PERSON OF THE WEEK: Jonathan Corr is CEO of Ellie Mae, a provider of loan origination systems and other software solutions to the mortgage industry. MortgageOrb interviewed Corr in late December, when he was still serving as vice president and chief operating officer, to learn more about how the merger with AllRegs was going, as well as how far along the company is in terms of implementing the Consumer Financial Protection Bureau's (CFPB) new integrated disclosure rules in its software.
Q: How is the merger with AllRegs going? What does this merger mean for Ellie Mae customers? Does this present any opportunities for integrating the AllRegs data and analytics with the Encompass platform? Or perhaps to integrate AllRegs' compliance data and policies with the platform?
Corr: The merger is going great. We officially closed on Oct. 1 and we've on-boarded every employee from AllRegs. It's always exciting to bring on a whole new team and acclimate them to our culture. Everyone has been set up with an internal ‘buddy’ – someone in a similar type of role – someone they can go to. As you know, the success of any acquisition is how you get the teams to work together.
For now, it's about taking AllRegs' content – the guidelines and policies and educational content – and making that available to our customers who don't have it yet. We're also using this is an opportunity to develop relationships with AllRegs' customers who are not yet Ellie Mae customers – whether that means offering compliance services through our Maven engine, all the way to potentially making a transition to our origination platform.
A couple things we have in the works include taking opportunities to integrate the data of AllRegs closer to the fingertips of Encompass users, so they never have to leave the encompass platform – and it will be tied in with our product and pricing engine as well. We also plan to expand the AllRegs education and training programs and bring those up to a higher level. By that I mean not only training workers in compliance but also on the origination platform itself – thus killing two birds with one stone. We have a learning management system and so does AllRegs – plus AllRegs has content – and if you think about it every loan officer has to go through education in order to be licensed and registered. So there is a tremendous opportunity there.
Q: Is there any plan to push out some of AllRegs data or content to end users, so that they have all the compliance expertise they need as they walk borrowers through the application process? For example, could the content be ‘screen popped’ to a loan officer so that they could help a borrower understand a particular product? Or could it be used to guide newer LOs as they assist borrowers – in other words, like compliance ‘training wheels’ for the LOS?
Corr: It's something we're thinking about. As you know, the world is transitioning and there are younger folks who are transitioning into some of these LO roles. How do you help LOs train the next generation of originator? There might also be opportunities to push some of the content out to consumers – to educate them about the process.
Q: What are the top three things Ellie Mae is doing to grow the business?
Corr: Lenders today are very much driven by how to deliver highly compliant loans – in order to avoid being fined by the CFPB or a possible buyback. That has been our focus and that is what is continuing to drive success for us.
Efficiency rolls into that as well. Lenders know they have to do these things – and in general for years they have been throwing bodies at them. But investment in technology is rising. That's because lenders are figuring out that technology and in particular automation are the only way to achieve compliance yet maintain business efficiency. In addition, they are starting see technology as a way to handle what may be coming up next – whether it is the new integrated disclosures, the upcoming changes to Home Mortgage Disclosure Act or the changes proposed by the government sponsored enterprises in terms of a new loan application.
By focusing on [compliance] and by having a very large market share, it becomes a very virtuous cycle. As lenders look and say ‘who can I trust as a technology partner – who has the wherewithal?’ – they see that other lenders are happy here. They know we have the funds to invest, in order to do the heavy lifting for our lender clients – and that's what is enabling us to pick up more and more customers. I don't see that ending anytime soon.
Q: What about integration with other systems? Lenders are looking for platforms that can be readily integrated with what they're already using. As such, who you partner with as a technology firm is also a major driver of growth, is it not?
Corr: You are absolutely right. We have filled this network of connections over the past ten years and we have a handful of patents for what we have done. We have thousands and thousands of providers who are now tied-in with our network, cutting across anything from credit to flood to appraisal to fraud to title. Pretty much everybody is on our platform – well, not everybody, but the vast majority. And when folks come on board they have the ability to integrate with pretty much anyone else they do business with. We have this critical mass which has built up over time. The more partners that integrate with our platform the more it becomes a huge competitive advantage for us.
As a result of this, we're seeing interest from all different types of lenders from across the board. We've got more than 1,500 lenders – probably about half of those are non-depositories or independents – we serve all different sizes. About another quarter are regional banks community banks and credit unions. For all of them compliance os the number one thing.
We built our platform using a unique approach – it's not as common across the industry. It is a commercial solution that can get a smaller lender up and running very quickly – but at the same time it is very configurable and extensible and thus can meet the needs of the very large lenders.
We now have six of the top 20 retail lenders on our platform. You see a lot of vendors in the industry [offering products] that are very turnkey and you don't have a lot of ability to configure. Or you have solutions that come with those big tool kits – which you can't deploy easily, but they are very customizable. They're like Lego pieces – you can configure them to do anything you want – but it will cost $1 million and it will take several years to get them [fully implemented]. We're in this nice sweet spot between the two, in that we can continue to add to the platform in order to meet our client's needs.
Q: What's you're prediction for mortgage volume for 2015?
Corr: I am not an economist – and I don't like to predict. I'll say this much: I take in a lot of data points – I look at what the Mortgage Bankers Association is saying, what Fannie and Freddie are saying, what the large aggregators are saying, what some of the big Wall Street firms such as Barclays are saying, and I'll synthesize all of that. Because that's what we use to drive our planning and forecasting.
But what I think we're going to see, based on all that, is that refi has come down in 2014 – and it's now a much smaller share of the overall market. It could go up a little and it could go down a little – but I think it is currently close to its baseline. And we have shifted back to a market that is a more normal residential finance market, where purchase makes up about 70% of the business. And although purchase was not as strong as some had predicted it would be in 2014, I think there is a lot of pent up demand – a lot of it driven by the millennials. I think that pent up demand could start to kick in 2015 or 2016. Obviously, it goes hand in hand with the economy.
Most predictions look like 2015 is going to flat compared to 2014. But if you've weathered the 35% to 40% downturn in volume that we saw from 2013 to 2014, a flat market is a relief for a lot of folks. I think the wildcard is rates – will they stay lower longer due to the global economy?
The other factor is how much the roll out of the new integrated disclosures in August affects the industry. How much friction will it make in terms of lenders getting things done for borrowers, I don't know; but it's a very big change, and it could have a major impact.
The fact is there are a lot of borrowers on the sidelines. Some because they don't think they can afford – or maybe they're not sure about the economy. Or maybe the guidelines are a little too tight. If we start to see some more loosening of credit, [the millennials] might come out to play. I don't think were ever going to see a world where people no longer get married and have children.
Q: How are things going at Ellie Mae in terms of getting your platform ready for the new integrated disclosures in August?
Corr: We've been working on that for about year – working very closely with the CFPB. We're probably talking with them about three times a week and we've had a very good relationship with them. We've been getting clarification – including talking to some of the legal firms that wrote the regulations. We will be doing some beta testing in early 2015 with a set of customers.
We also have been doing a lot of education through our webinars – we've been getting thousands of attendees each month. We want to make sure lenders are ready across the board – and it's not just the technology; a big part of this is change management. It's a whole set of changes in processes – much, much bigger than ATR/QM and much bigger than RESPA in 2010. You're taking two sets of regulations and combining them into one set of forms – changing the disclosure process and the calculations and the tolerances – changing a lot of things that lenders are used to. Lenders, loan officers and processors – everyone is going to have to adjust to these new rules.
Q: What, in your view, is causing more anxiety for lenders – the front-end estimate or the closing piece?
Corr: I think there is more anxiety on the back end than the front end – and the reason for that, I think, is that on the front end they have more control – the lender and the borrower – but on the back end there is another player in the mix, which is the closing agent.