Anatomy of a Vendor Partnership

The recent latest MBA Quarterly Mortgage Bankers Report reported not much improvement in lenders’ profit margins.

Despite prospects of a stronger spring and summer home buying season, the report noted a drop in production volume per company ($517 million) and continued increases in per-loan production expenses. While average pre-tax production profit rose to 33 basis points in the first quarter, compared to 22 bps in the fourth quarter, production profits for the first quarter fell from 60 bps a year ago. MBA attributed production increases in part to increased regulatory requirements.

“Persistent increases in mortgage origination costs affect both lender profitability and borrower costs,” said MBA Chief Economist Mike Fratantoni in the spring issue of The Journal of Structured Finance.

As a result, many lenders are looking to third-party loan origination software vendors to reduce costs. Vendors, in turn, are increasingly looking to partnerships with other vendors to achieve that goal.

Recently, LendingQB, Irvine, Calif., a provider of loan origination technology, partnered with Advantage Systems, Irvine, a provider of mortgage accounting technology. By integrating their technology through a partnership, the companies have been able to offer lenders cost-savings for both services by enabling lenders to transfer loan-level accounting data from the LendingQB LOS to Advantage Systems’ AMB (Accounting for Mortgage Bankers) platform.

MBA NewsLink recently spoke with Brian Lynch, president of Advantage Systems; and Linn Cook, senior communications manager with LendingQB, on how the partnership came about and how such partnerships can benefit mortgage lenders.

MBA NEWSLINK: Are these kinds of partnerships something that you, as vendors, actively seek?

BRIAN LYNCH, ADVANTAGE SYSTEMS: For the right situation, yes. It’s for our clients to have a better experience. The data flows more quickly and the clients benefit from it.

LINN COOK, LENDINGQB: Our explicit approach is “best of breed.” We want our client to come to us and say, “this is what we need.” These partnerships are critical to the success of our platforms. We want to work with the highest quality vendors as possible–so that it really adds value to our mutual clients.

NEWSLINK: Break it down: How did LendingQB and Advantage Systems decide that a partnership was worth pursuing? Who made the first call? What kind of analysis went into this before you even agreed to partner?

LYNCH: We initiated the approach but because we kept seeing LendingQB with our clients. They also happen to be down the street from us! It all kind of came together that way. We had a good synergy and it worked out very well.

COOK: There’s certainly the business side–both sides have to put in real dollars and resources into the interface. Having a good API [application protocol interface] is important. But the interface should add value to our client’sprocess beyond just exchanging data. We encourage vendors to innovate and create a better solution using the capabilities of our API. We don’t prevent anyone from doing just the minimum, but we have to decide that it makes sense.

Accounting seems to be the redheaded stepchild of business owner when lenders evaluate LOS technology. Interface accounting to the LOS wasn’t really emphasized at first. But it made absolute sense to interface.

Ultimately, it comes down to a relationship. When we got together, there was a natural inclination to work together–we enjoyed working with each other and we shared the same vision.

NEWSLINK: What do you see as the advantages to lenders in these partnerships? How is the client going to benefit?

LYNCH: We want to make life easier for the client. We want the client to be able to access data easier.

COOK: The bigger questions is, what’s the difference between a good partnership and a bad partnership? What we realized with our different vendors is that it’s not about letting the client drive the process–we make sure it’s a three-way partnership. The client is involved, not only for the impetus but the feedback–the quality of the partnership. When they come to us and say, “here’s how we can make the interface even better,” it reinforces the relationship and creates a better end-user experience.

This is a distinct difference from other LOS vendors that do not follow a “best of breed” approach. For us, it’s not about controlling vendors or acquiring and owning a piece of the mortgage process. We want to be as open as possible in a way that encourages third-party vendors to be successful. Best of breed truly serves the client, not the vendor

NEWSLINK: Is there a risk that, through a partnership, you can paint yourself into a corner? What do you do to keep a parntership “fresh” and evolving?

LYNCH: We all have to be honest for each other. Linn knows that we work with all of them, but we can improve how we work with some of them. We’re all adults, we all know we’re going to be working with other vendors as well. Our goal is to make sure our partnership works as best as we can.

COOK: The other approach, in which you portray yourself as “all in one,” very much has the risk of painting yourself in a corner. We don’t have corners. We’re giving our partners the ability to show that they have a quality product and we let our clients determine whether it is effective or not. What separates a good partnership from a bad one is willingness–to work toward a solution and to accept feedback, both good and bad. If a client is not happy, finger-pointing can occur. We don’t allow that to happen. It’s all about trust and transparency in the relationship–it makes it easier to solve any problems.

NEWSLINK: So this is a client-driven process.

LYNCH: It’s the needs of the client we’re trying to meet. When we’re dealing with the number of transactions our clients are dealing with, that process has to work smoothly.

COOK: For us as an Saas LOS vendor, we get feedback on an interface from multiple clients. We know when something needs to be addressed can share information to solve a problem more rapidly.

LYNCH: It’s more on us as a vendor than the client. A client might express some frustration and we work on that. It’s also up to the corresponding vendor to work with us. In one case, we’ve had problems getting a vendor to work with us. With Linn, it’s been fantastic. It was initiated by the client and it fell into place. We haven’t always been as lucky as that.

COOK: The fact that we have a open API interface makes this a much simpler process. APIs greatly simplify integration. When a vendor comes to us and wants to perform an integration, we provide them with documentation and it’s up to them to build to that API. So rather than having to go through some bureaucratic process, where it has to be passed from one vendor to another and scheduled for a future release–for us, it’s very straightforward. Our API makes the integration process a lot simpler and puts the onus back on the vendor as to how much time and effort they’re willing to devote. Our commitment is to provide partners with the support they need to build and test the interface.

LYNCH: It took about three months. Some integrations are much longer. It’s more a matter of scheduling things as well. I think they can see that it works. We can show them that. We can also show them how easy it is for them to do. Lending QB’s approach has been very easy.

COOK: It comes down to willingness, transparency and an open API framework. This is why we feel the “best of breed” approach is ideal. It’s important for lenders to consider how open a vendor is to accommodate third-party relationships when they’re evaluating any technology. Our lenders have the ability to tap into our API technology to create their own solutions.

We have a client in Atlanta. They’re not a gigantic lender; but they do have internal technology capabilities. They used our API on their own and interfaced their proprietary database to monitor loan statuses in order to send out automatic email notifications. We provided the same level of support to them as we did for Brian’s company.

Knowing that you have a vendor who can provide those capabilities adds a lot more value to the relationship–and the ROI–as opposed to a walled-off platform vendor that tries to do it all their own.