Edward N. Jones President/CEO ARC Systems 2600 Via Fortuna #500 Austin, Texas 78746

1. Edward N. Jones President/CEO ARC Systems 2600 Via Fortuna #500 Austin, Texas 78746 (512) 892-5550 fax (512) 892-5552 www.arcsystems.com Nonprime Lending Symposium  June 14, 2004

2. "THE BIGGEST MISTAKES BROKERS AND LENDERS MAKE IN SELECTING TECHNOLOGY" “Build or Buy“WHY… My Favorite Subject Based on Personal Experience

3. History I’ve Been In the Software Business since 1963 (41 yrs): • Seen It All • Good and Bad • Successes and Failures • Customers - Satisfied and Dissatisfied • Horror Stories • Success Stories • Who does the machine serve…?

4. Build or Buy The Question to ask Yourself: • Do I need Technology to survive, grow and even out cost fluctuations during market swings… • What is my best option and why… • BUILD, or… • BUY

5. Build or Buy In a Nutshell: • Whether you BUILD or BUY… • You MUST have… • A relationship of Mutual… • Respect • Trust • Integrity • A Partnership – both vested • A willingness to “Do Whatever It Takes…” • Accountability…

6. Build or Buy In a Nutshell: • Industry experience on staff (your industry) • Are they vested in success (ownership) • Are they motivated beyond paycheck • Are they dedicated because it’s a great place to be… • What is your organizations expertise… • Selling mortgage products, or • Developing leading edge technology… • Where do you make your money… • Selling mortgage products, or • Struggling with technology…

7. Build or Buy In a Nutshell: • Ask yourself WHY… • Do I want to manage people for whom I have no expertise or knowledge… • Do I trust them to make decisions critical to my business operations and success… • Do I want a data center with all the expertise and expense required to run it… • How much time will they need to just develop versus learning enough to stay “up with” but more importantly “ahead of emerging trends…” • How much will technology R&D cost me… • How many decisions will I have to make about things I really know nothing about… • Who am I dependent on for the “core operations” and success of my business…

8. Build or Buy In a Nutshell: • Ask yourself WHERE IS THE REAL ROI… • Is it throwing manpower at the problem… • Having to Hire and Fire as the market fluctuates • How about the expense of training Loan Officers… • When I spend money to train them in nonprime do they go to greener pastures, or… • Can I use technology to ride out the market fluctuations… • Does it take six months to train in nonprime, or… • Can they simply input minimum data fields and receive decisions instantly…

9. Build or Buy In a Nutshell: • Ask yourself WHERE IS THE REAL ROI… • What’s your most expensive operational cost… • MANPOWER… • What happens when I move accurate / consistent / quality controlled decisioning to the point of sale… • What’s the percentage of un-sellable loans that I have in my portfolio… • Was it because of poorly trained Loan Officers… • Was it because Loan Officers “cut deals” they shouldn’t be doing… • How do you know what’s going on “until it’s too late”

10. Fact or Fiction What Makes A Customer the Maddest… • Overruns • Scope Creep • Promises Not Kept • Overselling capabilities • Bait and Switch • Bad mouthing competitors • Why Didn’t I Check…

11. Fact or Fiction What Makes A Satisfied Customer… • Kept Promises • Definition of Expectations • Detailed & Realistic • This is what it is… • Honesty • Integrity • Encourage Individuals to Investigate • Check those references…

12. After All… After all is “Said and Done,” More is “Said than Done…” • This is a relationship that is absolutely critical to the operation and success of your business… • You must: (Better Question: Why NOT…?) • Check References (Good and Bad) • Check all references – What’s a phone call cost • Visit Their Facilities (Are they real and professional) • Understand What They Know About Your Business • Staffing Expertise in your industry • Check their financials / encourage exchanging financials • Understand/Question their Ethics and Integrity • With References

13. After All… After all is “Said and Done,” More is “Said than Done…” • This is a relationship that is absolutely critical to the operation and success of your business… • You must FIND OUT: (Better Question: Why NOT…?) • DO THEY DO WHAT THEY SAY THEY WILL DO… • ON TIME • WITHIN COST

14. So What Do You Pay… You want the Cheapest Service… • This is a relationship that is absolutely critical to the operation and success of your business… • Do you drive a 1960 VW Bus…? • Do you look at dollars paid with no consideration for value and ROI…? • Do you let the CFO/Lawyer make business decisions about what loan products you sell…? • Do you and your customers expect / demand value for what they spend…? • THEN YOU SHOULD TOO…

15. So What Do You Pay… CFO… We can’t pay them that monthly charge… CEO… We are paying it now in higher salaries and commissions… Look at the bad deals we are carrying on the books… I don’t want to loose the company making them good… CFO… I’m telling you it’s too much… CEO… Maybe I can get another $2.50 off the transaction charge… CFO… Are you sure they are stable and will be around… CEO… Look, we have to be sure. They need to make a profit too. If we drive our cost too low, this won’t be a partnership, we need them as committed to us as much as we are to them…

16. So What Do You Pay… CFO… Do you think we can really save money… CEO… I wouldn’t do it otherwise… Besides we can’t remain competitive unless we use technology that puts us ahead and keeps us ahead of our competition… CFO… This decision is vital to our business and future… if they fail or don’t deliver or go under then we are sunk too… Are you sure they are stable and will be around… CEO… Haven’t you looked at their financials and seen their facilities… What’s their reputation… Didn’t you call their references… If not, you had better get your due diligence done now… CFO… What other benefits do you see…

17. So What Do You Pay… CEO… I suspect there are a number of specifics and some intangibles… 1. We aren’t technology experts, I know how to develop competitive loan products and sell. 2. I know how to manage people but those computer types freak me out. I don’t know what they are talking about half the time and I don’t want to decide things I know nothing about. 3. Our biggest expense is manpower. I don’t like having to hire and fire every time the market changes. Besides we have to train them, that takes time and then we can’t be sure until after the fact if they have bad habits or are making deals behind our back. 4. Even though technology may cost it is certainly not what manpower costs are, and I know the machine is making the same decision every time. Quality control, up front before the deal.

18. So What Do You Pay… CEO… 5. At conferences I have heard of companies doubling, even tripling their portfolios without increasing manpower. Now that’s worth a lot. Especially looking at our growth plans for the next few years. CFO… Our investors would love that. I suspect we could be heroes rather than always having to explain these fluctuations. CEO… I am sure there are other benefits too, I’ve heard people saying so. But we’ve been bitten with false promises before. We bought that software a couple of years back and it’s still sitting on the shelf. What a mess, I’ll never forget having to explain that one away. CFO… If I truly understand what you are saying. We can justify the expense in many ways. I can even justify the monthly costs, particularly if our expenses will swing with the market too. Less apps, less app fees. CEO… Let’s get that due diligence completed ASAP. Call all their references. Let’s be as sure as we can this time…

19. Summary… If you haven’t gathered by now… This is a BUSINESS decision… NOT a TECHNOLOGY decision…

20. No longer debatable, it is accepted fact that technology determines who can handle demand and who gets swamped; who produces profit and who loses the race. Most C-level executives wander through the technological maze panic-stricken, ultimately surrendering decision-making to their IT staffs. With more than 30% of all software projects canceled before completion, because of wrong decisions, and projects regularly running 189% over budget (222% over schedule), the stakes are high for right and wrong decisions. Learn how to navigate these troubled waters from the CEO of a leading lending automation company.

21. Mistake 1: Building when you can buy. • The truth is, with technology advancing as rapidly as it is, no individual company—unless it is totally dedicated to software development—has the ability to keep up with the tools and techniques that guarantee real innovation.

22. Mistake 1: Building when you can buy. IT staffs at Mortgage companies are involved in Maintaining: • PC and servers • LOS Systems • Accounting Systems • Data Bases • External system connections They DO NOT have time to develop enterprise LEADING EDGE software solutions.

23. Mistake 1: Building when you can buy. Reasons to buy: • Effective enterprise level systems are very expensive to develop • Software companies have relevant experience that comes from managing similar projects • Key components and the knowledge of development is shared across the entire customer base of the software provider • Software developers are hard to retain on staff leaving projects unfinished or core knowledge out the door

24. Mistake 2: Failure to properly manage your outsourcing relationship. • While outsourcing your project to a firm specializing in software development is an easy decision to make, doing it correctly is anything but simple.

25. Mistake 2: Failure to properly manage your outsourcing relationship. Being a top notch business manager in a mortgage company doesn’t necessarily mean one will be able to make the correct decisions about technology. • 30% of all software projects canceled before completion because of wrong decisions • Software projects regularly run 189% over budget (222% over schedule)

26. Mistake 2: Failure to properly manage your outsourcing relationship. Effective customized software implementations require cooperation from the entire organization: • Project Managers • Directors of Underwriting • Business Managers

27. Mistake 2: Failure to properly manage your outsourcing relationship. Development is only part of the cost: • Some experts have estimated that development represents only 30 percent of the lifetime cost of an application. • Remaining money is spent in ongoing maintenance and support.

28. Mistake 3: Not solving your problems early in the cycle. • Mistakes caught at the end of the cycle can cost up to 200 times as much to solve as one caught in the beginning. • Having experienced people on the project is 99 percent of getting problems solved early.

29. Mistake 4: Partnering with the wrong people. Have the right people with the right knowledge base working on the problem from the beginning. • Demo Software • Meet the project management team • Check References • Confirm their commitment…

30. Time and Resources Technology and Leading Edge Advancements • Do you have time to develop this:

35. ARC Systems

36. ARC Systems’ Mission Statement To provide value for our partners through world class technology, service and industry expertise.