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The Top Five Challenges of Legacy Commercial Loan Systems
November 8, 2019 by Dennis Moore
Within the current low-yield environment and growing regulatory workload, the mortgage industry faces real and ongoing challenges to reduce operational costs. At the same time, lenders need to be nimble and agile to respond to borrower and investor demands. Many large financial institutions, however, rely on legacy software applications and IT infrastructure to run their core lending and servicing businesses. Once attractive for their ability to process high volumes of transactions, these legacy systems are costly to maintain and support, difficult to integrate with other applications, and do not scale efficiently. There is also significant operational risk resulting from relying on the limited population of technical resources who still know and understand legacy code.
Today’s lenders and servicers require leading-edge technology to help automate their workflows, optimize their workforce and advance their digital transformation journey. Lenders with legacy systems face a number of challenges. In our opinion, these are the top five:
- Difficulty attracting and retaining technical resources with legacy architecture expertise
Today’s professionals are more familiar with a newer generation of software applications. Developers who understand legacy code are becoming increasingly scarce. Lenders and servicers with next-generation technology will benefit from being able to attract and retain top talent, reduce learning curves and provide a quality user experience to maximize efficiency.
- High cost in time and money to deploy new hardware and software upgrades
Upgrading servers and other hardware and software components are poor technology reinvestment strategies, as is developing bolt-on side systems to compensate for core servicing system limitations. Such solutions are not sustainable over the long term. In addition, lenders and servicers will pay a high cost for support services to migrate to the latest version of legacy software. There is a larger pool of skilled resources trained on a more advanced tech stack of Microsoft .Net, SQL and similar programming languages. With these newer technologies, software upgrades are more streamlined and do not require significant time and vendor involvement.
- Barriers to taking advantage of newer integration approaches (e.g., Web Services/API)
Legacy systems create barriers to integration with internal and third-party applications. Integration through flat files, batch processes or manual data entry are error-prone and inefficient. Newer systems use Web Services and API to exchange data smoothly and efficiently.
- Difficulty accessing data to perform ad-hoc queries and historical reporting
Replacing traditional flat-file batch interfaces with real-time APIs enables a freer flow of data exchange between systems. This results in unrestricted access to your data for on-demand or scheduled reporting needs—including real-time or historical information. Newer technologies also provide user-friendly screens with plain English descriptions for streamlined navigation and improved system proficiency.
- Trouble expanding into new loan products/property types without system limitations
Legacy systems often lack the flexibility to handle new, more complex commercial loan products. They require expensive and time-consuming custom development. Construction loans with complex budget allocations, loans with multiple investors/participants and loans that involve foreign currency exchange are examples of products that create barriers to entry for lenders and servicers with legacy systems.
As the commercial lending space becomes increasingly competitive, those lenders and servicers with legacy systems will need to upgrade their technology to remain competitive. While a number of legacy loan solution providers are discontinuing development and phasing out support, SS&C continues to enable technology for its clients by reinvesting in its products, services and people. As a result, we can offer the most flexible, feature-rich software and access to expertise that helps our clients grow and operate more efficiently.
Find out how SS&C’s Precision LM can help you overcome these challenges to legacy systems.