STRATMOR: Large Banks Lag Far Behind Competitors In Mortgage Profitability

Large banks lag far behind their independent competitors when it comes to making a profit on retail residential mortgages, according to STRATMOR Group, a leading mortgage advisory firm. That’s one of the key findings from the most recent set of meetings of the PGR: Mortgage Bankers Association (MBA) and STRATMOR Peer Group Roundtables. Ninety-two lenders participated in seven PGR meetings MBA and STRATMOR held this spring. 

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“The trends we noted in the PGR large bank group were consistent with what STRATMOR has found across many of our large bank clients: low revenues, high expenses and trend lines that are moving in the wrong direction,” noted STRATMOR Principal Tom Finnegan in the firm’s just-released June 2019 Insights Report. Specifically, large banks lost $4,803 per retail mortgage loan originated in 2018 compared to large independent lenders which earned on average of $376 per loan.

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A number of factors contribute to the large discrepancies in costs and revenue. “Large banks experience a significant disadvantage in the expenses we categorize as ‘corporate administration’,” Finnegan says. “Corporate administration costs amounted to $3,654 per loan in 2018 at the largest banks versus only $1,213 per loan for the large independents – a $2,441 per loan disadvantage for the large banks.”

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Finnegan adds: “Portfolio loans, and jumbo loans specifically, are being priced aggressively by the banks, leading to imputed revenue that is lower than might be expected otherwise.” 

He noted that large banks as a group do not focus on FHA and VA lending to the same extent that independents do, and a few have virtually abandoned FHA lending due to the perceived risk of regulatory enforcement actions. “Because FHA and VA loans typically offer the ability to price with wider margins, not participating in this loan segment can also contribute to lower per loan revenue,” according to the report. 

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With respect to customer retention, STRATMOR estimates large banks captured only 4 percent of the available mortgage volume from their customer base, compared to 8.1 percent at regional banks. Similarly, large banks recaptured only 12 percent of their own customers who paid off an existing mortgage, compared to a retention rate of 30 percent at the large independents.

Large banks are often slow to react to changes in the marketplace in an industry that is notoriously cyclical. Many are simply not geared toward origination of purchase mortgages, a much more reliable production source than refinances. “When our industry becomes dominated by purchase money mortgages, the large banks’ natural advantage in terms of new loan opportunities dissipates,” Finnegan says. Many bank loan officers are not incented to pursue leads from referral sources outside the bank, such as Realtors.

“The type of loan officer who is attracted to the somewhat less entrepreneurial environment inside a large bank is often not well-suited to compete for external leads,” the STRATMOR report notes. By sharp contrast, “the lifeblood of independent lenders is their aggressive marketing to referral sources,” Finnegan points out. Large bank policies tend to work against this type of personal marketing.

“The legitimate quest for branding consistency and regulatory compliance can get in the way of personalized marketing and rapid response to the needs of the real estate community,” he says. “Moreover, mortgage origination must compete for marketing dollars with other areas of the bank, and often does not come out on top.” 

Despite spending more than four times what their nonbank rivals spend on technology, $1,724 per closed mortgage for the large banks versus only $437 for the large independents, “large banks appear to have great difficulty translating technological expertise and resources into efficient technology support for the mortgage origination business,” STRATMOR added. “Large banks’ IT projects appear to get mired in process considerations and take years to roll out, if they are rolled out at all. Clearly, this is an area that many of the largest banks should review.” 

Finnegan advises large banks that want to remain involved in mortgage need to “operate with an entrepreneurial approach, outstanding marketing and customer focus, and excellent financial reporting on, and management of, the details of the business to achieve acceptable levels of profitability.” 

In a second article in the report, STRATMOR MortgageSAT director Mike Seminari discusses how independent lenders have increased market share in recent years, particularly in purchase business. “One of the biggest reasons for this shift in power has been the independent’s ability to provide an exceptional customer experience, driving referrals from satisfied customers and traditional referrals sources,” according to Seminari. “Whether bank or independent, the ability to improve the customer experience is largely dependent on the right data. Queue the adage ‘You have to find the holes before you can fix the leaks.'” 

Click here to download the June 2019 edition of STRATMOR Insights. 

STRATMOR: Lenders Turn To Alternative Technologies As Loan Origination Costs Continue To Climb

As mortgage loan origination costs continue to climb, a growing number of mortgage lenders are starting to consider alternatives to the traditional loan origination system (LOS) deployment, mortgage advisory firm STRATMOR Group reports.

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The average cost to originate a loan now averages almost $9,000 and continues to rise, according to STRATMOR’s May 2019 Insights Report, citing PGR: MBA and STRATMOR Peer Group Roundtable data. Meanwhile, loan officer and fulfillment productivity have each declined approximately 20 percent since 2015.

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“This is a scary trend for mortgage lenders,” saysSTRATMOR Principal Andrew Weiss, author of the article. “We believe this is why more lenders are looking at alternatives to the traditional, vendor-based LOS to reduce costs and increase productivity and market share. Because there are so many possible technology combinations, lenders can now reasonably consider creating their own ‘best-in-breed’ platform rather than solely relying on their LOS.”

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Traditionally, Weiss said, the argument has been that when a lender purchases a platform from a single vendor, the complexities of integrating multiple technologies fade away and reduce the need for expensive IT teams. That’s now changing as more vendors, including customer relationship management (CRM) and point of sale (POS) providers, embrace application program interfaces (APIs), which allow applications to communicate with other applications or systems through standard languages that are easy to create.

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“Almost every technology vendor in the mortgage space is touting their ability-or their planned ability-to interact with other systems through APIs,” Weiss says. “These ‘point solutions’ pride themselves on their ability to do specific jobs better than an all-in-one LOS can, claiming the value they deliver is above and beyond the average way a loan is manufactured.” In other words, a lender is no longer constrained by what a single vendor has to offer because they can now use APIs to incorporate separate best-in-breed technologies and capabilities into their platform.

Some LOS vendors are even offering ways to integrate these capabilities into their systems by offering their own APIs, according to Weiss. “To be sure, not all APIs are created equal, and there are claims of openness that have been exaggerated. Still, the general trend of the mortgage industry is to migrate toward a more technologically open world where best-in-breed systems from multiple providers can work together.”

In a second article in the report, STRATMOR MortgageSAT director Mike Seminari discusses how lenders can use customer satisfaction data to measure the success of their technology strategy.

Click here to access  the May 2019 edition of STRATMOR Insights. To sign up to receive the STRATMOR report each month, click here.

STRATMOR Group Urges Lenders To Break Away From Tech Status Quo

Mortgage lenders must abandon their traditional aversion to being “early adopters” of technology if they are to succeed in today’s marketplace, advises mortgage advisory firm STRATMOR Group.  

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“As most mortgage industry veterans know, lenders hate to be first. Lenders tend to avoid taking risks, especially when it comes to technology. However, this paradigm must change,” says STRATMOR Senior Partner and CEO Lisa Springer. “The mortgage industry, like Tesla and Apple, must transform the status quo and become forward-thinking and dynamic lenders willing to cater to a new digital era that removes the complexities of getting a mortgage.”

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Springer discusses technology and the borrower experience in STRATMOR’s April 2019 Insights Report, which focuses on the firm’s key takeaways from the Mortgage Bankers Association’s (MBA’s) Technology Conference. 

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Springer says that enhancing the borrower experience is driving technology investment, not just from the consumer’s perspective but also from the industry’s. She points out that in his conference session, STRATMOR Senior Partner Garth Graham found that 58 percent of the attendees at the MBA’s Technology Solutions Conference gave “borrower satisfaction” as their primary reason for investing in technology. Running a close second was faster cycle times, a key strategy for improving borrower experience and satisfaction.

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In another survey conducted at the MBA conference, only 12 percent of participants cited “attracting new customers” as a primary business driver. According to Graham, while more than 50 percent of the average $8,600 cost to originate a mortgage is spent on sales-related functions, only two percent is attributed to generating new leads. 

“Lenders need to invest more in both marketing and technology to support efforts to drive more business,” Springer says. “If a lender can generate more high-quality leads than competitors, thereby enabling their originators to do more volume, commissions and sales costs can ratchet down to allow lenders to price their loans more competitively. Already in our industry, 80 percent of the volume is done by the top 40 percent of originators, so focusing on how to make them more productive gives lenders the ability to drive down the cost per loan.”

STRATMOR believes lenders should “map out” the entire origination experience, from initial contact through the borrower’s post-close and servicing experience, in order to identify each technical and human interaction that the borrower undergoes throughout the process. The lender can then shore up any gaps to continuously improve that overall experience and retain more borrowers. 

“The sustained downturn we are facing is new to many industry leaders, who have never faced this before,” Springer said. “The market now is about stealing share and driving purchase transactions and retaining borrowers in servicing portfolios. So, one key is to have great collaboration tools that enable the whole mortgage ecosystem – borrower, Realtor or referral source, the consumer, the lender and the vendors that support the lender – to all work together to get the transaction closed faster and ultimately more inexpensively.”

Also in the article, STRATMOR Principal Andrew Weiss discusses why some lenders are taking a different route with their loan processing systems (LOS), choosing instead to assemble a customer-focused, end-to-end experience from the best-of-breed parts offered by several vendors and/or by developing components themselves. 

“We know it can be done, and if done well lenders can break through some of the traditional cycle-time and customer service barriers,” writes Weiss. However, he cautioned, “assembling a best-of-breed platform from internally-built and vendor-purchased capabilities is not for the faint of heart. It requires a strong commitment to investing in and nurturing a world-class Information technology team.” It also requires a well thought-through, long-term plan – which cannot be created overnight – and management that “will accept the risks and the inevitable bumps in the road for the potential for true competitive advantage.”

In a second article in the report, STRATMOR MortgageSAT director Mike Seminari shares three steps lenders can take now to use technology to drive a better end-to-end loan experience for the borrower. “Many lenders these days are making (or are preparing to make) significant investments to update their digital mortgage tools. There seems to be an industry-wide consensus that this is an important area for each lender to address.”

Click here to download the April 2019 edition of STRATMOR Insights.

STRATMOR Adds A New Principal

Seth Sprague, CMB, has joined STRATMOR Group as a principal. An executive with more than 20 years of mortgage experience, Sprague brings to STRATMOR significant subject matter expertise in mortgage servicing rights (MSRs), servicing, cash flows, liquidity and mortgage profitability strategies.

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“We are delighted to have someone of Seth’s caliber and reputation join our team,” said Lisa Springer, senior partner and CEO of STRATMOR Group. “In today’s challenging times, understanding the value of servicing and how it integrates into an organization’s long-term business strategy is of paramount importance. We believe our clients will greatly benefit from Seth’s servicing know-how and unique industry knowledge. By being able to advise lenders on liquidity and servicing strategies, he adds very important expertise to STRATMOR which will bring tremendous value to our clients.”

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Sprague’s career has focused on the MSR asset management with an emphasis on valuation, cash flows and profitability of servicing at a variety of firms, including Bank of America and KPMG. Most recently, he served as executive vice president of Trading and Analytics at PHOENIX, a provider of mortgage servicing rights analytics, transactions and advisory services to over 250 clients, where he was responsible for client development and a variety of industry outreach efforts. Prior to joining PHOENIX in 2013, Sprague served as senior vice president and servicing asset manager at SunTrust Mortgage, where he managed the mortgage servicing rights (MSR) portfolio valuation process as well as periodic MSR transactions for over 10 years.  

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“Today’s environment requires data driven solutions and optimized performance,” said Sprague. “STRATMOR’s suite of proprietary data and industry subject matter experts provides clients optimal opportunity to prosper and grow. I am thrilled to help leverage these resources into practical solutions for our clients, so they may survive and thrive in the ever-changing mortgage environment.” 

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In 2018, Sprague was appointed as secretary of the Mortgage Bankers Association’s (MBA) Certified Mortgage Banker (CMB) Society. He also serves on several other MBA committees, including the Financial Management Steering Committee, the Council on Residential Mortgage Servicing for the 21st Century, the BASEL Committee and the Servicing Compensation Working Group. Since 2007, Sprague has been an instructor with the MBA School of Mortgage Banking program, where he teaches “Servicing/MSR Day.” He is also as an instructor at the MBA School of Mortgage Servicing. More recently, Sprague has taught a course on the Secondary Market for The National Association of Minority Mortgage Bankers of America.

Sprague is a frequent speaker at various MBA and other industry conferences, often speaking on liquidity and the overall challenges present in the mortgage industry. He holds an MBA from the University of Colorado-Denver and has an undergraduate degree from the University of Richmond with a concentration in Accounting.

About The Author

The New Digital Mandate

Providing mortgage borrowers with a digital experience is no longer a competitive advantage but the new reality for mortgage lenders, according to the findings of a new study by STRATMOR Group, a leading mortgage advisory firm. 

In the January issue of its Insights Report, STRATMOR shares key findings from its 2018 Technology Insight Study. The study, which examines the wide range of system technologies that lenders are now using, found that more than three-quarters of mortgage lenders currently give borrowers the ability to sign disclosures online, while nearly as many lenders allow borrowers to upload documents and respond to loan conditions online.

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“Today’s borrowers expect a digital experience, and lenders that do not empower consumers to upload and execute loan documents online are not only in the minority, but are falling far behind their peers,” says Garth Graham, senior partner at STRATMOR Group. “Still, while lenders are deploying and utilizing digital capabilities on the front end of the origination process, there are great opportunities to gain efficiencies on the back end.”

Participants in the STRATMOR study included independent and bank-owned or -affiliated mortgage companies ranging in size from under $250 million in annual production to those that ranked among the 10 largest in the industry in total origination volume.  The study contains comprehensive mortgage technology data, analyzed and quantified by STRATMOR’s team of data experts.

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In the four years since STRATMOR first began its extensive technology survey, the primary driver of lenders’ technology investments has shifted from regulatory concerns to a focus on improving customer service, Graham says. “Today we have an environment that is about stealing market share and succeeding with the tougher purchase transactions,” he says. “Customer satisfaction and maintaining relationships have replaced regulatory mandates as the top concerns. That means meeting the needs of borrowers and referral sources.”  

Graham says that when considering new technology, most lenders don’t consider the impact it will have on their customers. “That’s a mistake,” he said. “Lenders need to measure borrower satisfaction at a deep level to quantify the impact that any technology will have on their customers. And they need to do so before making the investment in new technology.”

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STRATMOR’s Technology Insight Study is the only independent technology survey in the mortgage industry that gathers data on how lenders feel about their mortgage technology experience, capturing their experiences with their technology from lead generation through post-closing and delivery. 

“The study offers lenders much needed non-vendor-provided data on the technologies at work in the mortgage marketplace,” STRATMOR CEO Lisa Springer says. “This information is vital to lenders that are considering updating or changing an existing system to meet the needs of today’s borrowers.”

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Other key findings of the study include: 

>>76 percent of respondents provide the ability for borrowers to execute disclosures online compared to 61 percent in 2017. 

>>72 percent provide the ability for the borrower to upload documents and respond to conditions online.

>>72 percent of respondents use agency solutions for loan delivery data (ULDD) validation, compliance and loan salability.

>>Ellie Mae’s Encompass was the most used POS technology for the fourth year in a row, followed by Blend.

>>Only 18 percent of respondents said they do not use a company-sponsored lead management tool. The rest use one or more of 24 third-party systems sharing the CRM market, with Top of Mind, Salesforce and Velocify holding the top three spots.

>>Optimal Blue was the leading product and production engine (PPE) among respondents.

>>The study also found that among the different technologies that lenders use, lenders were most likely to stay with their current production pipeline hedging, LOS and PPE technologies rather than switching to competing products.  

“While lenders are generally satisfied with their LOS, we found that many will stay with a ‘good enough’ LOS because the cost of implementing a new solution is so high in terms of licensing, development and training, not to mention the intangible costs of employee resistance to change,” Graham says. 

CRA Compliance Remains A Big Deal

While the Fed is looking at relaxing CRA regulations, 95 percent of bank lenders who responded to a recent STRATMOR survey on CRA and LMI lending indicated that complying with CRA requirements is and will continue to be a very important part of bank mortgage lending.

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In the November issue of STRATMOR’s Insights report, bank-owned mortgage expert and STRATMOR Principal Tom Finnegan analyzes the survey data and reports his findings in,”  CRA Lending—Bank Perspectives Today and Ideas for Tomorrow.” Finnegan identifies six notable lender perspectives in the analysis and provides his insight into the details.

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“Bank lenders have a strong focus on the CRA, and they have put in place formal governance structures to assure compliance,” says Finnegan. “While two-thirds of our survey respondents agree that changes are needed, they want changes to the CRA to be made with the underlying goal clearly in mind—encourage the extension of mortgage credit that advances sustainable homeownership for their customers in their communities.”

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Finnegan outlines six perspectives on CRA lending from the survey data, including two surprises. First, the majority of responding banks believe that CRA lending is profitable and the majority don’t have specific CRA/LMI marketing budgets.

“We often hear that loans to low and moderate income (LMI) borrowers and in LMI areas are a loss leader and that banks can’t make money serving these customers,” says Finnegan. “In our survey, however, 61 percent of the respondents said their CRA/LMI lending is profitable, most without inclusion of any net interest income from retaining ownership of some CRA loans in the bank’s mortgage portfolio. A very high percentage of responding lenders originate FHA and VA mortgages as well as low down payment conventional mortgages. Since government loans can be especially profitable to originate, this type of production is likely contributing to the opinion being expressed.”

Second, “More than half of respondents indicated they have no specific CRA/LMI marketing budget, which is surprising given the level of focus on CRA lending,” says Finnegan. “This may be due to a view that bank institutional advertising is a key component of LMI marketing — typically, marketing activities are a shared responsibility between the mortgage lending group and corporate marketing. However, this approach appears to be inconsistent with overall bank goals for CRA compliance and may be an area where many banks can improve.”

The article concludes with a summary of what lenders would like considered as part of potential CRA changes.

In a second Insights article, “The Borrower Experience: Little Things Done Right,” MortgageSAT Director Mike Seminari asks the question: “How important is it to call the borrower prior to closing?’ Seminari explains that communicating closing numbers and details is as important as initial communications about the loan process. He notes that when the lender contacts the borrower prior to closing, the Net Promoter Score (NPS) is a very good 81, but if the lender fails to do this, their NPS score drops dramatically, from 81 to -19. Seminari offers four tips lenders can use to make sure borrowers are contacted with closing numbers and details and generate high Net Promoter Scores.

Click here to download the November 2018 edition of STRATMOR Insights for much more.

About The Author

Avoid Technology Disaster

Stories abound in the mortgage industry of large-scale technology implementations gone awry because what was delivered by the company’s IT department was not what the business stakeholders wanted. To avoid becoming another tale of mortgage industry woe, STRATMOR Group supports the creation of Business Level Agreements (BLAs) in addition to the traditional Service Level Agreements (SLAs) for IT projects.

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In her article, “May IT Be with You; Unleashing the Power of Business Level Agreements,” STRATMOR CEO Lisa Springer explains that in most mortgage companies, IT is guided primarily by internal and external SLAs, leaving out the business measures needed to give IT a voice in, and responsibility for, achieving enterprise business goals. Springer provides supporting data that indicates the disconnect between the business units and their IT team, and she draws on the expertise of two STRATMOR Senior Partners, Len Tichy and Michael Grad, for insight into the IT/business relationship.

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“There is a fundamental misunderstanding that IT is not as central to operations as Underwriting, Processing, and Closing,” says Tichy. “In many mortgage companies, IT is viewed as a group unto itself, a non-business unit expected to do the bidding of the business units who think they really know what the company needs. This approach puts IT into a near-vendor role, often keeping IT from the critical conversations held at the Big Kid’s Table where the decisions about business goals, success measurements and reward factors are decided.”

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In effect, “IT starts with one hand tied behind its back in most implementation projects,” says Tichy. “The relationship between technology and business must move out of the traditional ‘Your sandbox, my sandbox’ paradigm to a more collaborative playground where business and technology leaders have common goals, objectives and BLAs for achieving growth and the supporting financial goals.”

Springer says Business Level Agreements can help lender leadership get everyone on the same page and working toward reaching the lenders’ Target Operating Model objectives. “A BLA requires a business framework in which to work as well as an understanding of the business impact of the services being provided. By understanding the business metrics in which success will be measured, post technology deployment, both IT and the business can focus on the achievement of operational goals.”

Springer provides illustrations of a customer-centric Target Operating Model (TOM) and shows how the various elements of the TOM could be executed with a BLA integrated. She also offers possible BLA metrics and provides information on motivating and leading IT teams. “IT needs to have a seat at the strategy table,” says Springer. “IT’s participation in strategy design ensures that the organization has a well-rounded representation of business and technical experience and problem-solving capabilities to work through the challenges of doing business.”

In a second article, “Aligning Back Office Compensation with Achieving a Superior Borrower Experience,” STRATMOR Senior Partner Dr. Matt Lind draws upon data from STRATMOR’s 2017 Compensation Connection Study and MortgageSAT Borrowers Satisfaction Program. According to Lind: “Despite the emergence of Borrower Satisfaction as a key competitive success factor, virtually no lenders incorporate it into their back-office incentive compensation. The reason for this is that they are unable to monetize satisfaction.” Lind then goes on to show how to monetize borrower satisfaction for processors and closers—two roles critical in the origination process—and how they might then be rewarded or incentivized to further improve the borrower experience.

Click here to download the August 2018 edition of STRATMOR Insights for much more. To sign up to receive the report each month, please click here.

Also, connect with the most innovative technology players here.

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STRATMOR Explores The Practical Applications Of Blockchain

In the mortgage industry, one of the most talked about technologies of the last twelve months is Blockchain. In the July issue of STRATMOR’s Insights report, STRATMOR principal Andrew Weiss analyzes Blockchain’s potentially disruptive impact and its practical applications.

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In his article, “Connecting the Blocks: Practical Applications of Blockchain for the Mortgage Industry,” Weiss explains Blockchain through mortgage-related examples, including one that pictures the competitive landscape in 2026 if Blockchain is widely adopted. He illustrates this example with a graphic showing a future Blockchain origination workflow.

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“Proponents of Blockchain tell us that its potential to disrupt current mortgage business processes is just about limitless,” says Weiss. “For the mortgage lender, it presents four primary opportunities. It can improve data security. It could improve lender operational efficiencies. It could help lenders improve the borrower’s experience. And, for lenders that are early adopters, it could gain them a significant competitive edge through gains in operational efficiencies and cycle times.”

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“The mortgage industry is filled with inefficient and arcane processes to collect, verify, and securely transmit the information that makes up a mortgage,” says Weiss. “Today, the average loan takes 45-50 days to close from initial application by the borrower and an additional 20 days to be fully accepted and funded by the investor. Each added day in this process increases costs and the risk of a failed transaction; and these costs are ultimately passed on to the borrower in the form of higher interest rates and closing fees.

“While technology is often employed to streamline and increase the productivity of the mortgage origination process, the nature of the existing collection and verification of all the required information has made those attempts fail. In fact, the cost of origination has more than doubled in the last ten years, while productivity has significantly diminished,” says Weiss. “Especially, in a slow growth environment, as the cost to originate a loan goes up, profit margins compress and the industry pressure to implement new technologies that change how we do business continues to rise. Blockchain may be that technology.”

Because Blockchain is a potential disruptor, “mortgage executives need to know where to place their bets,” says Weiss. “While the upside payback potential for an early investment in Blockchain is real, such an investment is not without its downsides” and Weiss points out potential risks with the technology. These risks include “mustering the cooperation of participants, the potential for hidden flaws that typically exist in any relatively-new technology and the possibility that a new and better technology may come along relatively early.” “Nonetheless,” say Weiss, “there is also a real opportunity cost for watching Blockchain development from the sidelines; namely missing out on gaining a potentially large competitive advantage.”

In a second article, “The Borrower Experience: Ethnic Diversity Matters,” STRATMOR Senior Partner Dr. Matt Lind draws on data from a variety of sources, including STRATMOR’s MortgageSAT National Benchmark data, to offer lenders growth strategy ideas that center on borrower diversity in relation to the borrower experience. “Improving the borrower’s experience and creating an origination strategy that includes targeting emerging markets such as ethnically-diverse groups is a winning growth opportunity for lenders,” says Lind. To capitalize on this opportunity, Lind offers lenders six ideas for improving connections with borrowers.

Click here to download the July 2018 edition of STRATMOR Insights for much more. To sign up to receive the report each month, please click here.

About The Author

Tackling Industry Innovation

The PROGRESS in Lending Innovations Award Winners gathered to talk about the future of mortgage lending. Over 100 mortgage executives came together to attend PROGRESS in Lending Association’s Eighth Annual Innovations Awards Event. We named the top innovations of the past twelve months. After that event, we wondered what would happen if we brought together executives from the winning companies to talk about mortgage technology innovation. Where do they see the state of industry innovation right now? And what innovation is it going to take to get our industry really going strong? To get these and other questions answered, we got the winning group together. In the end, here’s what they said:

Q: Some say innovation has to be sweeping change. Others say innovation can be incremental change. How would you define innovation?

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MICHAEL KOLBRENER: At PromonTech we are very careful with the word “innovation”. While we strive to be innovative, whether or not we succeed isn’t our call, but our clients’ and the market’s. At the end of the day, innovation is in the eyes of the user. And innovation can manifest itself differently; it can be a “big bang” like Apple’s iPhone, or it can occur more gradually and quietly like Internet availability. Fannie Mae and FormFree are great examples in our industry of how significant technology opportunities require time in order to be realized. Day 1 Certainty is destined to be a game-changer, but adoption may take time. Just like it took time for the amazing tools in FNMA Desktop Underwriter to be appreciated. As technologists, it’s our job to celebrate the important technology opportunities and help our user communities keep working on adoption.

JOHN PAASONEN: Innovation, especially in our industry, takes many forms. Innovation pushes forward a process, changes a mentality, or reforms the way something is thought about or done. We’re seeing all forms of this in mortgage, whether it is Day 1 Certainty, upfront underwriting, or shared-equity financing. The best kind of commercial innovation sweeps people along with the change in the present, not 10 years from now, bringing actionable ideas to market quickly, iterating those ideas, and ultimately delivering meaningful impact to the experience, P&L or relationships in a business.

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PHIL RASORI: Traditionally, I would say that innovation in our industry has been more of a gradual, step-by-step approach with new products, services and enhancements being launched as vendors identified demand and areas for improvement.  However, the introduction digital mortgage movement, which has been rapidly building over the past few years has been sweeping, with an array of fintechs and new ideas being spawned to build a better overall lending process. The trick now is going to be the rate of borrower and marketplace adoption of these new technologies.  Think about this: even adoption of now comfortable mainstays such as online shopping with Amazon or online trading with Schwab didn’t happen overnight. Adoption took time, and it will in the mortgage space, too.

GARTH GRAHAM: At STRATMOR, we see the innovation as a combination of People, Process and Technology, a variation on the classic 3Ps of People, Process and Product. You can have innovation that applies to any of the three, but it’s best is when it’s applied to all three together.  In fact, that was a key message in my presentation at the most recent MBA Technology Conference — that changing across people, process and technology is what drives big changes.

SANJEEV MALANEY: I would describe innovation as significant positive change resulting from fresh thinking that creates value for its user. It’s a result. It’s an outcome. It’s something one works toward. There are no qualifiers for how groundbreaking or world-shattering that something needs to be, only that it needs to be better than it was before. Innovation is evolutionary, not revolutionary — like Einstein’s theory of relativity.

KELCEY T. BROWN: At WebMax, we believe that innovation means identifying a problem and coming up with a unique solution. Whether it be sweeping or incremental, that unique solution changes things for the better. Innovation, especially in mortgage technology, has been defined by streamlining processes, reducing operating and origination costs, and delivering a better borrowing experience.

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ADAM BATAYEH: For us, it’s all about progress. Almost any amount of progress will do no matter how incremental the change is. If you create something that is cool and trendy but doesn’t necessarily push things forward in a way that betters people/process/industry, that “innovation” was more novelty than anything and will likely find itself extinct.

So in terms of impact, the amount of impact/progress isn’t as important because of all that happens downstream that we may not see immediately. You could make an incremental change that has monumental implications years later. In our space, it’s sort of like the butterfly effect.

LUKE WIMER: Innovation is the achievement of a consistently better outcome for time invested in an activity. I think creative problem solving needs to be encouraged, so we need to think of it as incremental change, and then allow for sweeping change to be the aggregation of persistent innovation. In our industry context, we might refer to the ability to electronically sign a mortgage as an innovation and the ability to digitally process a mortgage end-to-end as the sweeping change we are all driving toward.  Innovation is also often the result of fostering a culture of continuous improvement. In our company, we set long-term aspirations, then we ask everyone to set improvement or innovation goals for the next quarter or half year. We don’t specify how to improve; we don’t want people to be constrained. Then we measure results, talk about what happened, and set goals for the next round, rewarding examination and striving rather than hitting the target itself. The pace of creativity is increasing as people get comfortable taking risks.

NEIL FRASER: Innovation, in most cases brings incremental change. Over time many incremental changes bring about what can appear to be sudden sweeping change. As the mortgage industry moves towards the sweeping change being called the Digital Mortgage, many innovations have been, and continue to be tried and tested. This is the necessary process for moving an entire industry towards a significantly different model.

At Paradatec, we are continuing to innovate in an effort to support the industry’s long term move towards a more efficient and accurate process for originating, servicing, and auditing mortgage loans.

More specifically, we define innovation in our particular niche as “the application of artificial intelligence to the problem of document recognition”. This could mean the creation of a new, more automated, document classification solution for a servicing world where scanned images of documents, that were originally paper, are still key, or it could mean the creation of new recognition capabilities for e-signed documents that never were paper. Regardless of the application, we at Paradatec are committed to an ever-expanding document recognition stack that covers origination, servicing and auditing mortgage loans.

Q: How would you define the state of innovation in the mortgage industry? Is it thriving or in a state of decay?

MICHAEL KOLBRENER: The mortgage industry is in an unprecedented phase of technology adoption. There is no doubt that Rocket Mortgage deserves lots of credit for truly introducing the “Internet” to the mortgage industry. Rocket has shown all lenders that technology is an integral part of the future of mortgage originations. Additionally, we are seeing lots of new technology companies competing in the mortgage space (including PromonTech!) We’re just beginning to realize the many opportunities to improve efficiencies.

JOHN PAASONEN: Twenty four months ago, my answer may have been different. But today, it is a thrill and a privilege to participate in the transformation occuring in the mortgage industry. For nearly a decade — in the wake of the financial crisis, the passage of Dodd-Frank, the creation of the CFPB, and major regulation like TRID — investment dollars were poured into compliance, not advancement. I’m incredibly encouraged by the increasing openness to the work of many innovators, from both inside and outside the industry, to incite progress. Innovation is alive and needs to be spurred forward.

PHIL RASORI: Post the mortgage crash and subsequent introduction of a myriad of new rules and changing regulations with Dodd-Frank and enforcement by the CFPB became a huge concern and instantly drew everyone’s attention to compliance adherence, which arguably distracted from technology innovation. Now more than ever, the mortgage industry is on a fast-track to achieve far-reaching changes via new technology, which is being fueled by anticipated demand for borrower automation and lenders’ positioning themselves to remain competitive, thus driving innovation across the board. We’re not only thriving right now, but some say we’re drinking from a firehouse. Again, adoption will be key to these innovations becoming reality.

SANJEEV MALANEY: The industry is ready for innovation and we’re starting to see major transformation impacting the end-to-end mortgage process. New companies are flush with venture capital. Lenders are funding innovation centers using their own capital investments. People from outside the industry with diverse sets of skills and experience are being hired to drive this transformation. We’re going to see more innovation in the next twelve months than we’ve seen in years.

KELCEY T. BROWN: Innovation in the mortgage industry is thriving thanks to the continuous flow of new ideas and products, and growing interest in technology from lenders. We’re seeing point-of-sale products become more intuitive and borrower-friendly, and financial data retrievers’ rules engines making loan processing faster and more efficient. Lenders’ interest in digital mortgages continues to grow as today’s home buyers lean more and more toward a digital borrowing experience. That said, a great deal of the industry still needs to transition to digital mortgages. Growing interest, paired with a sizable unaddressed market, makes a perfect storm for thriving innovation.

As much blame is put on regulation for technical stagnation, we like to thank it. It put our backs against the wall and forced companies to make major changes that they couldn’t handle or weren’t willing to take on. It led to that consolidation, and most importantly, it led to massive amounts of investment in what we like to call “foundation over feature” and that has helped increase transparency, accountability, and more. It’s what laid the groundwork for all the innovation you are seeing today.

ADAM BATAYEH: Innovation is thriving, thriving, thriving. If this were 2013, the answer would have been massive decay. The thing is, that decay was necessary and led to all of the innovation we are seeing today.

LUKE WIMER: Mortgage is a bit late to the innovation party compared to payments or online banking, so we are still more focused on automation and efficiency and just starting to affect true change to the consumer experience.  But we should not underestimate the potential for change and innovation. The industry has been gearing up over the years with steps toward digitization, creative partnerships, driving new standards, and these will allow a fast pace of change once the scale is tipped. I am thinking of how one of Hemingway’s characters went bankrupt: “Gradually, then suddenly.”

NEIL FRASER: Innovation in the mortgage industry is definitely thriving today. For the last twelve years, we at Paradatec have focused on building our mortgage technology through advanced OCR using artificial intelligence and an ability to learn over time and provide increasingly more significant innovations.

In the last twelve years, we have not only increased our ability to innovate, but have further greatly accelerated this ability to innovate from our partnerships and integrations with others in the industry. This is a trend we expect to continue for years to come.

GARTH GRAHAM: I think that innovation is truly accelerating, but too often people define innovation as simply technology. They think the next software product, the next shiny object will transform their business. At STRATMOR, we often see companies with good people and good process being able to overcome substandard technology, but rarely do we see a company with great technology that can overcome poor people or process. This does not mean tech is not important, in fact I believe that we don’t spend enough on technology — but if you don’t have the people and process lined up to implement change, then the technology alone will not drive the results you seek.

Q: Lastly, if there was one innovation that you would say the mortgage industry desperately needs to happen over the next twelve months, what would it be?

MICHAEL KOLBRENER: All of us, in lending, need to evangelize the potential of technology and encourage our user audiences to understand the role it can play in the future of originations. Over the next 12 months, we need to keep pushing data providers to make applicant data more readily available, particularly around income verification (and tax supporting docs). At PromonTech that’s where we believe that next big breakthroughs will come.

JOHN PAASONEN: We’re just beginning to see the early signs of moving beyond “digital paper.” Over the last 10 years, the mortgage industry has largely taken a paper-bound process and digitized it. A loan application acted much like its paper counterpart, just with the ability to type answers, for example. In the next 12 months, regulators, lenders, investors and innovators need to continue to push forward with initiatives to all-together remove the tremendous burden on borrowers, loan officers, processors, appraisers and others created by our legacy of paper-driven process. The winners will be those who realize first that data availability and fidelity is too rich, and computing power too strong, to be ignored.

SANJEEV MALANEY: While we have witnessed significant innovation over the past year, there remains a series of key friction points that must be addressed for the mortgage process to truly be reinvented.

Perhaps the most critical enabler in our space (not unlike other verticals) is the use of data, and by extension, how to extract insights from that data to make faster and better decisions, which is where Capsilon is focusing its innovation efforts. It is worth noting, however, that while “big data analytics” has suddenly become a go-to catchphrase for many in our industry, our own experience in the space suggests that the challenges associated with implementing and realizing value from big data are more subtle.

For the past 14 years, we’ve been helping clients collect, validate and leverage the data to drive automation and improve productivity in the mortgage process. Those who succeed will master the harvesting and delivery of relevant data at the right time so every user (borrowers, LOs, underwriters, processors, closers) in the loan process are provided the information and tools they need when, where, and how they need it to remove friction in the loan process.

KELCEY T. BROWN: Faster adoption of digital mortgages. The faster lenders adopt digital mortgages, the better off their business will be, from their balance sheet to borrower satisfaction. It is evident that through technology, lenders can close loans faster, with more efficiency, for a better cost. At the same time, that boosted efficiency means borrowers get in their homes faster and are more satisfied with their mortgage experience. Real estate agent satisfaction grows as their listings get filled and closed faster as well, which can boost referrals. Imagine that your company waited to adopt email, how would that have worked out?

ADAM BATAYEH: To use our internal phrase again: foundation over feature. It seems that everyone is racing to be first with the next big thing and it’s very tempting to follow trends. At the same time, it can confuse lenders and can make it harder on them to make a decision. We can create all the new features we want, but if they’re hard to integrate and implement, we’ll find ourselves pigeonholed.

An example I can give is Windows vs. Mac OS and their respective web-browsers. The Operating System was the “foundation” and the web-browsers were built as “features”. Buy the OS, get the browser for free. The browser would work flawlessly with its respective OS.

Google Chrome came out of nowhere as it’s “foundation vs. feature” priority was the reverse. Knowing the future was in the Cloud, they built an agnostic browser, which resulted in Windows and Mac users collaborating in a new way. As Microsoft and Apple built browsers that were feature-focused and complimented their foundational Operating Systems, Google was busy playing the agnostic game and with Chrome has quickly emerged as the leader.

LUKE WIMER: There are so many different needs. I would like to see clarity on where federal regulators are headed. I would like to see some of this mortgage application automation technology make its way further into the loan origination process. We appreciate the need for increased security and rigor in vendor management, and are pushing for increased acceptance of SaaS and the tools many of us are making available to offer plug-in solutions. I believe it will be a collection of innovation and providers, which will be needed to really transform. It is a resilient sector that rolls with the punches, and is complex enough that no single innovation will win or solve the problems of every player. Therefore I am glad there are many of us working on improvement from different angles.

NEIL FRASER: Accurate data which reflects the terms, borrower, lender, and property information from Mortgage loans’ source documents will continue to be a critically important requirement. As a result, there will continue to be a need to audit the accuracy of the data as it relates to the legally definitive required source documents. As loans and their servicing rights are passed from investor to investor and servicer to servicer, a more efficient process for efficiently and accurately onboarding these loans as these transactions occur is desperately needed. At Paradatec, we are continuing to innovate and this need is one of major focus for us in the coming year.

GARTH GRAHAM: So, there certainly has been a significant amount of technology innovation at the point of sale — dynamic applications are more commonplace.  I think it’s what occurs BEFORE the application that is critical for the next year.  The reason is that we are pivoting to a heavy purchase market — only 25 percent refinance — down from roughly 50 percent refinance (or more) for the past 20 years.  This is a MAJOR difference and will really stress originators who are not equipped to handle purchase opportunities.  At STRATMOR we have a methodology of creating a digital roadmap for lenders, and we often find that they are not adequately valuing the tools that are required prior to application. We refer this to Lead Engagement — the ability to interact with purchase consumers across multiple touch points and for longer periods of time.   We also feel that price competition will become more acute going forward.  Thus, we think innovation needs to tackle the functions that typically are considered CRM functionality — managing customer interactions over long periods of time — as well as presentation to clearly show what customers are going to pay for their mortgages.

Also, we think that there is going to be a lot of industry consolidation, both for mortgage origination companies and for the technology vendors that support the lenders it.  At STRATMOR we are active in M&A and have never been busier with lenders looking for strategic alternatives, and with buyers who are well positioned for the future, and are actively looking to acquire other entities to gain market share during this difficult period.  Vendors are finding a similar climate, and some smaller vendors are seeking capital partners. New capital is entering the market to acquire additional technology capabilities.

PHIL RASORI: I hate to use what many feel is an over-used term these days, but acceptance of the “digital mortgage” and what it encompasses will be key to much of what is to follow. We are seeing that successfully be streamlined right now at the point-of-sale for borrowers. Digitization of the secondary market is also picking up speed, which is what we at MCT have been focused on. Technology integrations are essential for lenders to keep systems operating in real-time, while automation is streamlining processes. Digital whole loan trading is revolutionizing the loan sale process. Embracing the digital mortgage at every step in the process is helping lenders to increase efficiency and profits.

And The 2018 Winners Are …

Prominent mortgage executives gathered to see who the Executive Team of PROGRESS in Lending named the top industry innovations of the past year at the Eighth Annual Innovations Awards Event. This honor is the Gold Seal when it comes to recognizing true industry innovation. All applications were scored on a weighted scale. We looked for the innovation’s overall industry significance, the originality of the innovation, the positive change the innovation made possible, the intangible efficiencies gained as a result of the innovation, and the hard cost and time savings that the innovation enables industry participants to achieve. The top innovations winners are:


PROGRESS in Lending has named Lodasoft a top industry innovation. To address the CFPB requirements of improving the borrower experience, the first big wave of innovation has come out of Silicon Valley. Hundreds of millions of dollars have been invested in the consumer facing aspect of the borrower application. The term “digital mortgage” has been coined and a flood of shinny new mortgage websites and apps have been created to deliver borrowers an Amazon type borrower experience. However, the majority of dollars invested, have focused almost solely on the online application for borrowers. The problem is that mortgage lending is significantly more complicated than just a shinny new app. The right digital mortgage platform helps to drastically reduce the chaos in daily lending processes while improving communication to help lenders close more loans faster. Therefore, in 2017 Lodasoft introduced its truly innovative “Digital Mortgage Platform” featuring Intelligent Loan Manufacturing to address these industry challenges head on.


PROGRESS in Lending has named Capsilon a top industry innovation. A truly innovative mortgage process means more than borrower-friendly loan selection and document submission, it is an end-to-end solution that keeps all stakeholders in the loop throughout the process. In 2017, Capsilon introduced Point of Sale Portals (POS), enabling the creation and delivery of quality loan packages that streamline every process step from application to closing. Capsilon’s POS Portals are powered by Intelligent Process Automation to supercharge loan production from intake to delivery of complete and compliant loan packages. This is an industry first, dramatically improving loan quality and speed, while drastically reducing production costs. Lenders are pressed to meet the challenges of production, compliance and profitability, as well as soaring borrower expectations. Instead of simply streamlining the traditional loan process, in 2017, Capsilon launched Point of Sale Portals that are fully integrated with its patented back-end technology to deliver on the promise of a true digital mortgage.


PROGRESS in Lending has named WebMax a top industry innovation. According to Inc. Magazine, Millennials make up 66% of first-time homebuyers and 66% of them plan to buy a home in the next 5 years. Moreover, the same report found that Millennials associate home ownership with the American Dream more than any other generational demographic. The October 2017 composite forecast of Fannie Mae, Freddie Mac, and the Mortgage Bankers Association for 2017 mortgage origination volume is approximately $1.8 trillion. If Millennials compose 50% of this mortgage volume, and two-thirds of them apply online via digital applications, that represents $600 billion in digital mortgage origination. This number is massive. Better yet, it’s conservative. Millennials expect mobile-responsive mortgage lending sites and applications with a responsive layout from their potential lender. They want their mortgage application to be as easy as buying a t-shirt from an online retailer. Therefore, WebMax developed its innovative point-of-sale solution in 2017, called START, to not only meet the demands of borrowers, but to exceed their expectations and revolutionize the entire process. With START, WebMax provides a single location for the loan to exist for both the borrower and loan officer. There’s no shifting documents back and forth or waiting for verifications. START’s integrations to mission-critical third parties allows for the technology to do the work, streamlining workflows, reducing costs, and minimizing frustration.


PROGRESS in Lending has named Paradatec a top industry innovation. Other OCR solutions typically expect relevant data points to consistently appear in the same locations (or ‘zones’) on a document. If the data shifts due to changes in layout (again, think of bank statements), the zone-based approach will fail unless another layout template is created, making for a greater administrative burden with these solutions. A high volume, scalable OCR automation initiative requires the flexibility of Paradatec’s Advanced Mortgage OCR solution to process an unlimited number of document layouts without needing to develop specific templates for each layout variation. This capability is unique to Paradatec and a vital feature for creating an effective unstructured document classification and data capture solution. Paradatec’s Advanced Mortgage OCR solution is designed to make mortgage lending faster and more accurate. In 2017, Paradatec’s Mortgage OCR solution processed over 1,500,000,000 images (representing over 2,500,000 loans), helping lenders and servicers streamline their onboarding and compliance obligations.

Asurity Technologies

PROGRESS in Lending has named Asurity Technologies a top industry innovation. In 2017, MRGDocs was acquired by Asurity Technologies and introduced MRGDocs’ cloud-based platform which revolutionized the security of its dynamic document generation software featuring a secure system infrastructure to increase the protection of consumer data and deliver safer, faster, and more user-friendly systems while maintaining the content and support quality that has long been the hallmark of MRGDocs’ services and document packages. This solves for several mortgage industry challenges: the costs to secure big data, protecting the myriad of personal identification information collected, and managing compliance through a hyper secure platform. In 2017, MRGDocs built a comprehensive data security capability on a robust foundation that allows for the type of growth and expansion needed to serve even the largest of financial institutions, implementing a hyper-converged, virtual server platform with 24/7 SIEM-managed security monitoring.


PROGRESS in Lending has named STRATMOR Group a top industry innovation. MortgageSAT is an online customer satisfaction measurement program that allows consumers to provide direct feedback on their satisfaction with the mortgage process, and provides lenders actionable insights from the results, all available via an online portal. Put simply, it’s Business Intelligence based on consumer insights. Why did STRATMOR create MortgageSAT? For many years, mortgage lenders have struggled to capture actionable feedback from borrowers by means of post-closing email or closing-table-completed surveys. By means of its powerful borrower satisfaction management tool called MortgageSAT, developed in partnership with the CFI Group, STRATMOR has led the way to fundamental change the way lenders manage and apply borrower feedback. MortgageSAT is the first and only borrower satisfaction monitoring tool to score satisfaction at all levels of the organization as regards retail, consumer direct and broker production. As a consequence, many MortgageSAT clients tie their employee reviews and, in some cases, compensation both to these scores and a review of borrower comments. When everyone’s performance review includes a measure of their contribution to borrower satisfaction, a borrower-centric culture is fostered that is aligned with the emerging competitive paradigm of “optimizing the borrower experience.”


PROGRESS in Lending has named Maxwell at top industry innovation. No matter how digital the process, every mortgage is saddled with documents and data, over 500 pages, according to the Mortgage Bankers Association. As a result, an average of 20 days during the mortgage process is consumed by the search, preparation and review of those documents. Maxwell, the leading digital mortgage solution for small and midsize lenders, removes this friction with its platform. Sitting as the digital interface between the lender and their borrowers, Maxwell manages collaboration through the loan process, significantly reducing cycle times and driving delight. Originating teams on Maxwell are able to focus on what they do best, advising and coaching clients through the largest transaction of their lives, while Maxwell’s technology handles the rest. As one head of production attested, “Maxwell allows us to focus on what we love: working with real people. While loans get done faster and my team is happier.”


PROGRESS in Lending has named PromonTech a top industry innovation. The Borrower Wallet is the first offering from Promontory MortgagePath’s technology arm. From a lender’s perspective, the Borrower Wallet captures leads and fosters borrower/lender collaboration to drive enterprise efficiency and improve loan pull-through. In addition, its built-in collaboration tools deliver high-quality data and documents needed to feed and accelerate the downstream underwriting process. As a white-label offering, the Borrower Wallet makes the latest technology accessible and affordable to mid-size and smaller lenders, enabling them to compete with mega lenders. PromonTech’s culture of mutual respect between “techies” and mortgage industry experts made it possible to create a mass-market POS where both consumer and lender needs are equally important. The Borrower Wallet is not the first digital POS, but it’s the first to engage consumers while anticipating lender needs in such a balanced way. It combines creative design, industry analysis and data governance to create a unique user experience.


PROGRESS in Lending has named MCTlive! a top industry innovation. Over the past year, MCTlive! developed a major mortgage technology advancement with the addition of what the company branded its “Bulk Acquisition Manager” (BAM) solution, which is accessible via MCTlive! BAM is a Digital Loan Trading solution. BAM completely automates the process of packaging and transferring bulk loan bids, which benefits investors, lenders and MCT’s team of in-house mortgage loan traders. The result is a much quicker pricing process for bulk bid tapes, greater data security, better communication between counterparties, increased transparency for all parties, process consistency for investors within their existing platform, and centralization of data. BAM helps facilitate digitize loan trading on the secondary market. The effectiveness of the BAM technology has already gained 100% adoption by the ENTIRE investor community on the secondary market — across the board. And the level of transparency it offers between buyer and seller is hugely attractive and makes investors and lenders feel at ease.

Ellie Mae

PROGRESS in Lending has named the Ellie Mae Encompass NG Lending platform a top industry innovation. The Encompass NG Lending Platform allows lenders, service providers, and independent software vendors the ability to build custom applications in the cloud, integrate external systems and data, and extend Encompass in order to meet any and all industry challenges. Mortgage lenders and mortgage service providers can build, integrate, or customize solutions, and get them to their customers and market quickly. Lenders, partners, and third-party providers gain access to data and systems across the mortgage ecosystem. In the end, all participants can easily view and share loan date, sales pipeline, loan events, documents, and order services. A shared system of record allows all parties in the loan process to see the same up-to-to-date information in the same format. Everyone in the ecosystem can easily share, interact, and collaborate without having to create and support new channels.