Hoping to simplify the servicing of its $600 billion mortgage portfolio, JPMorgan Chase & Co. has agreed to consolidate its multiple servicing systems into one using software from Fidelity National Information Services Inc.
The New York banking company is still using many of the legacy servicing systems it inherited from its numerous acquisitions over the years. It said its conglomeration of disparate systems does not efficiently handle its national home lending business.
Though Fidelity National, of Jacksonville, Fla., will host the software at its data center, Thomas Kelly, a JPMorgan Chase spokesman, said that its employees would continue to handle the servicing work. For this reason, he would not describe the contract as an outsourcing deal.
JPMorgan Chase chief executive James Dimon is well known for his aversion to outsourcing. In September 2004, JPMorgan Chase said that it would unravel a massive outsourcing agreement with International Business Machines Corp.
Mr. Kelly said that his company expects the conversion to reduce some of its costs, but that the more important gains will be in efficiency. For example, any lending product it wants to introduce today must be added to each of its servicing systems, but using Fidelity to service its entire portfolio would allow JPMorgan Chase to update the system just once.
"We have a number of legacy systems that we need to upgrade and combine," Mr. Kelly said in an interview Thursday. "The idea is that by having just one system, as opposed to five or six, we can sell products faster, get them out faster, and do a better job for customers."
Dan Scheuble, the president of Fidelity National's mortgage division, said in an interview Wednesday that contracts of this size are extremely rare. "Top five lenders don't change systems very often. A deal like this comes along once in a career."
Although Fidelity National is to host the servicing, Mr. Kelly said the contract gives JPMorgan Chase the "option to bring it in-house in the future," much like its deal with Total System Services Inc. The Columbus, Ga., transaction processor handles JPMorgan Chase's credit card accounts now, but the banking company is planning to bring that work in-house using TSYS' software.
There are no current plans to eliminate any jobs.
Fidelity National announced the three-year deal Wednesday and said that it would take two years to switch JPMorgan Chase's portfolio of 4 million loans to the Mortgage Servicing Package software.
The software services about 52% of the nation's mortgages, and when the JPMorgan Chase conversion is completed in 2008, that number likely would increase to about 60%, Mr. Scheuble said.
Using the software would enable JPMorgan Chase to reduce its costs and handle more volume, he said.
M. Arthur Gillis, the president of the Dallas research firm Computer Based Solutions Inc., estimated that the contract could be worth $24 million a year to Fidelity National.
Christine Barry, a research director at the Boston research firm Aite Group LLC, said the mortgage industry remains a paper-intensive operation.
However, new products and heightened competition are increasing pressure on lenders to make their systems more efficient, she said. "Systems have to be more flexible today."
