How to overcome the "if it ain't broke don't fix it" mentality in mortgage

Richard: [00:00:24] Hello and welcome to the latest edition of MPA TV. I'm your host, Richard Torne, news editor for Mortgage Professional America. And today, we're going to be talking to Souren Sarkar, the CEO of Miami based I.T. consulting firm, Nexval. With more than 25 years experience in the mortgage industry, Souren is a leading proponent of the use of technology in the sector and a fervent advocate of robotic process automation. What does this have to do with the mortgage industry? Well Souren believes RPA can drastically reduce the human element in mortgage lending. In fact, he has suggested that technology could soon consign originators to the pages of history, comparing that situation with the move towards driverless cars. He argues, among other things, RPA can help cut costs down in the origination process, something that's very much at the center of the mortgage industry at the moment. Hello and welcome, Souren. 

Souren: [00:01:18] Hello there. Thank you for having me. 

Richard: [00:01:20] It's great to have you on the show today. Now there's a lot to discuss. Now, everybody in the mortgage industry I've spoken to recognizes that technology played a very positive central role during the COVID pandemic, especially during lockdown. Originators were able to carry on virtually as normal and engaged with their clients from the comfort of their own homes. But you want to take it much further, is that right? 

Souren: [00:01:42] That's correct. Technology is, as we have seen in every other sector of our lives, progresses with time. And as you correctly noted, the COVID 19 pandemic has caused us to rethink many of the aspects of how we use technology, especially the aspect of remote working. And I would like to expand on that, on how it will progress in the future with the current developments. 

Richard: [00:02:10] Now, I remember when I first interviewed you, you said something that stayed with me, and I think it stayed with a lot of readers who read the article. You said that the loan officer function is probably something I wouldn't advise my children to aspire to for a career. That raised a few hackles. Even the heads of fintech firms I've talked to actually concede that you'll still need the human touch. But you don't agree. Do you? 

Souren: [00:02:38] I don't agree because we for some reason, those in the finance and banking industries feel we are somewhat different and the human touch is has a there's some uniqueness to it that is special to our industry. I feel that our industry is similar to others where there is customer contact rate and across the board we see all of the customer contact industries are increasingly moving towards more and more automation. And it can be argued that, well, the loan function, especially the mortgage loan being the largest transaction in the lifetime of a person, would require more active human contact. And I don't disagree with that. That's obviously true. It's not as simple of a transaction as a credit card transaction or a simple financial transaction like an auto loan, possibly. But still there is we should never say never. It might be the quotient of time that you're talking about that it takes for these technologies to catch on. But it is inevitable process, just as you mentioned, driverless cars or other future looking technologies that are making rapid progress. I think what a lot of people make the mistake is not considered the kind of the geometric progression of technology and think that this will proceed very linearly. And because we haven't seen that level of progress so far, they feel that we are very far behind. But if you consider the geometric progression of technology in all other fields, I don't think that it's too far out, possibly within our lifetimes. We see in our years, but within our lifetimes we'll see if not a fully automated loan origination process, but a vastly automated process that that we can experience. And that will be a requirement for companies to compete in this industry. 

Richard: [00:04:40] You've also been critical of what is known as siloed technology, that that is those legacy platforms that rely on a centralized database. Why is that? 

Souren: [00:04:50] Because technology, the only thing that's holding back technical innovation technology was supposed to really liberate us from the shackles of human processes, paper systems and other filings and all those kinds of things that we did that really held us back. And and then we spend a lot of time digitizing and, and making them electronic. But then along with that came software to run our various businesses starting in, I would say in the seventies or early eighties, this was the situation. And so what has happened now is some of these software technologies, especially in industries that like the mortgage industry or you can see maybe the travel industry are running on legacy systems that were built sometimes in the seventies or the eighties, which is essentially kind of a Jurassic period. I mean, if you think of the progression of technology, that's a really long time, 40 years. But because we are in an industry where especially, say, on the servicing side of mortgage technology, you're talking of a minimum 15 to 30 year transaction here in the US or at least an average loan, even if it's refinanced. I think the number is about seven years. So and there's always loans in progress and flight just like many flights out there. And it's very hard it's very hard to change kind of these technologies and the providers of these technologies. 

Souren: [00:06:15] And we have a handful of them here in the US mortgage banking industry have really, really have no incentive to improve their technology to the extent that it meets the current standards. And so they're running off these legacy databases and application platforms that sound very ancient to the rest of the world. If you think from the Silicon Valley perspective or technology forward areas, we're using COBOL, we're using large mainframes. And what they have done is just to keep up with the times. They're just plastering it with nice looking UI systems, maybe a web interface or instead of a green screen and saying that we have progress. But that's not true progress. I mean, essentially we're stuck with these and the switching costs are so high with these monopolies that the users are essentially stuck and even now they're moving into previously some of the smaller players would try some of the new entrants or the new platforms. But now with the for example, with a loan transfer, it's so much easier to do it within these siloed systems that in spite of hating it, people still use it. So it is really one of the downsides in the industry and we need some radical change and some companies that really look at this from the. Round up to challenge the status quo on these legacy industries. 

Richard: [00:07:43] I was listening to you just now, and I'm just thinking of two questions, but they come from different angles. One is, why do you think there's a resistance to change? And then while I was thinking this, I thought, well, there is this adage, isn't there, that if it ain't broke, don't fix it. 

Souren: [00:07:59] I remember back in the day when I was trying to introduce Microsoft Word Systems into this company, and the word perfect was then the software of choice and everybody was very familiar with the key combinations. There's that you use the word perfect. And so the initial days of word you had to they had some mapping schemes or people who use those key combinations because users get familiar with what they're used to. But I don't think the problem is that much of the user base as it is with the vendors who supply these platforms, because why would you put in your system something that makes it easy and portable? You have seen in some other many other technology areas, for example, CRM systems. There was a lot of companies that were making these custom CRM databases for customer relationship management, making it very hard to port it to other platforms. And there's little incentive for one provider to provide the portability to another platform until the industry as a whole rises up and compliance and regulators rise up and create some standards and say, Hold on a second, just because I'm on your platform doesn't mean I can be stuck here forever. And such an effort has been because of the handful of providers providing these technologies and the insulation of this industry with a lot of compliance and other barriers. You know, the providers of our industry have used this essentially as a shelter to not make their systems portable, not make the systems very accessible, and making the data kind of their own, you know, keeping the data under their own control, and I call it putting locks and shackles on the database so that essentially, no matter what interface you have, the data is still owned by that centralized provider. And we have seen this in many other industries, even in social media. This was the case. And now, you know, regulators are coming in saying, hold on a second, but this is customer data and they should have access to it. So financial data, just the simple act of transferring the loan is so cumbersome and it shouldn't be because the parameters of a loan remain the same no matter who you go to. Maybe there's some specific features and functionalities a new provider provides, but you still need to know your what is the total loan amount, what is the balance? What are the payments that were made, what was the frequency of the payments, etc.? So these should not be separate standards on separate systems. There are some industry standards out there, but those have also been such as abysmal, but those are also have been very hard to implement and accepted by these providers. So unlike many others that say, well, the users are resistant, users really follow the trend. Yes, it takes a lot of time to switch. But once they switch, they they readily accept this new paradigm, especially if it makes a life easier if you make it, if you make a switch and make it harder, obviously your users are not like that. So if it's a simpler system, if it's more intuitive and it's a little bit of a learning curve with proper transition systems and management support systems can be implemented. 

Richard: [00:11:18] You've cited fraud analysis as another field where tech can play a leading role, particularly when it comes to dealing with straw borrowers who simultaneously apply for a multitude of mortgages. What can you tell us about that briefly? 

Souren: [00:11:33] Yeah, straw borrowers are essentially taking these hackers, as I call them, or the fraudsters ahead of the technology curve. What they see is these gaps in these technology systems. So essentially a straw borrower is putting forward. You know, the identity of another person and buying a home in their name. And essentially they are looking at the gap of the lack of sharing of data between the mortgage providers and the disparate systems where property data is kept and taking advantage of that. So and just like in Star Wars, there's another example where a person applies for multiple mortgages at the same time simultaneously, and therefore the record is not there in the credit history, probably with stolen data and a stolen identity rather, and then is able to get multiple mortgages and then skip town by working with a title company that will provide them with cash money. So there are so many of these scams and fraudsters, they are smart people, somewhat sometimes smarter than the industry and they're ahead of the curve. I wish that they use their smartness to do more positive things, but that is that example that you gave you shows potent holes in the industry because we are not sharing data and our systems are not talking to each other as they should. 

Souren: [00:13:00] It should be simultaneous. It should be all borrower data and loan data should be public. It should be on a blockchain essentially, or a shared database which should be owned by the borrower and shared by the loan company, not the other way around. Because my financial information of my transactions, although the bank is adding to it, should be my property. And right now it's the other way around and across across industries we are seeing ultimately borrowers will wake up and say, hold on a second. I mean, this is my property and you're holding it and holding me hostage with the data that I should have. So this need, this will change. But compliant industries with high compliance barriers like ours will probably take a little more time than others. But the waves of change will always be there and the pressure will always be there to conform. 

Richard: [00:13:56] You're also a firm believer in the importance of blockchain technology and indeed in cryptocurrencies. But isn't it true that investors have lost a lot of money recently? And we saw that in the mortgage industry alone, you ditched a plan to accept Bitcoin as payment. Hasn't confidence in cryptocurrencies taken a battering lately? 

Souren: [00:14:20] It has. I mean, crypto, as in any early phenomenon, any early markets is open to fluctuations, wide fluctuations. So before any kind of platform, if we look at the history of money as such and you look at the prehistoric times, it was not stable. There was a lot of fluctuation and a lot of problems that have appeared there. So we've got to look at crypto as a new concept of money that's in the early stages and in early stages. The fundamental platform features and the, the, the pitfalls have not all been figured out yet. Hence there is massive fluctuation and issues with implementation of the systems, hacks, etc. Again, fraudsters ahead of the technology curve are taking advantage of it. And but I wouldn't say a lot of people say this is like a greater fool theory is crypto. I think they are probably whoever has said that in the past about any kind of technology trend has probably ended up being the fool themselves. So it has to be seen in the light what crypto allows. The underlying blockchain technology allows us to do is have a distributed database that is where the ownership of data belongs to who should rightly own it. That is the underlying thing. And it's a concept of decentralization across the board. I mean, monetary decentralization has, as it was crypto or decentralization of databases that, as you put it, blockchain based technologies that utilize the blockchain as their underlying data store. So this theme will continue no matter what happens. Decentralization is part of and as you can see, there's a kind of a technology cycle. At first, like we had distributed computers, then came mainframes, it centralized. Then we went back to kind of a cloud system. So there is an ebbing and flowing of concentration and distribution of data. But I think that the blockchain concept is a concept for our times. There are some implementation issues and other things like that, and there's a fluctuation in the market that reflects the that that it is not mature to the point where it can be immediately used, but development continues at a ferocious pace. And this is what I tell our clients and everyone else in the industry that we interact with is. You have to remain conversant of what is going on in the industry. You don't want to be that company that wakes up one day and say, Oh, now it's being implemented and you're behind the curve. And people who are trying and failing rather than in front of me say, well, what failed here, right? I mean, so a Bitcoin mortgage. Well, the issue is pegging the value of Bitcoin. And in the fluctuation, essentially they're using Bitcoin as an escrow process, holding the Bitcoin and, you know, providing fiat currency to actually buy the property. Is that the right model? Right. These are the questions to be asked. And the experimenters, some of them will break through and will be the mortgage company of the future. I have no doubt about that. So I would I would really observe them if I were an established mortgage company and observe where they are and be prepared with the technology in the system. So when the time comes, you can attack the market with full gusto. 

Richard: [00:17:57] Having interviewed you before, your philosophy seems to extend beyond the needs of the mortgage industry. You said that you expect to see a natural struggle between nation states and credit individuals. You expect to see a global community transacting with each other with no national barriers. And you've also said that nation states should be limited to designing policies on defense and setting financial and fiscal policy. But doesn't that sound awfully like an argument for less regulation? And isn't that what got the world into trouble in in 2008? 

Souren: [00:18:29] Yes. I mean, I'm not making a case for no regulation, but less regulation. I mean, just as an example, in the United States, to set up a mortgage company, we need licenses in every state for origination and servicing. And so a distributed, a federal system has its advantages and a distributed system is advantages, but the repetition of regulations, obviously, nobody wants that. You repeat it at the state level and the federal level and the simplification of every time there's an issue, for example, a pandemic like COVID 19 or a financial crisis, the we we actually have a compliance product in which we're actually quite happy about it because there's layers and layers of more stuff coming in and customers want that from us. But looking forward as an industry supporter, the simplification of these processes is definitely something we should all aspire for and the simplification has to be market driven. It cannot be vendor driven because that's the initial argument that I made you. Vendors, software vendors and database providers do not have an incentive to simplify, the incentive to complicate. And our nation states have a natural tendency to complicate things because it's very it's layers upon layers of historical codes which are very, very hard to remove. I mean, it has its efficacies to hold the nation together, but there has to be a a forward looking component where there's some flexibility on certain aspects. Financial transactions should evolve with the time. As finances evolve with time, you cannot hold them back with these multiple layers. 

Richard: [00:20:16] The US and indeed the West and maybe even more areas around the globe are looking down the barrel of a recession. Possibly quite a long one can tech mitigate its impact in some way. 

Souren: [00:20:31] Yeah, so the recession, anything that happens in one country now has a ripple effect across the globe. Right. So it used to be very insulated. I just came back from a trip from Europe and looked at the Greek and the Roman societies and their decline was very localized, had a regional effect maybe around the Mediterranean, but people in the Indus Valley didn't face it or people in Africa didn't face it. But now we're in a connected world, largely due to technology. All our systems are connected, so we cannot. And this is more reason why the countries need to need to really look carefully at the interconnectedness of systems and across the board enabled by technology. So, you know, I make a case there also that this interconnectedness should propel us to a future where we all combine and coordinate. And the concept of creating closed nation states, which is a current trend we see across the board, where we think that we can put up borders and then forget about the rest of the world and build our own systems is just really silly, so to speak. Given how connected we are. 

Richard: [00:21:51] I'd like to switch the discussion now in its final. As we sort of wrap up, I'd like to switch this discussion over to you a bit more. And when did you first develop an interest in technology? Because you seem to give the impression that it's more than just a career choice. It seems to be central to your being. 

Souren: [00:22:08] Absolutely. I started experimenting with computers while I was in high school, and this was in the late eighties, early nineties, and then had a fascination of how it enables all the positive aspects of technology. We hear so much of aspects of what technology can do for us. But if you look at what technology and computers have done for us in the last 20, 30 years, it's just astounding. And this geometric progression of our well being enabled by computers is something that fascinated me and I've always been involved and after my post graduate education I ended up in the mortgage industry and was a technologist there. So I've been involved in mortgage technology from the very beginning, writing systems, from the core of understanding the challenges of working with these third party providers. So in our, so I've always been involved and I'm somewhat you know, I sometimes get told that I'm too much of a visionary, but I like to be optimistic about technology. And rather than say something's not going to happen, etc.. See, it's only a question of time. If there's an argument about whether technology will reach a certain point. So yes, I readily accept a debate about how long will that take, rather than saying that will never happen. So that's been at least my optimistic view of technology so long, and that has helped me build a company and that that builds products and systems that have an optimistic view that says, well, we we can make our own little impact on this and simplify a certain area. Maybe we can't change the whole world and but everybody can make their own contributions. And I think what we are seeing from the rest of the world is the providers in our industry need to also wake up to is coordinating and sharing and building a a system that is more collaborative actually makes your company better than worse. Putting up walls, just like putting a wall as a nation state really doesn't work in today's world. Ultimately, you're going to crumble and you're going to crumble hard when the tides of technology change. So holding on to your 40 year old legacy system is a recipe for finishing consigning your company who does serve a pretty history. 

Richard: [00:24:40] Fair point. Finally, and I always ask this question to my guests, if you could give a piece of advice to your younger self starting in the industry, what would it be? 

Souren: [00:24:49] I would have possibly spent a little bit more time learning about the secondary market in the mortgage banking industry. I started with the origination of the service inside, but I feel that a lot of mortgage lending. Later on I got exposure to the secondary market side of things. Ultimately, as in any industry, you've got to know where the money flows from and it really comes from the the investment bankers and the secondary market makers that truly control the mortgage industry and downstream. The originators in the service are really executing on transferring this money back and forth. So I wish I had spent more time learning secondary marketing, but I did get a chance to do that later and I would encourage anybody entering the mortgage industry to take an active interest in where is the money supply actually coming from for this mortgage? Where is the who's the one who's investing in this and what are their drivers? Because ultimately that's what drives the industry. And as we saw with the financial crisis, that could bring it down, too. So it's vital knowledge that any mortgage banker should have if they do not work directly in that area. 

Richard: [00:25:56] Excellent. Well, Souren, thank you so much for joining us today. It's been great having you on the show. 

Souren: [00:26:01] Thank you. Thank you for the opportunity. My pleasure. 

Richard: [00:26:05] Thank you to all of you. As for watching as well. I've been your host, Richard Torne, and we hope you'll join us again soon for another edition of MPA TV. May you all have a happy and successful week. Goodbye.