For the top mortgage originators and servicers, about a third of all technology operating expenses in 2003 were related to outsourcing certain technology functions to business partners.
About 67 percent of technology spending was dedicated to origination functions and 33 percent to servicing functions.
And of the 2003 technology spending, 57 percent was for required maintenance, while the remaining 43 percent was discretionary.
Those were some of the findings of the 2004 MBA Technology Study conducted by the Mortgage Bankers Association. The prototype study, conducted through focus groups, was designed to develop a common set of definitions for benchmarking technology spending and to improve technology internal and external reporting. Other reasons included understanding the drivers of the technology spending decisions process, providing meaningful operational and financial metrics and ascertaining the big issues facing the mortgage industry’s chief information officers and chief technology officers.
Participants completed a detailed questionnaire focusing on 2003 data, and then met for a roundtable session in 2004 to review the results.
Nine of the top 20 mortgage industry leaders participated. Net operating income per firm averaged $522 million in 2003. Closed loan volume in 2003 was $135 billion per company. The entire sample represented about 32 percent of the U.S. mortgage origination market. All participating companies operated in the wholesale, retail and consumer direct production channels, and all also serviced loans.
Total 2003 technology spending – operating expenses plus capital expenditures – averaged $140 million per firm. Technology operating budgets rose 24 percent over 2003, and capital budgets jumped 153 percent.
Those figures worked out to an average of $15,418 on technology per end user – company employees, contractors, brokers and correspondents who must use the company’s technology to perform work on behalf of the company. Customers and borrowers were excluded.
Most technology spending has been geared toward traditional mortgage platforms, such as improving or upgrading mortgage companies’ existing origination and servicing systems.
The study found that in 2003 in particular, corporate management placed a stronger focus on aligning information technology with business strategies. Managers asked whether the company was seeing an adequate return on technology spending, and whether technology was working to the company’s advantage. Requiring technology spending to be better aligned with business strategy was often offered as an example of how companies’ attitudes toward technology spending had changed over the past year.
Another challenge for mortgage companies was meeting new compliance and regulatory requirements. Companies estimated that technology spending to meet these new requirements, such as those related to privacy and accounting standards, increased 51 percent between 2002 and 2003.
One of the big challenges was having enough trained and available employees to implement new technology projects. Mortgage activity was at its busiest and keeping systems running was imperative, and technology projects stalled. Participants said the biggest block to technology spending in 2003 was the lack of staff to implement projects. The top reason for technology project delays was lack of business personnel to define and direct the technology projects.
Outsourcing ($41 million per company) helped alleviate some of the squeeze on available in-house personnel for technology projects. The two functions most likely to be outsourced in some capacity were new application development and maintenance and network support. Study participants expected to continue using outsourcing in the future.
While most of the technology spending focused on traditional mortgage platforms, both the consumer and the industry are changing. Consumers, for example, are much more Web-savvy and often shopping for rates and initiating the loan process online. Companies also are offering more products and services online.
All participants said they were looking into eMortgage technology and planned pilot or test programs within the next two years. An eMortgage is originated, processed and closed electronically with no, or very little, paper at any point.
With more services being offered online and companies being more accountable for security, the companies all said security was becoming even more important and would be reflected in their technology budgets. Most projected a 23 percent increase in such spending from 2003 to 2004, and a 12 percent the following year.
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