Electronic Mortgage Bottlenecks, Part 2 – Software and Technology Obstructions (A manager’s view on the adoption implications of straight-through mortgage processing) -- May 15, 2007 (Also appearing in the MBA Tech NewsLink

Twenty-five years ago, the delivery of technology solutions for financial services were laborious one-offs, seldom reused, and interoperability was an idea for science fiction.  Today, the options to implement mortgage solutions, while often times fragmented, are quantum leaps and iterative generations ahead of those former times. 

When examining the adoption of eMortgages, is it the technology integration that is a bottleneck?  Is the widespread adoption of point-based solutions creating a “laggard” from an idea that should have experienced adoption long ago?  Are the vendor solutions and internal personnel ill-prepared to adapt to the standards requirements, security requirements, and data interchanges?

Cy Brinn, President of Metavante Lending Solutions, states that “Many lenders are successfully utilizing many of these components on an integrated basis.  Lenders that utilize systems from vendors that already have a higher level of integration have an easier and less costly experience.  Standards like MISMO and technology like XML make the integration process much easier today.

Tim M. Anderson, Vice President of eMortgage Services at Stewart was asked if the technology and solutions providers’ are prepared for the level of interchanges and alliances which will be required to obtain a true STP (straight-through processing) of eMortgages.  He said, “If you take a ‘best of breed’ approach, then no.  Even if you go with a relative ‘full service’ vendor as you know their are still many touch points out there including lenders doc systems, collaborative eLoan folder systems like Advectis, eRecording companies and different investor delivery specs where integration will always be a challenge.  Successful organizations such as Fannie Mae and MERS have been at it the longest and have worked with vendors like Stewart, Encomia, and Fiserv to support the initiatives and continuous improvements.”

Show me the Technology!

Within today’s eMortgage adoption and implementation options, there are very familiar names and suppliers along with an ever-increasing scorecard of startups and entrepreneurial point-based solutions.  Herein resides a core challenge for internal organizations seeking the best solution for their particular needs and requirements.  Not all technology vendors or alliance partners are created equal.  As technology teams, CRO’s, and CTO’s, are keenly aware, selection and integration is far more involved then just seeing the demo or reviewing their integration partners.

Cary Burch, President and CEO of LSSI states, “The largest challenge facing the realization of the eMortgage is education.  Due to the complexity of the eMortgage components and technology, traditional lenders are having difficulty transitioning from old traditional lending to eMortgage lending.  This new lending process is a completely different thought process than that of the past 25 years of lending.”

So what are the “hidden risks within” when examining the selection, deployment, and on-going maintenance of an internally or externally originated eMortgage solution?  Let’s holistically review a few of the frequently uncovered diligence hazards.

• What does the architecture encompass?  Sounds like an obvious key building block, but there are surprisingly few vendors and internal teams that can articulate its significance.  Is it scalable for the transaction volumes, redundancy, business continuity planning (BCP), and regulatory compliance demanded by established or proposed SLA’s and OLA’s?
• What level of electronic interchange is being sought?  With every new technology introduction, there is a guaranteed host of FUD (fear, uncertainty, and doubt) that accompanies the offering.  Is the organization seeking level 1 or scanned images?  Are they seeking level 3 (i.e., completely digital) capture, from the origination all the way to the secondary markets?  What is being sought to support the definitive business needs as each level requires ever increasing mastery of technical sophistication and on-going financial commitment?
• Is the organization seeking components or a comprehensive solution?  Within the industry, there are many offerings and statements being made trying to reach a nascent marketplace with diverse needs.  The challenge for buyers is to determine precisely the use, robustness, and limitations of the offering being evaluated.  For more comprehensive and invasive solutions, what is the vendor’s viability, track record, and strength of operations?
• What is the skill transference desired?  For effective and sustainable operations, the organization must quantify and project the level of skills that will be hosted both internally and externally.  Often forgotten or relegated to the selected vendor(s), the initial and on-going management of the solution have a tremendous impact on the continuous improvements for both processes and profits.  What are the measures, metrics, and forecasts that are implications of the selected technologies?   

Cary Burch continues, “eMortgage lending requires thought leadership that not only understands the mortgage banking business model, but also that of a technology componentized architecture. New leadership, education and understanding are necessary for the mortgage bankers of tomorrow.”

Preparation + Expectations + Technology = eReality

To actively engage and sustain the technology solutions, upstream and downstream informational uses must be identified and process mapped.  With a comprehensive roadmap not only for the “as-is” environment but also the “to-be” operating state, the choices and trade-offs for implementation aggressiveness and requirements can be clearly delineated.  However, it is the implications of these emerging solutions and their vendors that should be of the most concern to executives, partners, technologists, and business stakeholders. 

“When vendors that currently compete today realize that they need to define a profitable competition environment that is more conducive to the lender, then interoperability will emerge,” elaborates Cary Burch.  “The current competitive environment today does not foster a collaborative approach to shared-revenue even while competing against each other.”

Cy Brinn articulates from experience that, “History has shown that it is very difficult to effectively plan and estimate the scope and cost of projects that go beyond a couple of levels of change.  Break projects into smaller projects and work in a sequential manner.  Re-plan and re-estimate later stages of projects after completing earlier stages.  Be a ‘learning’ organization.  In other words, complete an early stage of a project and use what you learn from that stage to refine the planning, estimating, execution and management process for future stages.”

The spectrum of implications and the lessons learned from the early adopters varies widely.  Nonetheless, organizations should be cognizant of the following:

• A review of the vendor and their level of partner certifications should be thoroughly undertaken to minimally include their integration and compliance with MERS, county recorders, industry standards, GSE’s, secondary market makers, and origination systems.
• Life-cycle costs of component technology including security systems, eVaulting, data availability (including archiving and storage), regulatory compliance, and of course, evergreening, training, and customization (including new versioning).
• When selecting a vendor, have them articulate their forthcoming 18 month release schedule.  Surprisingly, some organizations are ill-prepared to anticipate market changes and business evolution.  As a result, the implementation may become short-lived resulting in new (i.e., a “net add”) integration costs, lost opportunities, and organizational and customer disruptions.
• Not all technologies are created nor implemented equally.  The shields that are used to convey capabilities quickly fade when thoroughly examined.  Without robustness and deep infrastructural redundancies, the risks and legal liabilities will be materially increased. 

“Reduction of error is an important reason for adopting e-mortgages,” advocates Diana Helander, Group Manager for Worldwide Standards for Adobe Systems.  “Customer information comes from many sources, and re-keying data from paper applications, emails, phone calls and web forms costs money, takes time, and introduces errors.  These problems all inflate the cost and slow the speed of mortgage origination, processing, and servicing.  The result is business lost to more efficient competitors.”

Ms. Helander maintains that, “Two of the advantages of working with (PDF-based) eMortgages are flexibility and interoperability.  Many mortgage lenders of all sizes already use PDF documents in some capacity.  They are practical and require less investment in infrastructure.  However, along with these advantages, it is important to establish guidelines to clarify eMortgages.  Recent guidelines from MISMO provide a standardized approach which will help make e-signed PDF documents consistent and interoperable, as well as reproducible over the many years that mortgage documents must exist.”

It should be noted that the discrete technologies for signing, vaulting, information interchanges, and security (to name but a few) are very important.  However, since countless articles and papers have been written on the components and standards, we now need to holistically examine the rationale for adoption that transcends the enterprise including solution and information survivability, breadth of adoption, and costs to maintain (not just implement).

Tim Anderson adds his experiential lessons learned for those organizations seeking actionable tasks.  “First, be sure you have identified and received sign off on project goals and objectives. Secondly, you’ll need to be strong and drive the project.  In the case of this new eMortgage space, you can't accept at face value that the ‘organization knows best’ in this case.  This is a radical changing set of business technologies and they are looking to you to provide guidance and SME (subject matter expert) expertise.  Many organizations do not have a current frame of reference to work from with eMortgages.  Thirdly you’ll require a ‘consultant advisory position’ rather then just paving the cow path approach with many system projects-- doing it just a little bit better.  Finally, there is definitely a ‘best practices’ type of approach currently available.  To MISMO's credit it has generated some good implementation guidelines around electronic mortgages, UETA, eSign, and SPERS.  Each area has some good documentation and guidelines as what you want to do and will need to establish.”

* * * * * * * *

Many eMortgage conferences have been convened and endless streams of materials have been published regarding technical interfaces, certifications, standards, and future trends.  Yet, if acceptance was measured by the volume of discussions and number of words typed, the implementation of eMortgages would be a distant memory supported by a large number of success stories. 

Tim Anderson concludes, “I really do not know of any other technology implementations that will have as radical impact as eMortgage to both their customer relationship and internal operational costs and controls.  Bottom line, paper by its very nature is unreliable and the processes around scanning images just to make them available to more people are an improvement, but not a major one like eMortgage (SMARTDocs) can be.”

Appearing next in the five part series – “Electronic Mortgage Bottlenecks, Part 3 – Operational Processes and Risks”

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