PERSON OF THE WEEK: Industry observers will tell you that mortgage lenders typically turn away from an existing loan origination system (LOS) in favor of a new one every five years or so. The traditional process of selecting this software has been long, expensive, tedious and likely to drive lenders back to the same old software. There must be a better way.
Keith Kemph, CEO of BlackFin Group, an industry consultancy, says the path forward starts with a funeral. He sat down with MortgageOrb to talk about why the traditional LOS RFP (request for proposals) process is dead and why it’s time for the industry to move on.
Q: How are lenders evaluating and selecting mission-critical software today?
Kemph: We see two typical approaches in use in our industry today. Some will lead the process internally with the most experienced executive they have, a person who may or may not have any level of expertise in interviewing, analyzing, selecting, negotiating, purchasing and then implementing their next infrastructure investment. Or they may hire an outside consultant. They both carry high risk.
In both cases, they will typically result in some form of an RFP. Inexperienced buyers will ask too few questions that lack a strategic focus. Most consultancies will drag the lender through a long and expensive discovery process and then send out the same RFP that has been in use for 10 years ago or longer.
Overall, the biggest issue is there is no one consistent, best practices, approach to technology selection and implementation in the mortgage industry.
Q: Why isn’t that working out very well?
Kemph: If the lender handles this work internally, without an objective and experienced third-party view into the process, their banking on luck instead of knowledge and experience to get through the selection process. A costly gamble when you consider that over 70% of all LOS implementations fail.
If the lender goes outside, they will be herded through an outdated process resulting in the vendors having to go through the very same RFP questions they’ve seen a hundred times. Why should the vendor have to verify its system works when there are verifiable customers who have it in production?
The current RFP process is broken. Lenders are frustrated because they are limited to one of two bad choices, both of which are expensive and risky. Vendors are unhappy because they are separated from their prospects and often never get the chance to speak to the lender after spending weeks filling out an RFP.
Q: What would a better solution look like?
Kemph: It’s time to reinvent the software selection process. Lenders need better support that offers objective information without having to engage with a vendor until they are ready. It’s very important that the selection process be vendor agnostic.
That can only happen if lenders have a cost effective, consistent, model/framework that can be installed and used, nurtured and slightly altered for use in any software evaluation selection process. While RFPs tend to focus on function of the vendor’s product, it is essential that lenders understand how the entire lifecycle of implementing a new system will affect, and hopefully improve, their organization. It must be a framework that ensures the lender’s people, process, and technology are considered.
Q: What’s standing in the way of the industry getting there?
Kemph: First, it’s the fear of change. Change is always hard, but lenders need to take a close look at that failure rate of 70% and recognize that something in the selection and implementation process is broken.
Second, it’s confidence in the idea that a vendor-agnostic, information-rich process based on a proven methodology could be developed and would actually create a viable third option for lenders.
I imagine this would eventually be an online portal of information that is free to access, safely guarded, and trusted to be biased-free. It would offer a number of tools to help lenders get through the initial review process. Perhaps checklists to guide them through the process and expert guidance when required. We must also recognize that not all lenders’ needs are the same and have tools to fit the strengths and weaknesses of vendors’ offerings to a particular lender’s needs.
Q: How do you think lenders will buy tech in the future?
Kemph: When you’re investing in very expensive, mission critical software, you can’t just make a selection from an online pull-down menu and expect to have a good experience. And you can just trust some consultant to do that for you.
I believe buying mortgage technology in the future will return to a conversational process, where the lender comes to the table armed with their strategic priorities and the vendor comes willing to listen and learn. The relationship that develops out of these early conversations will do more for the lender’s ability to successfully implement a new LOS than any 500-question RFP ever could.