Buying a home is the largest financial decision most of us will make. A mortgage is almost always necessary to facilitate this purchase. However, this critical financial instrument is one of the most stressful and cumbersome parts of the home buying process. Given the decades lenders have had to improve the mortgage process, why does it still take 45 days? It is a deteriorating situation for lenders as well! Mortgages have gotten more expensive to originate over the past decade – from ~$4k in 2009 to $8k in 2019.

Both consumers and lenders feel the pain. Why does it persist? Much of the answer lies in the outdated infrastructure that underpins mortgages, in particular, the “Loan Origination System” (LOS).

The LOS acts as the “system of record” upon which consumer data is ingested and all operations (many of which are manual) are performed. The largest LOS providers were built in the 1990s (or earlier) and their software is unsurprisingly outdated and rigid by today’s standards. Nevertheless, it is these providers that underpin the >$10T mortgage industry!

Imagine running your modern day business operations on software built 30 years ago – prior to the advent of widespread personal computing, let alone the mobile phone! Unsurprisingly, it would be difficult to construct a modern, multiplatform consumer experience.

Why the problem persists

Mortgage requirements are driven by many players – lenders, investors, government sponsored entities like Fannie/ Freddie, etc. The requirements and process flows were coded into the early LOS players. As regulation and processes changed over the decades, LOS software was updated as best as possible, but its underlying structure remained rigid.

With the ultimate pressure test – the Dodd Frank regulatory changes post the 2008 financial crisis – required changes were bolted on, but ultimately manpower was increased to compensate for the lack of software flexibility, and the speed/cost/predictability issues of mortgage origination got worse! The result? Today’s LOSs still do not have the configurability of modern operating systems and without a ground up new build, consumers and lenders will continue to feel the impact.

Investing in Vesta

That is why we are so excited to be investing in Vesta! Vesta is building a modern loan origination system (LOS) from the ground up consisting of:

• A modern, performant system of record to hold all mortgage data – ingested via API from a borrower facing point-of-sale tool

• A no-code configurable workflow engine to orchestrate and automate the fulfillment process

• APIs and integration tooling to enable any lender or partner to integrate with modern ecosystem partners (e.g., new pricing engines, modern appraisals, etc.)

The potential for impact of a modern mortgage LOS is vast, including:

• Increased efficiency, transparency, and predictability for consumers applying for and being approved for mortgages

• Lower costs and process overhead for lenders (loan officers/underwriters/processors will be able to process loans more efficiently)

• A path for continued improvement across all parts of the mortgage process through the support of a developer ecosystem. Modern vendors for other parts of the process, such as appraisals and servicing, now have a modern system of record to hook into.

• Lower barriers to entry for new lenders, as new lenders would no longer have to invest in large developer teams to customize software and train as many loan underwriters and processors. This competition is generally good for consumers (currently, 175 lenders serve over 75% of the market). For example, software players like OpenDoor would have an easier time embedding mortgages into their platform.

Buying a home is the largest financial decision most of us will make. A mortgage is almost always necessary to facilitate this purchase. However, this critical financial instrument is one of the most stressful and cumbersome parts of the home buying process. Given the decades lenders have had to improve the mortgage process, why does it still take 45 days? It is a deteriorating situation for lenders as well! Mortgages have gotten more expensive to originate over the past decade – from ~$4k in 2009 to $8k in 2019.

Both consumers and lenders feel the pain. Why does it persist? Much of the answer lies in the outdated infrastructure that underpins mortgages, in particular, the “Loan Origination System” (LOS).

The LOS acts as the “system of record” upon which consumer data is ingested and all operations (many of which are manual) are performed. The largest LOS providers were built in the 1990s (or earlier) and their software is unsurprisingly outdated and rigid by today’s standards. Nevertheless, it is these providers that underpin the >$10T mortgage industry!

Imagine running your modern day business operations on software built 30 years ago – prior to the advent of widespread personal computing, let alone the mobile phone! Unsurprisingly, it would be difficult to construct a modern, multiplatform consumer experience.

Why the problem persists

Mortgage requirements are driven by many players – lenders, investors, government sponsored entities like Fannie/ Freddie, etc. The requirements and process flows were coded into the early LOS players. As regulation and processes changed over the decades, LOS software was updated as best as possible, but its underlying structure remained rigid.

With the ultimate pressure test – the Dodd Frank regulatory changes post the 2008 financial crisis – required changes were bolted on, but ultimately manpower was increased to compensate for the lack of software flexibility, and the speed/cost/predictability issues of mortgage origination got worse! The result? Today’s LOSs still do not have the configurability of modern operating systems and without a ground up new build, consumers and lenders will continue to feel the impact.

Investing in Vesta

That is why we are so excited to be investing in Vesta! Vesta is building a modern loan origination system (LOS) from the ground up consisting of:

• A modern, performant system of record to hold all mortgage data – ingested via API from a borrower facing point-of-sale tool

• A no-code configurable workflow engine to orchestrate and automate the fulfillment process

• APIs and integration tooling to enable any lender or partner to integrate with modern ecosystem partners (e.g., new pricing engines, modern appraisals, etc.)

The potential for impact of a modern mortgage LOS is vast, including:

• Increased efficiency, transparency, and predictability for consumers applying for and being approved for mortgages

• Lower costs and process overhead for lenders (loan officers/underwriters/processors will be able to process loans more efficiently)

• A path for continued improvement across all parts of the mortgage process through the support of a developer ecosystem. Modern vendors for other parts of the process, such as appraisals and servicing, now have a modern system of record to hook into.

• Lower barriers to entry for new lenders, as new lenders would no longer have to invest in large developer teams to customize software and train as many loan underwriters and processors. This competition is generally good for consumers (currently, 175 lenders serve over 75% of the market). For example, software players like OpenDoor would have an easier time embedding mortgages into their platform.