The new INTERLINQ: after acquisition, INTERLINQ's E3 dreams are finally coming true. Acquired in October by Harland Financial Solutions, the company is on sound financial footing and ready to deliver new products. (Cover Report: Technology).

IT SEEMS LIKE IT'S BEEN RAINING FOR DAYS, but on this January morning the rain stops. Cumulus masses hovering over the Bellevue, Washington, hills break into segments and lumber away from the offices of Harland Financial Solutions Inc., makers of leading loan origination tools for mortgage banks.

Just as the traffic outside on Highway 520 inches toward Seattle, the people inside this building are inching closer to the "extended electronic enterprise," otherwise known as INTERLINQ [E.sub.3][TM]--the company's latest loan origination product.

If the rollout is successful, the company formerly known as INTERLINQ Software Corporation may have finally emerged victorious from recent inertia.

Optimism is rampant inside this building, especially from Michael Jackman, the former chief executive officer of INTERLINQ, who now leads Harland's mortgage solutions group. "I feel infinitely more confident," he says, "that what we're going to deliver to our customers is what they need and what they want."

Seeing clearly now?

INTERLINQ was founded in 1982 as Continental Computer. In what is largely a fragmented market, its flagship product, INTERLINQ MortgageWare. is today the leading mortgage solution for financial services companies, having captured a 21 percent share of all U.S. mortgage lenders, according to mortgage technology research firm MORTECH LLC, Chester, Connecticut.

Although by no means a flashy product-it is primarily a text-based solution--MortgageWare remains a popular item among bankers. "Even while they've been recrafting their Mortgage Ware products, they really have not lost a whole lot of market share," says MORTECH President Jeff Lebowitz. "They've been able to hold their own."

For a while at least, there was reason to think INTERLINQ wouldn't. During the 1990s, as competitors were returning to market with Windows [R]-based and later browser-based loan origination system (LOS) tools, INTERLINQ stuck with its text-based solution. Then, depending on who you talk to, the company sort of lost its edge.

By 2000, INTERLINQ was having trouble raising money, its revenues were falling and the rollout of its next-generation origination system kept hitting delays. The company had been a publicly traded entity since 1993, and none of these problems pleased investors very much. In April 2001, former Chief Executive Officer Jiri Nechleba resigned amid layoffs and executive departures.

"It wasn't that they were struggling financially," says Richard Beidl, a mortgage industry analyst and president of Denver-based consulting firm Loangevity Inc. "The biggest thing was they wanted to make the kinds of investments in their product that they needed to make, not only to bring it up to date but to bring it ahead."

For INTERLINQ, getting past this hurdle meant being acquired. After fielding offers from other suitors, the company was bought in October 2002 by Harland Financial Solutions, the software unit of check-printing company John H. Harland Co., Atlanta. John. H. Harland Co. provides banking, billing, customer-management software and other tools to more than 6,000 financial institutions.

Harland was already into the mortgage origination and compliance business with its SMART [TM] suite of mortgage products. However, Harland Financial Solutions President John O'Malley acknowledges that SMART was "very small," with few customers. "We made a decision that we either had to get bigger or get smaller," he says.

Harland decided it wanted to stay in the mortgage business, but only if it could offer leading solutions. "For us, acquisition was the way there," O'Malley says. "We looked at the market leader [INTERLINQ], and also took a look at where they were going and the investment they were making in their [E.sub.3] product."

Harland liked what it saw. For the $33 million it paid for INTERLINQ, Harland instantly became a leading LOS vendor. "We do believe that this is an organization that has a tremendous amount of experience ... that was important to us," O'Malley says. "Broadly speaking, lending is an area that we believe we can leverage a lot of our core competencies."

For INTERLINQ, Harland brought the financial stability to pursue its dreams. "It takes out a big question mark," says Jackman, who notes that Harland Financial Solutions' parent company has been in business for 80 years and will not be going away anytime soon. "We found that being a small company was working against us," he says.

However, analysts and employees point to Jackman as the genesis of the company's turnaround in fortune, even before Harland entered the picture.

A veteran of mortgage technology, Jackman previously headed the easyLENDER [R] division of Brookfield, Wisconsin-based Fiserv, which also provides technology for financial services companies. Jackman also held positions at San Diego-based Accredited Home Lenders and Orange, California-based TRW Real Estate Loan Services.

When he joined INTERLINQ in June 2001, Jackman says, the company "didn't really have a strategy for delivering a state-of-the-art solution." Its goal at the time, he says, was building a Windows-based system, but it needed a thin-client, browser-based system. He says he also discovered confusion about who was in charge of which products.

Soon after he took over, Jackman refocused the company toward creating the next generation of Mortgage Ware, or E3. He also designated "profit and loss responsibility" to each product division, which meant that each person leading a product line was responsible for making sure that product turned a profit.

Current and former INTERLINQ employees rallied to the cause. "Michael's made all the difference in the world," says Sue Ellingson, vice president of loan production products for Harland's mortgage solutions group, who had left INTERLINQ for personal reasons and came back after Jackman was hired. "I'm just so excited about being able to deliver what we've been promising all these years."

Although they speak candidly about past troubles, INTERLINQ officials declined to blame any one person or event directly for stumbling on the path to execution.

"They did have some financial challenges and also technological ones," says Craig Focardi, an analyst with Needham, Massachusetts-based research firm TowerGroup.

But that's not uncommon territory for technology vendors in general, Focardi adds. "Fortunately, they have a strongly loyal client base, most of whom have stuck with them through the transition," he says. "I think Harland's acquisition also gives them additional financial leg room to see the E3 and other technology initiatives through completion and implementation.

On the E3 train

During a visitor's tour of the Bellevue offices in mid-January, as was in alpha-testing and being prepared for a February beta release, high hopes were everywhere. By the end of 2002, and based on product previews, 170 existing INTERLINQ customers had committed themselves to E3. "They've seen how they can use it to achieve cost savings," Jackman says.

E3 will allow lenders to integrate third-party systems and service providers into their business processes, positioning E3, as Jackman puts it, as the "system of record" in the loan manufacturing process. Borrowers and real estate brokers will be able to track loans on secure Web sites throughout the process.

"Most LOS [vendors ] built an LOS system and added workflow into it," Jackman says. "We didn't do that. We took workflow and made it an LOS."

Of course, as with any new product release, there are significant challenges. And when it involves commuting a pre-Windows product into a post-Web environment, the challenge appears that much more severe.

According to MORTECH's Lebowitz, the biggest issue for INTERLINQ is serving lenders that have different levels of business and technological sophistication. E3, he says, must be appealing to both sophisticated users as well as smaller companies that may not need additional functionality.

It must also make sure current customers don't get lost in the conversion process, Lebowitz adds. "The thing to do is to nurture the new product and gradually replace the old Mortgage Ware without disrupting the old users," he says.

It won't be easy, Lebowitz says, and Focardi agrees. In fact, any system conversion is inherently difficult, says Focardi. "[They] are not for the faint of hearty" he says. "It's not going to be pretty."

Of course, Harland Financial Solutions is doing what it can to mitigate the impact. It's designing E3 similarly to Mortgage Ware, even maintaining the same screen names as the vintage product. Current Mortgage Ware users, Harland's Ellingson believes, are "going to jump right into E3."

Meanwhile, a steering committee was created to solicit ideas and feedback from INTERLINQ's 1,500-and-growing customer base. Updates in the development process are published in e-mail alerts and on the Web, so even customers who do not choose to be involved can learn what's going on.

Still, Harland's customer service representatives expect to get a workout once E3 goes live. "The implementation and training side is huge," says Linda Thompson, vice president of customer support and major accounts for the mortgage solutions group. The two biggest challenges, she says, are the magnitude of people who need training and their time availability."

For example, Thompson says, many Mortgage Ware users are single-person shops and don't have much time to learn new software. This is indicative of mortgage originators in general, who know how to trim the fat. "They never have more people than they need," she says, "so we are being very cautious."

That means breaking E3 training into "palatable chunks" through a schedule of WebEx sessions. Solutions from San Jose, California-based WebEx, which provides online meeting and conference technology over the Web, will allow INTERLINQ technical support staff to "train" users virtually through the users' own computer desktops.

The company is also hiring additional customer service and technical support people to handle what is certain to be an upswing in support demand. Still, Thompson says she is fairly confident most INTERLINQ customers will successfully adopt the new system, and some observers agree.

"I don't think there's a huge challenge," says Beidi, who adds that INTERLINQ is bringing two decades of development and support experience to the latest mission. "If you have a strong product experience, you can write your new product with a lot of understanding of what needs to go into it," he says.

Another plus: Archaic or not, the old Mortgage Ware was as trusty as the family Ford. "It may not be sexy, but it works," says Ellingson, who, from her years at INTERLINQ, has probably had the closest relationship with Mortgage Ware customers over the years. "Day in and day out, that sucker works," she says.

That's basically the verdict from Michael Brumble, vice president of information technology for Salt Lake City-based Republic Mortgage. "It was a stable, work-everyday product," he says. "Its primary function is helping us open and close loans, and it's done that...it never blew up. It always worked."

Not that some customers haven't looked elsewhere, particularly when INTERLINQ encountered trouble.

Catherine Lee, manager of mortgage operations and assistant vice president for Lake Oswego, Oregon-based West Coast Bank, has researched other vendors three times over the past nine years, most recently a year ago. "At that time, I felt that INTERLINQ was behind in their technology," she says.

After getting a whiff of E3 and being invited onto the E3 steering committee, Lee changed her mind. "Fifty percent of my decision, when I purchase from anyone, is based on the integrity of the people I'm dealing with," she says. "That team of people had completely turned around my mentality They're very interested in taking care of customers."

Several banks with sizable loan portfolios have already signed on to E3, including Baton Rouge, Louisiana-based Hibernia National Bank; Salem, Massachusetts-based Salem Five Cents Savings Bank; Marlton, New Jersey-based Equity One Inc. and others that originate more than $500 million in mortgages annually.

Although it may be difficult for many, Focardi believes the pressures and incentives for current INTERLINQ customers to migrate to E3 will be too great to ignore.

"Once the installation and training are complete, lenders will find that their people will be saving time processing loan information, and the paper mountain required will shrink significantly," Focardi says. "Those cost savings will more than compensate."

If timing is everything, the cards could be stacking up in INTERLINQ's favor. A growing number of industry analysts expect rates to rise and mortgage volume to decline this year. If that happens, Focardi thinks banks will focus more on technology to lower costs.

"I think 2003 is going to be, among other things, the year of the LOS conversion," Focardi says, adding that such a wave of conversions will be "dramatically beneficial to mortgage vendors" like INTERLINQ.

On the servicing front

It might be a mistake to think that Harland Financial Solutions' hopes and dreams rest on the success of E3 and origination technology. In fact, in the future lies a whole realm of possibilities--particularly in the area of loan servicing.

Although something of a minor player in servicing automation, INTERLINQ is on the map. More than 100 customers use INTERLINQ Loan Servicing, which the company claims can save up to 30 percent off a servicer's cost per loan.

Fred Melgaard, vice president of loan servicing products for Harland's mortgage solutions group, says the company's servicing products have been particularly embraced by subprime mortgage servicers, "who have a need to be in their data constantly."

Other servicers, too, have taken to the servicing system. Take the Connecticut Housing Investment Fund (CHIF), for example. A community development financial institution, CHIF manages loans made on affordable housing rehabilitated properties to many first-time homebuyers. Eight people use INTERLINQ software to service CHIP's portfolio of 13,500 loans and generate monthly reports for about 20 different investors.

Melgaard calls the basis for INTERLINQ's servicing solutions "do-it-once computing." For example, if a mortgage borrower calls a servicer about a billing statement, INTERLINQ's tools allow the servicer to look at the same billing statement via computer screen. Not exactly groundbreaking technology anymore, but it eliminates callbacks. Says Melgaard: "You give them the right answer the first time."

Although the majority of Harland Financial Solutions' servicing customers handle a relatively small number of loans--most portfolios have fewer than 20,000 loans--its servicing products have been successfully tested to handle up to 1 million loans. As a result, Harland officials believe they could go after some larger accounts.

If so, it would be competing more directly with Jacksonville, Florida-based ALLTEL Information Services, the dominant mortgage servicing automation provider soon to be owned by Fidelity National Financial. Mary Ellen Adam, a senior vice president with ALLTEL, says ALLTEL's mainframe-based tools are used on more than 50 percent of the total number of mortgage loans in the country.

According to Adam, ALLTEL is constantly adding on new tools to its system. "You can't rest on your laurels," she says. "We have a whole suite of products, for example, that automate highly repetitive business processes. Those little things [tasks being automated] add little value, but are the requirements of being in this business."

While Adam also sees an increasing interest in automated servicing tools--as well as competition in the marketplace--ALLTEL has a "good, solid customer base" that drives future business. "There will always be other companies out there," she says. "If we continue to provide premier value to our customers, they will not [leave] ALLTEL," she predicts.

Harland Financial Solutions, however, is also continuing to enhance the INTERLINQ servicing platform. This past October, the company added default-management capabilities to INTERLINQ Loan Servicing, allowing its customers to be able to track loans in all stages of default. It also allows companies to automate and track the foreclosure process through sale and recording of the deed.

Focardi says this was a significant upgrade, and one example of how INTERLINQ is continuing to look better when stacked up against ALLTEL's mainframe--based solutions. He also believes servicing technology, in particular, will become an increasing focus of lending institutions as origination volumes start to decline.

"With the U.S. economy not completely out of the woods and foreclosure and delinquency rates rising, technology will be critical for mortgage servicers to hold down servicing costs, help reinstate more delinquent borrowers and mitigate or minimize losses if borrowers do move through foreclosure," Focardi says.

According to Beidl, however, servicing is a two-sided coin for Harland. On the one hand, large banks tend to outsource such technology. "If you go with an INTERLINQ product right now, you'd need to do your servicing in-house. That, right there, is a political decision by many firms," he says. On the other hand, Beidl adds, "because INTERLINQ is PC-based, they do have a strong value proposition."

The synergy thing

But besides its expertise in providing technology solutions, Harland Financial Solutions is looking to create synergism with its latest acquisition. Besides offering financial support, Harland's other businesses--including compliance software, customer--relationship management, analytical tools and demographic data-are expected to fit nicely with INTERLINQ's origination expertise.

For the time being, Harland appears to be leaving the entity formerly known as INTERLINQ alone. Even though there's a Harland sign out front, the word inside the Bellevue office is that little has changed since the acquisition. But in the future, analysts and company officials expect the marriage between both entities to deepen.

For example, say company officials, Harland's array of analytical and demographic tools could be integrated with INTERLINQ products, allowing banks to predict with some accuracy which mortgage products their customers are likely to be interested in.

"Mike Jackman is still running INTERLINQ, and there's definitely a sense that he's going to run it with a lot of autonomy," says Beidi. "But obviously, they're going to seek as many opportunities for leverage and cross-pollination as they can.

Although O'Malley says Harland is committed to letting INTERLINQ "do what it does best," Harland brings certain strengths to the table and will be looking at ways to integrate separate solutions to get maximum return on its investment. "There is some downstream leverage," he says.

Whether still in a honeymoon period or not, Jackman and O'Malley do seem to share similar outlooks on technology. Cost reduction, O'Malley believes, drives change in the mortgage industry. "You have to exploit technology to get there, and you also have to create a more electronic environment for those providing aggregate services [third-party service providers]," he says.

And Jackman, who likens the mortgage business to a manufacturing process, believes a general technological movement is afoot-one that began with automated underwriting and is moving swiftly throughout the mortgage business.

"The idea is not necessarily to accelerate the rate at which things are done," Jackman says. "It's to reduce the thinking time, because thinking time costs you money. Let the computer do the thinking for you."

Warren Lutz is a freelance writer based in Eugene, Oregon. He can be reached at [e-mail].