Key facts
- Building mortgage technology involves hidden costs in governance, security, and maintenance.
- Lenders may underestimate long-term maintenance expenses when considering building their own tools.
- Creating a diversified revenue stream by taking a built tool to market is significantly challenging.
- AI governance requirements are extensive, making full ownership of technology complex for lenders.
- The UPGRADE framework helps assess build vs. buy decisions based on urgency, problem, governance, resources, accuracy, differentiation, and expense.
The decision for mortgage lenders to build their own technology versus buying from a vendor is complex, extending beyond mere coding capabilities to encompass ownership of governance, security, and long-term maintenance. While building in-house might appear cheaper initially, it often results in tools that are not scalable and lack essential industry-standard security and governance structures.
Long-term maintenance costs are a critical factor that can significantly alter the cost-effectiveness of a build strategy. Furthermore, the prospect of creating a diversified revenue stream by offering a self-built platform to other lenders is significantly more challenging than it sounds, requiring multi-tenant hosting and market differentiation.
The increasing complexity of AI governance also plays a role, with lenders sometimes opting to build to retain full ownership. However, this necessitates handling the same level of due diligence and compliance, such as SOC2 audits, that they would expect from vendor partners.
To navigate these complexities, a framework called UPGRADE has been developed. It prompts lenders to consider: U - Urgency (how fast a solution is needed), P - Problem (the specific issue and desired improvements), G - Governance (ownership, monitoring, policy changes, PII handling), R - Resources (available personnel for coding, testing, maintenance), A - Accuracy (building vs. buying for better results), D - Differentiation (need for a specialized or industry-standard tool), and E - Expense (short-term and long-term costs).