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To Buy or Build? A Mortgage Lender’s Technology Dilemma

by Brian Zitin March 9, 2020

A wise man once said, “The times they are a changin’,” and whether you like it or not, this couldn’t be more true in the mortgage industry right now. 

As the world becomes more connected through technology, localism has lost some of the significance that it once had. The National Association of Realtors reports in Homebuyer & Seller Generational Trends in 2019 that 81% of older Millennials found their home through a mobile app instead of going straight to their local bank.

Although physical branches and personal interaction certainly still have value for some buyers, it is undeniable that mortgage companies are no longer just mortgage companies, they are technology companies. If a lender doesn’t embrace that mindset, then they will find it difficult to thrive in the ‘Digital Mortgage Era.’

No matter how good of a relationship your loan officers have with that realtor down the street, if your institution takes a long time to close a loan, if your process is frustratingly manual, if your systems are not transparent, then that borrower is long gone. Amazon delivers packages in 2 days, Uber picks you up in 5 minutes, Netflix instantly streams thousands of movies at your fingertips – consumers have certain expectations around technology whether you want them to or not. 

Now, the mortgage process is extremely complicated and I think everyone agrees that regardless of how talented your staff may be, the technology infrastructure behind everything will ultimately dictate a lender’s success.  

Since the mortgage process is extremely complex and involves dozens of different vendors from credit, title, loan origination systems, appraisal management platforms (my world), and more, how can a lender create the best technology stack for their specific wants and needs? Usually the first and most important decision in this regard is to buy (from a third party vendor) or to build in-house. 

As a technology entrepreneur myself, my opinion on this can be distilled to a single sentence for mortgage lenders: While there is room for debate on core systems, it’s a terrible idea to build your own supplementary systems.

What do I mean by this? 

Let’s take the Loan Origination System as an example.

The LOS touches almost every aspect of the origination process, making it an absolute mission critical system. Flexibility, configurability, and connectedness in this regard are crucial as workflows and vendors may change frequently or evolve over time. 

Some things to think about:

Pros of building your own LOS:

-Once it’s built it is mostly free

-More control over your own product roadmap

-Ability to change/modify workflows as you see fit

Cons:

-Huge upfront investment

-It’s difficult to recruit proper technology talent to execute on such a massive endeavour

-Takes a lot of time

Pros of working with a third party LOS:

-Much more convenient when it comes to compliance concerns

-Less upfront investment

-No need for deep internal tech talent if using out of the box workflows

Cons:

-Potentially more costly in the long run

-Less control of product roadmap

I’m sure there is more to consider, but as you can tell there is a healthy debate for each side as there should be for a decision as big as the LOS.

Where there should be no debate at all, is with supplementary systems.

Never build your own supplementary systems.

Why?

Because the less energy a lender can dedicate to something, the worse it will be.

Let’s take the appraisal as an example.

While the appraisal is absolutely crucial when it comes to mortgage lending, it’s not exactly top of mind for a lot of folks as it is simply one specialized cog of the overall mortgage machine. This means that not as many resources can be dedicated to it –  from a project management standpoint, dollar standpoint and technology resources standpoint.

On the other hand, a company like mine has an extremely narrow focus specifically on appraisal with millions of dollars of resources and dozens of some of the best software engineers on the planet solely dedicated to optimizing appraisal 365 days of the year.

We see the best practices from appraisal departments across the country, what is working and what is not. We have staff whose entire livelihood is to make sure we are on top of appraisal regulations, strategy, industry changes, and more., We’re here to help shape the future of the industry.

The best part? 

Lenders traditionally don’t even pay for the appraisal platform as it is typically a pass through fee to the appraisal vendor (ultimately paid by the borrower usually). 

Why in the world would a lender spend tons of money to design, build, tweak, and maintain an appraisal system with a small fraction of their resources, for a small part of their overall process, when there are platforms like Reggora that exist? 

I believe this type of thinking applies to any very specialized area of the mortgage process. It’s hard to be the best at just one thing, it’s impossible to be the best at everything. The top leaders know this and hire people that are smarter than them in specific areas.Shouldn’t mortgage lenders do the same?

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Brian Zitin
Chief Executive Officer