It seems we can’t go a day without reading that a new API has been introduced to the marketplace, and that a given vendor has integrated to another industry participant’s API. But, let’s get back to the basics for a second - what is an API, and why are they so in vogue? This post will explore those questions and will provide real-world examples of how APIs are changing the mortgage industry by delivering better, more accurate data, with less maintenance, thereby allowing originators to deliver sharper pricing and reduce cost of origination.
Application Programming Interfaces (APIs) let one software application communicate with another over the internet. APIs are software-to-software interfaces and not a user interface (commonly referred to as UI). In the context of an API, one software application is the “calling” application, and another is the “responding” application. The “calling” application will send a predefined set of data to the “responding” application, who in turn will respond with a predefined set of data as well. As an example, suppose you are buying something online and you are entering your credit card information. When you click “Purchase,” an API is likely sending your information to another application that verifies that your information is valid. Once confirmed, the verification application responds to your website indicating you can proceed with your purchase.
From a structural point of view, let’s take a moment and think about what just happened. When my vendor’s website was built, they had a choice. They could either build a database of all credit card information in the industry, or they could integrate with a third party who has this information. Suffice it to say, the latter option was much easier! They used an API to create the integration, with the vendor sending predetermined data (Name, Credit Card Number, Expiration Date etc), in a predetermined format (Name, followed by Credit Card Number, Followed by Expiration Date), to the verification application. Because the data was properly formatted and in a previously-determined format, the verification application could return a response (Yes, the information is valid, or No, the information is not valid) in an efficient manner to the vendor website. You likely observed an hourglass on the website for a second or two while this API call took place.
A similar workflow applies to many common applications in the mortgage industry. Using our risk application CompassPoint™ as an example, consider the process of selling a loan to the Fannie Mae or Freddie Mac cash window. An individual could log into the relevant agency’s website and populate several key pieces of information: amount of the commitment, loan product type, note rates included, etc. Alternatively, a user could use an API which passes the same information from CompassPoint™ to the agency cash window with the click of a button. Whether user-entered or API-driven the response information is the same – the lender receives a confirmation and a commitment number. In the case of the API, however, the user does not need to manually save and enter that information as the commitment number is simply part of the API response. As you can see, APIs allow lenders to be more efficient by simplifying repeatable and structured tasks.