REQUIRED READING: Today's mortgage lenders fall into one of three categories: those that are growing faster than ever, those that are getting ready to shut their doors and those that are stable but are trying to figure out how to grow their business in this down market. By far, the largest group is that third category. The big question, however, is how does one make the leap from the third category to the first?
Of course, there are many ways to help your business thrive: expanding your sales force, moving into new geographic markets, adding new origination channels and modernizing your workflow to drive down costs while increasing the quality of your customer service. Within each of these broad ideas there are dozens of fundamentally strategic issues that need to be explored in order to make a good decision for your business.
For example, if you want to streamline your lending process, you need to consider factors such as the caliber of your staff, the effectiveness of your website and telecommunication systems, the way you manage your physical loan files (i.e., When in the process are you scanning documents?), and the technology you leverage across your operation to make your business flow.
There is a new key decision point that many companies are facing with increasing frequency: Is cloud computing the right choice for my company?
The term ‘cloud computing’ is ubiquitous these days, but most people outside of the IT department may not truly understand what it means. Let's break it down into a simple explanation: Your company needs software applications, but traditionally, that software would be installed on servers in your office. Users would be working on computers on their desks and be connected to those applications using a local area network (LAN).
Today, many software vendors offer an alternative distribution method for their customers. Instead of installing their software on servers in your office, they install the software on very powerful servers in their own data centers. Users still work on computers on their desks, but now, they are connected to those applications using the Internet. Because you can't see the servers, and because you can connect to them from pretty much anywhere through an Internet connection, it is almost like your application is just hanging out in the clouds – hence, the term ‘cloud computing.’Â
So, why should someone in the secondary marketing sector care about this? Although these types of decisions may not seem relevant, they can literally change your company overnight.Â
Good/bad news
The biggest upside for using software hosted somewhere else is the reduced burden on your technology infrastructure. Not only do you not need to spend money buying a bunch of servers, but your IT staff does not have to spend time running software updates, backing up data and worrying about too much traffic on your LAN. This means that they should have more time to help you generate those custom reports you need, or to ensure you have a way to send ‘tapes’ (there'S a buzz word from long ago) to your investors and warehouse banks.
Another big benefit for leveraging cloud computing is that most vendors that offer this service have invested a lot of money into creating a redundant infrastructure. Thus, if one of their really expensive servers breaks, you'll never know. But don't worry about broken servers – their applications are spread out over many machines that cover for one another if something should go wrong. Compare that to your internal operation now – if an internal server fails, your business gets interrupted.
Those are important benefits to your business, and certainly factors that need to be discussed as you are exploring changes to your technology. However, cloud computing also has its downsides.
For starters, you also lose some level of control over your customer information. A database of prospects and customers is arguably one of the most valuable resources a lender has. But if this proprietary data resides in the so-called cloud, how secure it is?Â
Many vendors that build their applications to be served in the cloud design their system with a single database for storing information that is shared across all of their customers. A flag associated with each entry into the database designates that line of data to be owned by a specific customer.
For example, if someone on your team enters information about the Smith Loan, then that loan is associated with your account. In most cases, this system works just fine. But every once in a while, someone makes a mistake, and there is the possibility that your data could get exposed to some other lender on that system. Although this is not likely to happen on a daily basis, this scenario is real and should be taken into consideration when evaluating the risk of moving to the cloud.
Additionally, the recession has shown us that no company will be around forever – especially high-tech vendors. If you have a particularly data-intensive program – for example, a lending workflow platform – that is incorporated into the cloud computing setup, there might be more than a slight problem if the vendor should abruptly go out of business. Indeed, it is conceivable that you would lose access to all of your historic loan activity, as well as your current pipeline data.
Finally, once your business has been working in the cloud, it is very hard to leave. Let's flash forward three years, and your company decides it wants to change vendors. If you stop paying your current vendor, your access to that system and all of your historical data stored therein could disappear. With traditional software, you can stop paying your vendor, but the application and data are still on your server.
In addition to considering how your software would be deployed, you also need to consider how to pay for that software. The rollout of cloud computing enabled vendors to offer a new way to charge for their software: Instead of looking for a one-time license payment, they could instead essentially rent the software to their customers. Because there is no hardware to buy and support, and no actual software to install, there really isn't anything to license and own.Â
In many ways, cloud computing is similar to a financial model known as software-as-a-service (SaaS). Instead of buying software, you pay for the service of using the application. The SaaS model can be very attractive financially, especially for newer lenders that are just getting started. In fact, in many cases, you could literally pass the cost of the service to the borrower as a fee.
But a downside to both models is that over a period of time, you could easily end up paying more money for the service than you would have buying the software outright. Also, you do not actually own anything, so you are spending money without adding a physical asset to your business.
The bottom line is that there is no right or wrong answer when it comes to selecting a vendor that leverages cloud computing. Each company has different needs, budgets and goals. Before heading into cloud computing, however, it is important to run a thorough checklist to determine whether this is the right strategy for your particular operation.
Rob Katz is president of Del Mar DataTrac, based in San Diego. He can be reached at (800) 290-3331.
