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									Future Winners and Past Mistakes

                        Presentation by
                     Scott Cooley
      Chief Strategy Officer, Ellie Mae
                     Silicon Valley, CA
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
Wasn’t as simple as thought – KISS
Performance wasn’t acceptable
            X.12 Standards
Initially received 95% buy-in from mortgage
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
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, 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
   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
   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
Only works for ideal high-volume environments
No economies of scale for origination
Another failed technology where hype never met
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
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
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
Little success for purchase
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
Contains LOS functions, web site
maintenance, industry stats, primary
vendors, office tools, news sources,
Poor for data entry
Lack the features needed for mortgage
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
                         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
The reason other solutions
aren’t working                  5000

LOS’s have the ability to       4000
provide marketing advantages 3000
for vendors                     2000
Reduces vendors costs and       1000
eliminates need to distribute
software                           0
                                     Month 1   2   3
Significantly improves users
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
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
                    Scott Cooley
      Chief Strategy Officer, Ellie Mae
                     Silicon Valley, CA

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