Data gathered by the Mortgage Bankers Association over the past several years shows how hard it is to be a successful mortgage lender. Since 2012, profits per loan have been down by almost 70%, while production costs have risen more than 50%. The Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule has undoubtedly made the process more complex, but productivity was dropping well before the rule took effect in October 2015.
It’s hard not to point the finger at LOS technology for the decline in lender effectiveness. After all, the LOS is the central operating system for mortgage lending and is explicitly designed to make the process more efficient and easier to manage. But according to the STRATMOR Group LOS Technology Insight report, only one in four lenders feels that its LOS is successful in achieving this goal. The rest are either middling along with a system that barely meets their needs or, even worse, are so dissatisfied that they are considering a replacement. Nearly 30% of lenders are in some stage of switching out their LOS – a last-resort option that is painful from both a cost and labor standpoint.
Nearly 30% of lenders are in some stage of switching out their LOS – a last-resort option that is painful from both a cost and labor standpoint.
However, after more than a decade of working in the LOS technology space, we found that poor technology is only one side of the issue. In our view, technology adoption is just as important in determining whether a lender can realize the benefits of LOS technology. By raising the awareness of technology adoption and evaluating the capabilities of LOS vendors to encourage better utilization of their systems, lenders give themselves the best chance to reverse the productivity decline and find the elusive return on investment (ROI) of mortgage LOS technology.
Why technology adoption matters
The LOS is a software system filled to the brim with technology tools. Whether it’s a pricing engine, processing tools, document generation or hundreds of other components, an LOS is a collection of technologies that must be able to support a lender’s entire loan manufacturing process.
When lenders embark on a search for a new LOS, their evaluation usually follows a common script: develop a list of functional requirements, talk to a salesperson, view a demonstration of the system, and discuss financials. Department heads then gather together to compare notes, and eventually, everyone agrees on a winner.
In our view, the key problem with this process is that most of the attention is focused on functionality (i.e., technology) without enough consideration given to how the technology will actually be used (i.e., adoption).
Statistics show that one in five lenders has experienced a failed LOS implementation. With upfront costs ranging from $20,000 to $2 million, the pressure to deliver a successful LOS is enormous. It’s easy to see why lenders and their consultants create exhaustive requests for proposals that attempt to capture the minutiae of LOS functionality but only give a cursory nod toward technology adoption.
But LOS technology adoption is critical because it goes beyond short-term technology needs. When lenders are able to fully realize the potential of their LOS, they create additional value by reducing the cost of implementation and raising the overall effectiveness of their employees. Technology adoption addresses long-term business challenges that have a more lasting impact on a lender’s efficiency and ROI.
The STRATMOR data bears out the influence of technology and technology adoption on overall vendor satisfaction. In Chart 4, we combined the satisfaction scores for technology attributes, end user experience and customer support in order to provide a rough approximation of lender views on technology and technology adoption.
Not surprisingly, the one vendor with the highest ratings in all three satisfaction areas, “LOS A,” correlated to a 100% overall LOS vendor satisfaction rating. What is interesting, however, is that even though “LOS E” had a lower combined satisfaction score than “LOS D,” it scored almost 20 points higher in overall satisfaction ratings.
When one takes apart the satisfaction score, it shows that “LOS E” scored higher in end user experience and customer support (162 vs. 141) but lower in technology attributes (50 vs. 74). This suggests that technology adoption might have a bigger influence than technology itself when it comes to overall LOS satisfaction.
Defining technology adoption
The goal of technology adoption is to have all users optimally utilize the functions of an LOS system so that they can perform their activities as efficiently as possible. It involves proper implementation of the system and configuration of workflow to meet different operational scenarios. Robust training is necessary to ensure that users understand how to properly operate functions, and responsive technical support helps answer questions when users get stuck.
Achieving a state of ideal technology adoption requires the efforts of both the lender and LOS vendor, but to varying degrees. Very large lenders with enormous IT resources are capable of managing their own technology adoption with little to no expectation of assistance from their vendors.
Other lenders with more limited IT resources need to find LOS vendors that have the best technology adoption capabilities – one that can demonstrate a real commitment to helping lenders maximize the value of their LOS. Providing a high level of technology adoption services goes above and beyond a few hours of training or a user’s guide. It’s a strategic investment by the vendor to build a long-term relationship with a lender that it hopes will grow over time.
So how does a lender evaluate a vendor for technology adoption capabilities? Remember, there are four primary areas of technology adoption: implementation, configuration, training and support. In each of these areas, an LOS vendor must be able to demonstrate the organizational structure, detailed processes and subject matter expertise that support a technology adoption strategy.
Technology adoption addresses long-term business challenges that have a more lasting impact on a lender’s efficiency and ROI.
Finding a trusted implementation manager
From an implementation perspective, a vendor should provide more than just a sample implementation project plan. One of the biggest influencers of implementation project success is the vendor’s project manager. Understanding his or her skill sets and how he or she operates will provide insight into what you can expect from the implementation.
Open Mortgage, a mortgage lender based in Austin, Texas, recently had a unique LOS implementation experience. After six months of struggling with an LOS implementation that ultimately failed, it immediately switched vendors and dove head first into a second implementation that proved extremely successful.
Because failure is a better teacher than success, the company’s experience showed how two different approaches to implementation can lead to completely opposite results.
“In our failed implementation, the project manager funneled information to others within the vendor organization,” explains Jim Howard, chief technology officer at Open Mortgage and the man responsible for both implementation projects. “She didn’t have the skills to make changes directly to our system. And because we were only allowed to work with her, it became a bottleneck for the entire process.
“In our successful implementation, the project manager was much more experienced with the system and could make immediate changes to it, even in the middle of our meetings,” he adds. “When she couldn’t make a change, other implementation teams were available to us. This allowed me to delegate tasks more effectively, and I was able to have multiple implementation tracks run simultaneously. It allowed the process to move much faster and more efficiently.”
Configuring best practices instead of old practices
System configuration is an aspect of implementation that has a big influence on technology adoption. It largely determines how users will operate within the LOS environment and how much efficiency can be gained by automating certain steps. However, configuration can be tricky because lenders tend to stick with their legacy processes when moving to new LOS, which doesn’t always translate well.
Ideally, vendors should approach configuration using a best practice model. Vendors know the capabilities of their LOS better than anyone else, and they have seen all of the different ways their clients configure the systems, both good and bad. From this, an LOS vendor that is strategically focused on technology adoption should be able to present its clients with optimal configuration recommendations (best practices) that fit a lender’s business model.
Howard notes that the availability of best practices was a major factor in his company’s LOS implementation success.
“Our vendor presented us with a giant workflow diagram that laid out all of their best practices from start to finish,” he says. “We compared our old workflow with their recommended best practices workflow and identified four points where we had to decide whether to change the system or change our internal practices.
“We ended up adopting the vendor’s best practice for three of the processes,” he adds. “It simplified implementation because less customization had to be built into the system. With our previous vendor, they didn’t have any best practices and, instead, asked us how we wanted to configure workflow. There is nothing worse than asking a committee of 12 people how they want an LOS to work. It felt like [it took] forever [to] reach a consensus.”
Learning is a continuous process
Training has an obvious impact on end user technology adoption. How well a vendor performs in this area really depends on the quality of the trainers and documentation. But what is important to remember is that technology adoption is not a static, one-time process. LOS vendors are constantly releasing updates with new functions, some of which might have an impact on a lender’s performance with the system. If a vendor doesn’t notify the lender or provide training on a new function, then both the lender and vendor lose.
Many hands offering support
Technical support is an easily overlooked aspect of technology adoption most likely because it is so commonplace across all industries. But it would be a mistake not to evaluate LOS vendors very closely on the structure, size and process of their technical support teams.
LOS vendors that are serious about technology adoption (and customer satisfaction) will dedicate sizable resources to their technical support in terms of both the number of staff and their training. Lenders will also invest in technology to make it easier for lenders and support team members to communicate with each other and track requests efficiently.
By distributing the support workload and connecting us to staff that are knowledgeable about our issues, we get faster, more effective support.
Josh Rosendahl, IT officer at Atlanta-based Mortgage Assurance Inc., saw the technical support provided by his LOS vendor as an opportunity to expand his company’s capabilities.
“We came from a world where a previous LOS vendor charged us $20,000 a year for technical support, and another vendor would take days to respond to our support requests,” Rosendahl says. “Our current vendor doesn’t charge us for technical support, and we wait maybe five minutes to an hour for a response. It’s a world of difference.
“What makes their support so useful is that they segmented it into different functional areas,” he adds. “When we need help with workflow rules, they send us to the workflow support team. When we have issues with the pricing engine, they send us to the pricing engine team.” By distributing the support workload and connecting us to staff that are knowledgeable about our issues, we get faster, more effective support.
The path to an efficient mortgage lending process starts with an evaluation of both technology and technology adoption – regardless of whether a company is satisfied with its LOS. By examining technology and the four elements of technology adoption – implementation, configuration, training and support – one will learn a lot about an LOS vendor’s strategy and whether it is truly committed to a long-term relationship with a lender.