Years ago, when I was touting the early generation of application service providers, a number of mortgage industry veterans told me the ASP model was just a warmed-over version of the old service bureau. If only for security reasons, they said, there was no way lenders were going to surrender operation and control of their LOS or other key systems to outside hosted management. When a lender tells me that, I have to shut up. Columnists don't get to tell lenders what systems those lenders are going to buy - or rent.
But a little voice kept muttering "just wait and see." After all, what differentiated ASPs from traditional service bureaus was the Internet. Lender adoption of technology has always tended to lag years behind the coming to market of truly innovative systems, and the Internet certainly has revolutionized every aspect of mortgage technology.
When lenders decide all of a sudden to make a technology move, they have to run down the shortest available path to catch up with the front-runners. ARC Systems, Mortgagebot and other leading ASP providers have seen a big chunk of business come their way. As the ASP model gains traction, minimum standards for reliability and security go up.
The lion's share of mortgage technology investment is made by the very largest lenders. The small and midsized lenders always have to keep a nervous eye on their giant competitors to make sure the ABN Amros, Countrywides and Washington Mutuals are not leveraging technology to create competitive advantages that the little guys can't match.
Fortunately for small lenders, there is a fierce competition to serve the top tier, and no one vendor can grab more than a piece of that action. As a result, many vendors find themselves touting products to the smaller lenders that were originally developed for the big guys. ASP delivery forces vendors to operate in a commodity world. To compete, vendors must be very sure of their ability to execute profitably on a very clear value proposition.
Today new players like Xetus and Insight Lending Solutions join more establish providers to offer ASP solutions that deliver the twin benefits of ease of implementation and a variable-cost model. ASP vendors know they have to match Mortgagebot's well-publicized boast that the lender can recoup the initial setup costs by the time they bring in the first couple of borrowers via their transactional Mortgagebot B2C website. If vendors have to fudge on such simple promises, that failure quickly will become common knowledge, as is not the case with years-long LOS implementations where vendors and lenders have a reason to avoid publicity about project creep, unsatisfactory performance and embarrassing cost overruns.
Sometimes it doesn't seem possible to leap across the chasm separating big players from the rest. The giants are all interested in streamlined workflow, in BPM, in automating processes so that the only time a live employee touches a loan is to handle exceptions. However, Mortgage Cadence has come to market with an ASP version of its enterprise LOS system, called Symphony, that CEO Mike Detwiler told me may be the release of the year. He said the system can be up and running in as little as two weeks. What stands out for me is that Symphony includes embedded rules, workflow and imaging to give users the ability to distribute forms electronically, thus enabling them to do e-mortgages. Now that Freddie Mac has joined Fannie Mae in publishing its e-mortgage guidelines, that is no minor boast Mortgage Cadence is making here. We'll be watching to see whether its stable of lender clients expands because of Symphony.
Competing against the ASP option forces vendors still selling software to the smaller players to keep implementation costs as close to zero as possible.
Alpharetta, Ga.-based OpenSpan offers a proprietary software tool that substitutes "surface integration" for complex back-office integration to deliver a single view of all the borrower and product data a call center representative or other user will need to put together a loan transaction at the initial point of contact with a borrower. The product is not Web-based. Instead, it's a very small application that sits between the Windows operating system and the desktop applications to identify all application objects running on the desktop. OpenSpan's underlying technology creates XML metadata describing the automations and rules users creates between each of the desktop applications. As Xetus does through Ajax (asynchronous Java and XML), OpenSpan smoothes interoperability between client-server and Web applications. Products like that have appeal not only to small players but to big lenders that grew through acquisition of other lenders with disparate systems.
Broker users tend to expect implementations to involve no more steps than it takes to install a computer game. A company called Kaleidico is stepping up to the plate with a lineup of out-of-the-box software "appliances" that offer to improve lead generation, workflow and other processes. Like OpenSpan, Kaleidico comes to market with very impressive credentials. Launched by the co-founders of DeepGreen Mortgage, Kaleidico's inaugural appliance gives lenders and brokers access to Internet lead aggregators like LendingTree, Lower My Bills and LoanWeb. Kaleidico told me initial implementations show their appliance being able to deliver conversion rates as high as 30%, "significantly better than the mortgage industry's average of between 2% and 6%."
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