The Value of True Digital Lending


BLOG VIEW: When it comes to modern digital lending, point-of-sale technology is a trendy topic. Every lender wants a shiny, intuitive POS for their borrowers so they can apply for a loan anywhere, at any time.

It’s a great system, but in reality it’s been around for many years. The problem is, lenders are shopping for these consumer portals through the wrong lens. The popularity of these POS systems today is just a consequence of something much larger: the total digitization of the mortgage industry and the extensibility required to survive it.

The digital transition of the mortgage industry changed the way lenders interact with borrowers and how technology interacts with both parties. The popularity of the POS falls heavily behind the foundation that can reinforce it. The POS is just the tip of a massive iceberg.

Mortgage lending now relies so much less on paper, both literally and figuratively. Paper has been turned into pure data that can be passed through the hands of all lending parties intact and instantaneously. When the digitization of the mortgage industry began, POS was a human being that could assist the borrower in the process. When paper began to turn to 1’s and 0’s, all sorts of new systems needed to be developed to pass that data from one place to the other without the help of human hands.

Today, we have loan origination software that is entirely responsible for maintaining and passing data through the loan process. If POS is the tip of the iceberg, the LOS is the behemoth under the surface. Because an LOS can ship data instantly and seamlessly, it centers a stronger focus on the importance of data. It’s because of this that the LOS became more than just the shipping and receiving department of the digital lending process. It became a system of record.

In the 1990s, the LOS was no more than a typewriter, just a simple tool that made the loan process a little quicker. Today, it’s integrated into every service required for the loan process.

It’s these integrations and the centralized management of loan data that allowed the LOS to transition from typewriter to system of record. Now it’s used to perfectly store vital data for reference. If an auditor or warehouse bank or any other external party demands to see a loan for integrity purposes, sure enough it will always be snugly secured in the LOS.

Treating the LOS as an archival system was a first step toward achieving a longer lifespan. However, although technology accelerates in power and capacity exponentially every year, LOS technology is weighed down by legacy systems that don’t have the ability to keep pace. The majority of lenders are using technology that was originally developed in the 1990s or earlier.

It’s becoming more difficult for these legacy systems to integrate well with systems and services that utilize modern technology standards, such as web-service APIs. As a result, lenders using legacy LOS platforms have to bear the cost of bridging the technology divide, both in terms of money and opportunity. These costs only grow over time, as they continually have to keep up with changes, enhancements and new product offerings.

Migrating to LOS platforms built on modern technology standards allows lenders to future-proof their businesses. By utilizing an advanced database architecture that is designed to support a true SaaS model and an API framework that is open and easily accessible to integration, lenders can leverage a technology foundation with virtually unlimited extensibility and scalability, one that can adapt to a digital mortgage that is yet to be fully realized.

The mortgage industry is experiencing a paradigm shift involving consumer behavior, regulatory reform and a convergence of technological change on a scale that has never been seen in the industry. By making the decision to update their LOS to successfully meet the needs of today’s technology, lenders can not only create the digital lending environment required for the consumer of the present, but address their needs for years to come.

David Colwell is vice president of strategy for LendingQB, a provider of loan origination software.

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