Achieving Third-Party Loan Origination Partner Efficiency

Lenders have always relied on third parties to complete the loan origination process ─ and perhaps they always will. In the past, this was a paper dependent activity. Today, online systems allow the lender’s processing staff to order and receive information services digitally that directly flow into the origination process.

These systems have been very important as the industry struggles to operate under the market stressed caused by the COVID-19 crisis. Never has there been a greater need for a completely digital lending ecosystem.

Technology is an important part of the solution, but an effective loan origination process is only possible when the lender chooses the right partners, properly vets them by performing due diligence, integrates them into the loan origination system and then tests the system and trains the staff.

As mortgage technology has evolved, more vendors have created their own online portals to make it easier to receive and deliver orders from lenders. And while this has been a well-intentioned advancement, the process has become more complicated ─ so much so that lenders are spending excessive amounts of money to set up and maintain these relationships and losing time and customer satisfaction in the process.

Fortunately, modern loan origination technology gives the lender the power to manage these relationships more easily and efficiently.

Lender challenges caused by third-party integrations

For many lenders, part of the secret sauce relates to the partners they choose to work with during the loan origination process. Choosing the right set of partners is a rigorous endeavor that can take some financial institutions months to complete.

Even after the right vendor is chosen, it can take 90 days or longer to get the new partner fully integrated into the lender’s origination process. This is largely due to necessary due diligence, given the lender’s responsibility to regulators for any action taken by the third party ─ but it also has to do with technology.

Vendor setup is an important but difficult process that no lender can afford to ignore. It is challenging and time consuming ─ and that’s before the lender even places the first order.

After the vendor is ready to contribute to the lender’s efforts, FFIEC requirements dictate that the lender must continue to provide meaningful oversight of the vendor’s activities. The more vendors the lender partners with, the more onerous these requirements become.

The infrastructure required to provide this oversight is costly and must be maintained just like any other technology the institution uses. For certain third-party technology systems, such as product and pricing engines (PPEs), the oversight process can become very complex.

Vendors like to have lenders come to their portals for order placement and delivery, but this requires processors to manage multiple screens and systems to get the information they need. That takes time and splits the user’s focus between systems, costing them efficiency.

Lenders need a better solution.

What does a better process look like?

The best solution, from a lender’s perspective, would be to have a trusted partner capable of approving and setting up vendors set up quickly and integrated seamlessly into the LOS so that orders can be placed without leaving the loan processing system, and then received back into the database of record automatically. If lenders could easily turn vendors on and off on their own, it would be even better.

The problem has been that lenders have struggled to find partners they could trust to get this work done reliably. In the past, integration work was complex and without an effective project management protocol to deal with problems, lenders run the risk of cost overruns and missed deadlines.

Today’s modern loan origination systems are different. Mature API infrastructures have forced complexity to give way to ordered ecosystems of services suppliers that lenders can easily add to or remove from their origination process.

Now lenders can manage their own third-party integrations and make changes easily to suit their current strategies. This puts the lender in complete control of their various vendor relationships and holds every partner accountable for the results they deliver.

Lenders today are spending less time on individual services partners, which can be changed easily if needed, and more time selecting a loan origination platform that gives them power to manage their own third-party vendor relationships.

The importance of selecting the right technology vendor

In this new model, it becomes vitally important for the lender to choose a strong central technology partner. Even when lenders self-manage, there will be times when it is expedient to pull in the primary technology partner for support. It’s in the LOS provider’s best interest to see that the API layer is performing as expected and that lenders can add and remove vendors easily.

This technical expertise translates directly into efficiency. Integrations can be completed in as little as 90 days, but t takes a partner that understands the lender’s needs and existing relationships to provide adequate support.

The other value a strong LOS partner brings is deep experience with the potential third-party partners the lender might consider using. Some lenders spending more money than was necessary on vendors that provided more services than the originator actually needed to close the loan. With experience aggregated over many lenders, the right LOS partner can be a valuable source of information in this regard.

There are also times when a lender that has traditionally been performing a function internally, and perhaps manually, could benefit from a new vendor with a better digital solution. We have seen that recently on the construction lending side of the business and have provided valuable information to lender clients which has resulted in more efficient operations.

Ultimately, the lender must find a partner that is willing to form and support a strong relationship. This goes deeper than a simple service relationship. It’s the “something extra” that supports trust and delivers results.

How to choose a strong partner

There are best practices any lender should adopt for choosing and vetting a potential LOS vendor. As this is the central processing system for the lender’s loan origination business, no shortcut to full due diligence is acceptable.

Lenders should evaluate potential vendors along these four axes:

Industry Experience

Only with extensive industry experience will the prospective partner fully understand the data the lender needs to complete the origination process. Experienced partners don’t try to get between the lender and its vendor partners, but rather empower those relationships to deliver results. Only partners who understand that the bank owns the data and the technology partner provides a transport layer will serve.

Central Hub Provider

The LOS provider must act as an effective central hub for seamless integrations with third parties. In our experience, the only firms that qualify here are long term LOS providers or experienced bank technology vendors. We have seen many entrants from other industries attempting to provide these services and they invariably fail, even when they are large consumer technology firms.

Capable of Supporting Legacy Partners

The future is certainly an API-empowered ecosystem of third-party providers, but virtually every lender is still working with some legacy partners using older technology. Any partner must be capable of working with these providers at least until they can be upgraded to modern technology.

Currently Offering a Mature API Infrastructure

As stated, this is the future and lenders should only be working with primary technology providers who understand this and are developing with architectures that are open to connection with best-in-class providers via API.

All of these criteria are critical for increasing vendor efficiency for lenders. Lenders that take them into account when choosing an LOS partner will be rewarded with much higher vendor efficiency and better bottom line profitability.