Standard Versus Custom Integration: In Mortgage, It All Depends

Mortgage lenders are increasingly deploying e-mortgage technology – especially at the front end of the origination process – in order to gain new efficiencies, automate regulatory compliance and boost customer satisfaction. Many are now deploying advanced online portals where borrowers can submit applications “paperlessly” and get pre-approved for a mortgage in a matter of minutes. This is being achieved via a mash-up of software, services, data and analytics – mainly automated underwriting and automated asset and income verification, but also involving integration with credit reporting services and other third-party databases.

Handling the bulk of this automation is the loan origination system (LOS), which sits at the center of the mortgage origination software ecosystem. These core systems must be integrated with a wide variety of ancillary systems, services and databases, all of which must work in unison in order to deliver a seamless mortgage experience for consumers. As such, system integration – and how best to approach it – has become a critically important topic for mortgage lenders as they build out their new online and mobile platforms. How well these ancillary systems are integrated is of extreme importance, particularly from a regulatory perspective: Should one system fail to accurately “hand off” data to another system, it can result in system-wide errors that can sometimes be difficult to quickly detect and/or rectify and that can ultimately lead to consumer complaints – or, worse, grab the attention of regulators.

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Perhaps needless to say, one faulty integration can quickly lead to an automated mortgage process “running amok.”

What’s more, the connections among systems are often considered “weak points” in terms of cybersecurity. Very often, if there is a “back door” that a hacker can use to directly infiltrate a mortgage lender’s systems, it is via one of those many integration weak points. As a result, most mortgage software vendors and IT services firms are putting a strong emphasis on making the connections between systems as secure as possible.

But what about those lenders that wish to integrate their LOS with legacy or proprietary systems and/or databases? Many of the lenders that are now preparing to deploy e-mortgage technology already know they are going to need to upgrade their LOS in order to gain the needed core functionality. But some of these lenders may wish to continue to use certain legacy systems or services – in which case, a custom integration with the LOS might be needed. But is a custom integration riskier or less reliable than an out-of-the-box connection that was developed by the software vendor?

This has been a challenging philosophical question for both lenders and vendors. One factor here is “vendor lock,” which is when the LOS provider provides connections only to products and services developed by its partners. This is often considered a negative thing because it means loss of flexibility. But as we are seeing in the mortgage software marketplace, there is a limit to how much LOS providers are willing to “lock” their customers into other systems. Similarly, there are also varying degrees to which they employ an “open architecture.”

In general, the advantage of an open system is that it allows lenders to integrate with any other systems they wish. It gives them flexibility to use existing systems they may have already invested in or developed, including proprietary or in-house systems. Because of the additional flexibility it provides, an open system might give lenders a greater ability to differentiate themselves by way of the customer experience. The only downside is that these custom integrations can take time to carry out, and in certain cases, they might not deliver the desired functionality or perform as expected. They can also be trickier to support.

On the other hand, an LOS provider with its own technology partnerships can develop more robust or “battle-hardened” integrations with other leading systems, thus giving lenders greater peace of mind when it comes to reliability and security. LOS providers are increasingly delivering integrations in out-of-the-box fashion – i.e., the standard integrations are already built into the LOS. This “plug and play” approach is very attractive for lenders because it enables them to build out a new platform more quickly and for much lower development cost. What’s more, these out-of-the-box integration capabilities often provide for tighter integration between front office systems and back office systems, which is proving to be a boon for lenders in terms of business efficiency.

So what’s the better approach – more “open” or more “locked”? According to Gopi Krish, general manager at software and business process outsourcing firm Wipro Gallagher Solutions, it’s best to rely on out-of-the-box integrations first, as a general rule, but at the same time, that does not mean custom integrations can’t be carried out securely, reliably and to lender satisfaction.

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“I think the solution will vary depending on the type of customer – and the segmentation in the marketplace,” Krish tells MortgageOrb. “For lower-tier customers, the goal is to build a standard software stack that will meet the needs of all the lenders in that core segment. That may be the optimal solution to go with because it simplifies many of the tasks in the integration process. For lenders that fall into certain categories, it might be more expedient for us to deliver a solution that is fairly standardized – with standard interfaces, standard partnerships and standard business process models.

“But for the big banks, and the large independents, they seek more differentiation in terms of what they offer their customers,” Krish adds. “So, for them, we offer a more open model, which lets them enable Web services and to enable integrations with the partners of their choice.”

Krish adds that for the past several years, Wipro has been “on a journey to enable many of the core platform capabilities” of its NetOxygen LOS “through Web services and APIs.”

When asked if there is a trade-off when going with a more open architecture, in that the connections might not be as battle-hardened or reliable when compared with out-of-the-box integrations, Krish says, “Yes, there is greater risk of errors in data hand-off when lenders go the open route.” However, he points out that most vendors and IT services firms are doing “lots of legwork to make sure there are minimum failures.”

“There has to be a modicum of discretion that we adopt in opening up the platform to wider integrations and automation,” Krish says. “We have to be careful about drawing the line. The standard guidance and the counsel that we offer our customers is to leverage these standardized integrations whenever possible because they are more robust. And there is ongoing support that we provide on these standardized integrations – and our ability to prevent mishaps is much stronger when the standard stack is being utilized.

“So, we counsel our clients to use the out-of-the-box products and the out-of-the-box integrations as the core foundation for building their system,” he adds. “But, at the same time, lenders want to be able to drive the differentiation in their offerings. So we provide that flexibility. But it is a very careful decision that needs to be made. Whether it is a 70 percent to 30 percent ratio of standard integrations to custom integrations or a 60 percent to 40 percent ratio, we ultimately must balance what is optimal for each customer’s needs.”

Krish says when LOS providers consider who to build connections with, they tend to prioritize based on market share – that is to say, they tend to build connections with the most popular systems first, which makes perfect sense.

But, he adds, “It’s not just market share, but also the functionality they offer – and the degree of forward thinking they have with regard to the future of the mortgage market.

“Rightfully, there is a hierarchy in making these integration decisions,” Krish says. “Sometimes, there are only one or two players dominating a certain segment in the market – so, it might not make sense for an LOS provider to build a connection with a system that hardly any lenders are using. Again, it all comes down to best execution for our clients.”


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