A Due-Diligence Primer For Selecting Tech Vendors

A Due-Diligence Primer For Selecting Tech Vendors REQUIRED READING: Smart technology solutions are no longer confined to a single department within a mortgage banking operation. Once the technology requirements are defined, the next challenge is to acquire the best possible solution.

In technology, as in fashion, one size never fits all. Everyone has unique needs, though there is a common ground in the need to meet regulatory compliance requirements. In this new era of intensive regulatory oversight, most lenders are looking for a business partner, not just a technology vendor. But this is not a task that can be achieved overnight – a true due-diligence process may take up to two years to complete.

Starting with simple requirements, a request for information can weed out inappropriate products immediately and be used as the basis for a more in-depth second step: the request for proposals (RFP). RFPs range from simple essay questions that address specific functional areas to complex ranking spreadsheets with numerous vendor attachments.

Some vendors respond with stock proposals. These are easy to recognize, because they will rarely address your questions. Every RFP question should be answered completely and actually relate to the question asked.

No matter how you gather the information, it is important to clarify any discrepancies with the vendor before final decisions are made. RFP response inclusion in the contract is becoming a common practice. As a further safeguard, these items can be written into the contract as minimum requirements, with early termination if they are not met.

It is important to verify the vendors' technology responses by delving a little deeper. Ask about development tools, the deployment process, the change-management process, product architectural diagrams, network configurations and the data structure. Request a code and database review. Code reviews uncover the existence of legacy code – for example, some vendors have wrapped their legacy code with new .NET code, which is then misrepresented as completely .NET.

Another important factor to consider is the vendor's willingness to form a partnership beyond the implementation. A true partnership is crucial to the continued business success of both parties. Good technology partners involve customers in product development, maintain user groups and promote open communications with their customers.

At this point in the process, it is vital to take the time to determine if you are talking to a software vendor or a business partner. The easiest way to do this is to speak with existing customers, ask how they decide on and develop product enhancements, and determine how willing the vendor is to adapt to your needs.

A glowing record?

Industry experience should also be considered. There is something to be said for longevity in an industry that has seen so many technology vendors fold or be acquired. Also, it is crucial to validate the staff tenure and ask for resumes of the professional services team. Inexperienced or new vendors may not be as willing to accommodate lenders' requirements because their products have not been developed as thoroughly as an established technology providers.

Vendors should know their corner of the industry well enough to provide suggestions and discuss options with lenders. They should have a selective strategy for integrating and performing with other vendors and services, and be willing to offer suggestions or alternatives.

Then, check vendors' financial stability by asking to see audited financial statements. Request a three-year history of their research-and-development budget to determine if they have a long-term plan.

It is a good idea to visit the vendor's headquarters and meet the staff. In the long run, it will be important to have a comfort level with these potential partners – after all, your team will be working with them on a daily basis during the implementation.

The biggest issue everyone has had to deal with during the past three years has been regulatory compliance, and that is where lenders are looking to technology for the most help. Today's mortgage compliance requirements are unforgiving, and many lenders need technology that can eliminate some of the more onerous chores. Operating costs can be significantly lowered with the use of workflow, imaging and electronic delivery to produce loans, and these components should be reviewed during the due-diligence process.

During this review, the lender should verify if the technology under review will perform as touted. If the opportunity can be arranged, it is important to visit the vendor's customers to see the system in a real-life environment. If such a hands-on tour cannot be arranged, then the next step is to contact the customers directly and ask as many specific questions as possible.

Vendors should be willing to replicate the lender's process if requested in a live demonstration. The days of canned PowerPoint presentations and reams of paper screen shots are over.

Finally, check the vendor's implementation history. Do not be afraid to ask for failed implementation scenarios, and review the vendor's change-management process and implementation methodologies. Implementation strategy can tell you how flexible and efficient the vendor is and how willing it is to deviate when needed. An experienced vendor can provide sample project plans and a project's history, as well as offer business process reviews.

Ultimately, this is going to be a lengthy process. Due diligence should not be rushed – many lenders in our industry take up to two years to make a final decision. Quick decisions tend to lead to costly – and often disastrous – consequences. Rushing through a project can cause details to be overlooked, resulting in issues that could impact the entire business effort. When in doubt, it is best to go back and double-check to make sure you are making the best possible purchase for your company.

Craig Bechtle is executive vice president and chief operating officer at MortgageFlex Systems Inc., based in Jacksonville, Fla. He can be reached at cbechtle@mortgageflex.com.


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