lydian data services overview

8/12/2019 Lydian Data Services Overview

1/43

D

E

SC

R

IP

T

IV

E

M

E

M

O

R

A

N

D

U

M

S U M M A R Y O F B U S I N E S S P L A N

F E B R U A R Y 2 0 0 8

ST

R

IC

T

L

Y

P

R

IV

A

T

E

A

N

D

C

O

N

F

ID

E

N

T

IA

L


2/43

B

U

SIN

E

SS

P

L

A

N

S

U

MM

A

R

Y

C O N F I D E N T I A L

1

Disclaimer

The sole purpose of this document is to assist the recipient in performing due diligence and decidingwhether to proceed with a business agreement with LDS.

Use of this document is governed by the terms of the previously executed Confidentiality Agreement,

which strictly limits the use, circulation and copying of the information embodied herein. Any person in

possession of this Document should familiarize himself with such Agreement before reading, circulatingor using the Document. This Document may not be distributed, reproduced, or used without the expressconsent of LDS or for any purpose other than the evaluation of LDS by the person to whom this Document

has been delivered or as otherwise provided in the Confidentiality Agreement.


3/43

B

U

SIN

E

SS

P

L

A

N

S

U

MM

A

R

Y


2

Table of contents

1. Executive summary ........................................................................ 32. Business highlights LDS positioned for rapid growth ............................... 5

3.

Industry segment overview ............................................................... 7

Industry environment 7Outsourced mortgage processing market overview 12Mortgage BPO market evolution 13

4. Business overview ......................................................................... 16Customers 16Mortgage processing platform overview 17Mortgage process outsourcing services 19Imaging services 22Business connectivity services 23Licensed software products 24

5. Business model overview ................................................................256. Technology platform ......................................................................27

Technology overview 277. Management, employees, and facilities ...............................................35

Facilities and infrastructure 388. Competitive Differentiation .............................................................409. Financial Highlights ....................................................................... 41

Cash and Total Assets 41Shareholder Information 41Revenue 42


4/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


3

1.Executive summaryLydian Data Services (LDS), headquartered in Boca Raton, Florida, was founded in August,

2000, and is a subsidiary of Lydian Trust Company (LTC), a privately-owned, diversified

financial services company. LDS provides Business Process Outsourcing (BPO), seamlessbusiness connectivity, and transaction management solutions to mortgage originators,

secondary market conduits and investors. LDS has the flexibility and proven track record to

service a wide range of clients from top global financial institutions to smaller, niche players.LDS offers stand-alone or end-to-end loan processing services that streamline and safeguard

the mortgage process. LDS provides a complete outsourcing package that includes LDSs

personnel, business processes technology systems and industry partners. By choosing to

outsource a full business process rather than just the labor component, the client frees itself

from the burden and expense of developing industry-leading business processes and installing,

maintaining and upgrading complex technology systems and interfaces.

Attractive industry dynamics

The U.S. mortgage industry is one of the largest and most robust financial markets in theworld, with $14 trillion of debt outstanding as of 2Q 2007, driven by sound consumer demand

over the short to long term. Financial institutions view the sector as fundamental, both from

an offering and asset composition (low risk-weighted asset) standpoint.With decreasing home price appreciation and resulting credit quality issues, stable todecreasing interest rates, and capital market disruptions, all lenders have been affected.

Industry players need to assess how they can profitably have a presence in mortgages in the

context of this crisis, along with historical industry challenges including inherent

inefficiencies, declining profit margins, fraud, and regulatory risk.

Outsourcing the mortgage origination process to a leading provider, such as LDS, can address

these issues by streamlining the exchange of information, improving controls, and reducing

unit costs by more than 50%. Once the mortgage market stabilizes and originators look toexpand their operations, outsourcing will be a much more appealing option than rebuilding

staff and infrastructure internally. The mortgage BPO market offers a wide range of services

that can span the entire life-cycle of a mortgage, from origination to account servicing andcollections.

Unique business model

Many of LDSs competitors address only a piece of the mortgage value chain and typically offer

labor-intensive solutions rather than a technology-centric approach. LDS has developed ahighly efficient process and powerful technology platform that enable lenders to collaborate

quickly and efficiently with all parties in a mortgage transaction, whether dealing with data or

documentation services. LDSs BPO services and technologies increase automation and reduce

risk and cycle time from when a loan is originated through to when it is boarded to servicing or

sold in the secondary market.

LDSs services address all stages of the mortgage value chain through both turn-key solutions

as well as highly customized products and services. Turn-key fulfillment solutions arestandardized products that leverage the entire range of LDSs services, including the use of

both standard best practice processes and LDSs staff, on a common technology platform.

LDSs custom solutions are designed to provide a high level of flexibility and seamless

integration with clients existing mortgage business.

Comprehensive and differentiated product set

LDS offers four primary services to its clients:


5/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


4

Mortgage process outsourcing services: LDSs processing solutions offer financial servicescompanies the ability to outsource retail and wholesale origination and correspondent

acquisition fulfillment functions, from receipt of an application to servicing transfer. LDSalso offers bulk loan acquisition and quality control auditing services that provide a quality

certified standard review for closed loans for investors purchasing loan pools or for lenders

who need to fulfill investor audit requirements.

Imaging services: LDSs imaging solutions offer mortgage lenders, aggregators, andinvestors the ability to recognize automatically and digitize thousands of mortgage forms aswell as to change characteristics of imaged loans such as stacking order, data format, and

document grouping, and then automatically deliver virtual loan files to a specified

destination.

Business connectivity services: Business connectivity services is a new product suite thatallows clients to assemble loosely coupled mortgage processing services from a variety ofthird-party vendors as well as from LDS BPO offerings. As the first offering in this product

suite, InvestorExpress extracts data from the lender's loan origination system, transforms

documents into an investor's preferred electronic loan delivery format, and securely

transmits the information to one or more investors.

Licensed software products: LDS packages, licenses and markets its technology as theMortgage Connectivity Hub (MCH). The MCH provides system integration, automatesprocesses across disparate applications, and enables real-time user access and reporting of

enterprise data. It is the only mortgage industry specific software solution available that

equips companies with a standards-based infrastructure solution that is designed as a

service-oriented architecture (SOA) and that uses pre-built integration adapters for over100 commercial off-the-shelf applications.


6/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


5

2.Business highlights LDS positioned for rapid growthLarge and untapped market opportunity

The mortgage industry is massive, fragmented, and poised for long-term growth. $14 trillion of mortgage debt was outstanding as of 2Q 2007. There are a broad range of participants, from brokers and mortgage originators to

aggregators who provide loans to wholesale lenders or secondary market investors.

Financial institutions have adopted outsourcing in other segments of their businesses, butmortgage fulfillment still remains in-house for many firms. Accelerated adoption is

expected in the near future as the lender cost structure is not well-suited for high

operating leverage.

Only 12% of financial institutions outsource their mortgage processing operations yetapproximately 50% express interest in doing so. Mortgage fulfillment is expected to be

the fastest growing financial services BPO segment.

As major originators consolidate operations and accumulate market share, smallercompanies increase outsourcing activities to stay competitive. Consolidation of themortgage industry is expected to be similar to the activity seen in the credit card

industry in the mid-1990s. However the sheer size and complexity of the mortgage

market will provide significantly more opportunities for fully integrated BPOs.Market dislocation enhances LDSs positioning

As mortgage originations contract, banks suffer incremental loss of profitability if they areunable to increase scale and/or cut costs.

2006 average profit per loan has decreased to $(50) from $1,272 in 2003. LDS offers up to a 66% reduction in unit costs and enables clients the flexibility of

adjusting to reductions in origination volume.

When the mortgage market stabilizes, it will be faster and less costly to outsourceincremental volume than to rebuild internal capabilities.

Mortgage lenders are subject to increased oversight by regulators and heightened demandsfor accountability by investors.

Mortgage fraud costs exceeded $5 billion in 2006 and Suspicious Activity Reports haveincreased 2,052% between 1996 and 2006.

Moodys has announced that it will look for additional third-party diligence over loansprovided to originators and it will expect detailed reporting methods, including loan-

level information disclosure for investors.

High fixed cost and volatile revenue structure of a mortgage processor is not suitable for amortgage bank with high regulatory constraints and financial leverage.

Quarterly single family origination volumes have ranged from a high of $3.8 trillion in2003 to a projected $2.3 trillion 2007, a decrease of 40%.

Beyond outsourcing labor alone to outsourcing the combination of labor, process andtechnology

LDS is at the forefront of the industry as a fully integrated BPO that can provide a totaloutsourced solution, enabling clients to outsource a full business process rather than just

the labor component, freeing themselves from the burden of developing business processes

and the expense installing, maintaining and upgrading unique complex technology systems

and interfaces.

LDS has the scale and breadth to be able to meet successfully the dynamic demands of anindustry with continually shifting participants, systems, and regulations.


7/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


6

Flexibility to meet the needs of a diverse client base

LDS offers outsourced end-to-end mortgage fulfillment services or individual -la-carteservices.

LDSs services are flexible, allowing clients to start with a standardized implementation andthen to customize and expand their integration with LDS systems and processes as their

outsourcing strategy becomes increasingly sophisticated. LDS does not have the one-size-

fits-all approach of many of its competitors, allowing it to eliminate a barrier to signingnew clients.

LDSs outsourced private label offerings seamlessly and discreetly integrate with systemsand branding to minimize the impact on the end user of the transition to an outsourced

solution.

Scalable and repeatable process

The LDS processes, built on defined best practices, is open, adaptable and easily integratedwith a clients current systems, which reduces manual exception handling and inefficiencies

associated with paper loan files.

LDSs turn-key solutions can bring a client to market up to five times quicker than itscompetitors, often within 30 days versus competitors who can take up to six months or a

year.

LDS can scale efficiently as volumes fluctuate due to its ability to digitize and manipulateloan files and manage transactions with a robust workflow. LDS imaging technology can

recognize thousands of documents and auto-classify the more than 70 most relevant

document classes.

LDS positioned to harness strong network effects

By providing the backbone to a highly fragmented mortgage fulfillment industry, LDS canincrease its value as it increases integration with market participants and third-party

vendors.

As LDS enables additional dynamic web services and connects additional clients onto theLydian Exchange Network (the Network), it can derive revenue from both sides ofprocessing transactions; third-party vendors pay to participate and clients pay for loan

processing.

LDS is at the forefront of industry change by designing and implementing best practices

fulfillment processes at a time lenders are searching for risk reduction

LDSs best practices were designed based on LDSs significant experience in closed loan duediligence and quality assurance and a deep understanding of the typical issues in the loan

process that have ultimately created losses for lenders and investors

LDSs best practices have been designed to mitigate risk, ensure process efficiency andloan quality and provide seamless connectivity and collaboration to all parties in the loan

transaction.

Lydians best practices fulfillment solution feature a host of leading industry businesspartners that are seamlessly integrated into the platform that cover a range of mortgage

services including settlement services, point of sale technology, automated underwriting,

loan documentation, compliance, fraud, mortgage insurance and loan servicers and

investors


8/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


7

3.Industry segment overviewIndustry environment

The U.S. mortgage industry is one of the largest and most robust financial markets in theworld, with $14 trillion of debt outstanding as of 2Q 20071, driven by sound consumer demand

over the short to long term. Financial institutions view the sector as key, both from an

offering and asset composition (low risk-weighted asset) standpoint.The current drop in mortgage originations (Exhibit 3.1) has exacerbated longstanding

challenges in the mortgage industry. Lenders and investors are re-examining traditional

business models around originating and investing in mortgages and embracing new

opportunities such as Business Process Outsourcing (BPO) to increase efficiency and

profitability and lower risk in one of the largest fixed income markets.

Exhibit 3.1

Quarterly single family originations vs. quarterly conforming 30-year fixed mortgage rates

400

500

600

700

800

900

1,000

1,100

1,200

'Q1 'Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Originations($bn)

5.00

5.50

6.00

6.50

7.00

7.50

Mortgage

rate(%)

Single family originations 30-year mortgage rate

2002 2003 2004 2005 2006 2007

400

500

600

700

800

900

1,000

1,100

1,200

'Q1 'Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Originations($bn)

5.00

5.50

6.00

6.50

7.00

7.50

Mortgage

rate(%)

Single family originations 30-year mortgage rate

2002 2003 2004 2005 2006 20072002 2003 2004 2005 2006 2007

Source: Mortgage Bankers Association, November 15, 2007 (origination and interest rate estimates for Q4 2007 MBAforecasts), Federal Home Loan and Mortgage Corporation

Complex and inefficient mortgage process

Firms have long struggled with the complexity of the mortgage value chain, one of the most

fragmented, expensive, and least automated processes in the financial services industry. The

mortgage origination process has significant inefficiencies and potential for errors, including:

Multiple parties and points of entry: Loan applications or closed loans can be submittedfrom a number of different sources, from a highly fragmented universe of brokers

submitting loans on a wholesale basis to mortgage originators and aggregators who in turn

provide closed loans on a loan by loan basis or in bulk pools to secondary market investors.

Numerous and unique loan program types

: There are hundreds of increasingly complex

origination programs and product types that feed the origination process. Furthermore,

lenders are continuously adjusting their products, updating guidelines and changing pricing

attributes to be more competitive and to better control risk.

1Estimated mortgage debt outstanding as of Q2 2007 (Federal Reserve Bulletin, September, 2007).


9/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


8

Paper loan file sharing: Each participant in the origination process needs access to loan filedata, but many documents only exist in paper format. The process of transferring physical

loan files among participants increases cost and lowers efficiency significantly.

Additionally, when loans are marketed and sold in the secondary market, investors require

access to loan data to perform analyses and due diligence. In many cases, information

contained in different parts of the loan file is not consistent. This lack of data integritysignificantly slows investors ability to close mortgage investments and increases the

transaction risk associated with poor data and document quality.

Distribution to, and use of, third-party services: Multiple third-party services, such astitle verification, appraisal, and flood insurance, are required to fully underwrite a loan.

Non-electronic data exchange by each of these parties creates the potential for delays, the

risk of personal information being lost, and costly errors in transcription.

Extensive document types required for closing: Due to the wide variety of loan programsand products offered, more then 100 different document types may be required to close aloan, ranging from underwriting and federal or legal disclosure documents to materials

submitted by third-parties such as insurers and appraisal vendors. Attempts to standardize

and automate the process have been hindered historically as many vendors, counterpartiesand states often use different versions of the same document type. Automating the process

successfully requires an imaging system to recognize automatically thousands of distinctdocuments.

Complex and changing regulatory environment

The origination and acquisition of mortgage loans has always been subject a complex scheme

of federal, state and local regulation. At each step of the process from application through

servicing loans must be monitored continually to ensure that they are in line with disparate,

complex and multi-jurisdictional laws and regulations that govern the industry. Many statesand even local governments have unique regulatory requirements that need to be enforced

and monitored in an evolving regulatory environment. The ability to identify up-to-date

compliance requirements is important and reduces the risk of additional loan complications

and resulting litigation.

Compounding this already complex regulatory environment are the increased calls forregulators to respond to perceived predatory practices of certain lenders and growing defaults

in various sectors of the mortgage market through passing new legislation that could affect

how mortgages are originated and sold to investors, including:

The House of Representatives has passed the Mortgage Reform and Anti-Predatory LendingAct, which establishes a national licensing and registration system for mortgage lenders,bans lenders from steering borrowers to loans that contain predatory characteristics or that

the borrow cannot reasonably repay. It makes banks that securitize mortgages liable for

violating lending laws. Sen. Chris Dodd, Chairman of the Senate Banking Committee, has

declared that he will introduce a parallel bill in the Senate.

Senator Barack Obama, a leading Democratic presidential candidate, recently proposed theStop Fraud Act, which would provide a federal definition of mortgage fraud. In addition,it would create criminal penalties and increase law enforcement funding.

Rating agencies have been widely criticized recently for their role in perpetuating credit-quality issues in the mortgage market. All of the agencies have received subpoenas from

various state Attorneys General regarding anti-competitive behavior, and the SEC has

launched an investigation into how firms evaluated sub-prime Mortgage-Backed Securities(MBS) transactions. In addition, a new law may be introduced by Senate Banking


10/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


9

Committee Chairman and presidential candidate Christopher Dodd that will attempt to

alleviate perceived conflicts of interest in the rating agency business model

In November 2007, New York State Attorney General Andrew Cuomo sued First AmericanFinancial Corp. and its eAppraiseIT unit on charges of colluding with Washington Mutual to

inflate artificially the values of homes to justify higher mortgages. As a part of its

investigation, Attorney General Cuomo issued subpoenas to Fannie Mae and the FederalHome Loan Mortgage Corporation (Freddie Mac) requesting information on loans bought

from various banks, including Washington Mutual.

In addition to the federal initiatives, new state laws are expected to give the state regulators

increased discretion over determining violation, as well as instituting increased licensing and

disclosure requirements. Many states are passing new laws that increase the scope of

predatory lending regulation, which primarily focuses on fees, to include suitability standards

and underwriting guidelines.

Due to the ambiguity surrounding these new regulatory initiatives and the sprawling regulatorylandscape, lenders struggle to ensure compliance. The increase in bankruptcy filings by

lenders has caused deep-pocketed investors, as assignees, to become potentially substitute

targets for class action plaintiffs. Currently, there is no law requiring borrowers to attest totheir respective mortgages suitability, resulting in no documentation to eliminate or limit

liability. Instead, lenders and investors typically discover if a loan is unsuitable only whenthey are subject to legal action.

Declining profit margins

The mortgage industry has generally been slow to react to changes in market conditions. Withincreased competition over recent years, lenders accepted lower income per loan but

attempted to maintain overall earnings growth by increasing volumes through tighter pricing

and more lenient underwriting.

Profitability of loan origination decreased every year between 2004 and 2006 as firms failed to

successfully match declining revenues with high, fixed personnel and infrastructure costs.

According to the Mortgage Bankers Association (MBA), the net loan production financial

income was $1,272 per loan in 2003 but fell to a loss of ($50) per loan in 2006. The industry

sought to cut costs significantly in 2007, but these reductions are unlikely to be significantenough to reverse this trend in margin compression.


11/43


12/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


11

Exhibit 3.3

Mortgage loan fraud reporting trend (number of SARs)

28,372

25,989

18,391

9,539

5,3874,696

2,9342,2691,7201,318

3,515

0

5,000

10,000

15,000

20,000

25,000

30,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: United States Treasury (2006 data estimated)

BasePoint Analytics, a fraud analytics company, analyzed more than 3 million loans and found

that between 30 and 70 percent of early payment defaults (EPDs) are linked to significant

misrepresentations in the original loan applications.4 According to the Federal NationalMortgage Association (Fannie Mae), over 90% of misrepresentations fall into three areas:

credit (39%), property (31%) and income (23%).5 This is further supported by Moodys analysis

of defaults in its 2006 sub-prime portfolio, which concluded that stated documentation was

one of the largest predictors of default.

Lenders are discovering that their existing business processes and legacy technology systems

are not designed to deal with the current volume or the variety and complexity of assets that

they are required to assess for possible fraud. In addition, market pressures to decrease costs

and accelerate the mortgage origination process make it increasingly difficult for lenders and

investors to conduct the due diligence necessary to prevent fraud, especially in a business

process that is frequently paper-based and labor intensive.

Secondary market challenges

The recent credit turmoil has prompted concern from investors, oversight authorities, and

regulators about current origination and securitization processes. Lenient lending practices

and misrepresentations by various parties in the origination process have contributed to

unexpectedly high delinquency levels. Moodys, as one of the principal rating agencies that

rates the quality of these assets, has recently called for reform in the industry and is currently

soliciting feedback on its recommendations, including:6

Enhanced third-party reviews Moody's will now look for additional third-party oversightthat reviews the accuracy of the information provided by borrowers, appraisers and brokersto originators.

4BasePoint White Paper, New Early Payment Default-Links to Fraud and Impact on Mortgage Lenders and InvestmentBanks, p. 2, 2007.

5Federal National Mortgage Association, Fannie Mae Mortgage Fraud Update, September, 2007.

6Moody's Proposes Enhancements to Non-Prime RMBS Securitization, September 25, 2007.


13/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


12

Enhanced representations and warranties Originators should provide more uniformrepresentations and warranties that the loan information provided to investors is accurate

and that the loans included in the transaction were appropriate for the borrowers.

Enhanced reporting Moody's recommends that loan level information both prior toclosing and throughout the life of the transaction be provided to all transaction participants

requesting it.

Changes in the secondary mortgage market such as the recommendations put forward byMoodys will create substantial new burdens on lenders and investors. These changes will lead

to higher costs for third-party oversight, increased liabilities for data accuracy representation,

and additional infrastructure needs for providing loan level information to all transaction

participants. In light of these new demands, lenders and investors are seeking solutions such

as BPO as a means to audit larger loan samples, or the complete loan pool, and provide a

means to obtain and share loan data.

Outsourced mortgage processing market overview

In this challenging operational and financial environment, market participants will increasingly

turn to BPOs for outsourcing all or part of the mortgage origination and acquisition process.

Mortgage originators have reacted to the reduction in market volumes and rising costs by

seeking ways to maintain profitability. Many in the industry realize cost reductions by reducingstaffing levels and forcing productivity gains, as was recently demonstrated by major players

such as Countrywide Financial, National City, Bear Stearns, Lehman Brothers and Morgan

Stanley. This removes one of the traditional objections to outsourcing, the tangible and

intangible costs associated with terminating employees. Once the mortgage market stabilizes

and originators look to expand their operations, outsourcing will be a much more appealing

option than rebuilding staff and infrastructure internally.

In a survey of over 100 financial institutions, 50% were reported to be considering outsourcing

mortgage processing whereas only 12% currently outsource at least a portion of this process(Exhibit 3.4).

Exhibit 3.4

Mortgage outsourcing is well-positioned for growth

Source: Datamonitor report, January 2007

The acceptance of mortgage processing outsourcing is expected to be accelerated by the

success that the financial services industry has experienced in other segments, such as card

and check processing. In recent decades, consolidation in industries that benefit from scale

35%

40%

45%

50%

55%

10% 12% 14% 16% 18% 20% 22% 24%

Currently outsource this process

%o

frespondentsconsidering

outsourcingbusinessfunction

Mortgage

processing

Procurement

Finance &

accountingHuman resources

CRM

Card servicesCheck processing


14/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


13

has driven demand for outsourcing as smaller players attempt to compete with ever larger

rivals. Parallels can be drawn between the credit card industry in the mid 1990s and the

mortgage market today. By the end of 2006, outsourcing in the card services segment wasover 60% higher than in the mortgage industry but based on the current dislocations in the

mortgage market a similar adoption pattern is expected by the mortgage industry. Given these

economic drivers, mortgage processing is expected to account for a third of the $1.7 billion in

BPO revenue growth between 2006 and 2008 (Exhibit 3.5).

Exhibit 3.5

Financial services business process outsourcing services ($mm)

Service 2005A 2006A 2007E 2008E 06 08 growth CAGR

Card issuing services $4,210 $4,440 $4,690 $4,960 $520 5.6%

Check processing 2,650 2,700 2,710 2,710 10 0.1%

Horizontal processes 4,550 4,810 5,080 5,380 570 5.8%

Mortgage processing 2,600 2,730 2,990 3,290 560 8.2%

Total $14,010 $14,680 $15,470 $16,340 $1,660 5.3%

Source: Datamonitor report, January 2007

LDS is well positioned to capture increasing demand though a comprehensive suite of

products, systems and services that directly address the issues that their clients face byincreasing profitability, accuracy, and transparency of their mortgage-related processes.

Mortgage BPO market evolution

Lenders require scale and financial flexibility to be competitive

It is expected that the winners in the marketplace will seek to minimize fixed costs and

capital expenditures associated with building, operating, and maintaining a mortgage

processing platform. Instead, these costs will be shifted to fully integrated BPOs who can

aggregate volumes to build enough scale to make the required platform and employeedevelopment investments worthwhile.

Additionally, in light of recent market gyrations, it is expected that lenders will see clearly

the virtues of reducing operating leverage. A BPO with operating leverage but with scale in

mortgage processing will be better equipped to handle the volatility of the mortgage market

than a lender that already employs significant financial leverage and must meet continued

regulatory and liquidity requirements to remain a going concern.

Beyond outsourcing just labor to outsourcing labor, process and technology

A lenders initial foray into outsourcing is often based on a strategy to reduce labor costs. Thelender will engage a BPO to provide personnel who will duplicate the lenders existing business

process and process work using the lenders existing technology systems.

But labor cost is only one component of a successful outsourcing strategy. And many lenders

find that while they can reduce labor costs through outsourcing, they are still burdened with

the high costs associated with inefficient processes and complex, legacy technology systems.

As a result, more lenders and investors are turning to fully integrated BPOs, such as LDS,

which can provide not just outsourced labor but a total outsourced solution including businessprocesses, technology systems and the management of key vendor partners. By choosing to

outsource a full business process rather than just the labor component, the client frees itself


15/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


14

from the constant expense and burden of developing industry leading business processes and

installing, maintaining and upgrading complex technology systems and interfaces.

The need for fully integrated BPO providers is especially important in the mortgage industry,where higher scrutiny, regulatory complexity, increasing fraud risk, competition, and volatile

volumes demand decreased time to market, increased flexibility, improved controls, and

financial adaptability.

As the mortgage industry continues to evolve, the number of counterparties, third-partysoftware packages and third-party services will continue to grow. Furthermore, the increase

in regulatory fragmentation will add to the demands placed on the providers in this industry.

With this increased complexity, very few market participants, with exception to the most

technology-savvy lenders, will be able to successfully meet the demands of the industry and

reach the scale required to compete in the mortgage lending business.

Centralized technology platforms can reduce inefficiencies created by industryfragmentation and complexity

Most mortgages must be processed by a highly fragmented and complex mortgage industry,which requires seamless and secure connections between applicants, brokers, investors and a

myriad of third-party providers.

A comprehensive and seamlessly integrated data and document hub solution that extracts andvalidates loan data in a standard format that links counterparties with disparate third-party

software packages is the most efficient means to address industry fragmentation and

complexity inherent in the origination process. Historically, lenders built systems in silos and

integrated them on a point-to-point basis. Whereas quick short-term gains can be achievedwith this integration methodology, in the long-term it is unsustainable given the complexity of

the marketplace. Each system involved in the origination process requires an exponentially

increasing number of connectors as the number of other systems with which it mustcommunicate increases (2 x 2(N-1) connectors need to be built for N systems). The

exorbitant cost of maintaining these types of systems will drive firms to substitute the

associated labor-intensive processes for incremental capital expenditure spending on

necessary and advanced technologies.

In contrast to point-to-point integration, an enterprise service and data hub approach canextract data from paper-based or proprietary electronic formats and convert them to a

common format that can be validated and shared with other systems. This design is far morescalable, flexible, and less costly since only one connector needs to be built and maintained

for each data format to convert to a common format rather than requiring a connector for

every combination of formats.


16/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


15

Exhibit 3.6

Service-oriented integrated data and document hub

Point-to-Point connectionsSimple to develop, but expensive to

maintain and an exponential problem as

2 x 2(N-1) connections for N systemsbecomes prohibitively complex

Enterprise Service & Data Hub approachChoreography of connections and processes

across the Enterprise and allows leveraging

of integrated Web Services

Service-orientedhubbed architecture

Source: LDS

The upfront costs and expertise required to build a data hub system in-house are higher than a

point-to-point solution and can be prohibitively expensive for many lenders. LDS, however,

has developed a common-language system that lenders can seamlessly implement to create a

hub for their networks and inter-party communications. Alternatively, a lender can deploy its

existing system in conjunction with LDSs BPO and transaction management services to enable

seamless collaboration between the existing systems and distribution channels to LDSs

services through the industry award-winning integrated data and document hub. Clients can

leverage LDSs services and technology at a fraction of the cost that they would need to invest

to develop, implement and maintain a comparable system in-house.


17/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


16

4.Business overviewLDS, headquartered in Boca Raton, Florida, began operations in August 2000 as a division of

Lydian Private Bank. Following its rapid growth, LDS was organized as a separate subsidiary of

LTC, a diversified financial services company, in January 2001. LDS is an industry leadingprovider of BPO, transaction management and seamless business connectivity solutions to the

mortgage originators, secondary market conduits and investors. LDSs clients improve their

existing operations efficiency and effectiveness by outsourcing, either fully or partially, theirmortgage fulfillment processing and review functions using LDSs innovative solutions.

In February 2006, LDS acquired WellFound Decade Corporation, an enterprise software

provider with over 14 years of experience developing and deploying large-scale infrastructure

for data integration, business processes and portals for the mortgage industry, and re-branded

that business as Lydian Technology Group. By leveraging the tools and resources of LTG, LDS is

able to integrate its products and services at various levels of its clients value chain and

continually update the technology of its products.

Customers

The scalability and efficiency of LDSs products and its position across clients mortgage

processing value chain has allowed it to develop a client base that includes firms of varioussizes, from major investment houses, including Deutsche Bank, HSBC, and Goldman Sachs, to

smaller depositories and financial services firms, including Bayview Financial, Sovereign Bank,

Union Bank of California, and Alaska USA Federal Credit Union. The breadth of LDSs productofferings within the mortgage value chain allows for LDS both to anticipate and meet its

current clients needs as well as to grow its client base. LDS currently has 70 clients across its

product range. Exhibit 4.1 below shows a list of selected clients.

Exhibit 4.1

Selected clients of LDS

Source: Company


18/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


17

LDS has been featured extensively in various national trade publications. This helps LDS both

to expand its sales reach to new clients as well as to describe generally the types ofadvantages available to clients through BPO and advanced business connectivity.

Publicity summary 2007 YTD

Publication name # of articles Publication name # of articles

9 3

8 3

7 3

Mortgage Line 5 Other publications 11

Source: Company

Mortgage processing platform overview

LDS has developed a highly efficient set of best practices fulfillment processes and a powerful

technology platform that enables lenders to collaborate quickly and efficiently with all parties

in a mortgage transaction, whether dealing with data or documentation services. LDSs BPO

services and technologies increase automation and reduce risk and cycle time from when a

loan is originated through when it is boarded to servicing or sold in the secondary market.

Exhibit 4.2

Strategic positioning


19/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


18

LDSs technology allows customers to take full advantage of their existing infrastructure

investments and it facilitates easy collaboration with the LDS BPO platform. In collaboration

with the MCH, LDS interfaces with virtually every major commercial off-the-shelf mortgagesystem in the industry, including point of sale systems (POS), loan origination systems

(LOS), secondary marketing systems and loan servicing systems. Using the LDS technology,

all parties to a loan transaction, including borrowers, brokers, lenders, and third-party

business partners, can trade document files electronically, regardless of format. In addition,

LDS enables clients to connect to key third-party service providers throughout the mortgagelife-cycle and to deliver closed loans electronically to secondary market conduits and

investors. LDSs model is a completely open architecture so that even lenders looking to

collaborate with other fulfillment providers can do so via the Lydian Exchange Network.

Exhibit 4.3

LDS business model

Lydian Portal

Clients

Interface

Services

Lydian MCH

Electronic data feed

Lydian eFX

Imaged filesPaper documents

Imaging

Sellersof loans

Originatorsof loans

Buyersof loans

Intelligent

workflow

and routing

Mortgage

Process

OutsourcingServices

Imaging

services

Business

connectivity

services

Licensed

Software

Products

Quality control

auditing services

Retail and wholesale

loan origination

Correspondent Loan

Acquisition Services

Mortgage Connectivity Hub

Investor Express

Bulk acquisition

services

Lydian PortalLydian Portal

Clients

Interface

Services

Lydian MCH


Lydian MCH


Lydian eFX

Imaged files

Lydian eFX

Imaged filesPaper documents

Imaging

Paper documentsPaper documents

Imaging

Sellersof loansSellersof loans

Originatorsof loans

Originatorsof loans

Buyersof loansBuyersof loans

Intelligent

workflow

and routing

Intelligent

workflow

and routing

Mortgage

Process

OutsourcingServices

Imaging

services

Business

connectivity

services

Licensed

Software

Products

Quality control

auditing services

Retail and wholesale

loan origination

Correspondent Loan

Acquisition Services


Investor Express

Bulk acquisition

services

LDSs services address all stages of the mortgage value chain through both off-the-shelf,

turn-key solutions as well as highly customized products and services.

Turn-key solutions

Turn-key fulfillment solutions are standardized plug and play products that leverage the

entire range of LDSs services, including the use of both standard best practice processesand LDSs staff, on a common technology platform. For smaller clients with inconsistent loan

volumes, the turn-key product enables them to outsource the loan fulfillment process at alower price point. For larger clients that are eager to increase production, initial use of a

turn-key solution enables them to ramp up quickly their outsourced origination and fulfillment

businesses while working with LDS to design a custom fulfillment solution.

Custom solutions


20/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


19

LDSs custom solutions are designed to provide a high level of flexibility and seamless

integration into clients existing mortgage business. LDSs custom solutions can be configured

to fit the clients needs while maintaining the benefits of outsourcing and standardized bestpractices. The customization work is funded by the client and typically takes several months

to implement.

Exhibit 4.4 below illustrates how LDSs product offerings relate to each stage of the mortgagevalue chain as well as the typical level of integration with clients processes and internal

platforms. As LDS becomes more deeply embedded in its clients enterprise, it can offer more

value and becomes more difficult to replace.

Exhibit 4.4

Product offerings

Darker shading = more integratedLighter shading = less integrated

Level of integration with client systems & processes

Service offerings

Mortgagevalue chain Lydian Service

Retail & wholesaleoriginationfulfillment

Correspondentloan acquisition

Bulkloan acquisition

Quality controlauditing

Imagingservices InvestorExpress

MortgageConnectivity Hub

Mortgage process outsourcing services Imaging servicesBusiness

connectivityservices

Licensed

softwareproducts

Marketing Application Registration

Pre-underwriting Underwriting

Closing Funding

Post-closing Secondary marketing

Servicing transfer Servicing Recovery

Typicalcustomers

Investment banksMortgage Banks

DepositoriesBrokers

Investment banksGSEs

Investors


Aggregators

AggregatorsDepositoriesOriginators

Investment banksAggregatorsDepositoriesOriginators

InvestorsSettlement Services

Risk vendorsTech vendors







Darker shading = more integratedLighter shading = less integrated

Level of integration with client systems & processes

Service offerings

Mortgagevalue chain Lydian Service

Retail & wholesaleoriginationfulfillment

Correspondentloan acquisition

Bulkloan acquisition

Quality controlauditing

Imagingservices InvestorExpress

MortgageConnectivity Hub

Mortgage process outsourcing services Imaging servicesBusiness

connectivityservices

Licensed

softwareproducts

Marketing Application Registration

Pre-underwriting Underwriting

Closing Funding

Post-closing Secondary marketing

Servicing transfer Servicing Recovery

Typicalcustomers

Investment banksMortgage Banks

DepositoriesBrokers


Investors


Aggregators

AggregatorsDepositoriesOriginators










Mortgage process outsourcing services

Retail and wholesale origination

LDSs fulfillment services provide financial services companies of all sizes the ability to

outsource their retail, and/or wholesale origination and fulfillment functions, from pre-registration to secondary market investor delivery. LDS offers a wide range of service options,

from relatively standardized processing solutions using the LDS turn-key processing platform

and its best practices Standard Operating Procedures, to highly customized solutions that can

seamlessly integrate into a lenders infrastructure.

LDSs origination fulfillment solutions includes:

Collaborative loan origination portal


21/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


20

LDS provides customers with configurable private-labeled loan origination websites for both

direct-to-consumer retail and broker wholesale businesses. These websites are seamlessly

linked to LDSs web-based mortgage fulfillment system, allowing for 24/7 access to the statusof a loan in the pipeline and collaboration among transaction participants. LDSs web-based

origination platform also incorporates a document viewer so that the content of loan files can

be viewed in a paperless environment. Furthermore, lenders who wish to use their own loan

origination technology can seamlessly connect to LDSs system, thereby leveraging LDSs

existing connectivity to 3

rd

party vendors, warehouse lenders, investors, servicers andcustodians.

Integrated document imaging and virtual loan workflow

LDSs processing workflow for both retail and wholesale fulfillment is completely paperless. A

virtual loan folder is created at the inception of origination process and all documents are

either scanned as they enter the operation or up-loaded into the electronic loan folder.Through LDSs system, users can access LDSs Mortgage Document Center (MDC), which

provides access to a virtual world of document management. With a rich set of advanced

features, all parties authorized for a loan transaction are able to manage document

classification, upload scanned, faxed, email and pdf documents, and print documents based

on their defined security access. Furthermore, LDS stores all images based on the customers

requirements.

Comprehensive loan origination processes

The BPO services provided by LDS for retail and wholesale origination include:

Pre-registration processing Registration processing Pre-approval Fraud Underwriting Processing Pre-closing Compliance Closing Funding Post closing Investor Delivery Custodial services and servicing transferLDS can also provide many of these services on an a la cartebasis. For example, a client maywant to outsource registration and processing to LDS while maintaining underwriting in house.

Or a client may want to maintain all functions through funding in house and outsource postclosing functions to LDS, either on a stand-alone basis or using LDSs electronic loan delivery

platform, InvestorExpress.

Correspondent loan acquisition

Correspondent loan acquisition services are designed for clients acquiring loans on a loan by

loan basis, where each loan must be reviewed individually and LDS must provide a seamless

outsourced solution from lock through servicing transfer. (This is in contrast to a bulkreview described below, where only a re-underwrite is performed on a sample of a loan pool.)


22/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


21

In all cases, LDS evaluates loans for credit, fraud, and compliance issues according to client

criteria, works to resolve issues, such as missing documents or signatures, and amends loan

files as necessary. During this process, clients are provided access to a website where they canview their loan pipeline, view loan details (e.g., document images, conditions, conversation

logs), as well as utilize tools required for management reporting. Loan images and data are

typically exchanged electronically depending on the level of integration with the client. LDS

offers a wide range of service options, from relatively standardized products on the turn-key

platform to highly customized solutions.The BPO services provided by LDS for correspondent loan acquisition include:

Mortgage document and data management Underwriting review Fraud review Compliance review Management and clearing of conditions Issuance of trust receipt Funding / Issuance of purchase advice Data validation and final data file Investor Delivery Servicing transferBulk loan acquisition

LDS provides bulk loan due diligence services for clients seeking to review a pool of loans,

typically in connection with the clients evaluation of the loans for purchase. A bulk review

normally includes LDS re-underwriting a sample of the loans (usually 10% to 25%) to ensure

that such loans were originated in accordance with the sellers underwriting guidelines (both

from a credit and compliance perspective). Clients also utilize LDSs bulk due diligence

services to help them identify violations of representations and warranties concerning

previously purchased loans so that they can put back such loans to the sellers.

LDSs bulk due diligence services provided by LDS include:

Cracking of preliminary bid tapes Loan file receive Data integrity review Underwriting reviewAppraisal review Fraud review Compliance review ReportingQuality control auditing

Some federal agencies and investors, including HUD, Fannie Mae and Freddie Mac, require that

10% of all funded loans be reviewed each month; a number also require that reviews beperformed by an independent third party not involved in the loan origination process. LDSs

quality control auditing services are designed to evaluate procedural inadequacies with a

lenders operations by reviewing all or a certain percentage of their monthly mortgage loan


23/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


22

production. The goal of the service is to provide analysis and reporting to the lender that

identifies issues with specific loans and procedural and systemic problems so that they may be

corrected. This review also corrects and remedies issues on selected loans.

LDSs quality control auditing services consists of the following services:

Collateral and credit file receive Income, debt and employment review Credit reviewAppraisal review Closing document review Compliance & legal review Third-party re-verifications ReportingImaging services

The value of LDSs imaging platform is maximized in the context of mortgage processing, as

LDSs loan conversion solution offers mortgage lenders, aggregators, and investors the abilityto change imaged loan specifications such as stacking order, data format, and grouping.

Furthermore, the flow of images from the point of origin to destination is completelyautomated throughout LDSs processing platform and can be customized for clients using LDSs

imaging services as an application service provider.

Physical loan files

For paper or physical loan files, LDS is equipped to receive, prepare, scan, and enhancethose physical loan files. LDSs product offering for paper loans includes:

Conversion of paper files to images LDS receives paper loans and converts them intoimages.

Initial classification & delivery Once a paper loan is converted to an electronic format, itis initially processed through the document classification system which can recognize over

3,000 distinct document formats.

File destruction LDS provides file destruction services along with certificates ofdestruction.

Electronic loan files

Once LDS has converted a paper file to electronic format, or for those loan files that are

provided to LDS already in an electronic format, LDS provides the following additional imaging

services:

Automated reception of images via EFX Imaged loans are delivered electronically to LDSsloan conversion system.

Stacking order Imaged loans can be re-classified into approximately 200 document classespertinent to the mortgage industry.

Format transformation Format of the images can be changed to and from any of thefollowing formats: TIFF, PNG, PDF, and JPG.

Grouping and file naming Loan conversion system can change the grouping of images intoseparate files with a custom naming convention.


24/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


23

Color, grey scale and black and white System allows for color, grey scale or black andwhite images as well as converting color images into black and white.

Electronic storage Images are stored in LDSs highly available and highly scalable imagingplatform.

Automated delivery of images via EFX Images loans are delivered automatically fromLDSs loan conversion system either back to the sender or to a pre-defined destination in

the recipients preferred format.

In addition, loans can be routed to LDS to provide add-on services such as data validation,appraisal review, or re-underwriting of the loan prior to delivery to the final destination(s).

Business connectivity services

InvestorExpress

InvestorExpress enables mortgage sellers to submit electronically mortgage loan data and

documents to potential investors, which drastically reduces funding and post-closing times and

costs for both parties. InvestorExpress allows sellers to optimize the management of their

warehouse lines and to achieve greater profitability by reducing negative warehouse interest

expense and by increasing business capacity and operational efficiencies.

Specifically, loans advertised on InvestorExpress are typically purchased within days of closing

rather than the usual cycle time of two to four weeks. Sellers that use InvestorExpress can

reduce the amount of internal secondary marketing and post closing personnel normally

required for shipping and post closing functions.

This innovative, packaged solution leverages components of LDSs MCH by providing sellers

with the ability to use their existing LOS to show investors their selection of loans. MCHprovides for the seamless extraction of all necessary data from the LOS and other data

sources, if applicable, and then securely transmits the data to LDS. Prior to using

InvestorExpress, sellers can request LDS to perform optional post closing and quality control

services to ensure i) data quality between documents and the LOS data are comparable, ii) the

loan file was properly closed, and iii) other quality control measures were conducted.

Regardless, the loans can be immediately transformed into an investors electronic loandelivery format and securely transmitted.

Images of the loan documents can also be shipped via InvestorExpress. InvestorExpress can

electronically pair previously imaged files with the associated data file and can securely

transmit them to LDS, where the image will be received, classified and transformed into thestacking order required by the Investor.

Some key features of InvestorExpress include:

Data extraction Extraction of data from one or more systems (usually loan originationsystems)

Security Secure transmission of data to LDS Pipeline view web application On-line application to help clients manage loan inventory,

which includes pipeline view, loan detail view (initial findings, conditions, image view),

loan and asset searches, reporting services, and ability to select loans sent to investors

Multi-investor delivery Routing of data and images to one or more investors. LDS can alsoprint and ship paper-based files to investors, if required


25/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


24

Licensed software products


The MCH is the only software solution that equips companies with a ready-to-deploy,

standards-based, infrastructure solution that connects numerous disparate systems in the

mortgage process. With the MCH, businesses can achieve seamless communication amongtheir own software solutions, as well as with outside service providers. This allows once costly

and error-prone tasks to be completed automatically and without errors.

The MCH is currently designed to work with over 100 ready-to-use adapters for the most

widely used mortgage systems. These adapters are designed to improve data connectivity

among systems as well as to accelerate the implementation of InvestorExpress. These

adapters connect all types of third-party systems, including loan origination, servicing, point

of sale, loan delivery and core banking systems, to the MCH, thus enabling each system tocommunicate with other connected systems and LDS (see the Technology platform section

below for more details). Exhibit 4.5 shows selected fulfillment clients who also implemented

the MCH.

Exhibit 4.5

Selected MCH users


26/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


25

5.Business model overviewLDS has developed highly efficient business processes and a powerful technology platform that

increase automation and reduce risk and cycle time and risk from loan origination through

secondary market sale. The technology platform also enables LDS to collaborate quickly andefficiently with all parties in a mortgage transaction.

The mortgage lifecycle, from the origination of the loan to its sale on the secondary market or

its absorption into a lenders own servicing portfolio, is laden with complexity andfragmentation, brought on by a myriad of disparate systems, processes and third-party

vendors. LDS has built a business network model that provides seamless access to value-added

services; these services compress the lifecycle of the mortgage by automating key functions,

which ensures loan quality and mitigates risk throughout the process. LDSs model goes

beyond the traditional vision of outsourcing, i.e., instead of simply focusing on labor

outsourcing, LDS delivers full end-to-end BPO solutions comprising people, process and

platform with seamless connectivity to key parties.

LDSs business model and day-to-day operational decisions are guided by its corporate vision

and mission statements:

Vision Statement:Become the primary business connectivity and fulfillment solutions provider

for the mortgage industry by providing innovative solutions that change the way mortgagetransactions are priced, processed and delivered.

Mission Statement: Increase the efficiency and effectiveness of the mortgage market byconsistently providing quality transaction processing and information management solutions to

originators, aggregators and secondary market investors. This will be accomplished through a

strong sales and service culture, leading domain expertise, innovative technology and the

ability to connect seamlessly key participants in the mortgage market.

LDS delivers value beyond the traditional outsourcing relationship through its strong

foundation in business process and advanced technology, including:

Developing an automated technology that serves as key middleware for communication

between a lenders internal systems and LDS.

MCHs software installed at the lenders location enables seamless collaboration with alenders existing information systems.

Library of over 100 integration adapters requires limited set-up time and enablesconnectivity with virtually every major commercial off-the-shelf mortgage lending

application, including point-of-sale, loan origination, product and pricing, secondary

marketing and servicing systems.

LDS technology removes the integration challenge as a major barrier in the outsourcingparadigm.

Providing real-time business collaboration through a powerful centralized communication

hub.

Seamless communication between a lenders systems and LDSs applications enables real-time collaboration with LDSs services.

LDS enables connectivity to automated third-party settlement services including those thatprovide analysis of compliance, fraud, identity and income verification.

LDS delivers loan data and documents electronically in the native formats required by keysecondary market investors, including Fannie Mae and Freddie Mac, which improves funding


27/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


26

times, reduces negative warehouse interest expense and increases business capacity and

operational efficiency.

LDS delivers loans electronically to the lenders servicing platform, whether in-house orexternally, thus improving borrower satisfaction and eliminating the cost and risk of manual

loan boarding efforts.

Setting the industry standard for automated best practices within the business process to

ensure sophistication, mitigating risk to lenders of all sizes, and giving greater confidence tosecondary market investors.

Implementation of best practices creates a standard business process that moves keyverifications and audits traditionally done on the back-end of the process to the front-end,

which results in the elimination of post-closing expenditures and assures secondary market

investors of loan quality.

Compliance checks throughout the origination process ensure that loans maintain at leastthe minimum standard set by the client, even as key elements of the loan are modified

throughout the process.

Automated fraud detection and identity verification through connectivity with key partnersgreatly reduces the risk of loss by preventing mortgage fraud and by assessing risk on every

transaction. Electronic connectivity to Fannie Mae and Freddie Mac provides efficient and streamlined

access to automated underwriting processes for conforming loans.

Automated program and product eligibility test and expert underwriting sophistication bothin technology and dedicated personnel for all types of loan products, including conforming,

Alt-A, Alt-B and subprime products.

Converting physical loan files to digital format to ensure greater economies, efficiency and

collaboration between all parties.

Expert imaging, automatic document classification and data extraction technologies ensuregreater efficiency by eliminating paper documentation and the manual steps that slow

down processing and reduce data integrity. Automatic classification and data extraction enable data to be taken from documents and

compared with data from clients and LDSs systems, automating the processing, quality

control and post closing processes.

Proprietary enterprise document viewer, which allows for collaboration among lenders,investors and third-party providers, increases efficiency by enhancing communication and

tracking all activity associated with a loan file.


28/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


27

6.Technology platformTechnology overview

LDS has implemented industry-leading technologies and standards throughout its technologyand service platform. The combination of innovative technologies, industry best practices, and

sound operating controls has enabled LDS to build a technology platform with the industries

only truly integrated document and data hub that seamlessly interconnects best-in-breedtransaction processing applications. These applications handle every function of LDSs BPO and

transaction management platform, including mortgage web portals, document imaging,

imaging classification and data extraction, retail, wholesale, and correspondent fulfillment,and closed loan due diligence and quality control audits.

Exhibit 6.1

Technology platform

Clients who use the MCH can take full advantage of their existing investments in technological

infrastructure can easily collaborate with LDSs BPO services. The seamless interaction with

LDS allows clients to process loans more efficiently and to reduce cycle time; it also

eliminates many of the typical frictions associated with business process outsourcing such as

shipping paper documents that need to be re-entered into processing systems.

The MCH interfaces with virtually every major commercial off-the-shelf mortgage system inthe industry, including point of sale systems, loan origination systems, secondary marketing

systems and loan servicing systems. LDS enables all parties that are active in a loan

transaction, including borrowers, brokers, lenders, and third-party business partners, to trade

document files electronically, regardless of format.

LDSs suite of mortgage processing and transaction management applications includes:


29/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


28

Electronic File Exchange (EFX)

EFX is an integrated solution for the delivery, receipt, and pass-through processing of imagefiles in and out of LDS. In addition to being able to accept and process inbound images andtheir associated metadata, EFX delivers loan data, images and associated metadata in any

output method (client-defined format, channel, protocol). EFX handles non-image files in

addition to exchanging image files between LDS and its business partners.

Mortgage Website System (MWS)

MWS is a web portal that gives clients and their customers the ability to upload data tapes,edit loan data and conditions, perform lock and lock maintenance, manage closed loan

pipelines and take action on re-pricing scenarios securely. This application is integrated

with the Mortgage Document Center so that users can view imaged loan files. In a custom

fulfillment solution, the web portal would typically be private labeled to the clients

specifications.


30/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


29

Mortgage Document Center (MDC)

MDC is a solution for managing, analyzing, and distributing large volumes of imaged loanfiles. MDC allows users to navigate virtual loan files with a user-friendly interface and

allows clients and their customers to review the same file simultaneously. Users can movedocuments and pages from one document class to another as well as create files in other

formats, such as Adobe PDF, and reorder pages.


31/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


30

Mortgage Processing System (MPS)

MPS is a workflow-oriented system that supports a range of retail and wholesale loanorigination and correspondent/flow loan acquisition fulfillment activities and manages

virtual loan files through the Mortgage Document Center. Additionally, MPS is integrated

with a broad array of third-party providers. By leveraging LDSs connectivity to these

providers and integration with MDS, MPS provides an end-to-end mortgage processing

platform that handles loans from origination through closed loan review and documentdelivery.


32/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


31

Mortgage Due Diligence and Quality Control System (MDS)

MDS is a workflow-oriented system that supports closed loan due diligence and qualitycontrol audits. MDS can be deployed on-site at an originators facility or it can be

seamlessly connected to LDSs internal network where it can access virtual loan files, using

the MDC, as well as access a suite of third-party vendors such as Interthinks, Hanson, Core

Logic and Lexus Nexus.


33/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


32

Mortgage Compliance System (MCS)

MCS is a workflow-oriented system that supports the automated review of federal, stateand local mortgage compliance regulations, including:

State and local high cost and predatorylending laws

Federal Truth-in-Lending Act (includingSection 32/HOEPA)

Annual Percentage Rate and financecharge disclosure

Issues arising out of borrowers rights torescind

Real Estate Settlement Procedures Act(RESPA)

Closing documents disclosures


34/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


33

Lydian Universal Rules Engine (LURE)

LURE is LDSs expert business rules engine which serves as a key component in theautomation of various processes and system functionality. LURE enables LDS to automate

key decision-making tasks in business processes where the typical logic is too complex

and/or volatile to be included in the application logic or external workflow technology.

Examples of these tasks include regulatory compliance, mortgage product pricing and

eligibility rules. LURE provides users with the ability to manage changes in their businessenvironments by introducing new rules or modifying existing rules through a set of

configurable maintenance screens.


The MCH is the first and only SOA-based integration platform built on the formal and de-facto standards of the mortgage industry, including MISMO, FNMA DO/DU, and FHMC LP. A

service-oriented architecture is ideally suited for implementing the future-proof IT

architecture, as it is an enabler for just-in-time integration and interoperability of legacy

applications. At the core of the MCH is a single object model that uses MISMO datastandards as the common language for system integration, process automation, business

rule enforcement, user application development, enterprise reporting, and business

connectivity. This single object model is represented consistently with normalized XMLdata, SQL tables, and Java business objects, which allow application developers, system

integrators, database administrators, business analysts, and web designers across the

company to leverage the other MCH components for a future-proof architecture. Users of

the MCH have reduced the effort and costs associated with integrating disparate systems by

up to 80%. New clients can significantly jump start their projects by leveraging the

MCHs library of pre-built integration adapters and modifying them to meet their needs.


35/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


34

Whether utilized internally within LDSs technology platform or licensed to clients as a

stand alone business connectivity solution, the MCH equips companies with a cost-effective,

service-oriented architecture with pre-built integration adapters to hundreds of financialservices applications. It allows companies to leverage best-of-breed technologies by making

it easy to add, update or remove applications without system-wide repercussions.


36/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


35

7.Management, employees, and facilitiesManagement team

LDS is led by a best-in-class management team with over 125 years of collective experience in

the financial services industry. Exhibit 7.1 provides more detail on the LDS management

team.

Exhibit 7.1

Management team

Name Position Years of industry experience

William M. Decker Chief Executive Officer 22

Stephen C. Wilhoit President 21

Corey M. Davis Executive Vice President, Sales 17

Brian Fitzpatrick President, Lydian Technology GroupEVP, Product Management and Marketing

18

Peter Stewart Sr. Vice President, Finance 13

Clayton Greenfield Executive Vice President of Operations 15

Greg Bergman Executive Vice President of Technology 18

Don Turner Senior Vice President of Technology, Chief

Technology Officer, Chief Security Officer

15

Jeffrey T. Osheka Senior Vice President of Technology Sales and

Business Development, Lydian Technology

Group

21

William M. Decker 561-630-2211Chief Executive Officer

Mr. Decker is a Co-Founder of Lydian Trust Company and the Founder of Lydian Data Services.

He has 22 years experience in the financial services industry with experience managing all

aspects of a regulated financial institution. Prior to Co-Founding Lydian Data Services, Mr.

Decker served as Chairman, President and Chief Executive Officer of Enterprise National Bank

of Palm Beach, and held senior positions in fixed income portfolio management, fixed income

and derivative trading strategies with regional banks including Barnett Bank and Wachovia. Mr.Decker is a graduate of the University of Denver and is a Chartered Financial Analyst.

Stephen C. Wilhoit 561-630-2169President

Mr. Wilhoit is a Co-Founder of Lydian Trust Company and serves as President of Lydian Data

Services. Mr. Wilhoit has over 21 years of experience in the financial services industryincluding expertise in the operations, finance, legal, and regulatory areas of depository

institutions. Prior to co-founding Lydian Trust Company, he held executive management

positions with Ocwen Financial Corporation. Mr. Wilhoit is a graduate of the University of

Virginia with a Bachelor of Science Degree in Chemical Engineering and Wake Forest UniversitySchool of Law.

Corey M. Davis 561-237-4770Executive Vice President of Sales

Mr. Davis is responsible for directing the sales efforts for the company. He has over 17 years of

sales management experience in the mortgage industry that includes senior positions at

Fidelity National Financial where he managed the national sales efforts for the real estate and

mortgage group. Mr. Davis was also the Director of Field Sales with MGIC, and a Regional Sales


37/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


36

Manager with North American Mortgage Company. Mr. Davis is a graduate of the University of

Maryland with a Bachelor of Science degree in Business Management.

Brian Fitzpatrick 904-208-6212President of Lydian Technology Group & EVP Product Management and Marketing

Mr. Fitzpatrick is President of LTG and responsible for all aspects of its day-to-day operations.

Additionally, Mr. Fitzpatrick is responsible for the company's product direction, product

marketing and corporate communications. He brings 18 years experience in the financialservices and mortgage banking industries that includes senior positions at GHR Systems and

Electronic Data Systems Corporation (EDS). Mr. Fitzpatrick has been a speaker for numerous

mortgage industry panels and conferences and has authored articles and white papers for a

variety of mortgage and related financial services trade publications.

Peter Stewart 561-237-3905

Senior Vice President of Finance

Mr. Stewart is responsible for all finance, accounting, and control functions for the companyand has over 13 years of financial management experience in the business process outsourcing

industry that includes management positions at Automatic Data Processing and its PEO

subsidiary, ADP TotalSource. He is a graduate of the Stern School of Business at New York

University and is a Certified Public Accountant.

Clayton Greenfield 561-922-4567Executive Vice President of Operations

Mr. Greenfield is responsible for outsource operations for the company, including wholesale

and retail origination, quality control auditing services and correspondent loan acquisition

services and bulk due diligence. Mr. Greenfield has over 15 years of experience in the

mortgage industry and has held positions in sales, secondary marketing, underwriting and

operations, including senior positions with Delta Funding and Fidelity Mortgage. He is a

graduate of State University of New York College at Oswego with a Bachelor of Science degree

in Business Administration.

Greg Bergman 561-922-4664Executive Vice President of Technology

Mr. Bergman is responsible for directing technology operations and future architectural designplatforms for the company. He brings over 18 years of information technology and software

design experience in the banking, financial, and mortgage industry, and has held positions at

Blockbuster and Digital Software Services. While the CIO of VirtualBank, he was instrumental

in building the technology infrastructure for the banking and mortgage platforms, as well as

developing the Internet banking system. In his current role, he is responsible for aligning

business strategies with software development and architecture to support the goals of thecompany.

Don Turner 561-237-3914Senior Vice President of Technology, Chief Technology Officer, Chief Security Officer

Mr. Turner is responsible for directing Technology Advancement and Operations for thecompany, including Product Delivery and Professional Services, Software Development,

Software Quality Assurance, Corporate Security, and Operating Controls Compliance (SAS-70,

GLBA). He has over 15 years of professional experience that includes management positions in

the Financial Services, Healthcare/Pharmaceutical, and Government Services/Intelligence

industries. Mr. Turner served as a member of the Technical Advisory Board for Cisco Systems

and was the Technology Committee Co-Chairman for the Massachusetts Biotechnology Council.

He attended Worcester Polytechnic Institute, where he pursued undergraduate degrees inThermal Physics and Mathematics.


38/43

B

U

SIN

E

SS

P

L

A

N

SU

MM

A

R

Y


37

Jeffrey T. Osheka 904-208-6215Senior Vice President of Technology Sales and Business Development, Lydian Technology

Group

Mr. Osheka is responsible for all technology sales and business development opportunities for

the organization. Prior to joining Lydian Technology Group, Mr. Osheka has spent over 21 years

within the mor

lydian data services overview

Documents