4.1. The Project
Home-mortgage lending has proven to be one of the most difficult processes to adapt to e-commerce. Many banking and finance sites have only partially automated the process, requiring the customer to complete an application, then wait for a telephone representative to call back to complete the transaction. The primary hurdle has been the complexity of the process, which required credit checks and verifications of the customer's assets, liabilities, employment status, and other information.
HomeSide Lending, Inc., headquartered in Jacksonville, Florida, is the sixth largest servicer and the twelfth largest originator of residential mortgages in the nation. HomeSide is also one of the few lenders that has mastered the entire mortgage application and approval process online. Although best known for its secondary mortgage business, over the past few years HomeSide has built a direct sales channel for customers seeking to refinance or purchase their homes.
Based on the lessons of an earlier Web foray, HomeSide developed a unique automated mortgage approval process that can be completed by applicants in as little as 10 minutes. This process required HomeSide to dramatically reengineer and simplify traditional loan underwriting and approval procedures. The new system uses a Java 2 Platform, Enterprise Edition (J2EE)-compliant application using the BEA WebLogic Server built with an existing Oracle 8.1.5 database and an internally developed loan approval application, with XML integration to an underwriting system powered by Fannie Mae technology. The Web application and existing system are deployed on HP UX 11 platforms.
The resulting application not only powers a new online mortgage sales channel, but has been used to streamline call-center sales as well. The new application actually went live on the call center three months before the new Web channel debuted in December 2000. During the first few months, conversion rates for phone sales alone have increased by 75 percent. HomeSide's current plans are to continue offering the new streamlined process itself, and to co-brand it with channel partners to reach wider customer bases.
4.1.1. The Company
HomeSide has grown dramatically in recent years. Formerly a Bank of Boston subsidiary, the company grew by acquisition over the past five years, and was subsequently acquired by National Australia Bank in late 1997. The company's roots came from secondary mortgage lending, in which mortgages are purchased from primary issuers, such as banks, mortgage brokers, and other retail lending institutions.
Today, the company services nearly $175 billion worth of mortgages for nearly two million homeowners. To its customers, HomeSide is the agent that sends mortgage bills and related statements, while handling escrow payments for taxes and insurance.
Among HomeSide's competitive advantages is its efficient cost structure. Because the company is not a traditional “brick-and-mortar” lender, HomeSide has not had to maintain a high-overhead branch network. Another critical differentiator is that, unlike many lenders, HomeSide relies on its own technology platform. This bootstrap strategy helped HomeSide reengineer the home loan underwriting and sales process. HomeSide's Mortgage Desktop, a client-server program that uses an advanced, rules-based workflow engine, provides a fast, automated, intelligent workflow application that delivers home-mortgage approvals quickly.
While the company's core business is focused on secondary markets, once HomeSide assumes the loan, it also assumes the relationship with the homeowner. Thanks to its exposure to nearly two million customers, its efficient, direct business model, and its sophisticated technology base, HomeSide is well-positioned to offer a wide array of home financing products to its customer base.
According to Robert Davis, senior vice president of global e-business development, up to 20 percent of HomeSide's customers consider refinancing in any given year. “When our customers want to refinance, we want to keep them as customers,” he explains.
Consequently, HomeSide has developed an active business selling mortgages to customers looking to purchase homes or refinance their homes to get better rates. Three years ago, after opening a call center to handle refinances, HomeSide also began looking at developing a Web-based marketing channel, and developed an early partnership with Intuit and Microsoft. Those early experiences provided valuable lessons on how to effectively sell refinancing over the Web.
4.1.2. Technology Adoption
HomeSide's IT organization was already highly experienced in developing complex applications. The IT group, which was built up through HomeSide's acquisitions, had an extensive background developing mainframe and UNIX-based retail and secondary home financing applications.
The existing back-office application was used originally for the call center. Based on a two-tier client–server architecture, it was written in C++ to run on Windows NT clients and an HP-UX server. It ran against an Oracle database, and operated using a sophisticated, rules-based workflow engine that was custom developed using BrightWare's ART*Enterprise expert system development framework. The application was written modularly, largely in C++. It features separate “engines” dedicated to individual loan processes such as rate comparisons and closing costs. Each of the engines is integrated via point-to-point socket interfaces.
The application's rule-based workflow guided the call-center representative through the process. Once the data collection was completed, a block file was submitted for the underwriting decisions. When underwriting gave the go-ahead, the HomeSide application generated rate quotations and terms (including all closing costs).
“We had good existing call-center technology, but we needed new technology and a streamlined business process to bring this solution to the Web,” explains Bill Reed, director of technology, who notes that the success drove HomeSide to develop a fully automated Web sales channel that could scale even further.
A diverse project team which included both technology and business domain specialists guided the new effort, dubbed Project Tango. The project drew on many of the developers who initially created the call-center application, plus consultants from Modis Inc., a global systems integration firm, as well as other integrators.