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Explaining Credit Score Models

This article will provide a brief overview of different credit scoring models, the differences between actual and simulated credit scores, and the importance of knowing your actual consumer credit scores. 

FICO v. Vantage

Your FICO score is a score that is meant to evaluate creditworthiness. It is promulgated by Fair Isaac Corporation and was first utilized by lenders in 1989.  Your FICO score is calculated based upon the following five factors: 1) Payment history, 2) Credit utilization ratio, 3) Length of credit history, 4) New credit accounts, and 5) Credit mix. 


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In 2006, to compete with FICO, the three major credit bureaus developed the Vantage scoring model. This model calculates credit scores using some of the same factors as FICO, but also incorporates some additional information. The Vantage factors include: 1) Payment history, 2) Credit age and mix, 3) Credit utilization, 4) Balances, 5) Recent credit applications, and 6) Available credit. Although Vantage has been making a push in recent years, FICO scores remain the industry standard across various financial sectors for evaluating consumer credit worthiness.  

Actual v. Simulated

It is important to note the difference between actual credit scores and simulated credit scores. There are many websites, such as Credit Karma, that purport to provide consumer credit scores for free. However, consumers should be weary of putting too much credence or relying too heavily on those scores.  A simulated score is calculated based upon actual information in a consumer credit report, but it may not necessarily reflect your true credit score, which is promulgated by the FICO or Vantage models. There are many instances in which consumers review their simulated scores prior to applying for loan or other financial product, only to find out later that they do not qualify because their actual score is lower than the simulated score. 


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Importance of Getting Actual FICO Score

According to FICO, 90 percent of “top” US lenders use FICO scores when evaluating the credit worthiness of applicants. As the predominant scoring model in the US, consumer FICO scores will, more often than not, determine whether a consumer will qualify for the loan or financial product for which he or she is applying. It is imperative that consumers keep this at the forefront of their minds when devising a strategy or making a decision about when and whether they should apply for a mortgage or a car loan. 


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Whenever a consumer applies for financing, and the potential lender makes a hard inquiry (pulls the consumer’s credit), that consumer’s credit score is negatively impacted, and will decrease as a result of that inquiry. If a consumer believes that he or she will qualify based upon the simulated score, but is later denied, their credit score will take a hit unnecessarily. Because of the deleterious effect that hard credit inquiries have on a consumer’s credit profile, it is imperative that consumers know their actual credit score prior to applying for loans. There are companies that offer monthly subscriptions which include actual consumer FICO scores that are updated monthly. This type of service is invaluable for those who are serious about achieving and maintain credit health, and eliminating any guesswork when applying for loans.


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About The Author

Industry Vet, Michael Ann Williamson, Joins NTC

Nationwide Title Clearing, Inc. (NTC), a post-closing services provider for the nation’s largest financial institutions, investors and servicers, announced today that Michael Ann Williamson will be joining a team of National Account Executives who are responsible for client relations and client services. She joins an elite group of subject matter experts adding many years of experience to an already impressive team. 


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“No company in the industry can compare to Nationwide Title Clearing when it comes to document-related services for the mortgage business,” Williamson said. “I was ready to work for the best and I feel fortunate that we were able to find such a great fit for my ambitions and abilities here at NTC. I’m very proud to be part of this team.”


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Williamson began her career in the industry in 1985 as a management trainee at Wachovia Bank. From there, she was promoted into the Personal Banker Program and received extensive training on the evaluation of credit worthiness and risk. She went on to lead a team at AT&T Universal Card, where she was promoted first to senior manager and ultimately to vice president. Most recently, she served as Vice President at Ditech Financial LLC. She took over the Document Custody Department in 2006, where she was responsible for Collateral Management, Servicing File Management, Imaging, Lien Release, Assignments, MERS, Subordinations and Easements. In her previous position, Williamson was a client of NTC and is well versed in both the company’s offerings and its culture.


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“Recruiting and hiring the best people is part of our culture and we take that work very seriously,” said NTC CEO John Hillman. “With Michael Ann, we get both a well-trained, high-performing account executive and also a former client who knows exactly what we can deliver and the high standards we maintain in our work. I’m very glad to have her on the team.”


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Williamson earned her Bachelor of Science in Business Administration from the University of North Carolina at Chapel Hill.

New Home Purchase Mortgage Applications Rise In January, But Remain Flat Year-Over-Year

The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for January 2019 shows mortgage applications for new home purchases remained unchanged from a year ago. Compared to December 2018, applications increased by 43 percent. This change does not include any adjustment for typical seasonal patterns.


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“After two lackluster months, new home sales surged almost 30 percent in January to the fastest pace since our survey began in 2013,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “ The healthy job market, faster wage growth, moderating price gains and lower mortgage rates,  all helped home sales recover. Additionally, builders seem to be seeing improvement in their labor shortages, as government survey data showed increases in construction hiring and openings in December.”


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MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 713,000 units in January 2019, based on data from the BAS. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors.


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The seasonally adjusted estimate for January is an increase of 29.2 percent from the December pace of 552,000 units. On an unadjusted basis, MBA estimates that there were 54,000 new home sales in January 2019, an increase of 45.9 percent from 37,000 new home sales in December.


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By product type, conventional loans composed 68.7 percent of loan applications, FHA loans composed 18.6 percent, RHS/USDA loans composed 0.5 percent and VA loans composed 12.2 percent. The average loan size of new homes decreased from $334,944 in December to $334,532 in January.

MBA’s Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country. Utilizing this data, as well as data from other sources, MBA is able to provide an early estimate of new home sales volumes at the national, state, and metro level. This data also provides information regarding the types of loans used by new home buyers. Official new home sales estimates are conducted by the Census Bureau on a monthly basis. In that data, new home sales are recorded at contract signing, which is typically coincident with the mortgage application.

New Integration Improves Pull-Through Rates

Mortgage Coach, the developer of the Total Cost Analysis (TCA), the first borrower conversion platform for mortgage lenders, and SimpleNexus, the leader in bringing the home mortgage process to mobile devices through their dynamic digital mortgage platform, has announced an official integration partnership.


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The partnership provides SimpleNexus’ 200 plus clients and 20,000 LO’s increased pull-through or loan application conversion rates through Mortgage Coach’s Loan Comparison, TCA and SimpleNexus’ Mobile Originator™tools. When a borrower first uses the SimpleNexus mobile app with this integration in place, a TCA record will automatically be created for them in Mortgage Coach where loan originators can personalize and narrate the Total Cost Analysis details. The borrower can then compare different loan products and choose the one that is best for them through access to these details directly from the SimpleNexus mobile app home screen.


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“Mortgage Coach has first and foremost always kept the consumer in mind.  We’re proud to work with a company that brings transparency, and increases trust between consumers and lenders,” stated Matt Hansen, SimpleNexus Chief Executive Officer.

Through a transparent and educational experience, loan officers can demonstrate their commitment to their customer and the value of their role in the mortgage process delivering a complete and personalized experience, with graphs, charts, videos, and audio recordings, on any device. Update presentations/TCA information real-time. Loan officers stay in the know of when their presentations have been viewed with mobile report tracking. 


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“Synergy One provides one of the broadest sets of mortgage options of any lender today. Now, with a Mortgage Coach Total Cost Analysis for every application, our Synergy One app can help ensure the benefit and cost of every loan option is clear for any borrower. The innovation will enable our professionals to quickly tailor every loan option to specific financial goals of their client, part of our Synergy One commitment.” – Steve Majerus, President of Synergy One. 


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“By adding the Mortgage Coach Total Cost Analysis automatically to every application, Simple Nexus has delivered on two of the most important needs borrowers demand in the mortgage approval process, ease and options. Our mutual lenders need to convert every transaction by reducing fallout. This innovation provides a TCA at the earliest possible point in the application process, establishing trust and commitment from day one with the borrower.” – Joseph Puthur, President Mortgage Coach.This Best-In-Class integration provides a better way to engage, interact and communicate with borrowers, loan officers and real estate partners during the loan process. Ultimately, the partnership between Mortgage Coach and SimpleNexus provides a better borrower experience earning more loan commitments for any Lender today. 

Roostify Expands Its Advisory Board

Roostify, the San Francisco-based digital lending platform provider, announced today the addition of financial services consultant Marshall Lux to its advisory board. Lux, a distinguished consultant, advisor, and educator, brings more than 30 years’ experience in private equity to the rapidly-expanding business and reflects Roostify’s commitment to perfecting a scalable operational model and further developing an ecosystem of technology partners and strategic alliances. 


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“We are extremely excited to have Marshall join the Roostify advisory board,” said Roostify CEO and co-founder Rajesh Bhat. “Marshall’s years of experience in the financial services space, and in consumer credit in particular, has helped to establish him as a thought leader in our industry. We expect to benefit from his unique insights and perspective on the space as we continue to build products and offerings that transform the home lending space. We look forward to collaborating with Marshall to bring a superior home-buying experience to even more banks and consumers.”


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Lux said: “I’m excited to work with such a dynamic company. In just a few short years, Roostify has become a preeminent digital mortgage lending platform, radically transforming the standards of the home loan experience in its wake. I look forward to being a part of the Roostify team at this critical juncture to advance the company’s ambitious growth strategy.”


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Previously an executive for BCG, Chase, and McKinsey, Lux has completed more than 35 pro-bono projects for charities and non-profits. He is a senior fellow at Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School and his papers have been cited in the Financial Times, the Wall Street Journal and the New York Times.


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Launched in 2014 with the aim of speeding up the mortgage process and eliminating paper-bound inefficiencies, Roostify is an enterprise-class digital lending platform used by lenders across the US to accelerate, simplify, and reduce costs surrounding the origination process. 

2018 Ends On A High Note With A 14% Rise In Commercial/Multifamily Borrowing

A strong final three months of the year helped commercial and multifamily mortgage originations increase by three percent in 2018, according to preliminary estimates from the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, released here today at the 2019 Commercial Real Estate Finance/Multifamily Housing Convention & Expo.


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“2018 ended on a strong note for commercial mortgage borrowing and lending, with fourth quarter originations 14 percent higher than a year earlier, despite the broader market volatility,” said Jamie Woodwell, MBA’s Vice President for Commercial Real Estate Research. “Investor and lender interest in multifamily and industrial properties continues to drive transaction volumes while questions about retail and office property markets have slowed activity for those property types. The market as a whole ended the year roughly flat compared to 2017, continuing a plateau we’ve seen in mortgage borrowing and lending since 2015.”

FOURTH QUARTER 2018 ORIGINATIONS UP 14 PERCENT COMPARED TO FOURTH QUARTER 2017

An increase in fourth quarter originations for healthcare, multifamily and industrial properties led the overall increase in commercial/multifamily lending volumes in the fourth quarter compared to the same quarter in 2017. The fourth quarter saw a 61 percent year-over-year increase in the dollar volume of loans for healthcare properties, a 32 percent increase for multifamily properties, a 28 percent increase for industrial properties, and a slight increase (one percent) for retail properties. Originations decreased for hotel property loans (4 percent) and office property loans (3 percent).  


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Among investor types, the dollar volume of loans originated for the Government Sponsored Enterprises (GSEs – Fannie Mae and Freddie Mac) increased year-over-year by 32 percent. There was a 22 percent increase for life insurance company loans and a five percent increase in commercial bank portfolio loans. The dollar volume of loans for Commercial Mortgage Backed Securities (CMBS) declined 35 percent.

FOURTH QUARTER 2018 ORIGINATIONS UP 33 PERCENT FROM THIRD QUARTER 2018

Compared to 2018’s third quarter, fourth quarter originations for health care properties jumped 155 percent. There was a 56 percent increase in originations for hotel properties, a 34 percent increase for industrial properties, a 30 percent increase for multifamily properties, a 29 percent increase for office properties, and an 11 percent increase for retail properties compared to the third quarter of 2018.


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Among investor types, between the third and fourth quarter of 2018, the dollar volume of loans for commercial bank portfolios increased 46 percent, loans for the GSEs increased 32 percent, originations for CMBS increased 31 percent, and loans for life insurance companies increased by 30 percent.

PRELIMINARY 2018 ORIGINATIONS THREE PERCENT HIGHER THAN 2017

A preliminary measure of commercial and multifamily mortgage origination volumes shows that 2018 originations were three percent higher than 2017. By property type, originations for multifamily properties increased 22 percent, originations for industrial properties rose 12 percent, and originations climbed 5 percent for hotel properties. Office property originations were down 7 percent, retail properties declined 13 percent and healthcare properties decreased a 16 percent.


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Among investor types, loans for the GSEs increased 16 percent between 2017 and 2018 and originations for life insurance companies increased 10 percent. Loans for commercial bank portfolios decreased 10 percent and loans for CMBS decreased 26 percent.

In late March, MBA will release its Annual Origination Summation report for 2018, with final origination figures for the year.

Tallman Johnson Joins MBA As Associate VP of Legislative Affairs

The Mortgage Bankers Association (MBA) announced today that Tallman Johnson has joined MBA as Associate Vice President of Legislative Affairs. In this role, he will be responsible for advocating on behalf of MBA’s legislative and policy priorities on Capitol Hill, with a primary focus on Republican members of the United States Senate. He began his work at MBA on February 1. 


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Mr. Johnson is joining MBA from Capitol Hill where he has spent the majority of his entire professional career.


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“Tallman has a strong understanding of real estate finance issues, significant experience at the committee staff level, and a sterling reputation on Capitol Hill. Our members will be well served by his knowledge and familiarity of the legislative and public policy process,” said Robert D. Broeksmit, CMB, MBA’s President and CEO.


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“I have known and worked closely with Tallman for years, which is why I am so confident that his skill and proficiency with the issues impacting our industry will make him a strong member of our team,” said Bill Killmer, MBA’s Chief Lobbyist and Senior Vice President of Legislative and Political Affairs.


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Among his various roles, Mr. Johnson has served as a Professional Staff Member for the House Committee on Financial Services. Prior to that, he was one of the primary policy advisors to the Chairman of that panel’s Housing Subcommittee. Additionally, he has worked as a Senior Legislative Officer in the Office of Congressional and Intergovernmental Affairs at the U.S. Department of Housing and Urban Development.

Mr. Johnson holds a Bachelor of Arts in Political Science, with a Concentration in International Affairs, from The University of the South in Sewanee, TN. 

Abington Bank Will Merge With Pilgrim Bank

Andrew Raczka, CEO of Abington Bank, announced that Abington Bank will merge with Pilgrim Bank, a member of the Hometown Financial Group, MHC. The transaction is expected to close in the second quarter of this year.  Raczka will lead the merged bank as its CEO.

“We are thrilled to join forces with Pilgrim Bank,” said Raczka. “Our combined resources and expanded branch network will enable us to better serve customers in Plymouth and Norfolk counties.  We will have the size and scale needed to be a meaningful player in this market and be able to offer the products and services our customers need with the local commitment they deserve.  This transaction will allow us to truly set ourselves apart from the competition.”


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Abington Bank has significant experience with community bank mergers. Abington Bank merged with Holbrook Co-operative Bank in November of 2016.  Just six months later, in May of 2017, Abington announced a second merger, this time with Avon Co-operative Bank.  Today, Abington Bank is a successful $315 million community bank with three branches serving Abington, Avon and Holbrook. After the completion of the merger with Pilgrim Bank, the combined bank will have $600 million in assets and will operate six full-service branches.

“It is difficult and expensive to operate a small bank today. Our previous transactions allowed us to increase our market share and become more efficient,” said Raczka. “Those mergers created significant value for our customers, our employees and our communities.  Now, we will become even stronger and more relevant by merging with Pilgrim Bank.”  


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Hometown Financial Group recently closed on its acquisition of Pilgrim Bank.  “Pilgrim Bank was our entry point into the eastern Massachusetts market,” said Matthew S. Sosik, President and CEO of Hometown Financial Group, Inc.  “From the start, we knew that finding the right mutual partner would be the key to our success with our acquisition of Pilgrim Bancshares, Inc.  We are very excited about our partnership with Abington Bank.  Andy Raczka and his Board are well-known and respected bankers in this market, they know the region, and they have experience with bank mergers and integrations.  Their customer-first approach, employee-centric culture, and commitment to mutuality mirrors our philosophy here at Hometown Financial Group,” said Sosik.  Following the transaction, Hometown Financial Group will have consolidated assets of $2.7 billion and 30 branches across Massachusetts and northeastern Connecticut.  

At closing, the combined bank will be managed by Raczka and his leadership team and the existing Abington Directors will serve as the board of the combined bank.  The Bank will be headquartered in Abington, Massachusetts and will operate as an independent subsidiary of Hometown Financial Group.  Raczka and Paul Sullivan, Chairman of the Board of Abington Bank, will serve on the board of Hometown Financial Group.  Raczka will also serve as President of Hometown Financial Group.  The three Pilgrim Bank branches will continue to operate under the Pilgrim Bank brand after the merger.  


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“That’s the beauty of this merger,” said Sullivan. “Our bank will grow to $600 million in assets, nearly doubling in size, and will gain access to all of the resources, products and services of Hometown Financial Group.  This will allow Andy and his team to focus on growing in our local markets and providing best-in-class customer service.  Our board is certain this is the most effective way to grow our company and remain true to our primary mission of serving our customers for the long term,” he said. 

Under its holding company structure, Hometown Financial Group is able to share resources such as human resources, marketing, facilities management, asset/liability management, investment management, compliance, and information technology with the banks under its umbrella.  “We realize significant efficiencies from our operating model,” Sosik said.  “Banks in the Hometown Financial Group family operate independently with their own identity, management teams, and boards and avail themselves of back-office resources that are critical to effectively and efficiently compete,” he said.  “We strongly believe that this will be an increasingly attractive business model to other community banks as we move forward.”  


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All six branches of the merged bank will remain open and customer impact is expected to be minimal as the banks share the same core data processor.

Luse Gorman, PC served as legal counsel to Abington Bank and Nutter McClennen & Fish LLP served as legal counsel to Pilgrim Bank and Hometown Financial Group, Inc.

CUSO Chooses Blue Sage To Go Digital

Member First Mortgage, a credit union service organization (CUSO), has chosen Blue Sage as its mortgage origination platform. Member First Mortgage provides a complete range of conventional and government loans and performs loan processing, fulfillment, servicing and other mortgage-related services for more than 200 credit unions nationwide. Here’s why:


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All mortgages originated on behalf of Member First Mortgage’s credit union members will be created through the Blue Sage Digital Lending Platform, a browser-based, highly scalable solution capable of supporting any mortgage channel, including retail, wholesale and correspondent lines of business. Built, managed and delivered through a cloud environment, Blue Sage can be accessed on any device and handles pricing, underwriting and loan decision-making from the point-of-sale stage all the way to the closing and funding of a loan.  


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The decision to use Blue Sage was made following an extensive search and review of competing loan origination platforms, Member First Mortgage CEO Jerry Reed said.  “Unlike most loan origination software, Blue Sage was not built with technology that was developed more than a decade ago and is continually repackaged to look new,” Reed said. “It was written in current software language and includes a rich system of APIs, making it a more fluid system that offers better connectivity than any other product on the market. And because Blue Sage is a cloud-managed system, we can add new features and capabilities for years without constantly building new bridges to third-party software and services. It’s completely superior to anything else on the market.” 


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 From a borrower perspective, Blue Sage will be instrumental in helping credit unions attract and serve younger members, Reed added. The Blue Sage platform comes equipped with borrower-facing loan application tools that enable credit union members to manage their own mortgage experience. After a borrower applies for a loan online, Blue Sage automatically calculates fees and creates electronic disclosures that are then sent to the borrower for e-signing, saving valuable time and effort. All vendor services-such as appraisals, title and flood insurance-can be automatically ordered online through Blue Sage’s workflow as well.  


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“Blue Sage is an incredibly fast, user-friendly platform that delivers the same type of online experience that Millennials get when using social media, including chat and screen sharing features. Yet it is also intuitive enough for borrowers of any age to use quickly and easily,” Reed said. “From a presentation standpoint to the way it works behind the scenes, we believe Blue Sage represents the next evolutionary step in loan origination technology.”

 “Member First Mortgage shares our view that mortgage technology should be simple and always place the borrower first,” said Joe Langner, CEO of Blue Sage. “We’re excited for the opportunity to help hundreds of credit unions create a unique mortgage experience for their members by simplifying the mortgage process, eliminating paperwork and dramatically reducing the time and expense it takes to close loans.”

Partnership Furthers A More Digital Process

FirstClose, a provider of technology solutions for mortgage lenders nationwide, announced that its reporting suite is now available through Ellie Mae’s Encompass digital mortgage solution. The seamless integration allows lenders to order FirstClose’s solutions directly through Encompass to drive quality and efficiency in the loan origination process.


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Services can be ordered directly from Encompass at the touch of a button, eliminating duplicate key strokes when placing orders. When orders are returned, data points are sent back to Encompass, which automatically populates critical fields such as the full legal description and vesting information from the title work, the appraised value from the valuation product selected, and more. Copies of the completed reports are automatically imaged into Encompass. The integration reduces human error, as well as costs and closing times.


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Ellie Mae is a provider of innovative on-demand software solutions and services for the residential mortgage industry. Ellie Mae’s Encompass digital mortgage solution provides one system of record that enables banks, credit unions and mortgage lenders to originate and fund mortgages and improve compliance, loan quality and efficiency.


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“Seamless integration between the LOS and valuation and settlement services helps lenders close loans more quickly and efficiently,” said FirstClose CEO Tedd Smith. “Our secure integration with Encompass enables our clients to simplify the process of ordering our solutions, so they can more easily process mortgage loans and grow their business. We look forward to a long, successful relationship with Ellie Mae.” 


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FirstClose is a provider of best-in-class property & borrower data intelligence and settlement services nationwide. The company specializes in delivering a powerful web app and LOS plugin that is a home equity and refi tool that offers everything from application to servicing (credit score, valuation, title, tax, flood, closing and recording) on one easy-to-navigate platform.

In addition, the company delivers simplified vendor management by consolidating vendors and products on one platform.   FirstClose makes it easy to identify and repair the gaps where lender profits can be maximized.