Wanted: A Leader in Originations Software

By Kulkosky, Edward | American Banker, March 19, 1998 | Go to article overview

Wanted: A Leader in Originations Software


Kulkosky, Edward, American Banker


Most mortgage lenders still lose money on loan originations. That explains why the industry is in a frantic scramble to reduce its origination costs through automation.

Software vendors, meanwhile, are in their own mad scramble to provide the technology that gets the lending job done. The business is especially competitive; no single vendor dominates the market, and more than a dozen companies large and small are vying for market share.

To be sure, lenders have been slow in making their choices. The industry has yet to rally around a single vendor. And most of the vendors agree that they haven't made much of a dent in the number of institutions considering replacement of their originations systems.

According to the prestigious Mortech survey, a bit more than a third of mortgage companies are shopping for an originations system, and the percentage hasn't changed much in recent years. Software vendors put the figure even higher, more like 50%.

"You have to understand that many of the systems being offered are brand new, and vendors are going through a significant learning curve also," said James D. Jones, who heads Massachusetts-based Wellesley Consulting Group. "Very few installations are using these systems in production. The buyer has to approach a decision differently than if a lot of installations were up and running."

Though the choice may be difficult, a sense of urgency has been building, and the quest for profit is not the only factor. Lenders also face the problem of fixing the Year 2000 glitch in their legacy computer systems, and some are pondering whether replacing their originations setup with a snazzier new-and glitch-free-version might not be less costly.

Another factor driving technology ambitions is the growing complexity of loan originations. Telemarketing has expanded dramatically; controlled business arrangements have become commonplace; and affinity lending has become a lucrative specialty. All these approaches to lending require their own specialized technological support.

And lenders are increasingly demanding powerful data bases that permit them to engage in sophisticated cross-selling.

Right now, it's hard to speak of an industry leader, but some of the competitors for that title are Interlinq Software Corp., Alltel Information Services, Fiserv Inc., Fitech Systems, and Gallagher Financial Systems Inc.

Interlinq appears to be ahead of the rest of the pack as its software is used by about 20% of the mortgage industry's lenders, according to its chief executive, Jiri Nechleba.

Mr. Nechleba says he fears that many companies are committing to systems that will be out of date in three or four years because the ability to capture data that will drive the systems is still emerging.

"We want to offer systems that companies need and can grow with," he said. "Lenders won't have to rebuy because we're upgrading all the time."

Mr. Jones, the consultant, also believes some companies may be forced to purchase different systems in a few years. "If there is going to be remorse, it's because a company was unable to identify its long-term business objectives," he said.

Alltel, meanwhile, has its sights set on becoming the market leader in originations technology, as it is now in software for servicing loans, with a market share of about 40%. That's an ambitious target, as Alltel's originations systems now have perhaps 10% of the markets it serves. It does not offer systems to brokers, a big market.

One of Alltel's key selling points is that electronic data interchange (EDI) is already integrated into its InterAct system. "We have a value- added network that already has 140 vendors on it," said John Wolf, executive vice president of Alltel's mortgage division. With competing systems, the EDI would be a customization, he said.

A second selling point, Mr. …

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