A Conversation About Common LOS Pain Points
Harry Hixson is an expert on loan origination systems and LOS implementation.
A senior manager at Saxony Financial Services, Hixson has experienced implementations first-hand as both a consultant and a client. Prior to joining Saxony, Hixson was the Vice President of Production Systems at Stearns Lending. He served in similar roles at both Certainty Home Loans and CTX Mortgage.
We sat down with Harry recently to discuss the most common LOS pain points mortgage firms experience related to their loan origination platforms. He was interviewed by Saxony’s Matt Hooper.
Matt Hooper: Let’s talk about financial risks related to an LOS. Obviously, this is an issue that would be top-of-mind for any Financial Services firm.
Harry Hixson: Of course. Well, first, margins have been compressed. This a big topic that everyone was faced with after the last refi market. Pricing became very competitive and margins were squeezed. Lenders were looking for every opportunity to claw back some of that lost margin. On the revenue side you have to address fee and pricing controls. On the expense side you need to focus on automated processes that will increase your efficiency and turn times. The need for automated data validations and third-party integrations has grown. By that, I mean that firms are having to install new software into their ecosystems in order to meet regulatory requirements – and that can raise the cost-per-loan.
MH: And in some cases, the LOS exacerbates these issues?
HH: Yes, because you should be able to see and avoid these issues within the LOS. Again, it’s a visibility issue. You have this technology that’s supposed to give you a 360-degree view, to make sure you are optimizing the loan. But if the LOS is insufficient, you’ll pay – literally.
Compliance and Regulatory Risk
MH: You mentioned RESPA, which is a regulation from the Consumer Financial Protection Bureau. What other regulatory compliance risks are out there that tie back to LOS performance?
HH: Some LOS providers do a poor job of keeping up with regulatory change. There’s lots of volatility related to the regulatory situation right now. A lot of vendors are struggling because of the new requirements around the new loan application. You have to ask if your vendor is keeping up with regulatory changes, and if you are confident that they’ve got a good handle on keeping your system compliant. If not, you will have to build out a customized fix, because compliance isn’t optional.
MH: Is there a reliable way of determining whether or not the vendor can handle the regulatory challenge?
HH: The first question I would ask would be, ‘How do you feel about their compliance staff?’ Do they have enough compliance staff to keep up with the changes that are happening? Are you confident that they have enough bandwidth to ensure that those changes are reflected in the product you have invested in? If not, you may need to make a change.
Lack of Vendor Support
MH: For any key data repository, such as a LOS, integration is key. The LOS is only one element of your data ecosystem, after all – so how does it fit in with your existing systems and processes?
HH: Absolutely, and I call that pain point, ‘lack of vendor support.’ Does the LOS vendor allow you to integrate the third-party data you need? If not, you’re going to have to figure out a bolt-on solution on the backend to make that integration happen. Is your LOS vendor timely in responding to production issues? What’s their capacity to support you?
And don’t forget about the future, too. Does your vendor have the capacity to create new features and innovate? Or, are they struggling to keep up with the baseline offerings? If they are just barely keeping their heads above water, they are probably not going to be able to keep up with the leading edge of LOS technology as it evolves.
Inefficient Operational Processes
MH: Most companies, not just mortgage companies, could identify opportunities to improve efficiency. How can the LOS contribute to this?
HH: Your LOS can make or break your company’s efficiency. Look no further than origination turn-around time. We all know that the quicker you can get a borrower from application to fund, the better. Quicker turnaround is always the goal. But if you have too many manual workarounds connected to your LOS, then you are never going to achieve the turnaround time you want.
Every mortgage company has some manual LOS workarounds, a lot of them come from trying to utilize the LOS in a way that it wasn’t designed to be used. Our team at Saxony is focused on mapping out those manual processes and automating as many of them as possible. This is easier with some LOS providers than others.
Low User Satisfaction
MH: The mortgage industry is changing and evolving as Baby Boomers age out and Millennials become the dominant population of home buyers. How does this play into the conversation about LOS, and specifically LOS pain points?
HH: It absolutely connects to this topic. Millennials are driving the housing marketing right now and will continue to for the next several years. They, and the generations that come after them, want a seamless, digital experience. Does your LOS’s customer interface offer such an experience? If not, you’re going to have to opt for one of these bolt-on, third-party solutions in order to get to a digital, mobile-friendly, multi-form factor experience. And if you don’t offer that experience, you’ll be left in the dust.
It goes back to what we mentioned earlier – are you confident that your LOS provider can evolve as the industry evolves? Can they deliver add-ons and upgrades that will keep you competitive into the future?
Lack of Trust in Your Data
MH: Saxony’s value proposition is that we help your Do More With Your Data. Let’s wrap up by talking about LOS data. What are some of the data-related LOS pain points?
HH: The LOS is origination data, which is a key piece of your overall data – but a piece, nonetheless. There’s much more data on the front-end and back-end of the mortgage loan process, and you have to make sure that the LOS fits well in your existing data ecosystem.
If the fit isn’t right, there’s a risk that you won’t implicitly trust your data when the time comes to report it to the regulators. And, really, why should you subject yourself to sweating out regulatory reporting? That’s unnecessary risk.
Solving Common LOS Pain Points
MH: What are some of the things you can do to alleviate these LOS pain points?
HH: For firms I’ve worked with, the goal was to be more parallel with their processes. That requires a little process reengineering. You may be doing something that is serial in nature – taking one thing and passing it on to the next function. Being able to reengineer processes to match the strength of a particular LOS will help short the loan process, from application to close.
So, process optimization, certainly. But more than that, it’s about whether the LOS you have is right for your business strategy. Is what you have the right fit for your loan volume, for your customer base – for what you are now and what you want to be in the future? These questions can be difficult to answer internally. A benefit that Saxony Financial Services provides is that we can serve as a neutral third-party advisor; we can be the honest broker that has your business interests in mind.