Fidelity Information Services has kicked off a multiyear overhaul of its mortgage servicing system, using technology from International Business Machines Corp.
The update is more than a "re-platforming" of existing software, said Dan Scheuble, the chief information officer of Fidelity National Financial Inc., the corporate parent of Fidelity Information Services. "I'm trying to lead the market for the next 25 years."
The Jacksonville, Fla., company plans to use Internet services and other emerging technologies in furthering a previous upgrade that also involved shifting from several older mainframes to three IBM eServer z990 systems. It said that program sped up processing 21%.
The latest upgrade is expected to make mortgage processing faster still, and one of the key goals is to allow lenders to process loans in real-time instead of the current batch-processing mode. Mr. Scheuble said the new system would also be more flexible, which could lead to new loan products. It should be up and running by early next year.
Fidelity National bought Alltel Information Services in April 2003 from the telephone company Alltel Corp. and renamed it Fidelity Information Services. Fidelity National chairman William P. Foley 2d has said publicly that Alltel failed to invest enough in the servicing system to keep customers satisfied, and that is a big reason behind the makeover.
Fidelity Information Services is the nation's largest mortgage servicer. It processes monthly payments for 24 million loans, with mortgage balances totaling $3 trillion, and has a 48% share of the servicing market. Its 80 customers include Wells Fargo & Co., Washington Mutual Inc., ABN Amro North America Inc., and Bank of America Corp.
"We've got to handle megascale," Mr. Scheuble said. And with so many of the nation's mortgages flowing through its systems, the stakes are high for Fidelity. Mr. Scheuble recounted the reaction of one large processing client. " 'You'd better not screw this up. You'll screw the whole industry up,' " the customer told him. "So there's no pressure on us."
Mr. Scheuble said the cost of the upgrade will run into tens of millions of dollars for the next several years.
The mortgage servicing business has 1,200 employees. Unlike Fidelity's hosting service for core banking applications, which runs several different core processing systems, the mortgage servicing system operates on a single standard platform, with customers paying fees to access information that Fidelity hosts as an application service provider. About 21 million of the 24 million servicing accounts are hosted through the ASP, though some lenders have licensed the software to run in-house, Mr. Scheuble said.
At least one lender is looking forward to the new system. "It will allow us to become more efficient and effective because the system will be easier to navigate," said John A. Vella, the chief administrative officer at Option One Mortgage Corp. of Irvine, Calif. The company is a unit of the tax preparation firm H&R Block, and services 310,000 subprime loans with a value of $44 billion, said Mr. Vella, who is also a member of a Fidelity advisory board.
He said the current servicing platform, a batch-processing system, often does not provide the range of current information that the company would like to have on its borrowers, but that the new one should allow much more flexibility in reporting. "Access to data was one of the big issues," he said. "Data is the key."
Craig Focardi, a senior analyst at the research firm TowerGroup of Needham, Mass., agreed that banks are looking for ways to make better use of information about their customers. "There are big costs and big risks, but the benefits of the overhaul make it much more worthwhile to go through this process," he said.
He proposed that a more modern system could encourage innovation in home finance by enhancing banks' ability to cross-sell. "Mortgage lenders innovate, invent new products, faster than the servicers can change their systems."
Christine Barry, the wholesale banking analyst at Celent Communications LLC, a research and advisory firm in Boston, said the timing of the overhaul should work well for the industry. As recently as last summer, lenders were too busy processing mortgage refinancing applications to focus much on the technologies they use to support their businesses. "Now that things are slowing down, they are going to have to," she said.
"There are lots of lenders with really old technologies in place," Ms. Barry noted. Fidelity's emphasis on Web services means "it's going to take a lot of investment on the part of the lenders, but the market is ready for that," she said.
Fidelity is using software and consulting services from IBM, and will need to adapt 23 million lines of code in a variety of legacy programming languages. It is using IBM's WebSphere Internet infrastructure software and its DB2 database software.
Fidelity plans to have a prototype of the new system in place by May, so customers can begin studying how to hook up their own systems to the servicing platform. The goal is to have the collections components ready to go live by the first quarter of 2005.
Fidelity will continue to support clients that do not want to convert. "This is completely, 100% at our customers' discretion. Nothing is going to be sundowned for many years," Mr. Scheuble said.
"We'll go live on this functionality one piece at a time," he said. "The 'big bang' is far too scary for anybody to contemplate."
Fidelity National's stock closed Friday at $39.53, up 1% for the week.
