warehouse partners:

1. How much will a customized connection cost?

2. Can my LOS vendor provide a connection through their existing products? Can they tie in with multiple warehouses?

3. Can I do the work in-house? Or, should I hire a contractor?

4. How can I support it?

5. My warehouse provides a web portal. Can we avoid having to engage in a data re-entry process prone to human error?

6. A flexible connection? What’s the difference between customized and flexible?

Mortgage warehouses have provided mortgage brokers with the interface to make their lending operations less costly. But, what costs must a broker analyze and assume to facilitate connectivity?

Upfront Costs of Different Options

Customized Programming Cost:

Typically, a simple customized connection can be created for $5,000 to $10,000 through a contracting engagement. However, the cost of ownership also involves not only creating but maintaining the software (periodically updating the technology to ensure the integrity of connectivity with the warehouse); supporting the software (having someone available to answer your questions and to provide training); and delivering additional functionality in keeping with ongoing improvements in industry intelligence.

LOS Connectivity:

Your LOS provider is an expert, and has already created a set of comprehensive functions to make your job easier. If they decide to enter the “connection” marketplace, they can provide a service that will likely be less expensive than a developed solution from a consulting or software customization firm. However, as business grows, often a more robust back-end becomes essential, involving either a data migration project or an additional connection that administers multiple LOS products simultaneously.

In-House: Utilizing internal IT resources can provide initial, short-term cost benefits. However, departmental turnover can create difficulties over time. New staff may or may not have the expertise or credentials to deliver the requisite levels of programming knowledge. In addition to the soft cost of rustling staff from existing responsibilities, technology experts may not necessarily possess the expertise to administer the regulatory and legal requirements of storing and transmitting personally identifiable data.

If a contractor is hired, the customer must be prepared to rehire them in the future when adjustments have to be made because of LOS partner or warehouse partner software upgrades, or when new warehouse connections are called for. Can you count on the contractor to be available at your discretion? A new relationship, at this point, would involve additional time and expense while the programmer becomes familiar with legacy code. Meanwhile, the broker incurs additional costs associated with down time.

Hidden Costs

Support (Help!):

Unless your organization has undertaken to develop the solution in-house without warehouse support, it’s in every stakeholder’s best interest to keep your system up and working. From your mortgage warehouse partners to your LOS vendor to you, nobody wants to see your system go down. It costs everyone money when a connection isn’t working. Talk to your warehouse and your LOS vendor and find out what resources are available to make certain your system delivers high-performance uptime.

The Web Portal:

While inputting data into the warehouse web portal lowers the over all costs of consumables, keying errors are inevitable, causing additional time consuming delays in the approval process. A well-designed portal, with significant intelligence built in will flag errors and alert funders to potential problems. The exciting news is: the ability to bypass this extra data re-entry phase has now become a reality. System-to-system or b2b connections are available to connect your LOS directly to a lender’s web portal.

Customized vs. Flexible:

In considering a customized or flexible solution, you must consider both the upfront and hidden costs over time…

Customized Solution:

A customized solution is more or less a ‘one off’ software development initiative. There are two components: The LOS connection and the warehouse connection. The software is coded either by the broker in-house or by a third-party programmer for a specific purpose at a particular point-in-time to satisfy unique circumstances. The customized connection software is designed to transfer mortgage application data in a rigid fashion between one origination system and one warehouse.

A customized solution requires a coordinated maintenance schedule with the warehouse and the LOS vendor. Because of LOS product roadmap priorities, maintenance may not be as well coordinated as would be desired. Obviously, a customized solution represents a somewhat expensive product to maintain or adjust based on changing industry conditions or legal requirements.

Flexible Solution

A flexible solution is a distinctive product, developed for use by multiple customers, consisting of three components, the two connections and an intuitive engine to coordinate communications between the corresponding systems. Flexibility means avoiding dependence on any particular LOS, facilitating connectivity between any two entities (LOS and warehouse). It can also support the migration process between various LOS platforms, eliminating vendor lock-in and providing the elasticity needed to respond quickly to the changing marketplace.

The flexible solution takes a little longer to build and has somewhat higher upfront costs but delivers ongoing and added industry intelligence among its advantages, while delivering a significantly reduced total cost of ownership. The engine is able to evolve and dynamically adapt to changes whether at the warehouse end or within a broker’s internal processing environment.

Changes to the customized solution break the connection, creating a need for additional programming, resulting in costly operational downtimes. The flexible solution is not only adaptable, but also portable. If a change in warehouse or LOS is required, a flexible solution can travel with you, addressing ongoing, adjusting needs without resulting in an additional investment.

Both customized and flexible solutions can be designed to adapt to existing processes. However, in the end, expenses associated with changes or adjustments characterize and underscore the overall costs of ownership.

To learn more about how other mortgage professionals are solving data transmission problems, please browse the DataDialect website. If you have any questions, or feedback, or wish to sign up for our Q2 newsletter, please visit our contact us page.