For mortgage lenders, choosing a loan origination system (LOS) is both critical and complex, with more than 30 vendors offering viable versions. We present a fact-based, analytical process for evaluating your company's mortgage origination needs and selecting an LOS that suits these requirements perfectly.

1. • Cognizant 20-20 Insights
Mortgage LOS Platform Evaluation
and Selection
A comprehensive and fact-based process that takes into account
business goals, channels, target segments, products and investors
can help lenders find the “best fit” LOS platform from among
the numerous options available.
Executive Summary timelines with the needs of the originator. This is
as much an art as a science.
The mortgage loan origination system (LOS) is
the most critical piece of technology for mortgage This white paper outlines some key challenges
lenders. It is ubiquitous in the life of loan officers, that a typical lender faces while evaluating and
processors, underwriters, closers, funders and selecting an LOS platform. It lays out a structured
other support staff responsible for originating approach, based on a model, which aims to enable
and fulfilling loans. an apples-to-apples comparison and remove sub-
jectivity and prejudice from the selection process.
Since the LOS platform is among the most signifi-
cant investments that a mortgage bank makes, LOS Platform Overview
LOS evaluation and selection is critical to the
A typical LOS supports end-to-end loan production
success of the organization. With multiple forces
processes from lead to close, as depicted in Figure
and constraints to consider, selecting an LOS
1. To support these processes, an LOS is typically
can be a daunting task. The considerations that
designed (see Figure 2) to have the following four
influence this decision include strategic, business,
components:
functional, nonfunctional, technology, interfac-
ing, compliance, financial and time factors. • Point of Sale (POS): A POS system allows
customers, loan officers and brokers to
The fact that over 30 vendors offer LOS platforms
manage leads, compare products and process
makes the decision even more difficult. Most
application-related information and initial/final
LOS platform vendors have targeted offerings
rate lock. Usually a fully Web-enabled solution,
for various segments based on mortgage banks’
it gives staff the flexibility to access POS func-
business models, size, channels, IT ownership
tionality anywhere an Internet connection is
preferences, cost and time appetite, etc.
available. Typically, banks have separate POS
Evaluating and selecting an LOS platform that fits
systems for different channels such as retail,
the organization’s needs requires matching the
wholesale and correspondent. The data from
functionality, scale, ownership model, cost and
cognizant 20-20 insights | june 2012

2. the POS eventually flows into the LOS fulfill- products offered, product pricing and discount
ment system. points, product eligibility criteria, underwriting
rules and all loan conditions. This is typically
• Fulfillment: This is the most complex and
accessed by business users for managing
the largest functionality of an LOS. Fulfill-
business changes, and is a key determinant
ment provides functionalities for operations
of the time-to-market and system agility.
to work on various tasks of the mortgage
Some LOS platforms do not include a sophis-
lifecycle through workflow orchestration and
ticated enterprise business rules management
core processing support for activities such as
system. Originators, therefore, may choose
processing, underwriting, closing, funding and
to implement these functions through an
post-closing.
industry-standard business rules engine. Most
• Product and Pricing Engine: A product and LOS platforms offer built-in integration with
pricing engine houses business rules on the external product and pricing engines.
Origination Processes Supported by LOS
Lead Acquisition/ Closing and
Processing Underwriting
Application Funding
• Lead Generation • Application Capture • File Registration • Document Verification • Schedule Closing
• Contact Management • Quick Pricing • Document Intake • Property Analysis • Draw Up Closing Docs
• Prospecting • Rate Lock & Processing • Credit Analysis • Conditions Processing
• Scenario Analysis • Disclosures • Ordering 3rd Party • Ratio Analysis • Doc Signing & Review
Services
• Pipeline Management • Document Collection • Exceptions processing • Funding Setup and Release
• Receive and Process
• Full Pricing/Repricing • Post Closing
3rd Party Services
Figure 1
Mortgage LOS Reference Architecture
Register Credit
External LP/DU (MERS) Card
Interfaces Vendors Money
Address
Validation VA Investors Transfer
App MI AVM Ti FI Ntr Credit
LOS Component Interface Layer
• Lead Product &
• Acquisition/ Pricing Engine
Application Acquisition/ Closing and
Processing Underwriting
Application Funding
POS (Retail, B2B)
Fulfillment
Interface Layer
Internal
Data Transfer Vendor Document Doc Enterprise Money
Interfaces Web Service CRM Management Publishing DW Transfer
Figure 2
cognizant 20-20 insights 2

3. • Interface
Layer (External and Internal): • Technology Architecture: The key aspects of
This
component provides interfaces to the technology evaluation include technology
various external and internal component mapping for each layer (presenta-
systems. External interfaces tion, business logic, interfaces and database),
With more than are typically with standard and the corresponding fit with the overall orga-
30 different LOS third-party vendors that nizational set-up, infrastructure, interfaces,
systems on the provide flood, loan processor
credit,
services such as capabilities, IT sourcing and technology
strategy.
market, selecting an (LP), desktop underwriter
• Integration: An LOS platform orchestrates
LOS that suits the (DU), property appraisal, etc. various processes and services required to
broader needs of Internal with banks’ typically
connect
interfaces
internal
originate mortgages. Therefore, building the
requisite interfaces with several internal and
the organization is a systems such as document external systems requires significant effort.
difficult task. management systems, CRM Hence, the lender should consider out-of-the-
systems, etc. box interface capabilities as well as technology
LOS Evaluation and Selection architecture and flexibility to support custom
Considerations interfaces.
With more than 30 different LOS systems on the • Customization vs. Configuration: Custom-
market, selecting an LOS that suits the broader izations are expensive as typically product
needs of the organization is a difficult task. Due to vendors’ professional services teams undertake
stringent post-recession regulations, every LOS the customization while internal staff takes care
in the marketplace today is functionally capable of configurations (with training). Many vendors
of supporting end-to-end mortgage origination offer product training as well as partner with
processes. However, lenders today are demanding implementation services providers for these
even more from their LOS platforms. When customizations and configurations. However,
functional support is a given, other aspects such to arrive at an operating model, it is important
as technology architecture, agility, a full suite of to determine the gaps in the LOS platform
components and the time and cost required to versus the functionality required and classify
implement the platform become more important. them as customizations or configurations to
Apart from functional capability, some of the arrive at the right model for managing imple-
important aspects of an LOS evaluation are: mentation. An LOS platform with basic con-
figurations will provide lenders the option of
• Time: A typical LOS implementation takes user setup and product setup, while a truly
anywhere between six to 24 months depending configurable platform will provide the ability to
on the scale, channels, products, customiza- design workflow, and manage product, pricing,
tion, integration, IT capability and bandwidth. business rules and user rights at the screen/
It is thus important to determine the business functionality level.
appetite for time-to-market, and how the LOS
fits into the time frame dictated by the business • Product Implementation Processes and Doc-
umentation: Vendors’ LOS implementation
dynamics.
processes and the associated templates and
• Cost of Ownership: Based on our experience, reference documents are a key determinant
LOS implementation typically costs lenders of the success or failure of the platform imple-
between US$2 million to US$60 million, mentation, and require a detailed assessment.
depending on factors such as customization, Lenders should evaluate vendors’ implementa-
scale, channels, products, integration and the tion processes by reviewing key process steps,
ownership model (SaaS transaction-based project management processes, RACI matrix
versus ASP fixed-cost model versus hosting and risk management practices. Lenders
in-house). Maintenance and enhancement should also review key reference documents
costs vary significantly based on the afore- such as reference process maps, project plans,
mentioned factors and could range between US functional specifications, technology architec-
$100,000 to millions of dollars per year. Hence, tures, estimation methodologies, etc.
it is important that a lender evaluate products’
total cost of ownership based on how it aligns • Regulatory Compliance: With the government
periodically rolling out regulations (e.g., the
with its business needs and IT operating model.
Dodd Frank Act (DFA), the Consumer Financial
cognizant 20-20 insights 3

4. LOS Vendor Evaluation and Selection Approach
Capture Conduct Vendor Due
Organizational Needs RFP Process Diligence
• Identify & define • Establish vendor • Demos/meetings.
business needs. evaluation criteria. • Deep-dive
• Identify & define IT and • Response evaluation workshops.
technology strategy and short-listing.
and preferences.
• Prepare process maps
and feature list.
• Prepare LOS architecture
diagram.
Figure 3
Protection Bureau (CFPB), etc.), it is important channel and only prime jumbo loans will have
to validate that the platform is flexible enough very different needs compared with a full-ser-
to keep up with such regulations. vices retail lender.
• Data Governance and Accountability: Given • Identify and Define IT and Technology
Uniform Loan Data Delivery (ULDD) guidelines Strategy and Preferences: This includes
and the increased focus on accountability, an determining the IT ownership model and costs,
LOS platform needs to have the flexibility and capability management, vendor strategy, IT
features to incorporate future needs. strategy and technology preferences. For
example, a lender with low origination volume
LOS Evaluation and Selection
and a small range of products may choose a
Approach SaaS model and out-of-the-box implementa-
LOS evaluation and selection is a complex tion to reduce costs, embrace an operational
and detailed process wherein lenders need to expenditure model, and reduce the implemen-
evaluate each platform on multiple factors. tation time. A large player with several products
As mentioned earlier, these factors include and channels can opt for the internally hosted
the business model (business goals, channels, model with significant customization if it deems
target segment, products, investors, etc.), IT and its business needs require this model and it has
technology strategy, time, cost and other consid- the deep pockets to support it.
erations. We advise lenders to embrace a robust
LOS evaluation and selection approach to ensure • Prepare Process Maps/Feature Lists: Process
maps/feature lists will help clearly define the
selection of the “best fit” LOS product for their
functional scope of the system along with user
needs (see Figure 3). It starts with a step which
profiles, setup and configuration features, etc.,
is often addressed inadequately — capture orga-
and thus objectively determine the product fit
nizational needs.
and gaps.
Capture Organizational Needs • Prepare Architecture Diagram: An LOS
• Identify Business Needs: Identification of platform interfaces with several internal and
business needs includes capturing details on external systems and industry participants (see
present and future functional and business Figure 2). The lender needs to ensure that the
requirements — target segments, channels, chosen LOS can support all these interfaces
products, investors, volumes, cost and time and vendors. An architecture diagram helps
appetites, etc. These requirements will help visualize and map all the interfaces to connec-
drive the overall vendor evaluation and tions that the vendor currently supports — thus
selection process and narrow in on the best-fit helping the lender evaluate the platform on
LOS platform for the lender. For example, a technology interface stack fit.
focused lender with only a direct-to-consumer
cognizant 20-20 insights 4

5. Conduct RFP Process two to three vendors are short-listed for further
Establish Vendor Evaluation Criteria: As deep-dive and due diligence.
mentioned above, the key considerations for an
Deep-dive Workshops: Deep-dive workshops
LOS product evaluation and selection include:
should cover an in-depth analysis of the base
functional fit, technology architecture, IT strategy
product features, the product implementation
and ownership model, time required to implement,
processes, customization versus configuration
cost of ownership, integration capabilities, level of
determination/comparison, an analysis of the
customization/configuration, product implemen-
technology architecture, interfacing capabilities,
tation process and documentation level, etc. The
regulatory compliance adaptation, functional fit/
details and weights of these factors will depend
gap analysis and a high-level effort/time determi-
upon the organizational needs captured in the
nation to fill the gaps.
earlier phase. The request for proposal (RFP) for
vendor evaluation and selection should be refined Conclusion
to objectively evaluate vendors on the above con-
The LOS evaluation and selection process must
siderations. This is in contrast to the traditional
ensure that lenders choose the LOS platform that
RFP approach that is often subjective in nature.
best fits their overall needs as it involves a signifi-
Each question in the RFP will measure the vendor
cant investment of time, effort and cost. Lenders
on a factor with an associated weight, resulting
can ensure this by evaluating LOS platforms on
in a combined factor score. This comprehen-
a comprehensive set of parameters including
sive vendor score can be used for the first-level
functional, nonfunctional, cost, time, ownership,
screening.
technology, IT strategy and business fit as
Response Evaluation and Short-listing: The detailed earlier. Further, these parameters should
objective of the RFP process is to short-list five or be evaluated based on a quantitative framework
six vendors that best fit the organizational needs to enable apples-to-apples comparison, thus
from among 20 to 30 vendors. The comprehen- removing subjectivity in the decision-making
sive RFP questionnaire includes weights for process. A “best of breed” approach would be
various factors, which are determined based on template-driven with quantitative and precise
organizational needs, and helps short-list vendors criteria to measure and compare each parameter
that are the best fit for the organization. that truly reflects the needs of a lender. For
example, functional coverage would compare/
Vendor Due Diligence validate the functionalities provided out of the
Vendor due diligence is the most critical and, box, while nonfunctional parameters would cover
ironically, the most ignored aspect of product aspects such as interfaces and extracts, audit
evaluation and selection. This step validates the trail, data validations, etc. The cost aspects would
claims that vendors make in the RFP. Vendor due include the total cost of ownership, the ownership
diligence typically comprises demos/meetings, model (SaaS, ASP, hosted in-house), maintenance,
workshops and deep-dive sessions to assess licensing and development/implementation
product functionalities, technology architecture, costs. IT strategy would cover aspects such as
processes, documentation levels, etc. technology preferences and ownership/hosting
preferences. Business fit would cover channels,
Demos/Meetings: All the short-listed vendors products, volumes and the overall business
are invited to make presentations and give a strategy fit.
platform demo. Typically, these meetings last
for two to three hours. The vendor presenta- The significance and importance of each of these
tion covers aspects such as an overview of the parameters and the corresponding sub-parame-
company, platform and process, financials/con- ters will vary from lender to lender. The evaluation
tracting models offered and people capabilities. approach should therefore allow lenders to apply
The platform demo covers functional aspects, different weights to these parameters and see
administration features, product and pricing how these parameters compare across vendors.
setup, nonfunctional features, functional archi- A best-of-breed approach should be comprehen-
tecture (including interfaces), technology archi- sive, configurable, objective and flexible, thus
tecture, integration capabilities, etc. Typically, helping lenders evaluate and select the best-fit
LOS platform.
cognizant 20-20 insights 5

6. About the Authors
Ashish Shreni is the Consumer Lending Practice Head with Cognizant Business Consulting and has worked
for over 12 years in the banking and insurance space on projects spanning business and IT strategy,
business process optimization and complex project execution. He can be reached at Ashish.Shreni@
cognizant.com.
Avishek Bimal is a Consulting Manager with Cognizant Business Consulting. He has over 12 years of
experience working with leading banks on project management, business process optimization and
consulting engagements. He can be reached at Avishek.Bimal@cognizant.com.
About Cognizant’s Mortgage Practice
Cognizant’s Mortgage Practice employs over 70 subject matter experts and analysts and 5,000-plus
associates, and has successfully delivered over 500 large and complex engagements across originations,
secondary markets, servicing and loss mitigation in the U.S. and UK and throughout Europe. We offer
consulting, IT, BPO and IT infrastructure services across all functional areas. Mortgage LOS product
evaluation and selection is a proprietary methodology designed and developed by Cognizant to assist
lenders with LOS platform selection. www.cognizant.com/banking-financial-services/consumer-lending
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-
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and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50
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