Market Analysis: LOS Acquisition Ups The End-To-End Ante

*LOS Acquisition Ups The End-To-End Ante*
**By Tony Garritano**

***The loan origination space is heating up for sure. We’ve seen some noted acquisitions and today I’ve been given the scoop on another such deal. Let’s understand, LOS companies have to add value. In this case an LOS is not getting acquired, but rather is doing the acquiring to be able to offer its customers that much more value. I told you last week that I would bring you some exclusive news from Mortgage Builder when it was good to go. Today Mortgage Builder has acquired an industry mainstay. Here’s the scoop:

****Mortgage Builder has entered into an agreement to acquire GCC Servicing Systems, a leading loan servicing software provider that shares 35 years of history with its new owner. A sale price was not disclosed. GCC is the creator of G/Serv, a mortgage servicing software popular with mid-tier lenders, community banks, credit unions and mortgage companies, a market sector also well-served by Mortgage Builder. The teaming of the two technologies comes at a time when many lenders are retaining servicing rights and responsibilities rather than using subservicers and selling loans on a servicing released basis.

****“More lenders need servicing software now than at any time in recent history,” says Keven Smith, Mortgage Builder’s CEO and president. “With the acquisition of GCC, Mortgage Builder now offers a complete lending system that empowers lenders to control all aspects of the process,” he notes. “And with their common DNA, the platforms work extremely well together, making it far simpler for lenders to make smooth transitions into loan servicing.” The GCC staff will join Mortgage Builder and GCC will operate as a separate division with Jeff Augenstein, vice president of GCC, responsible for the day-to-day operations.

****GCC Servicing Systems was founded in 1977 as Glenn Computer Corporation by Glenn Liebowitz in Southfield, Michigan as a mortgage servicing, loan origination, and accounting service bureau. The loan origination product was spun off in 1998 to become Mortgage Builder Software. G/Serv brings Mortgage Builder a comprehensive loan servicing platform that automates all servicing administration functions, along with default management and full reporting capabilities. Like Mortgage Builder, G/Serv has evolved greatly since it was first released, and is now designed for Software as a Service (SaaS) delivery for fast, cost-effective implementation, and is hosted in a SAS-70 Type II/ SSAE-16 Type II compliant data center.

****“This acquisition puts Mortgage Builder into a unique class of technology providers,” says Kelli Himebaugh, corporate vice president of Mortgage Builder. “As a nimble, independent company, we are well accustomed to working with regional and mid-tier lenders” she says. “We can now bring our highly personalized approach to lenders choosing to become servicers to maximize returns and improve borrower service levels,” she says. “A new era is dawning for the mortgage industry and with the addition of GCC, we are able to provide a full range of exceptional technologies for America’s lenders.”

Video Insights: Charting A Path To Success

*Charting A Path To Success*
**Industry Insiders Speak Out**

***In this edition of the PROGRESS in Lending Association Video Newscast, it’s all about helping lenders grow their business. First, Straight Talkers Roger Gudobba and Kelly Purcell chat about how lenders can take a page from Steve Jobs to ensure success. Following that, Brian Bates at Wilson & Muir Bank & Trust Co. discusses how his company has grown their online channel and increased pullthrough using a new LOS. Also, Michael Hammond of NexLevel details how you can develop the most compelling call to action through using the Internet and e-mail to the fullest. Watch all this and more.


Market Analysis: Are You Happy With Your LOS?

*Are You Happy With Your LOS?*
**By Tony Garritano**

***As the mortgage industry and economy begin to recover, lenders are increasingly reevaluating their technology options. According to a QuestSoft survey of 461 lenders nationwide, 18.7 percent of mortgage lenders are considering changing their loan origination software (LOS) in the next 12 months. This is the highest percentage looking to switch in the six years QuestSoft has been conducting its annual survey. Here’s the scoop:

****When QuestSoft, a leading provider of mortgage compliance software, began conducting their annual compliance and technology survey in 2008, the number of lenders considering replacing their LOS remained consistently around ten percent each year (22 of 207 lenders in the survey’s first year). However, last year, the percentage of lenders jumped to 17.75 percent, with a new high of 18.7 percent looking to change this year.

****“One of the factors in seeing more LOS changes is the reduced expense of implementation and conversion offered by hosted software companies,” said Leonard Ryan, president and founder of QuestSoft. “Another factor may be the result of acquisitions. As LOS vendors have merged, acquired customers may be using the change as an opportunity to evaluate their platforms.”

****Ryan added that many lenders also said they place a high priority on LOS providers that have comprehensive compliance functionality. QuestSoft currently integrates with more than 40 leading LOS platforms, and the LOS systems integrated with QuestSoft’s flagship product, Compliance EAGLE, are able to provide a simple interface that automates the evaluation of a loan file against a suite of more than 300 federal and state compliance regulations representing more than 10,000 pages of standards.

Understanding The News: Can You Calculate How Much Your LOS Saves You?

*Can You Calculate How Much Money Your LOS Saves You?*
**A New Report Quantified LOS ROI**

***Lenders never seem to be happy with their loan origination systems. And they’re right to be upset. Many LOS systems on the market are based on old technology and hinder the lender from truly advancing. Lenders become hostages to their LOS. Nonetheless, lenders need an LOS. So, how do you quantify the true return on investment? Origination vendor Blueberry Systems LLC released the independent findings of a MarketWise Advisors’ detailed ROI Analysis of the implementation of its RELAY loan origination system at Plano, TX based Starkey Mortgage. Here’s what the report found:

****“We are excited about the direct and measurable advantages that RELAY has already given us. We’re looking forward to the increased returns as time goes on,” said Starkey CIO Bill Burke. “But just as important to us has been the high level of service and the partnership they have developed with us. They are sincerely invested in our success.”

****Starkey Mortgage implemented RELAY in January 2012 and MarketWise Advisors closely analyzed the subsequent impact of the system on the lender’s loan origination operations. Based on the system’s performance, it found that in a typical implementation of RELAY, a mid-tier mortgage lender with $500M-$5B in annual origination would ultimately save nine hours of work, or approximately $287.75 per loan. Starkey Mortgage is well on the way towards achieving this objective ahead of plan. This operational impact spans all areas of origination, processing, closing, post-closing and secondary marketing and MarketWise projected direct ROI benefit at 5.07x payback with a peak efficiency levels within three years of implementation.

****“Based on our analysis, Blueberry Systems’ RELAY LOS offers a solid approach for lenders to manage business stages and the underlying data flow,” said Jordan Brown, CEO of MarketWise Advisors LLC. “It is also important to note that the indirect benefits of RELAY can potentially outweigh the direct benefits. These would include improvement of loan quality, data management, auditing framework, information security and process flow.”

****“RELAY has been thoughtfully designed with advanced technology and innovative strategies to help lenders manage their loan production pipelines efficiently and profitably. We are encouraged that MarketWise Advisors’ findings validate our value proposition,” said Wil Armstrong, a founder and CEO of Blueberry Systems. “We are proud to count Starkey Mortgage as a partner and are thrilled about their future prospects.”

Market Analysis: Get Creative To Avoid Buy-Backs

*Get Creative To Avoid Buy-Backs*
**By Tony Garritano**

***Everyone is trying to be risk averse. Nobody wants a buy-back. And investors are cracking down. Loans have to be ironclad these days. As a result, technology providers are trying to come up with new ways to support their lender clients. For example, origination vendor Ellie Mae is adding a loan buy-back insurance option to its Total Quality Loan (TQL) program. Here’s how it works:

****TQL is an initiative designed to further enhance the loan quality, compliance and salability of loans that are originated through Ellie Mae’s Encompass360 mortgage management software system. TQL offers a suite of fraud detection, valuation, validation and risk analysis services, tailored to individual aggregator/investor requirements. Ellie Mae’s technology enables correspondent lenders to share the findings and data from those services with investors and other stakeholders in the industry supply chain.

****Correspondent lenders participating in TQL can now choose to insure and be covered for losses of up to $100,000 per loan. Underwritten by affiliates of Lloyd’s of London and Liberty Mutual Group, the insurance policy protects lenders from losses due to borrower and appraisal fraud and regulatory non-compliance. For example, the policy covers a seller against claims based on misstatement of income or assets, employment and occupancy fraud, as well as collateral and valuation fraud. Similarly, it protects against loss if a loan is found to be non-compliant with various regulations, such as Federal Truth in Lending Act Tolerance Tests (HOEPA); Federal, State and Local High Cost Thresholds Review; Fannie Mae Points & Fees, and “HUD-HOEPA” Mortgage Thresholds Reviews.

****The coverage begins at the date of origination and lasts for three years. The policy’s coverage automatically transfers with ownership of the loan so that any party who owns the loan at the time a fraud or compliance error is discovered may file a claim under the policy directly rather than force the loss back to the original lender. While there is a cost to the lender for this coverage, this can be offset by lower loan reserves that are available to lenders with insured loans. Ellie Mae receives an administrative fee for each closed loan covered under a policy.

****The program is designed to offer enhancements to traditional programs available in the marketplace. If a fraud or compliance error is discovered, the party suffering a loss can file a proof of loss and determine whether or not it is covered before the amount of the loss has been determined. This allows efficient repurchase, scratch and dent sale or foreclosure options to be assessed with the knowledge that coverage exists. Often, insurance providers’ practices have prevented policyholders from learning whether or not coverage exists until other options for recourse have been completed (or lapsed).

****Arthur J. Gallagher Risk Management Services, Inc., a subsidiary of Arthur J. Gallagher & Co. (NYSE: AJG), one of the world’s largest insurance brokerage and risk management services firms, is the broker for the program. Justin Vedder, area senior vice president at Arthur J. Gallagher Risk Management Services in San Francisco explained, “This program is a validation of Ellie Mae’s TQL process. TQL customers adhere to rigorous origination standards and follow best practices and as a result automatically qualify for this exceptional coverage.”

****“Over the past several years, the GSEs and investors have put back approximately one hundred billion dollars worth of loans to originators,” said Richard Roof, Ellie Mae’s senior vice president of Business Development. “Our TQL program is a direct response to the industry’s demand for increased quality assurance. It is designed to give investors and sellers greater confidence in the assets that are being originated. Adding optional buy-back protection is simply a cost-effective extension of this concept and further mitigates risk.”

Market Analysis: Mortgage Builder Is Making News

*Mortgage Builder Is Making News*
**By Tony Garritano**

***The industry is still talking about the Avista acquisition. However, Avista isn’t the only prominent LOS making headlines. I talked with the executives at Mortgage Builder yesterday and they have some exciting plans for this year. When I’m able, I will tell you all about it. Stay tuned. But today I want to talk about a recent integration that Mortgage Builder completed that will really improve the appraisal space. Here’s the scoop:

****Mortgage Builder has completed a technology integration with InHouse Inc. of Jacksonville, Florida, the providers of the InHouse Connexions appraisal management platform. The integration came as a result of requests by Mortgage Builder clients that the InHouse technology be integrated with the Mortgage Builder LOS, as they preferred the appraisal management capabilities and flexibility InHouse offers. With the integration in place, Mortgage Builder users can conveniently access InHouse Connexions and its full menu of appraisal options.

****“InHouse Connexions was clearly the choice of several clients, including one of our largest,” says Kelli Himebaugh, corporate vice president at Mortgage Builder. “As soon as we started working with them, it was easy to see why lenders were wanting InHouse to be available directly from within their favorite LOS. The Connexions platform offers the ability for lenders to use their own appraisal panels, order from appraisal management companies (AMCs), or access InHouse’s own AMC when convenient,” she says. “The cloud-based technology provides full reporting and complete control over the appraisal effort with maximum flexibility.”

****Jennifer Creech, InHouse president and CEO, agrees that the integration with Mortgage Builder makes a great deal of sense for both companies because of their similar philosophies and reputations. “InHouse is a company with a flair for technology innovation,” she says. “Mortgage Builder is a proven technology company that has always invested in innovation and service enhancements to improve the experiences of its clients.  We’re following a similar path, and we’re finding that lenders strongly desire the control over their businesses that a wide menu of options provides,” she notes. “Mortgage Builder’s clients are tremendously loyal and the company’s service is legendary. InHouse and Mortgage Builder make a great team.”

****Both companies see flexibility as a key ingredient for success in today’s mortgage technology. Mortgage Builder offers an end-to-end LOS system in which everything is integrated, from product and pricing engines to electronic document management. Many features, including compliant loan documents, are available at no cost, and delivery options are completely flexible. Lenders can opt for Software as a Service cloud-based delivery, more traditional installed business models, or combinations of both. They can even choose to pay for services only when loans close successfully. InHouse provides a similarly flexible blend of options on the appraisal management side, allowing clients to identify and use appraisal companies in some areas and AMCs in others, all with fast, automated ordering and delivery. Full performance metrics and reporting on the overall appraisal effort brings complete transparency, and InHouse has one of the few direct connections to Fannie Mae and Freddie Mac’s UCDP (Uniform Collateral Data Portal).

****“Both companies clearly believe in giving clients the most for their technology investment,” says Mortgage Builder’s Himebaugh. “We are fortunate to be working with their fine team and our clients will appreciate the array of benefits our integration with InHouse brings to the table.”

Market Analysis: Wipro Embraces Mobile

*Wipro Embraces Mobile*
**By Tony Garritano**

***No, I haven’t heard of another LOS acquisition, but I was recently treated to a demo of a new offering. I thought it was very slick. As it turns out, more LOS companies are trying to harness the power of mobile technology. Franklin, Tenn.-based Wipro Gallagher Solutions (WGS), a provider of end-to-end lending solutions for financial institutions, introduced Enterprise Mobile Origination (e.MO), a native iOS lending productivity suite for the iPad, designed to enable sales teams in the field to run and originate new loans of all types. Here’s the scoop:

****The e.MO application integrates with any loan origination system (LOS), including WGS’ NetOxygen LOS, and provides all the tools to keep sales informed and connected to the customer. The application monitors leads and manages all associated contacts through the entire lending process. It maintains lead status, follows up on additional requirements, and requests credit and AVM results while creating a lead. Its alert and notification system monitors borrower activity via user-friendly iPad push notifications for the duration of the lead throughout the entire lending lifecycle.

****The e.MO application positions loan originators as consultants to their customers with its mapping and house price index (HPI) designed to offer well-informed decisioning support to borrowers based on the ability to map their property of choice and compare real estate opportunities in the geographical area.

****e.MO’s built-in calculators compare items, including fixed rate versus variable rate products, loan terms and payments while in the field with a borrower and engages leads with graphical representations of their buying power. Its reporting dashboard easily communicates information to loan officers and compares lead generation using charts representing lead status, lead completion and performance levels within the branch, region and country.

****Other e.MO tools include a product filter that leverages the product and pricing engine of choice and provides significantly reduced turnaround time for the origination process with information readily available on the iPad. Loan information is immediately available to processors, underwriters, funders and closers through the LOS via seamless real-time integration with e.MO.

****“Tablets are shifting the way business is conducted for the entire lending lifecycle, yielding a net effect of improved customer service and satisfaction,” said Narayan Bharadwaj, business head for WGS. “We already offer NetOxygen on the cloud and the extension of our solution to a mobile device further strengthens our value proposition in line with our overall strategy to provide multi-channel, product-agnostic enterprise lending solutions to make the lending process as convenient as possible for borrowers.”

Market Analysis: Reaction To The Avista Acquisition Starts Rolling In

*Reaction To The Avista Acquisition Starts Coming In*
**By Tony Garritano**

***As you all know, D+H, the parent company of point-of-sale vendor Mortgagebot, acquired loan origination system Avista Solutions for $40 million. I broke the news yesterday. Since the scoop, I’ve gotten a lot of reaction from various industry experts. It’s great to hear your thoughts. Now that we’re about 24 hours removed from the news breaking, I thought that I would share what people are saying about this deal. I also got a chance to talk with Matt Cotter, senior vice president of sales and marketing at Mortgagebot. Here’s the industry reaction to this big acquisition:

****“Avista is a perfect fit,” said Cotter. “Our customers have been asking us to get into the LOS space for years. The challenge is that we are focused on the point-of-sale and to build an LOS would distract us. So, the acquisition made perfect sense. Also, Avista is a Software as a Service-based product, which fits with our culture.

****“For D+H, this continues their process of diversifying their revenue and geographic footprint. Avista will act as a subsidiary. Mark Phlieger and his entire team at Avista will stay. Mark reports into Scott Happ of Mortgagebot, who reports into D+H. This acquisition is about growth and adding value.”

****Personally I have known Mark Phlieger for many years. He is certainly a friend. Good for him that he started the company and built it to the point that it could be sold for a nice price tag. He did a great job. Also, kudos to Mortgagebot and D+H for acquiring an LOS as part of their strategy to expand in the U.S. mortgage space. To me, it sends a message that both companies are committed to our space.

****So, what happens now that the acquisition is done? “Priority No. 1 is to get the files from Avista and Mortgagebot talking back and forth. From there, we’ll do a tighter integration. It’s a high priority. Historically there has been best-of-breed applications where you have great functionality but you trade off with the integration process. We want to provide an end-to-end solution that is best-of-breed.”

****Celebration aside, some of the reaction that I have gotten since breaking this story has been mixed. Off the record, several origination vendors are a bit fearful. Now that POS Mortgagebot has an LOS in Avista, many LOS vendors see Mortgagebot as competition. They know that the end goal will be, as Cotter suggests, to come to market with one offering at some time in the future. Some of these vendors have said off the record that they may not integrate to Mortgagebot as tightly and may look to some of Mortgagebot’s competitors instead. They don’t want Mortgagebot trying to sell their clients on switching off of their LOS of course.

****In my talk with Matt Cotter, he was understanding and sympathetic to their concerns. He told me, “We have hundreds of joint clients with many of the LOS systems. For us it is important that we continue to work with every LOS. We are going to have to make sure that we deliver on our commitments and ease their concerns over time.”

****What’s the big takeaway from this deal? “This is best-of-breed plus an all-in-one approach,” answered Cotter. “These are two systems that are functionally rich that will eventually be combined into one system. The products will be end-to-end, but they’ll also stay stand alone to compete on their own merits. The customer will decide what they want. As a theme, both Avista and Mortgagebot focus heavily on the midtier. Both products are also SaaS, and that’s something we believe in.”

****I’ll keep you posted on next steps. In the meantime congratulations to Avista, Mortgagebot and D+H. The mortgage industry is worth investing in. The people in this space are dedicated. This deal validates our industry’s clout and relevance.

Market Analysis: Breaking LOS Acquisition News

*Big LOS Acquisition News*
**By Tony Garritano**

***I don’t usually do this because I know that you don’t like getting multiple e-mails a day and I don’t want to spam you. However, this warrants an extra e-mail, believe me. I always expected more consolidation in the LOS space. It’s been too slow as far as I’m concerned. Sure, we saw DataTrac get acquired recently, but that’s it. Now the big news starts my friends. Today I learned that Avista Solutions has been acquired. Here’s the scoop:

****Davis + Henderson Corporation today announced that it has acquired Avista Solutions, Inc. of Charleston, South Carolina, a leading provider of Software as a Service (SaaS) mortgage loan origination software to community banks and credit unions in the United States.

****The acquisition adds to D+H’s customer base and expands the range of integrated technology solutions D+H offers to the North American financial services industry by complementing the SaaS consumer point of sale (POS) mortgage origination platform it delivers to more than 1,100 U.S. banks and credit unions through its Mortgagebot subsidiary. Like Mortgagebot, Avista’s loan origination system (LOS) technology is delivered via the Internet as a service and revenues are generated on a subscription-fee basis under long-term contracts.

****“This acquisition is fully aligned to D+H’s “follow your customer” approach – in fact, customers have told us unequivocally that they want us to extend our offering with an LOS platform,” said Gerrard Schmid, CEO of D+H. “With Avista, we’ve added an innovative, fast growing LOS business featuring proven capabilities that are highly synergistic to those we offer through Mortgagebot. Together, we now support the entire mortgage origination process for U.S. lenders and provide customers with a comprehensive suite of products that enable efficient, effective growth from origination through to closing. We are pleased that Avista’s team, including Mark Phlieger, its founder and CEO, are joining D+H to drive future growth.”

****Founded in 2001, Avista is a profitable and growing financial technology business with over 150 financial institution customers and a technology suite that includes a complete loan origination system with integrated product and pricing engine, document imaging, workflow capabilities, and a comprehensive network of seamlessly integrated third party mortgage service providers.

****“We believe that a combination of our innovative LOS technology and D+H’s industry leading mortgage point of sale solutions will allow us to jointly reach more customers, more rapidly, and with a more effective one-stop value proposition,” said Mark Phlieger, CEO of Avista. “Speaking on behalf of our team at Avista, I am excited by the prospects of taking our business to the next level.”

****The purchase price is $40 Million (USD) payable in cash, and funded from D+H’s existing credit facilities. The addition of Avista is expected to provide accretion for D+H shareholders in 2012, on an Adjusted net income basis.

Our POINT Of View: The Truth About Workflow

*The Truth About Workflow*
**By Ted Hicks**

***The commonly used definition of workflow as one linear process is simply outdated. In a mortgage shop there are multiple processes going on at the same time. Most technology platforms can only handle the main workflow. A loan process goes from point-of-sale, to processing, to underwriting, etc. Many people in the mortgage space think of a loan process as a one-dimensional process, but what about the lock process, the confirmation process, the compliance process, etc? There are several processes going on at the same time as the loan is going through the workflow. So, how do you make everything happen in a streamlined, efficient manner? Here are my thoughts:

First, it’s not just about notifications.  It’s about having the type of intuitive technology that functions transparent to the user but is able to generate necessary information to a specific user at precisely the right moment. As such, the system needs to identify the different loan processes properly. If the system doesn’t understand parallel processes outside of the traditional loan workflow, it simply won’t work. You also need to see what’s going on and what sub-processes need to be done and what triggers those actions.

Lenders know that they have to accomplish all these things, but they don’t think of it as a multi-dimensional process and technology doesn’t help, quite frankly. Today most technology tools track milestones. What’s the problem there? The system looks at things as a serial workflow. In a parallel workflow system several steps can occur at the same time.

Every loan has milestones, but lenders need to contort the technology to lock a loan at a certain time or to re-disclose if the need arises. Why? The technology should do that for the lender. So, why doesn’t technology do this today? Vendors realize the complexity of the mortgage process, but the systems are old, which limits how a system can work. If a vendor thinks about parallel workflows they are thinking about creating new technology because their existing technology won’t cut it.

In the end, just as the definition of workflow has changed, technology needs to change as well.