IBM Launches Loan Fulfillment Company

In late March, IBM (Armonk, N.Y.) launched a new mortgage services unit that it says will fill a gap in the lending space, especially for small to midsize lenders. IBM Lender Business Process Services (LBPS) will enable mortgage lenders to replace the fixed costs associated with typical loan fulfillment operations with a variable-cost framework, freeing up lenders to focus on providing better service and support to consumers, according to IBM.

"[Lenders] have many pain points, including the cyclical nature of the interest rate environment," explains Greg Sullins, executive director of the LBPS unit. "So they're in a boom-or-bust climate and are unable to expand or contract [resources] when they would like. This all affects lenders' bottom lines and their ability to serve their customers." With the IBM offering, lenders would pay for services on a by-transaction basis. "It will allow them to use the tools more in a utility fashion," Sullins says.

Driving Down Fixed Costs

"There are about 8 to 10 million consumers going through the loan origination process annually. The cost of the infrastructure to support this can be huge, depending on the size of the lender," Sullins continues. "IBM wants to help drive down the costs for lenders." IBM positioned itself for such a role when it acquired enterprise content management solutions vendor FileNet last October and Palisades Technology Partners, a provider of loan origination technology and systems integration services, in November, Sullins notes.

The new unit, which will be based in Charlotte, N.C., will offer a range of lending services, including loan application, underwriting, processing, vendor management, document preparation and loan closing, Sullins relates. Clients can choose either to use the entire suite of services in-house or just pieces of it, he says. They also can use LBPS as a turnkey business process outsourcing (BPO) solution for which IBM provides a private-label offering that acts as an extension of the lender's brand, including having IBM employees answering phones on behalf of the lender. The third option is the network delivery services model, in which clients can use IBM's solutions in their own environments on a fee-for-services basis.

If the per-transaction cost metrics work out for Tier 2 financial institutions, this can be an attractive way for them to get best-in-class software and services," says Craig Focardi, research area director, consumer lending, TowerGroup (Needham, Mass.). The IBM offering, he adds, "is the first time where one company is providing processing, contact management and BPO under one roof to the lending industry. ... It would certainly be more attractive to lenders than buying and integrating separate solutions."

LBPS is scheduled to go into production in the third quarter, according to IBM's Sullins.