The Never-ending Sea of Mortgage Muck
Loan Origination Systems & Online Loan Application Software

Article by: Doug Perry

Need a life raft?
Due to the proliferation of new mortgage software programs such as website templates, online loan applications and back-end loan origination systems (LOS's) that purport to do everything but make your lunch for you, it's no wonder that brokers and lenders are at a loss when it comes to this never-ending sea of mortgage muck.

Unfortunately, it seems evident that most mortgage brokers and lenders are at the mercy of the SS (software salespeople) who contribute to the many misconceptions that are prevalent in our basic understanding of what is a good software utility, and what is not. If you get nothing else out of this article, remember this: "Salespeople are paid for selling you a product or service without regard to whether or not it is right for your business."

Who can we blame?
Can we blame the salespeople for giving us misinformation? Only if they know they are lying to us to make a sale. Most of the time, they are just doing what they get paid for. Can we blame the program developer? Why do that? They have as much right as the next guy to take advantage of the free enterprise system.

However, this is where our reliability system starts to break down. And, it's not because anyone is misrepresenting the software programs to us. It's because the developer is just as confused about what the loan industry needs as the broker or lender is about which programs are the best for their business.

I will try to shed some light on what is really going on here. If blame must be placed somewhere, then let's be fair. It is as much the lender's or broker's fault for ending up with software programs that won't do the job as it is the developers who peddle them.

Who chooses the software you use in the first place?
Most lenders or brokers appoint unqualified people to find programs that will work for their company. These people have never created a software program before and are at a disadvantage when talking to a software salesperson.

In the same light, most mortgage software programs are developed by programmers who have never done a loan for anyone in their lives. This creates a huge gap between what the broker or lender is looking for, what the programmer's are programming and the borrower's who may be using the software online.

How did the "gap" get there?
Here's a typical scenario related to some of the loan origination systems available today. A few years ago there were just a few good Los's on the market that were worth having. Along comes a new LOS company that needs to break into the market. After struggling for a while with trying to sell their software at the established market price (upwards of $2000.00 at the time), they think that a good strategy would be to cut their price in order to gain market share. Their investors agree and they start a big marketing campaign selling their LOS for $495.00.

The marketing tactic worked and a few years later they ended up being a major player in the LOS world. However, their impact on the market by doing this crippled the LOS industry because it lowered the average established market price of loan origination software (now around $800.00) and made it a lot more difficult for good LOS companies to be able to afford to create better and more dynamic software in a short period of time.

Even though their product may not be as good as others on the market, they now claim in their advertising that they have a huge percent of the LOS market and therefore everyone should "make the change" based on the "wisdom" of other lenders and brokers who have purchased their software.

This is a great marketing campaign. It reminds me of internet access ad campaigns that offer me 1000 free hours to use their inferior, buggy software. The bottom line is that any company can sell anything with enough money behind them, but if you fall prey to this kind of advertising, you will get what you pay for.

It gets more complicated.
With the advent of a wide use of the internet in the last few years, we now have other related issues that complicate matters for the lender or broker. One of these loan origination systems companies decides to try their hand at developing their own online loan application software. Amazingly, it works (after a fashion), and the race is on for competing LOS companies to develop their own online mortgage application software to keep up with the Jones's.

More is not necessarily better!
Today, I can honestly say with conviction that "more is not necessarily better" when it comes to additional functionality of online mortgage application software programs. Not forgetting that these systems were supposed to make it easier and faster for the borrower, more economical for the lender and faster for the loan processor, some of the additional functionality features incorporated into these online systems are almost never used and may have been a bad idea in the first place.

Let's look at "Loan Tracking" software.
For instance, let's take a look at "Loan Tracking" software. What is it, exactly? In its simplest form, Loan Tracking software was meant to allow the borrower to go to an exclusive and private web page to check on the progress of their individual loan after they had applied for a loan via the internet. The theory behind Loan tracking software was that it would reduce some of the time that it normally takes for the loan officer to contact the borrower by phone, and make it convenient for the borrower to access their loan information without having to track down the loan officer.

Great theory, but it doesn't work that way in the real lending world. Here's some reasons (in my opinion) Loan Tracking software doesn't work well in the loan business.

1) On every loan, each time one of the conditions or stipulations are met on a loan (like the completion of the appraisal, the submission of tax forms, paycheck stubs, bank statements, credit explanation letters, etc.), the loan processor is supposed to update the LOS, then upload this information to the borrower's private web page. Not only does this process make extra work that takes extra time for the loan processor, it is rarely updated on a timely basis because loan processors are very busy people.

2) In relation to the above, loan officers don't wait for the loan processor to update the borrower's page hoping that the borrower will eventually go online and find out if information they sent in was received, or to get a list of what to do next. The loan officer "always" contacts the borrower by phone or in person when they need the borrower to provide information the loan officer needs to close the loan. The faster the L/O gets this information, the faster they close their loan, get their commission, and the faster their borrower's are taken care of which translates into repeat business. In short, L/O's and borrowers don't wait on the Loan Tracking system. If they did, borrowers would not get good service and the L/O would make less money.

3) Our feedback from borrowers, brokers, lenders, and software developers over the years indicates that less than 1 in 10 borrowers visit their private loan page more than one time. My guess is that this one time is the time the borrower is introduced to the system.

4) If you're a loan officer, is it a good idea to leave your borrowers in the hands of a Loan Tracking system instead of contacting them in person? The less contact you have with your borrowers, the more chance they have of being tempted to move their loan to another loan officer who will contact them in person. Borrowers employ you to do the work for them, not to have to log into a Loan Tracking system and do it themselves. Loan Tracking systems, in most cases, promote a lack of communication between the borrower and the loan officer. This can't be good.

What about automatically generated online GFE's?
There many more programs that are being added to online mortgage application software that promise better service and increased functionality (like an electronically generated Good Faith Estimate (GFE) which doesn't satisfy the Federal requirement), but in reality are a waste of time and money because the automatic GFE is based on what the borrower submits online in the beginning of the loan process, not what they ultimately qualified for or what costs are actually incurred when the loan closes. When sold as "increased functionality" for the borrower or the broker, it only adds to the never-ending sea of mortgage muck that is already out there for the lender or broker to filter through when deciding what program to use.

So how do you wade through all of this mortgage muck?
This might surprise you, but this basic principle seems to have gotten lost somewhere in all of the excitement of creating great software programs for the mortgage industry: "Simply put yourself in the position of the borrower and go from there."

You probably spend lots of money attracting borrowers through your ad campaigns, so why use online applications that aren't borrower-friendly and have functionality that is not to your advantage? Ask yourself an honest question: Which online loan application would you fill out if you were applying for a loan? Just because you happen to have a particular LOS doesn't mean you have to have their version of an online mortgage application on your website, especially if borrowers don't like filling it out.

Here's a checklist of things to consider when
you need to decide which Online Loan Application software will do the trick:

1) Test these software programs yourself before you make a commitment. Make sure they perform as advertised and will represent your company in a good light to your clients.

2) Is the software easy to use for your company AND your borrowers? If it requires anything more than easy steps for the borrower to take, find something else.

3) Are there too many required fields on the online form? Many people still have a problem entering certain personal information and sending it via the internet. Some online applications won't let the borrower submit the form unless all required information is filled in.

4) Can the borrower edit or update their information easily after submission? Some borrowers need to return and complete the application at a later date, and some need to correct mistakes or enter updated information. If your borrower can't edit the application with a minimum of effort, don't use the software.

5) Will the online application software import the borrower's information into your loan origination system (LOS)? This feature will save you a lot of time if your loan processor doesn't have to re-key the application information into your LOS.

6) Can you and your borrowers view and print the Fannie Mae Uniform Residential Loan Application online? This is certainly not a requirement for a loan, but has lot's of advantages.

7) Additional features to look for that make it easier for the borrower to apply: color-coded navigation buttons, category specific help files, self calculating form, redundancy features, error-checking, etc.

In short, if you stick with software that is the easiest for the borrower to use and does what you as a lender or broker need it to do, then you can't go wrong!

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Doug Perry is the developer of a large number of mortgage lending web sites and is currently President of Click1003 where he develops Interactive Online Mortgage Application Software that integrates into all major loan origination systems for the mortgage industry. Doug is also President and Managing Editor of Mortgage Marketing Online, a web site devoted to helping the lending industry learn and apply marketing techniques to their online and offline lending businesses. As a loan consultant and California Mortgage Broker, Doug served eight years originating loans in California.

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