Jerry Hoerauf sees a lot of clouds in the mortgage skies, but that's not to say the business climate isn't clearing.
"The era of companies having large IT infrastructures and using that as a way to gain competitive advantage is behind us," says the evp of business development for First American, which offers analytics and other data resources for lending clients, with settlement services representing 90 percent of all commercial and residential mortgage transactions. "And with mortgage processing, you have lenders that now need to maintain their own infrastructure. What we envision is those lenders plugging into a cloud rather than having to do that processing in house."
First American has granted worldwide exclusive rights to Dorado, giving the firm, which offers collaborative cloud computing solutions to financial services clients, the ability to combine First American's data and analytics engines with its own collaborative transaction processing technology and enterprise operation systems to create lending processes in the cloud. The firms hope to bring added efficiencies to portions of risk management, compliance and processing they believe are becoming commoditized.
The deal is one of the first large-scale deployments of cloud computing for mortgage processing, though other mortgage tech firms are also developing cloud strategies. At this point, the solutions are primarily private clouds for processing functions and as a means to quickly respond to RESPA and other regulatory changes, as opposed to IT supporting customer acquisition or secondary market sales.
"For lenders, there's a primary role of acquiring customers on one side and providing access to the capital markets on the other," says Joerauf. "In the middle [of mortgage processing] there's a rash of information and services to facilitate approvals that has been somewhat proprietary in the past, but I don't know if there's an advantage in the future. The advantage is really funding and customer acquisition."
The First American agreement gives Dorado-which gets 80 percent of its business from the largest 25 banks-the right to use, sell, advance and further develop First American software assets including eClosings; standards-based document exchanges; and decisioning engines that support rules related to vendor selection, product selection, pricing. Also included are secure Web-based delivery of disclosure documents; storage of electronic notes; and a SOA-based vendor management platform that features order management, routing, distribution and access to outsourced vendors spanning flood, title, credit, valuation, loan quality check, mortgage insurance and address validation services. First American will still own the core technology, but will not market it to lending clients. Dorado, who will have ownership rights to any new products developed from the First American platform, will market the technology to existing and prospective mortgage clients, with negotiations underway with one top 25 lender. "We believe that a tech partner like Dorado would be better positioned to commercialize this technology as a partner," Hoerauf says.
Dain Ehring, Dorado's CEO, says the firm's product is a single-tenant model that provides a "private cloud" for its lending clients, though the firm may offer a multi-tenant solution in the future for mid-tier clients. Rob Carpenter, Dorado's CTO, says First American-which has an equity stake in Dorado-has produced mortgage lending technology that can further enhance efficiency when placed in the cloud, including electronic closing documents and regulatory disclosures. "You see some point solutions out there, but you don't see it being delivered in a cloud-based environment and integrated in a workflow," Carpenter says. "When you put all of this together in the cloud, it should unlock the distribution of what today is a series of islands."
To provide security, Steve Poppe, Dorado's svp of customer delivery, says the product is SAS 70, Type II certified; and the firm provides firewalls and role-based permissions that are configurable and allow multiple access privileges.
While the two firms did not name specific client wins for the newly available product, there's plenty of potential given the need for compliance and speed to market. Ellen Carney, a senior analyst for Forrester Research, says that as the economy recovers, mortgage lenders will be looking for the fast deployment that's afforded by cloud computing. But the most complex operations will likely stay outside of the cloud. "They may keep an origination piece or securitization."
First American's main competitors, including Fiserv and LPS, are also kicking the cloud tires. Fiserv, for example, offers loan servicing technology in a private cloud to allow processing data to be securely stored outside a lender's infrastructure. It also uses encrypted Web transmissions to provide extra security. "There's a challenge [in storing mortgage data in a 'shared' environment] that we solve by authenticating users or having service level agreements with customers that use our system," says George Westmoreland, CTO for the loan servicing solution at Fiserv.
Some services that don't include large amounts of data, such as accessing information on neighboring properties for pricing, will probably be accessed as part of a public cloud in the future, Westmoreland says. "If a lender has 10 of 15 pieces of data needed for analytics, that's where the public cloud will be used, rather than an analysis of a portfolio of one million loans," he says.
LPS is also currently leaning toward private clouds and data server virtualization services to help lenders take server bulk out of mortgage processing. "If a customer wants to host an application within our system, we could help them add and subtract storage," says Joe Nackashi, LPS' CIO.