Case Study: Mortgage Banking

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The mortgage banking industries have quietly become more and more dependent on software development over the last decade. Due to the fragmentation of the platforms and services available that are integral to the origination, servicing, and financing of loans, mortgage banking companies have had to rely more and more on their own ability to develop software solutions. In this sense, the research and development tax credit has become an integral part of tax planning and strategy for the industry, often allowing companies to recoup hundreds of thousands of dollars on money they are already spending.

Qualified Research Activities for Mortgage Banking Companies

  • Development of pricing engines for loan products
  • Development of Loan Origination System (LOS) platforms
  • Integration and validation of new technologies and/or modules
  • Development of both front end and back end systems
  • Development of data warehouses and/or database systems
  • Development and use of simulation environments for testing
  • Development of data analysis and validation tools
  • Development and integration of Security Information and Event Management (SIEM) technologies
  • Development of conceptual software wireframes
  • Validation of code via integration, performance, systems, interface, regression, load, stress, security, and reliability testing
  • Creating scalable platforms for future technology and software development

R&D Tax Credit Case Study: Mortgage Banking

With more than 20 years of experience offering a variety of cutting edge loan products, this mortgage banking company has become one of the most respected mortgage bankers in their industry. With branches and loan officers nationwide, they are able to originate, underwrite, close, and fund loans utilizing proprietary financial software. 

R&D Tax Credit Qualification for Mortgage Banking 

In order to be able to offer lower rates and fees, this mortgage banking company relies on their software platform. This unique software platform required extensive research, development & testing to ensure that it could function within the constantly changing landscape of the mortgage industry from origination and compliance through funding and servicing.  The advanced processing software and automated underwriting system enables them to close loans quickly, at a lower cost. The software is a critical facet in the company’s ability to ensure homeowners have a great experience. 

This company actively engages in the agile software development framework.  During concept development the company created a high-level architecture for the application which guided the development process. 

They relied on “sprints” or short iterations of active development cycles which are restricted to specific durations. As progress continued on each sprint, daily meetings were held in which all development team members updated the rest of their team on tasks they were responsible for. During those meetings, members identified obstacles and technical challenges that arose that were impeding progress which would later be addressed by individuals with the background and skill set that most lends itself to delivering a solution for the specific challenge they are trying to overcome.

Once a module or platform had been developed and was ready for validation, it was released into a test environment where numerous departments within the organization started running the module through its paces. Often, this included the development of automated testing scripts, the creation of tests or simulation environments so that any changes could be verified and tested for breaks prior to release into a live environment. Often, this validation process identified multiple issues that indicated errors in coding, failed dependencies, or underlying integration or compatibility problems. If these problems were identified, the development project got sent back to the agile team which began working on resolving any open items. Once validation was complete, the software was released into a live environment and it was put into service. 

Results Speak For Themselves

Total combined federal and state tax credits for this mortgage banking company were $520,000 over a 4 year period. Given the firm’s growth and continued focus on innovation, they now realize an annual credit of about $200,000.

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