[I am away from the computer on a daily basis, and I cannot respond to
e-mails until September 11th. In my place are daily commentaries from a
series of very knowledgeable mortgage industry people with different
backgrounds, and they have been given very little direction about what to
write about - the latest is below. Our views may or may not coincide, but I
thank them for their time in volunteering and helping out.]
Reshuffling of the deck
Last month's news that Datatrac was being acquired by Ellie Mae definitely
created some shock waves in the industry. Shockingly, there are many who
still haven't heard the news! Any time the two leaders of an industry
segment join together it changes the landscape and I for one am curious to
see how this combination will affect the market. As the recent press
releases have stated, the combined entity now supports 30% of the mortgage
community and we all know they're looking for that number to grow. Like many
other industries, the mortgage market has become increasing dependent on
technology and while there are more offerings, it's clear that with this
move, only the strong will survive. And I always say that competition breeds
innovation so I imagine that other LOS providers have their development
teams working overtime.
This acquisition was clearly a combination of alternate business models,
Datatrac has employed a module based model where its product offerings are
external and integrated origination, document management , web portal, and
commission systems
tied into its core banking software Datatrac. Included in this model was
the premise that clients could use the "best in breed" philosophy in
allowing clients to select their choice of third party vendors to integrate
into Datatrac. It gave the clients more versatility in vendor selection and
if the integration was built, it provided a seamless process. The multiple
software connections sometimes proved to be cumbersome for support but
overall the model worked well. The best is breed philosophy led to many
vendor relationships wanting to develop integrations with Datatrac. The
system began as a mortgage banking software truly tied to mortgage banking
procedures from submission through post-closing. Over the years they saw the
need to integrate into other areas of the loan process through technology.
Ellie Mae on the other hand took the route of building an end to end
solution. Through acquisition and development, the Encompass 360 banking
software increased its offerings within the same product. The system evolved
overtime to offer increased amount of functionality within the same system.
Through the Ellie Mae network, clients have the ability to also engage third
party vendors and have the results in most cases delivered back into the
system. It has a robust offering of services that come with the product and
has made the end to end promise a reality. Through the acquisition of a
document company, pricing system, and compliance engine, it has made the
Encompass
360 banking platform a one stop shop.
The combination of the two firms creates an interesting merger of
philosophies and it will be intriguing to see how, if and when they combine
and integrate the systems.
I'm sure they're working overtime as well, looking at how to pull the best
part of each system and roll out a unified system in the future. Imagine
the best of the Datatrac suite of products being re-branded or re coded to
an Ellie Mae product in one form or another. There is an incredible amount
of talent within each company and the combined mindset working together
instead of as competitors makes for a game changer for the market. The new
entity will control a good portion of the market and will look to take on
more with a unified message. As the unified approach becomes clearer the
best of both systems will be obvious. I think that the current products
being offered will change for the better and ultimately will benefit the
user which is the most important It appears that the end to end model is
taking the lead on what the future holds for mortgage technology .
The bigger picture speaks to the future of technology providers and further
consolidation.
This is only one of numerous acquisitions in 2011 but I'm sure not the last.
The remaining players, although strong, have to be thinking about strategic
moves in order to complete. If Datatrac and EllieMae can combine forces,
anything is possible.
Vendors will also be re-thinking integration options as the new Ellie Mae
will be a strong entity and will most likely determine who they would like
to have relationships with. With Calyx purchasing Loan Score this year,
there have been integration moves that point to merging technology under the
same platform. Who's next? This is only the beginning of technologies
merging as unfortunately, if they fail to do so I'm afraid they'll begin to
lose their competitive advantages. As with any integration, changes take
time and although the benefits of the combined entity are clear today I
think it will take some time for them to be achieved and reach the market.
Ellie Mae was already a strong system and got much stronger with the
Datatrac acquisition.
I look forward to the combined entities offerings as I am sure it set the
bar for the entire industry.
Good night Irene..... Not so fast
Being in the Northeast, I can honestly say that Hurricane Irene left her
mark in more ways than one. Due to her sheer strength she left a trail of
destruction that went up the coast from the Carolinas through to Vermont. I
mention not to repeat the obvious but more to let you know that her effects
will be felt in the mortgage industry for months to come. Residential
Appraisers and Appraisal Companies were finally getting busy with the
recent refi surge and now they will be over whelmed with recertification
requests on the same properties. The already busy pipeline is going to be
slowed by the after effects of the appraisal requests due to the hurricane.
If you add the accessibility challenges due to downed trees, power lines,
and inability to get in contact with homeowners, you have to be looking at
delays that will weigh on your pipeline. If you have any properties in the
affected states, you should pull them and be creating a separate process for
these properties as the collateral conditions and expected timeframes will
be delayed. This will have an effect on your turn times and will definitely
have an impact on your locked pipelines.
Any property in an affected area that has a lock expiration date in the next
two weeks should be pulled for collateral review. If the appraisal is not
in, you should be making rate lock extension provisions as the timeline for
these loans is yet
to be determined. It will also be hard to gauge because most appraisal
companies
will not be able to provide confident feedback. It is not their fault as the
ability to get to properties is not within their control. Be in contact with
your clients and get updates on the status of the property. If cell phone is
the only contact available, make sure the appraisal company has this
information to assist in their contact.
In regard to your closed pipeline, as has happened in the past, investors
will create their own set of collateral provisions for affected properties
which will delay purchase turn times. Reach out to your investors now and
see what will satisfy those conditions now rather than wait for them issue
conditions. It will only delay their purchase and keep loans on the lines
longer. Speaking of warehouse lines, they may also be issuing collateral
requirements as well for any affected properties that are on their line.
Locked pipelines grew over the past few weeks and the concerns about
internal efficiency crept up. You could have the best operation around but
the effects of Irene could still wreak havoc on your pipeline. Do not wait
and let this become an issue. Get ahead of it and create a separate process
for these deals as they will be delayed which leads to secondary exposure
and profitability erosion. Get ahead of it and be prepared. That is what I
head all weekend so I am passing onto you as a public service announcement.
Frank Fiore
Partner
Rob
(Check out
Occasional paid notices do appear. This report or any portion hereof may not
be reprinted, sold or redistributed without the written consent of Rob
Chrisman.)
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