DocuSign Raises $85 Million To Accelerate Growth

Boasting 95,000 business as customers, users in 188 countries, and 40,000 new unique users of its network every day, San Francisco-based DocuSign announced that it has raised an additional $85 million to fuel further growth.  With most of the new funding coming from “large institutional public funds,” the new infusion brings the company’s total funding to $210 million, including investors like salesforce.com, Google Ventures, SAP Ventures and other top-tier players. Morgan Stanley acted as sole agent for the funding.

Last month DocuSign announced a long-term strategic partnership with Microsoft to make DocuSign’s eSignature apps widely available within Microsoft Office 365, to let customers submit and sign documents without leaving Microsoft applications including Outlook, Word, SharePoint Online and SharePoint Server 2013.  Microsoft currently deploys DocuSign in 100 use cases around the world.

In an exclusive March 3 pre-announcement interview, DocuSign founder and Chief Strategy Officer Tom Gonser pointed out that the company’s 60% to 70% global marketshare makes it “by far the largest” player in the space, setting the standard for managing fully digital transactions. “You can plug DocuSign in anywhere you might be dealing with a document that must be signed and returned, and be sure it will appear in the right context for the transaction,” Gonser said.

A key reason global adoption of DocuSign has been viral, Gonser said, is that it provides “carrier grade dialtone,” meaning scheduled maintenance never requires taking down the system, “because somewhere in the world someone is always right in the middle of a transaction.”  As a result, he said, DocuSign stands alone among  competitors in providing ubiquitous worldwide service comparable to VISA in the credit card space. DocuSign claims that its Digital Transaction Management platform is now used throughout every department in nearly every industry, from financial services to manufacturing to higher education, to accelerate transactions.

Looking back at his time in the mortgage industry, Gonser said he was an enthusiastic backer of MISMO during his NetUpdate days, and predictrd that MISMO will be an important body in restoring some of the technology advances Fannie and Freddie put forth that got lost in the mortgage meltdown.  He said that while eNote adoption may have tailed off as the most recent refi boom gave way to a purchase market, eNote adoption “absolutely” has to pick up.  “Everyone is using e-signatures in real estate disclosures,  and starting to see it in insurance and in banking. So for a mortgage I have to drive downtown to sign?” He said consumers won’t put up with that for long.

Long known in the mortgage industry as the founder and CEO of NetUpdate. Gonser oversaw NetUpdate’s 2001 acquisition of Seattle-based document management and electronic signature provider DocuTouch.  After he left NetUpdate , Gonser purchased some of Docutouch’s patented assets to found DocuSign in 2003, but didn’t end up using them in the initial version of DocuSign. Gonser has been widely credited with being the father of electronic signatures for developing an e-signature process that didn’t require software or digital signatures. The  e-signature technology DocuSign developed by 2004 was browser-based and conformed  to the 2000 ESIGN Act and UETA.

DocuSign’s funding announcement was the first in a series of product releases and other announcements scheduled for its March 4-6 user conference in San Francisco.

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BREAKING NEWS: Ellie Mae to Acquire CRM Player

*Ellie Mae Acquires CRM Player*
**By Scott Kersnar**

ScottK***Thursday afternoon mortgage software provider Ellie Mae, Pleasanton, Calif., announced 3Q 2013 revenues of $33 million, up 20% year over year, despite an estimated 25% decline in the mortgage market during that period. Active Encompass users grew 39% to 93,577 active users, with 9,700 new Encompass seats booked. The company reported adjusted EBITDA of $10.4 million, up from $9.8 million from 3Q 2012. However, the company reported a drop in adjusted net income to $7.1 million, down from  $9.5 million in 3Q 2012. The LOS also announced an agreement to acquire a leading CRM firm.

****Despite “impressive growth year over year,” said Ellie Mae CEO Sig Anderman, “it was not as strong as we expected. The decline in mortgage applications in August and September was steeper and more sudden than we expected, and the larger customers we signed earlier in the year took longer to implement than we anticipated.”

****He also reported a loss of revenues when two legacy refi specialists that subscribed to Ellie Mae’s doc prep solution exited the business in the third quarter as the refinance market contracted. “The impact on revenues, combined with our increased investment in R&D, customer support and sales, produced operating results that were lower than we forecasted,” Anderman said. Nevertheless, he said, Ellie Mae is still targeting 25% revenue growth for 2014.

****Ellie Mae also announced having signed a definitive agreement to acquire CRM firm MortgageCEO for an undisclosed cash price, with the deal expected to close by year’s end. Mortgage CEO bills itself as an “all-in-one” CRM and marketing platform, offering lead management, sales automation, referral marketing to real estate agents and builders and unlimited mobile access to leads and contacts. Anderman characterized the acquisition as being “consistent with our mission to automate every aspect of the mortgage process.” He said the acquisition was made substantially in response to customer feedback, as well as the shift in the mortgage market to purchase transactions. The Ellie Mae announcement said MortgageCEO founder and CEO Jaret Christopher and his employees were all expected to remain.

****Anderman cited CRM technology as a valuable tool for compliance with QM and ability-to-pay regulations coming in January 2014. He described the MortgageCEO acquisition as an example of Ellie Mae’s investment for long-term growth.

****“We knew this was going to be a challenging year when we adopted the strategy to build out our organization and invest for long-term growth. Despite the revenue shortfall, we are sticking to that strategy,” he said. “We are intensifying our marketing efforts, reinforcing our implementation and customer support teams and investing in research and development.”  He said Ellie would continue to expand its lender support teams and professional services, welcoming tough market conditions as an opportunity to accelerate its lead over competitors. As proof of his company’s standing among mortgage bankers, Anderman noted that Ellie Mae has just received Mortgage Technology’s Lender’s Choice Award, the only Mortgage Technology awards made by vote of the lenders themselves.

Knock, Knock, Who’s There?

*Knock, Knock, Who’s There?*
**By Scott Kersnar**

ScottK***When word got out in March that FreeCreditReport.com coughed up information on Attorney General Eric Holder and other celebrities, worries once again shot up about hackers on the Internet, even though these incidents did not involve hacking per se.

****The security problem with Internet access to free credit reports, says Garret Grajek, CTO for Irvine, CA-based SecureAuth, is that answers to many of the security questions “can be found on Web pages” or even guessed. He said people too often simplify the problem of having multiple IDs and passwords “by using a few of them for everything.”

****Whenever stories about security breaches get headline coverage, the general outcry is for foolproof security. S0 suppose the CFPB and other regulators decree that the standard of protection for online transactions in financial services be that security become absolutely foolproof? In today’s compliance-driven world, no one can call such a scenario far-fetched. The problem that always lingers is how to comply with stricter standards without slowing internet transactions to a crawl.

****If you go to Google, you will find the strongest user authentication described as: “username/password or PIN code + PKI smart card + biometric characteristic checking + bilateral challenge response procedure based on PKI x.509 digital certificate and asymmetrical cryptographic techniques.”

****Wow. To a non-expert like me, that certainly sounds formidable. So let’s say this level of security is needed for transmitting sensitive information in patient files within and between healthcare systems. But it sounds like overkill as the security needed, for example, to protect e-signing of disclosures in a real estate transaction. How do you vary the security measures required to fit different needs?

****“Our whole message is that this is a solvable problem, “said Grajek. “But the solution can’t rely on ID and password only.” He said a key attribute of a stronger system is that it allows bilateral authentication “that insures that the user gives them a certificate that is not phishable by attackers.” At the same time, he said, the system ”must be malleable enough to cover all the different types of authentication.” SecureAuth has patented a solution enabling authentication engines to have that kind of malleability.

****The SecureAuth IdP system provides identity protection combining SSO and single, two and three-factor authentication in one platform for cloud and Web.

****When users log on to a user like Credit Interlink, for example, they are authenticated by their username and password, and a four-digit PIN is issued via a phone call or other message. A certificate is stored on the machine for verifying identity and authorizing access.

****When security is being increased, a major objective always is to minimize user inconvenience. Credit Interlink commended SecureAuth for providing two-factor authentication that stores the certificate locally on the machine so users do not need to enter a PIN each time they log on.

****At this writing, said Grajeck, x.509 certificates have never been hacked. That doesn’t mean they never will. Being a leading-edge security provider means never relying on any one measure.

The Devil In The Details

*The Devil in The Details*
**By Scott Kersnar**

ScottK***I’ve been wondering lately whether the mortgage industry’s current obsession with regulatory compliance might be opening a door to fraud.  After all, fraud succeeds by distracting underwriters from paying attention to one thing by focusing their attention on another. Take, for instance, Fannie Mae’s 1004MC addendum.  I recently came across an online discussion of whether or not strictly following Fannie’s guidelines on filling out that addendum might lead an appraiser to indicate that the home values in a particular micro-market were stable when in fact they were declining. With everyone eager to have an improving mortgage market lead the economy into full recovery, it seemed to me that a little ambiguity like that could invite fraud.

****The way to correct a possible appraisal misstep like the one above, commented a participant in that online discussion, is to compare macro-market data with neighborhood data. And that’s where an appraisal vendor management firm like Global DMS can be helpful.

****Heavy investor activity is indeed “driving quick price changes and thus opening up small windows where home values can be manipulated by various parties,” noted Vladimir Bien-Aime, president and CEO of Global DMS. “There are many documented cases FBI cases of mortgage fraud activities, and one of the main elements to perpetrate these types of crimes are fraudulent appraisals,” he said, citing a case in West Virginia where an appraiser involved in a multi-million-dollar mortgage fraud scheme included a below-grade basement as “Gross Living Area” to enable using comps that were twice the square footage of a subject property.

****“The problem with identifying the minutia involved with valuation fraud is that your typical underwriter simply doesn’t possess the extensive experience needed to review collateral valuations for quality and fraud,” said Bien-Aime. As a result, he warned, many details in the appraisal review can be overlooked. “There are hundreds of rules utilized by Fannie and Freddie for industry standards that are a requirement designed specifically to mitigate risk and prevent mortgage fraud. It is virtually impossible for the average underwriter to review all of these little details,” he said. “This is why it’s essential to employ collateral review technology that is able to automatically and instantly review thousands of rules to catch potential instances of fraud.”  He cited gross square footage comparisons and distance of comparable as factors that should be incorporated into automated valuation models and the review process. “If such tools were employed in the aforementioned case,” he said, “the misuse of comparables to inflate values would have been detected.”

****Bien-Aime argued that a multi-faceted software system is effective for maintaining effective fraud detection in today’s valuation management process, “which is complex and has many moving parts. It’s risky to deal with too many vendors in what’s become an incredibly compliance-intensive lending landscape,” he concluded.

Lest We Forget

*Lest We Forget*
**By Scott Kersnar**

ScottK***When I was selling houses back in the late 70s I taught a course in real estate basics for consumers at a local junior college. The Russian River area of Sonoma County California, where I still live, was experiencing a real boom in property values at the time. I will never forget being at the blackboard one evening, masterfully showing the class how leverage magnifies the yield on a real estate investment, when someone raised a hand to ask a question: “Isn’t leverage another term for debt?” Of course, good point. But the market was hot right then. If people bought the lowest-priced home for sale in a good neighborhood, and were willing to make a few repairs and cosmetic changes (the way I told them to, the way my wife and I had just finished doing), they’d automatically make money as soon as the ink was dry on the sales contract.

****I was a relative newcomer to real estate. I had been a teacher for ten years I could keep an adult class interested, but had never been through a real estate downturn myself. It took an experienced member of my class to warn his fellow classmates how painful it would be to hold highly leveraged property purchased at the peak of the market.

****Soon after that, the S&L scandals of the 80s had everyone making cynical cracks about appraisals written in pencil until they met the numbers. “Made As Instructed” was the joke version of the acronym MAI, in place of Member of the Appraisal Institute. Watching what happened to the hotshot investors, no one needed to be reminded that leverage was debt, or that appraisers “making the numbers” to put deals together was against the law.

****But good times returned. Economists like David Lereah preached that from now on we would enjoy a real estate market with perpetual price appreciation. Then, when the mortgage debacle came in 2007, it took a long time for real estate prices and mortgage originations to end their plunge. The market also was restrained by the flight to quality and a landslide of regulations.

****So when we recently saw a twelve-month period of home price appreciation, was that good news? The Obama administration certainly didn’t complain. First-time buyers started looking in earnest and upside-down borrowers saw hope for daylight ahead. The bad news Interthinx told us in February was that increased investor activity brought with it a 25% quarterly increase in appraisal fraud risk.

****We need to keep in mind that when a rising tide starts lifting all boats, that means the pirate boats rise too. And the pirates look just like us; all they are trying to do is get rich by “making the numbers work.” These are the early days of a market upturn, so let’s remember now that fraud undermines the health of the market. Will the mid-AprilMBA National Fraud Issues Conference in Ft. Lauderdale unveil some tangible fraud remedies? Sure hope so.

Swimming Through The Alphabet Soup

*Swimming Through The Alphabet Soup*
**By Scott Kersnar**

ScottK***Years ago I wrote a column called “Telling” in a publication totally unrelated to the mortgage industry. Nothing could be more telling than the effect the Consumer Financial Protection Bureau will have on mortgage lending. What’s hard to see is whether the CFPB will prove to be a good cop or a bad one. At this writing that question is still all tangled up in the controversy surrounding Richard Cordray’s appointment as director.

****On the good cop side, theoretically at least, the CFPB will move in the direction of giving mortgage lending a ‘single point of contact’ for much of the regulatory scrutiny currently coming at the industry from all sides. A case in point is the FFIEC requirement that banks and nonbank entities such as mortgage brokers create and implement a Social-Media Quality Control Plan.

****Like most people, I always have to Google the acronym FFIEC to find out that it stands for Federal Financial Institutions Examinations Counsel. My friend Hans Bruhner has to do the same, though he’s a very bright guy. A veteran branch manager for First Priority Financial, Hans told me that when he took his NMLS test, he didn’t study first. “I was pretty confident that I didn’t need to,” he said, “and sure enough I passed it. The answers I got wrong generally were alphabet-soup questions about names of regulatory agencies and so on. I know how to do business lawfully, but I don’t always know the names of the regulators behind enforcement. I don’t know Gramm Leach whatever, but I know what MDIA means because I deal with it every day.”

****Hans said that when First Priority underwent a Consumer Financial Protection Bureau audit, the company also passed that with flying colors, only to be informed that they needed to implement oversight of every loan officer’s use of Facebook, Twitter and other social media–for personal as well as business use.

****“They want the company to be monitoring that,” he said. “I can see how the company could sample loan officer’s social media, but there should be a limit. Is there a training manual that says here is proper behavior and here is improper behavior? I posted pictures of my new patio on Facebook. So are they expecting my company to pay somebody to monitor that?”

****Yes they are. To protect consumers and financial institutions alike from fraud, phishing, misrepresentation and other dangers, everybody in the mortgage industry who has any connection to social media is going to learn more than they want to about Social-Media Quality Control Plans.

****“The CFPB is reaching into our business in a big way,” says Hans. “We’re having to do a lot of work under the guise of protecting the consumer. There’s no way to candy-coat this thing.”

****That’s the bad news. The good news? Oh yes, here’s something: If you go to Amazon, you’ll see that a reader gave a five-star rating to Human Resources Guide to Social Media Risks by Jesse Torres. Good timing, Jesse.

****ABOUT THIS COLUMN: We are happy to welcome Scott to the PROGRESS in Lending team. He’s a veteran mortgage technology reporter with vast industry knowledge. In this regular column he’ll reflect on the latest news and industry trends in his own voice, sharing his unique views, which we hope you’ll find to be very “Telling,” hence the title of this new column.