Future Winners and Past Mistakes
Chief Strategy Officer, Ellie Mae Silicon Valley, CA
Scott Cooley
Presentation by
Future Winners and Past Mistakes
I. Lessons Learned – Reviewing our past mistakes II. What’s Hot, What’s Not – What will succeed among today’s technology III. Future Winners – What primary new trends will impact our industry
I. Lessons Learned
Plenty of capital has been miss-directed. Let’s review and learn from the past
Video Conferencing
Originally hailed as the future for mortgage banking All the rage 5 years ago Ultimately more costly Poor substitute for building a relationship Wasn’t as simple as thought – KISS Performance wasn’t acceptable
X.12 Standards
Initially received 95% buy-in from mortgage technologists Ultimately obtained virtually no support Historically, most standards are by private firms Changes occurred too fast for the committees It was clunky and complicated X.12 is a poor choice for mortgages Note the heard mentality
E-Lenders
Initial surveys expected them to garner 40%-60% of originations by 2003 Will be lucky to get 5% Ignored the importance of relationships with borrower and Realtor No one thought it would increase costs No economies of scale Borrowers want their hands held Mortgage.com, iOwn and hundreds of others lost hundreds of millions Few technologies have truly changed the way our industry conducts business
Revolutionary LOS’s
Dozens of companies sought to reinvent the LOS Latest is HomeAdvisor Technologies Watch 1995 all over again – DOS to Windows is like Windows to ASP Existing LOS’s difficult to displace because of stickiness No new significant entrants since pre-1990 – dozens have failed Existing LOS’s adopt to industry changes Note his use of the mouse
Work Flow
Hailed for it’s cost reduction Actually increased overall costs Small efficiency gain offset by large technology costs Only works for ideal high-volume environments No economies of scale for origination Another failed technology where hype never met reality
Transaction Systems
GE’s Netoriginate, OpenClose, nCommand, Xpede and several others have missed the boat Remember CPI Interchange, GSE VAN’s and others 20 companies where only 2-4 will survive Half billion dollars invested Profits remain elusive Beware of future tech fads
II. What’s Hot – What’s Not
Transaction Systems/Portals
Popular for years for credit AUS’s have critical mass Lender-broker solutions are next Title is 1-3 years from critical mass Traditional appraisals are 2-4 years away Must tightly integrate into the LOS Transitioning process
Digital Signatures
Useful for Reg Z and GFE’s Slow to no adoption for purchase money closings Emotion filled closing table shouldn’t be removed Realtors/loan officers will resist Getting a digital certificate is a pain Many years from critical mass
Electronic Document Delivery
Going mainstream today Adds real efficiency Selecting the right document types are important PDF files won’t usually work More b2b than b2c Physical signatures will prevent usage in some areas
Rate Distribution Systems
Wholesaler to brokers Not supported by wholesalers It’s not just about rates Too many pricing variables Brokers don’t find enough value Over 25 failed companies in 20 years - $100m invested and lost Alternatives that will see success are prequalified rate sheets
MISMO
XML is hot regardless MISMO gaining some adoption Won’t be used for some transactions Lacking complete loan file which is crucial Head and shoulders over X.12 60% of value is with the data definitions Users don’t care – just make it work Alternative XML formats will see significant usage for many reasons MISMO is important for the industry
E-Lenders
Little success for purchase loans Good success for refi’s, home equity lines and consumer loans Disliked by Realtors No relationship to borrower Far higher costs Requires expensive advertising Trust issues
Web Hosting Business
Hundreds of existing ISP’s today Significant consolidation – there will be just a few winners Winners will be those with the largest customer bases Sites are always a basic requirement for origination companies Competition is driving greater bang for the buck
Tailored Internet Portals
Vertical version of My Yahoo Virtual Office for every industry worker Contains LOS functions, web site maintenance, industry stats, primary vendors, office tools, news sources, etc.
PDA’s
Poor for data entry Lack the features needed for mortgage originators Poor for form generation Poor for graphic presentations Unproductive in the field for most uses Good only for email, contact db and other simple apps Why carry a laptop and a PDA?
Broadband Access
Fast adoption by originators Complex mortgage industry requires connectivity Needed by all employees Speed=employee productivity DSL speed our better suggested Future applications will continue to push for more bandwidth
III. Future Winners
A few important trends impacting our industry
ASP’s For Lenders
Most are barking up the wrong tree The worst example of over funding I’ve seen in 20 years. Of 14 companies, less than 6 will survive the next two years Participants include Dexma, Dorado, eCloser, GHR, IMX, Lending Tree, LION, Loan Trader, mortgagebot, ncommand, OpenClose, Sollen, Ultraprise and Xpede Solutions are overpriced at $50+ per loan Market is solid though much smaller than realized - $350m invested into a market that might total $50m per year Lenders beware – only get hitched to a survivor
One Click E-Commerce
Required for transaction system success 8000 Why Ellie Mae bought 7000 Genesis/Contour 6000 The reason other solutions 5000 aren’t working 4000 LOS’s have the ability to provide marketing advantages 3000 for vendors 2000 Reduces vendors costs and 1000 eliminates need to distribute 0 software Month 1 Significantly improves users experience
Credit
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ASP LOS’s – Just How Fast?
Must carefully weigh pro’s and con’s Browser limitations – why email isn’t Internet based Real productivity issues – ever enter 200 fields in a browser? Could actually be more expensive LOS’s aren’t dying – reporting, compliance, CRM, closing, etc. If ASP’s can work, it will be the LOS vendors that will own the market LOS’s moving to a client/net hybrid
XML And Other Format Issues
Single loan file crucial One file will work from all LOS’s Use MISMO tags whenever possible Use of MISMO standard files is an attractive option but not always a perfect fit DU/LP file formats see continued widespread usage DU/LP files have limited data sets and longer term is not a viable solution for many
Views From Silicon Valley Future Winners and Past Mistakes Presentation by
Chief Strategy Officer, Ellie Mae Silicon Valley, CA
Scott Cooley