Enhancing your core LOS: rip-and-replace, reface or remodel?

Author:Focardi, Craig
Position:Loan origination system

Replacing a core loan origination or servicing system is the most mission-critical and riskiest information technology (IT) project a lender can undertake. Core systems need to operate 99.99 percent of the time to provide good customer service, minimize reputation risk and remain profitable. They also need to support fast delivery of new products and services for a lender to remain competitive.

Yet lenders face a variety of challenges when changing core systems--which is difficult, because numerous integrations need to be redone, as does expensive customization work. Age-old enhancements are often undocumented and built by a programmer who is long gone. Further, many employees are comfortable--even if somewhat dissatisfied--with the current system. Finally, a major failed IT project can be a career-limiting move for the chief information officer (CIO) or chief technology officer (CTO). But lenders need to take some calculated risks, and take advantage of newer technologies to improve core lending technologies and achieve business objectives.

Technology-enabled business objectives.

As an enabler of business strategy, mortgage technology needs to support the speedy introduction of new loan products and services; improve speed to process an account opening or customer-service request; lower processing costs and keep firms in compliance. But many mortgage lenders are also subsidiaries of diversified banks that cross-sell banking and savings products, loans, insurance, securities and investments. These banks operate as a loosely coupled confederation of separate lines of business (LOBs) with separate IT departments and different vertical software applications supporting them. Despite these constraints, mortgage lenders also need to think simultaneously about improvements to support their lending operations and the IT of the consumer lending and banking operations of their parent company.

Within this environment, chief executive officers (CEOs) and chief financial officers (CFOs) have renewed the mandate for better technology integration to support cross-selling and customer service at lower cost. Yet there is reluctance to spend hundreds of millions of dollars on ripping out and replacing existing core systems and implementing different vendor solutions for consumer, home-equity and mortgage-lending LOBs. Project-failure risk, long implementation times and high costs have led senior management to look for technology evolution, not revolution.


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