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Mortgage LOS Platform Evaluation and Selection
Mortgage LOS Platform Evaluation and Selection
Mortgage LOS Platform Evaluation and Selection
Mortgage LOS Platform Evaluation and Selection
Mortgage LOS Platform Evaluation and Selection
Mortgage LOS Platform Evaluation and Selection
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Mortgage LOS Platform Evaluation and Selection

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For mortgage lenders, choosing a loan origination system (LOS) is both critical and complex, with more than 30 vendors offering viable versions. We present a fact-based, analytical process for …

For mortgage lenders, choosing a loan origination system (LOS) is both critical and complex, with more than 30 vendors offering viable versions. We present a fact-based, analytical process for evaluating your company's mortgage origination needs and selecting an LOS that suits these requirements perfectly.

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  • 1. • Cognizant 20-20 InsightsMortgage LOS Platform Evaluationand SelectionA comprehensive and fact-based process that takes into accountbusiness goals, channels, target segments, products and investorscan help lenders find the “best fit” LOS platform from amongthe numerous options available. Executive Summary timelines with the needs of the originator. This is as much an art as a science. The mortgage loan origination system (LOS) is the most critical piece of technology for mortgage This white paper outlines some key challenges lenders. It is ubiquitous in the life of loan officers, that a typical lender faces while evaluating and processors, underwriters, closers, funders and selecting an LOS platform. It lays out a structured other support staff responsible for originating approach, based on a model, which aims to enable and fulfilling loans. an apples-to-apples comparison and remove sub- jectivity and prejudice from the selection process. Since the LOS platform is among the most signifi- cant investments that a mortgage bank makes, LOS Platform Overview LOS evaluation and selection is critical to the A typical LOS supports end-to-end loan production success of the organization. With multiple forces processes from lead to close, as depicted in Figure and constraints to consider, selecting an LOS 1. To support these processes, an LOS is typically can be a daunting task. The considerations that designed (see Figure 2) to have the following four influence this decision include strategic, business, components: functional, nonfunctional, technology, interfac- ing, compliance, financial and time factors. • Point of Sale (POS): A POS system allows customers, loan officers and brokers to The fact that over 30 vendors offer LOS platforms manage leads, compare products and process makes the decision even more difficult. Most application-related information and initial/final LOS platform vendors have targeted offerings rate lock. Usually a fully Web-enabled solution, for various segments based on mortgage banks’ it gives staff the flexibility to access POS func- business models, size, channels, IT ownership tionality anywhere an Internet connection is preferences, cost and time appetite, etc. available. Typically, banks have separate POS Evaluating and selecting an LOS platform that fits systems for different channels such as retail, the organization’s needs requires matching the wholesale and correspondent. The data from functionality, scale, ownership model, cost and cognizant 20-20 insights | june 2012
  • 2. the POS eventually flows into the LOS fulfill- products offered, product pricing and discount ment system. points, product eligibility criteria, underwriting rules and all loan conditions. This is typically• Fulfillment: This is the most complex and accessed by business users for managing the largest functionality of an LOS. Fulfill- business changes, and is a key determinant ment provides functionalities for operations of the time-to-market and system agility. to work on various tasks of the mortgage Some LOS platforms do not include a sophis- lifecycle through workflow orchestration and ticated enterprise business rules management core processing support for activities such as system. Originators, therefore, may choose processing, underwriting, closing, funding and to implement these functions through an post-closing. industry-standard business rules engine. Most• Product and Pricing Engine: A product and LOS platforms offer built-in integration with pricing engine houses business rules on the external product and pricing engines.Origination Processes Supported by LOS Lead Acquisition/ Closing and Processing Underwriting Application Funding • Lead Generation • Application Capture • File Registration • Document Verification • Schedule Closing • Contact Management • Quick Pricing • Document Intake • Property Analysis • Draw Up Closing Docs • Prospecting • Rate Lock & Processing • Credit Analysis • Conditions Processing • Scenario Analysis • Disclosures • Ordering 3rd Party • Ratio Analysis • Doc Signing & Review Services • Pipeline Management • Document Collection • Exceptions processing • Funding Setup and Release • Receive and Process • Full Pricing/Repricing • Post Closing 3rd Party ServicesFigure 1Mortgage LOS Reference Architecture Register Credit External LP/DU (MERS) Card Interfaces Vendors Money Address Validation VA Investors Transfer App MI AVM Ti FI Ntr Credit LOS Component Interface Layer • Lead Product & • Acquisition/ Pricing Engine Application Acquisition/ Closing and Processing Underwriting Application Funding POS (Retail, B2B) Fulfillment Interface Layer Internal Data Transfer Vendor Document Doc Enterprise Money Interfaces Web Service CRM Management Publishing DW TransferFigure 2 cognizant 20-20 insights 2
  • 3. • Interface Layer (External and Internal): • Technology Architecture: The key aspects of This component provides interfaces to the technology evaluation include technology various external and internal component mapping for each layer (presenta- systems. External interfaces tion, business logic, interfaces and database), With more than are typically with standard and the corresponding fit with the overall orga- 30 different LOS third-party vendors that nizational set-up, infrastructure, interfaces, systems on the provide flood, loan processor credit, services such as capabilities, IT sourcing and technology strategy.market, selecting an (LP), desktop underwriter • Integration: An LOS platform orchestrates LOS that suits the (DU), property appraisal, etc. various processes and services required to broader needs of Internal with banks’ typically connect interfaces internal originate mortgages. Therefore, building the requisite interfaces with several internal andthe organization is a systems such as document external systems requires significant effort. difficult task. management systems, CRM Hence, the lender should consider out-of-the- systems, etc. box interface capabilities as well as technology LOS Evaluation and Selection architecture and flexibility to support custom Considerations interfaces. With more than 30 different LOS systems on the • Customization vs. Configuration: Custom- market, selecting an LOS that suits the broader izations are expensive as typically product needs of the organization is a difficult task. Due to vendors’ professional services teams undertake stringent post-recession regulations, every LOS the customization while internal staff takes care in the marketplace today is functionally capable of configurations (with training). Many vendors of supporting end-to-end mortgage origination offer product training as well as partner with processes. However, lenders today are demanding implementation services providers for these even more from their LOS platforms. When customizations and configurations. However, functional support is a given, other aspects such to arrive at an operating model, it is important as technology architecture, agility, a full suite of to determine the gaps in the LOS platform components and the time and cost required to versus the functionality required and classify implement the platform become more important. them as customizations or configurations to Apart from functional capability, some of the arrive at the right model for managing imple- important aspects of an LOS evaluation are: mentation. An LOS platform with basic con- figurations will provide lenders the option of • Time: A typical LOS implementation takes user setup and product setup, while a truly anywhere between six to 24 months depending configurable platform will provide the ability to on the scale, channels, products, customiza- design workflow, and manage product, pricing, tion, integration, IT capability and bandwidth. business rules and user rights at the screen/ It is thus important to determine the business functionality level. appetite for time-to-market, and how the LOS fits into the time frame dictated by the business • Product Implementation Processes and Doc- umentation: Vendors’ LOS implementation dynamics. processes and the associated templates and • Cost of Ownership: Based on our experience, reference documents are a key determinant LOS implementation typically costs lenders of the success or failure of the platform imple- between US$2 million to US$60 million, mentation, and require a detailed assessment. depending on factors such as customization, Lenders should evaluate vendors’ implementa- scale, channels, products, integration and the tion processes by reviewing key process steps, ownership model (SaaS transaction-based project management processes, RACI matrix versus ASP fixed-cost model versus hosting and risk management practices. Lenders in-house). Maintenance and enhancement should also review key reference documents costs vary significantly based on the afore- such as reference process maps, project plans, mentioned factors and could range between US functional specifications, technology architec- $100,000 to millions of dollars per year. Hence, tures, estimation methodologies, etc. it is important that a lender evaluate products’ total cost of ownership based on how it aligns • Regulatory Compliance: With the government periodically rolling out regulations (e.g., the with its business needs and IT operating model. Dodd Frank Act (DFA), the Consumer Financial cognizant 20-20 insights 3
  • 4. LOS Vendor Evaluation and Selection Approach Capture Conduct Vendor Due Organizational Needs RFP Process Diligence • Identify & define • Establish vendor • Demos/meetings. business needs. evaluation criteria. • Deep-dive • Identify & define IT and • Response evaluation workshops. technology strategy and short-listing. and preferences. • Prepare process maps and feature list. • Prepare LOS architecture diagram.Figure 3 Protection Bureau (CFPB), etc.), it is important channel and only prime jumbo loans will have to validate that the platform is flexible enough very different needs compared with a full-ser- to keep up with such regulations. vices retail lender.• Data Governance and Accountability: Given • Identify and Define IT and Technology Uniform Loan Data Delivery (ULDD) guidelines Strategy and Preferences: This includes and the increased focus on accountability, an determining the IT ownership model and costs, LOS platform needs to have the flexibility and capability management, vendor strategy, IT features to incorporate future needs. strategy and technology preferences. For example, a lender with low origination volumeLOS Evaluation and Selection and a small range of products may choose aApproach SaaS model and out-of-the-box implementa-LOS evaluation and selection is a complex tion to reduce costs, embrace an operationaland detailed process wherein lenders need to expenditure model, and reduce the implemen-evaluate each platform on multiple factors. tation time. A large player with several productsAs mentioned earlier, these factors include and channels can opt for the internally hostedthe business model (business goals, channels, model with significant customization if it deemstarget segment, products, investors, etc.), IT and its business needs require this model and it hastechnology strategy, time, cost and other consid- the deep pockets to support it.erations. We advise lenders to embrace a robustLOS evaluation and selection approach to ensure • Prepare Process Maps/Feature Lists: Process maps/feature lists will help clearly define theselection of the “best fit” LOS product for their functional scope of the system along with userneeds (see Figure 3). It starts with a step which profiles, setup and configuration features, etc.,is often addressed inadequately — capture orga- and thus objectively determine the product fitnizational needs. and gaps.Capture Organizational Needs • Prepare Architecture Diagram: An LOS• Identify Business Needs: Identification of platform interfaces with several internal and business needs includes capturing details on external systems and industry participants (see present and future functional and business Figure 2). The lender needs to ensure that the requirements — target segments, channels, chosen LOS can support all these interfaces products, investors, volumes, cost and time and vendors. An architecture diagram helps appetites, etc. These requirements will help visualize and map all the interfaces to connec- drive the overall vendor evaluation and tions that the vendor currently supports — thus selection process and narrow in on the best-fit helping the lender evaluate the platform on LOS platform for the lender. For example, a technology interface stack fit. focused lender with only a direct-to-consumer cognizant 20-20 insights 4
  • 5. Conduct RFP Process two to three vendors are short-listed for furtherEstablish Vendor Evaluation Criteria: As deep-dive and due diligence.mentioned above, the key considerations for an Deep-dive Workshops: Deep-dive workshopsLOS product evaluation and selection include: should cover an in-depth analysis of the basefunctional fit, technology architecture, IT strategy product features, the product implementationand ownership model, time required to implement, processes, customization versus configurationcost of ownership, integration capabilities, level of determination/comparison, an analysis of thecustomization/configuration, product implemen- technology architecture, interfacing capabilities,tation process and documentation level, etc. The regulatory compliance adaptation, functional fit/details and weights of these factors will depend gap analysis and a high-level effort/time determi-upon the organizational needs captured in the nation to fill the gaps.earlier phase. The request for proposal (RFP) forvendor evaluation and selection should be refined Conclusionto objectively evaluate vendors on the above con- The LOS evaluation and selection process mustsiderations. This is in contrast to the traditional ensure that lenders choose the LOS platform thatRFP approach that is often subjective in nature. best fits their overall needs as it involves a signifi-Each question in the RFP will measure the vendor cant investment of time, effort and cost. Lenderson a factor with an associated weight, resulting can ensure this by evaluating LOS platforms onin a combined factor score. This comprehen- a comprehensive set of parameters includingsive vendor score can be used for the first-level functional, nonfunctional, cost, time, ownership,screening. technology, IT strategy and business fit asResponse Evaluation and Short-listing: The detailed earlier. Further, these parameters shouldobjective of the RFP process is to short-list five or be evaluated based on a quantitative frameworksix vendors that best fit the organizational needs to enable apples-to-apples comparison, thusfrom among 20 to 30 vendors. The comprehen- removing subjectivity in the decision-makingsive RFP questionnaire includes weights for process. A “best of breed” approach would bevarious factors, which are determined based on template-driven with quantitative and preciseorganizational needs, and helps short-list vendors criteria to measure and compare each parameterthat are the best fit for the organization. that truly reflects the needs of a lender. For example, functional coverage would compare/Vendor Due Diligence validate the functionalities provided out of theVendor due diligence is the most critical and, box, while nonfunctional parameters would coverironically, the most ignored aspect of product aspects such as interfaces and extracts, auditevaluation and selection. This step validates the trail, data validations, etc. The cost aspects wouldclaims that vendors make in the RFP. Vendor due include the total cost of ownership, the ownershipdiligence typically comprises demos/meetings, model (SaaS, ASP, hosted in-house), maintenance,workshops and deep-dive sessions to assess licensing and development/implementationproduct functionalities, technology architecture, costs. IT strategy would cover aspects such asprocesses, documentation levels, etc. technology preferences and ownership/hosting preferences. Business fit would cover channels,Demos/Meetings: All the short-listed vendors products, volumes and the overall businessare invited to make presentations and give a strategy fit.platform demo. Typically, these meetings lastfor two to three hours. The vendor presenta- The significance and importance of each of thesetion covers aspects such as an overview of the parameters and the corresponding sub-parame-company, platform and process, financials/con- ters will vary from lender to lender. The evaluationtracting models offered and people capabilities. approach should therefore allow lenders to applyThe platform demo covers functional aspects, different weights to these parameters and seeadministration features, product and pricing how these parameters compare across vendors.setup, nonfunctional features, functional archi- A best-of-breed approach should be comprehen-tecture (including interfaces), technology archi- sive, configurable, objective and flexible, thustecture, integration capabilities, etc. Typically, helping lenders evaluate and select the best-fit LOS platform. cognizant 20-20 insights 5
  • 6. About the AuthorsAshish Shreni is the Consumer Lending Practice Head with Cognizant Business Consulting and has workedfor over 12 years in the banking and insurance space on projects spanning business and IT strategy,business process optimization and complex project execution. He can be reached at Ashish.Shreni@cognizant.com.Avishek Bimal is a Consulting Manager with Cognizant Business Consulting. He has over 12 years ofexperience working with leading banks on project management, business process optimization andconsulting engagements. He can be reached at Avishek.Bimal@cognizant.com.About Cognizant’s Mortgage PracticeCognizant’s Mortgage Practice employs over 70 subject matter experts and analysts and 5,000-plusassociates, and has successfully delivered over 500 large and complex engagements across originations,secondary markets, servicing and loss mitigation in the U.S. and UK and throughout Europe. We offerconsulting, IT, BPO and IT infrastructure services across all functional areas. Mortgage LOS productevaluation and selection is a proprietary methodology designed and developed by Cognizant to assistlenders with LOS platform selection. www.cognizant.com/banking-financial-services/consumer-lendingAbout CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 140,500 employees as of March 31, 2012, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.

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