The rebuilding of MSP: when Fidelity bought ALLTEL's servicing platform, it got top market...

WHEN FIDELITY NATIONAL FINANCIAL INC. (FNF), Jacksonville, Florida, emerged as the high bidder for the mortgage servicing technology assets of communications giant ALLTEL Information Services, Little Rock, Arkansas, it turned a few heads. It wasn't just the billion-dollar-plus price tag.

The market leader in the servicing platform business with its Mortgage Servicing Package (MSP), ALLTEL provided the technology to service about half of all the loans in the country, and had been providing it for nearly 30 years. But at the time of the deal, the firm's biggest clients--including Wells Fargo and Washington Mutual (WaMu)--had decided that the old COBOL-based program would not meet their needs in the future, and they were preparing to jump ship, according to Ernie Smith, president of Fidelity Information Services Inc. (FIS), Jacksonville, Florida, the division the company would create around the ALLTEL assets. It may have been just a matter of time before MSP's other users reached the same conclusion.

But that's not the way FNF's top management saw the situation.

Fidelity had been gently expanding out of its core title insurance business for some time. It had already entered the credit and flood insurance businesses by the time it bought rival Chicago Title Insurance Co. and became one of the largest settlement-services companies in the mortgage industry.

By the time the ALLTEL deal presented itself, the company was into everything from multiple listing service (MLS) software to loan origination systems to default outsourcing. It owned Hansen Quality and Lenders Service Inc., and was in the process of building a $40 million data center in Chicago to house its new in-house information technology (IT) team. All together, the company was operating 37 companies in the real estate and mortgage lending industries.

"When we found out [ALLTEL] was for sale, we thought that it would be the next step," says Smith. "Not only is it a nice, stable business, but we thought we could get it at a good price because the word on the street was that ALLTEL had not re-architected its system and was on the verge of losing many of its customers to Fiserv [MortgageServ]."

In effect, it was a turnaround play. Fidelity was gambling that it could stop the hemorrhaging in time to convince ALLTEL's clients that it could rebuild the system to meet their needs. If it could buy enough time, FNF would get a host of benefits, including enough high-grade facility space to halt work on its $40 million data center, $15 million to $20 million per year in additional savings afforded by moving staff to existing ALLTEL real estate in Jacksonville, and sales synergy for cross-selling other Fidelity services and some solid banking technology products, which would further diversify the company's revenue stream.

But what excited Smith most was the fact that with MSP, Fidelity could finally offer it all. "We were able, if the lender wanted us to, to take the loan all the way from loan origination to boarding to the loan servicing platform," he says. "And then, if necessary, we could foreclose on the property and take it all back around again. [The deal] closed a full circle."

But that would only be the case if Fidelity could persuade MSP's biggest users to stay with the system, and then successfully rebuild it before a competitor offered users something better.

First steps first

Fidelity immediately built a new division around the ALLTEL assets, FIS, and put Smith in charge. The company then hired former HomeSide Lending Inc. Chief Executive Officer Hugh R. Harris as president of its Financial Services Technology Solutions division. Harris had been consulting with Fidelity as it considered its purchase of MSP.

"It was really an opportunity, in my mind, to validate what we had told them we thought the company would do and what we thought the potential was of the company," Harris says. "The challenge was to make sure we validated what we had told them."

To help make that happen, Harris called on Dan Scheuble, former chief information officer for GMAC Mortgage Corporation, Horsham, Pennsylvania, and current chief information officer of FNF, and Cynthia FitzGerald, executive vice president of customer services and support. Working as a team, Scheuble would direct the re-architecting of the system and FitzGerald would get it into the hands of FNF's new servicing customers.

These executives were chosen because Fidelity believed they could rebuild MSP over the medium term. But in the short term, they had a more important job to do. They had to keep MSP's biggest users from defecting.

During the due-diligence process, Ernie Smith got on the phone with some of FNF's existing customers at Wells Fargo and Washington Mutual. Their dissatisfaction with the direction in which ALLTEL was taking MSP was confirmed. While neither firm had signed any binding agreements with a competitor, Wells had missed a deadline to renew its contract and WaMu had made definite plans to begin building its own system.

"We took a risk by buying it," Smith admits, "but we had fairly good relationships, and the new executives, Harris and Scheuble, also had good reputations."

Within 90 days of the acquisition, Smith says, Harris and Scheuble had finalized a deal with Washington Mutual to return to the system, and Smith and his team had persuaded Wells Fargo to stay on board.

"Those were the two biggest customers that were at risk," Smith says. "Once that got nailed down, everything else fell into place."

Giving MSP a jet engine

By the time it's done, Fidelity expects the rebuilding of MSP to take years and require more than $100 million in capital investment to complete. What would make the servicers of 26 million active loans wait that long to get what they need today? Listening to Scheuble talk about the project, it appears that it comes down to how you position it.

"This project will replace the core technology that services this industry. Now, that's a pretty frightening concept," Scheuble admits, but then adds: "This is not primarily a technology project. This is a people-change-management project."

Both Scheuble and FitzGerald carefully avoided frightening concepts during our interview. In place of process re-engineering, FitzGerald described an exercise of asking "'What am I doing now and what do I want to do and how do I make the technology do that?'" She says, "It's not process re-engineering"--in the mortgage industry, she says, that concept was viewed as "real scary."

And yet, that's exactly what MSP users are going to have to do and it's what some of its most advanced users have been wanting to do for some time. Servicing loans with a software platform that was developed three decades ago and enhanced piecemeal since then is radically different from what can be done with the advanced technologies available today.

Scheuble makes a fitting analogy: "This is like the airline industry going from propeller-powered planes to jets."

While Scheuble admits that technologies like those used in today's MSP are reliable and still work, he compares them to older aircraft: noisy, slow and physically incapable of traversing certain routes.

"The new way is safer, more secure, has a whole lot more horsepower and makes available services that you could not offer before," Scheuble says. Even better than that, the tools necessary to rebuild MSP are already proven technologies.

"A lot of project managers look out and realize that the technology has to be created to enable them to do what they want. This isn't a project like that," Scheuble says. "We are taking all of the technology that supports our mortgage servicing customers and replacing it with a modern J2E thin-client architecture."

Scheuble points out that many other industries are currently traveling down parallel paths with their own technologies. One of the biggest reasons is that this new architecture makes it dramatically less expensive to write, maintain and run code.

"As far as the technology goes, there are no miracles that need to happen. These are all readily available. It's Websphere. It's DB2 from IBM. It's J2E. It's Java. These are architectures that are already out there. They are the Web-based, future technologies that industries are gravitating to," he says.

Scheuble's job will be to take each component of MSP and rebuild it, using these tools. The complexity comes from continuing to support the existing infrastructure until the job is done--and probably for a long time afterward, as customers slowly accept the updates.

One customer at a time

While some of MSP's largest users welcome this new jet-powered world, not all of Fidelity's customers understand it completely. Scheuble admits that this has been a challenge, which helps to explain the stance the company takes when it talks to its customers about changing the way they do business.

That job falls to FitzGerald. She's been working on MSP in one capacity or another since 1993, when she started with the firm as a mortgage banking consultant. She has previous experience at First Nationwide Bank, Sacramento, California, and the now-defunct Homestead Savings, Millbrae, California. She is quite confident in her ability to bring Fidelity's customers into the future.

"My job is to deliver it," she says. "I have 350 people, and they are all mortgage professionals. Everywhere the customer comes in belongs to me."

As each new module is rolled out by Scheuble's team, FitzGerald and her staff work with users to implement the new technology. But their work actually begins long before the new software is ready.

"The first thing we're doing to mitigate the risk is asking the customers to do a lot of pre-work," she says. "We ask them to go through their business in the functional discipline that we're looking at, and start asking a whole bunch of questions."

In effect, MSP users are asked to create a complete inventory of everything that affects every process they use in their daily businesses. It's a lot of work, but FitzGerald says customers are embracing it.

The next step is to review each function from a business perspective. Once that's complete, FitzGerald says, "as we start to implement, we're able to build those rules into the technology so after they migrate they're in a better place than they were before."

She admits that it is "really hard in our industry, but we're telling them not to take where you are today and force the technology to do it that way. Instead, look at it as a business change and really look at it from a process perspective."

FitzGerald says the message is getting through.

In May, the company began releasing the first module of the re-architected MSP, right on schedule. Over the next 18 months or so, Fidelity will roll out new modules for collections, loss mitigation and escrow services.

Covering collections, the first release was a topic of intense conversation at Fidelity's Users Conference, held in May. Customer reactions were exactly what the company had been hoping for.

"This was functionality they had been asking for for a long time," Scheuble says. "There were some people actually getting emotional."

The critical threat

But if there were actual tears of joy at Fidelity's first release, the risk is still high that they could turn to tears of frustration if the company fails to deliver on its announced schedule.

Glenn Liebowitz is president and chief executive officer of GCC Servicing Systems, Southfield, Michigan. He wrote the servicing package his company sells today and has been watching his competitor's efforts to rebuild MSP with some interest. He says Fidelity has a big job ahead of it that could take longer than expected.

"When they're done, they'll only be half-done. Putting the customers on it will be as much work as doing the software conversion," Liebowitz says. He points out that in the 30 years or so that MSP has been in use, many additions and workarounds have been tacked onto the platform.

"Fidelity will continue to run into places were someone wrote this for this special loan product and no one in headquarters may recall that there are two clients still using that and they won't know what it does," he says. "Once they are well into the process, they'll run across 90 percent of the things they forgot. There will be issues with each one."

Scheuble admits that the company has already found some problems with the collections module it rolled out earlier this year, but says Fidelity has a team working on the repairs.

Another potential problem Liebowitz says would plague Fidelity relates to the aging nature of the servicing work force.

"They've got people who have been using MSP for so many years. It's an aging population of mortgage servicers. If they've been typing in code '202206,-8Y7' for the last 10 years, they're not going to like picking up the mouse and clicking here, there, here, there and there."

Scheuble agrees. He says, "As we roll this out, every one of our customers is going to have a unique way of working this process through." But he adds that Fidelity will mitigate any risk by rolling the changes out one module at a time while keeping the old MSP operating as usual.

Meanwhile, FitzGerald and her team will be holding hands with the users. They have already been sitting down with MSP users, helping them bring the new functionality online. "We have people on-site working with them every single day," she says. "Nothing is done from afar."

Liebowitz says he doesn't see the rebuilding of MSP as a business opportunity, per se. "If they are postponing enhancements while telling people that the new system is coming out and they don't deliver on time, then they are going to be in danger of making some people angry. This is something you can't rush--you have to take your time. But unfortunately, in the meantime you have to maintain and enhance your legacy system. As long as they keep doing that, they'll be fine," he says.

If they don't, however, Liebowitz says, "Then there will be all kinds of opportunities for guys like me."

Scheuble isn't worried. He has 150 people dedicated to the project and a commitment from Fidelity to put more than $100 million into its completion. "This group of people is perfectly positioned at the right place and at the right time to pull this project off," he says. "To me, it doesn't look frightening at all. We could not be more confident."

Scheuble repeated the fact that the company had reached its first milestone by deadline with the release of the collections module, something he says 80 percent of complex technology initiatives fail to do. But he stopped short of providing a detailed timeline for the remainder of the project.

"We're going to make sure it's done right. But we're very comfortable with where we are, and from a budget perspective we're right where we expected to be," says Scheuble. "Any project manager working on a project of this size that tells you they know what's going to happen two years out doesn't really know."

Rick Grant is a freelance writer based in Jim Thorpe, Pennsylvania. He specializes in writing about technology for the financial services industry. He can be reached at ricgrant@ptd.net