Analyst: SOA may have reduced severity of mortgage crisis

Analyst: SOA may have reduced severity of mortgage crisis

Summary: SOA isn't just about cost-cutting; it's a growth engine

SHARE:

Many of the issues arising from the US subprime mortgage crisis could have been averted if mortgage issuers and brokers relied less on error-prone paperwork and more on online, service-oriented systems.

SOA isn't just about cost-cutting; it's a growth engine

That's the view of James Governor, co-founder of RedMonk, the virally virtual analyst firm, speaking at the recent IBM Virtual Global SOA Forum, "Work Smarter, Take Out Costs In a Tough Economy." (I posted a transcript of James' talk here.)

The focus of SOA is to tie disparate systems and data together, and, in the process, reduce risks to the organization.  As James explains it, having better integrated systems may have helped banks and mortgage companies get a better picture of the risks they were undertaking:

"As we have seen in financial services, if you allow your organization to run on independent, isolated, distributed spreadsheets, you can get into a lot of trouble. And quite frankly, if we’d invested more in integration over the last few years, and better data governance, we would have significantly reduced the risk in terms of our banking infrastructure, our credit infrastructure, the kinds of mortgages that went out there. ... another very interesting thing about SOA. It’s easy to think of it as paper reduction. If you look at a lot of the mortgage approvals, many of them included information that was wrong. By working with a service oriented architecture by making sure that you digitized your information, we would have made better decisions, and reduced all risk. Clearly, that’s a massive benefit."

As businesses grapple with today's rough-and-tumble economy, James advocates greater investments in service orientation, which can pay off not only in terms of reduced costs, but also new business growth. In fact -- and we state this frequently here at this blogsite -- companies need to look down the road and prepare to stay ahead of the next wave of growth during the looming economic recovery. SOA is a shovel-ready stimulus for companies, and if sold to the business correctly, a growth enabler.

"In this difficult business environment, clearly we need to cut costs. But you know what? Nothing is sustainable if you're not driving new revenue streams, if you're not able to get new customers," James says. "Very clearly, from SOA, you're able to reach out to new customer sets." For example, being able to extend internal applications to customer and partner-facing Websites is a solid strategy for new growth. SOA will help leverage internal applications -- whether they're on mainframes or Windows boxes -- for this next round of growth.

SOA is not going to transform things overnight. As James puts it, SOA is "really hard work, nothing is easy. It really does require significant investment, but if you can lower your costs and find new revenue streams in the kind of business environment we’re currently facing, you're in pretty good shape."

Topics: Enterprise Software, Browser, Software, Software Development

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

8 comments
Log in or register to join the discussion
  • Nope to that idea

    I'm a fan of SOA but sorry it would have made no difference at all in this crisis. I work in the Mortgage industry. I can tell you the banks especially the big banks didn't take bad mortgages not knowing what they were. They knew exactly what they were and designed specific programs for them. Their hope was that the folks investing in mortgage backed securities didn't know what they were(and turns out they didn't). They also hoped that housing prices would continue to appreciate forever so they wouldn't get caught. They weren't the only ones in on it but they sure were the major players.

    The mortgage programs that let people buy houses they shouldn't were developed by the banks not the individual mortgage brokers. In fact the current crisis was predicted by several non bank institutions long before it happened. If fell on deaf ears because when everyone is making money no one cares.

    Sorry but the vast majority of folks in the mortgage industry knew exactly what was going on with these special programs. I'm not saying SOA is not important in the mortgage industry because it is. But it would have made no difference whatsoever in this case. The problem was already illuminated but ignored unfortunately.

    markg
    http://www.thegreylines.net
    grifmon
    • Re: Nope to that idea

      Mark: Thanks for providing first-hand experience from the front lines of this industry. I agree that no amount of machine intelligence can compensate for overshooting by human decision-makers, be it too far in the direction of greed or too far in the direction of fear. Perhaps, then, SOA provides a way to move out of the mess, enabling better integration between merged institutions, more streamlining, and more transparency in future transactions?
      joemckendrick
      • SOA has a place for sure

        Joe,
        SOA definitely has a place in this industry where regulations and standards are all over the map, integration is difficult and one offs rule the day. The pace is also bewildering where new regulations and new product are introduced on an almost daily basis. SOA definitely has a major role in making that easier to handle while also potentially giving some institutions an edge. Agility has become king in this current environment.

        The new mortgage bailout programs being rolled out have just made it even more difficult to keep up. Being able to respond rapidly but effectively to these changes is key.

        The transparency thing is interesting. As I said the industry knew what it was doing but nobody else did outside the industry. I think the two schools of thought on that are A-the industry corrects itself over time B-Regulation is needed to make sure the industry doesn't do stuff like this.

        My personal feeling is that A was too costly to everyone with way to much collateral damage which is still occurring. On the other hand regulation brings with it its own set of challenges. SOA can help with that as well in my opinion.

        Mark
        http://www.thegreylines.net

        grifmon
        • Re: SOA has a place for sure

          Thanks, great thoughts. It will be interesting to see the role SOA can play in this new regulatory environment.
          joemckendrick
      • Nope.

        > Perhaps, then, SOA provides a way to move out
        > of the mess, enabling better integration
        > between merged institutions, more
        > streamlining, and more transparency in future
        > transactions?

        By the love of God, no. It won't provide a way of this mess. This is not an IT automation, integration or even a transparency problem.

        It is a cultural (and in many ways, a moral) problem. We do not need to have a PhD in economics to know that a way of living is sustainable or not. Hoping to buy a house and sell it at a greater price just to buy another, more expensive house and repeat the process ad infinitum is not sustainable.

        Everybody knew this. Banks knew this, mortgage brokers new this, real state agents knew this. Heck (and this is the moral aspect of the problem) these groups with premeditation targeted at risk-groups, groups they knew they could default. This was borderline opiated gangsterism.

        And there is the cultural aspect. Everyone wants to live in the here and now. Don't save, spend, don't invest to generate wealth, just accumulate wealth or blow it in smoke, that's the ethos of this nation. The overwhelming flood of infomercials are a symptom of this cultural malady that undermines sound capitalist practices.

        That someone could suggest that maybe SOA could have alleviated this problem is ludicrous. Anything could have an ameliorating effect, but the important thing is not just if it is possible, but also the magnitude of amelioration (which needs to be significant enough to be worth of study.)

        As an IT professional, to suggest otherwise, it is something that I find insulting.

        IT doesn't solve cultural or moral problems.

        -- Luis Espinal http://www.linkedin.com/in/luisespinal
        elnyka
  • And pigs can fly....


    Sorry but if you believe this SOA hype heaven help us.
    The meltdown was caused by people out of control yet again over valuing paper instruments for self interest.
    Software that interacts with people could have helped prevent this but the vendor industry has failed to recognise the need in this critical area where information is created.
    SOA certainly has a role in large organisations to sort out legacy mess but the priority must be towards software that is both agile to reflect how people work, delivery of real time information on their activity and full audit trail recording the risk assessment process at source and checked by a chain of command.

    David Chassels
    • Re: And pigs can fly....

      Thanks, David. It brings to mind an old saying: "Automate a mess, and you get an automated mess." It was certainly out-of-control business processes that took these companies down this path.
      joemckendrick
  • This is ridiculous

    Businesses weren't blind to the risks they were taking. They knew quite well what they were doing with those toxic assets.

    The entire financial maladies that we have today are the result of complex social (and moral) networks and actions. The information was out there, the economic models they were operating with were not sound, and they knew it. Every single person that participated in it, from the CIO, to the business broker down to the average Joe who purchased a house he couldn't afford were banking on this:

    On the idea of buying to sell at a greater price.

    Greed bound with premeditation and foresight to a knowingly unsustainable economic model.

    This 'SOA could have' is hogwash, an incredibly embarrassing attempt to add yet another positive attribute (or spin) to SOA.

    Next thing we know SOA could have mitigated the food shortages in Zimbabwe.

    -- Luis Espinal www.linkedin.com/in/luisespinal
    elnyka