Technology Vendors Leverage Partnerships with Lenders

MBA (4/24/2008 ) Palaparty, Vijay
Technology vendors increasingly leverage partnerships with other technology companies to provide higher quality systems, reduce development expenses and streamline customer service and problem resolution. The approach enables lenders to offer better quality services while driving down costs, especially to survive current market conditions.
“The pendulum swings back and forth all the time,” said Larry Huff, co-founder and co-CEO of Optimal Blue, Plano Texas. “As the mortgage industry continues to evolve through this massive consolidation, it has created an enormous amount of change which puts more stress on each individual vendor’s domain knowledge. It goes from cradle to grave where lenders want everything under one roof, one point of contact and one source for technology and services. But it’s swinging strongly back towards the other way right now, which is best of breed partnerships, thus, good integration.”

Huff said because all entities in the mortgage market are trying to maximize profits on every transaction, they have to constantly focus on improveming.

“Partnerships make a whole lot more sense as integrations are getting easier—the nature of technology including software-as-a-service and web services are becoming easier to implement," Huff said. "The experience is better for the lender and yes, they may have to make different phone calls to different vendors, but that’s usually the way a business operates anyway.”

Leonard Ryan, president and founder of QuestSoft, Laguna Hills, Calif., said he designed his company around partnerships. The company’s Home Mortgage Disclosure Act software and other compliance products are based on receiving information from loan origination and software vendors. He reported a 90 percent to 95 percent time efficiency rating on the HMDA products.

“What we end up doing because of partnerships aims to save time for lenders,” Ryan said.

Rob Katz, president of Del Mar Database, San Diego, believes in a cross-offering approach to partnerships where vendors offer each other’s products and services on their respective web sites.

“Where I see the industry going today with partnerships and the acceptance of those in this space is through seamless interface,” Katz said. “It’s not reselling the product or marking it up—not costing more for the lender to access it. Lenders work directly with the vendor that is providing service so that their overall experience saves money and they get better service than if one company were trying to private label it all and do it on their own.”

Technology vendors remain focused on lenders’ experiences and feel partnerships can provide a better experience overall, an idea that seems to have evolved in recent times.

“In the old days, vendors used to blame each other if something didn’t go well,” Katz said. “In today’s environment, that doesn’t happen. All of us who partner together walk into it with very clear understanding that we’re never going to point fingers at each other. That’s not what the lenders want and it’s not going to make us any more successful. So we are all much more cooperative. The lender’s experience is not one of confusion because we’re all working together to help lender to have a really good experience."

From a risk management perspective, which could vary between vendors in terms of approach, partners seem to have a united understanding on what lenders look for and require—an important area that has evolved as the risk landscape increased.

“It’s very difficult to be the best in everything. And that’s especially true in product and pricing in secondary marketing automation,” Huff said, “Inventory management is the profit center and the actual component of the mortgage flow process—the product of a price from which revenue is derived. We are pricing off of the investors’ pricing, translating it and passing it on to the lender. If we do that poorly, we’re going to cost them a lot of money. Partnerships have started to mature and technology is a better enabler.”

Monte Larsen, senior vice president and chief marketing officer at DocuTech Corp., Idaho Falls, Idaho, sees an opportunity to provide technology to support lenders in compliance and regulatory areas.

“We know that all the increased scrutiny with the recent downturn in the market is coming to fruition,” Larsen said. “So if lenders can look to partners that can gather technology together and package it, helping implement it into an easy-to-use package, that’s where they’re going to see their success moving forward.”

Larsen is optimistic about future market conditions, saying lenders constantly evaluate their workflow, process and technology to prepare for the next upswing in the market. “Convergence of technology has taken place somewhat in our industry, but lenders have ran into some roadblocks. That’s why it’s important for partners to work together to make sure lenders can meet all these compliance and regulatory requirements, and at the same time, increase their speed and reduce staff.”

As far as a technology implementation model, Optimal Blue operates a SaaS model but Huff does not see it as a primary function of partnerships.

“The key enablers are web services and standardization of those web services in terms of the MISMO format for XML and the corresponding definitions,” Huff said. “We are big supporters of MISMO and what they are at least conceptually trying to accomplish. There are always challenges with any adoption of any new sort of standards but those drive the business and efficiencies, making partnerships easier to execute as well. There are so many different data fields in this convoluted mortgage fulfillment process that no one person or vendor can manage all of that. Using expertise, the interoperability is greatly enhanced by MISMO and web services, at least from our perspective as a SaaS provider.”

Ryan said that a movement online has really impacted the way information is shared in his business and the speed at which it can be shared. “On the compliance end, laws are changing constantly and in order to get all of that information out to everybody requires ability to update information on our servers and instantly have it available to everybody,” he said. “The ability to provide a guarantee, warranty and assurance to lenders is necessary.”

Ryan said lenders look to enter data only once, in one location, creating efficiency to focus their attention on other more important areas such as compliance and regulation. “The industry is becoming complicated and at the same time and there are more tools to help the amount of data that has to be integrated” he said. “With technology and integration, lenders are able to fund loans at a far quicker speed.”

“Consolidation is a macro event of the economy, driving businesses out that aren’t able to sustain a downturn in the industry,” Huff said. “And by definition, vendors drive partnerships. Coupled with rapid pace of change of compliance, rules and products, everything in this industry is moving at a pace that is unprecedented in terms of change. Therefore, it emphasizes the need for domain knowledge or specific niche expertise that drives need for partnering and best o breed management. The macro economics, as well as the micro, are driving more and more need for this. I don’t see that changing. It’s just too hard to be too good at more than one or two things at a time.”

Del Mar recently went through a deconsolidation. Formerly part of Fiserv, Brookfield, Wis., the company was sold as a private entity to serve small and medium-sized mortgage bankers.

“It opened the door for us to start embracing partnerships again,” Katz said. “If you’re good at what you do, there’s a niche that you’re going after. To consolidate with other companies to try to do more is counterintuitive versus trying to be the absolute best and then partner with the other companies that have the same outlook. Best of breed was the buzzword six years ago and it is deservingly now again. It’s what’s right for the lenders. The one thing lenders can grab onto to in today’s changing market is their ability to provide customer service. If I were a lender, I don’t know how else I’d compete. It has to come down to customer service.”