Anytime you have a conversation about a loan origination system (LOS) project in the mortgage industry, the first two questions are: "How long will it take?" and "How much will it cost?" However, the answers to these questions are not as simple as one might think, given that there is more than one type of LOS project.
With the maturity of the LOS market today, vendors and lender information technology (IT) staff alike can deploy a base LOS package quickly and for a reasonable cost within a particular department of a lending organization. Over the past five years, a new breed of LOS project enabled by next-generation LOS technology and new methodologies has emerged, and it has focused on information management across the enterprise. These projects have much more in common with enterprise resource planning (ERP) projects than the installation of a base LOS package.
When those two questions posed earlier are asked about this new breed of LOS project, the answers so far have been "it will take longer and it will cost more" when compared with a base LOS package install. The time frames and costs instead are coming out similar to those for ERP projects in other industries. But why would lenders take on an approach to LOS that potentially takes longer and costs more than a base system install? The answer, in a word, is service.
In a 2004 research paper, the Office of Federal Housing Enterprise Oversight (OFHEO) cites technology innovation as an important influence on what is now a quicker and more efficient process for borrowers, lenders and investors alike. These innovation-driven efficiencies began for the mortgage industry in the 1980s with automation at the departmental level. Starting in the mid-1990s, increased bandwidth, increased storage capability and the Internet began driving a rapid reduction in information costs. What the increased efficiency in the mortgage industry to date has meant for lenders is that mortgage instruments have become a commodity differentiated by price.
The Chicago-based National Association of Realtors[R] (NAR) 2006 National Association of Realtors Profile of Home Buyers and Sellers highlights the broad range of financing options available to consumers and the ease with which they can comparison-shop on the Internet. Thus, competitors now differentiate themselves based on service, and in a service business those with the best information win.
The similarities of the information-management-focused LOS project to the ERP project...