In January I received a text message from Dave Savage, CEO of Mortgage Coach. “Hey Clayton …” and a link. News just broke that private equity investor LLR Partners announced strategic investments in two mortgage technology companies — Mortgage Coach and Sales Boomerang (click here for article).
LLR is not a newcomer to mortgage technology or the overall fintech market. In 2016 LLR led a $26.5 million investment in eOriginal, a multi-year Tech100 winner that developed a ‘simple closing experience for lenders, borrowers and settlement agents.’ In eOriginal’s 2020 Tech100 nomination, the company boasted about the efficiency their ClosingCenter product brought to mortgage lending clients; Fairway achieved 80% faster mortgage acceptance by secondary market investors and also realized a 90% reduction in interest expenses to warehouse lenders for mortgages closed using ClosingCenter.
With efficiency metrics and client outcomes like these it’s no surprise that the company continued to attract capital and investor interest. Later in 2020, eOriginal was acquired by Wolters Kluwer for $280 million in cash and continues to operate within the Wolters Kluwer Governance, Risk & Compliance business.
As an entrepreneur, I get extremely vested when I see our industry friends and innovators land exceptional outcomes. And entrepreneurs like Alex Kutsishin and Mark Cunningham of Sales Boomerang and Dave Savage and Joe Puthur should be eternally proud of the businesses they have built and the clients they have supported.
As operators in an industry that ebbs and flows on economic conditions, demographics trends and, dare I say, the current mood of the Federal Reserve, these technology innovators are bringing efficiency and elasticity to the market. This brings me to a trend in the 2022 Tech100 nominations that was more prominent than any year I can remember — an emphasis on technology enabling headcount efficiency and cost reduction. No surprise here. Refinance volume is projected to fall by 63% in 2022 and overall origination volume is projected to be down 35% after 2020 and 2021 had recording-setting origination volume.
Lenders staffed up over the last two years, and something must give to have any shot at maintaining margins. This isn’t a new story in mortgage lending or real estate brokerage. Headcount is the most elastic line item on any housing sector P&L, and technology brings the promise of even greater elasticity and efficiency. Global DMS emphasizes that their appraisal management software product EVO prevents the need to hire additional staff while also decreasing turn times for less cost. Certain Fiserv clients have expanded their active QC review from 10% of loan volume to 100% without increasing staff.
Reggora is focused on helping its clients reduce appraisal desk staff by 75% by eliminating manual work. Sourcepoint has developed CoBot , a “digital employee”, that fulfills tedious, manual tasks and enables human staff to focus on work that requires judgment. This could be read through a negative lens. Jobs are important. Clearly, we love that the housing market supports so many professionals and households.
But ultimately, efficient mortgage lending and real estate sales is what is most important to a healthy housing market. We must innovate. We must become more efficient. Homeowners deserve it. Our economy deserves it. Progress demands it.
Tech100 Mortgage Winners
By Clayton Collins
In 1995 Clayton Christensen and Joseph Boyer published an article in the Harvard Business Review about disruptive innovation. I didn’t read it at the time. I was in third grade and likely sitting in the back of the classroom disgruntled because I had two broken arms due poor judgment of the risk associated with large bicycle ramps. But, I’m getting off track.
Christenson and Boyer open with the theory that one of the most consistent patterns in business is the failure of leading companies to stay at the top of their industries when technologies or markets change. If you’ve missed this conversation in mortgage land, well, you’ve been hiding under a rock.
Even at HousingWire, we’ve hypothesized about this for years. In 2019 we published a feature story about “Who will be the Amazon of housing?” — and then explored world-domination theories that painted Zillow, Redfin, Opendoor (and maybe Amazon itself) taking over the entire end-to-end housing sales and financing process.
And yet, we’re finally in 2022, and I’m going to go out on a limb and say disruption has failed. Instead, innovation prevails. We’re here today to talk about innovation. Let’s start with the difference and define these terms. I won’t reinvent the wheel in this effort and will fall back on Christensen and Boyer’s work in the Harvard Business Review:
- Disruption: Disruptive technologies introduce a very different package of attributes from the one mainstream customers historically value.
- Innovation: Sustaining innovations raised each architecture’s performance along steep trajectories — so steep that the performance available from each architecture soon satisfied the needs of customers in the established markets.
In the mortgage world, disruption has been painted as a scary new entrant that enters the market to steal market share, demolish commissions and force consumers into a digital echo chamber without any possibility of personalized advice and guidance.
Disruptor companies vs. innovation companies
Better.com (a 2020 Tech100 winner) is one of the examples I put in this disrupter category. Vishal Garg and his dolphins (google it) aim to “radically overhaul the analog mortgage process, which still involves commissioned loan officers, 2,000 pages of paperwork and manual intervention at every step.”
The Better.com story is far from over and disruption may still be in its sights, but the path and timeline to that disruption continues to get bumpier and less threatening with each turn in the road. And this doesn’t mean that Better and other disrupters won’t or can’t become perfectly successful lenders, but I do call into question their ability to flip the mortgage market on its head and steal egregious levels of market share.
We have to stop and ask ourselves: Is disruption the biggest threat that mortgage lenders face or is the bigger threat resistance or hesitancy to adopt innovative solutions? The 2022 Tech100 Mortgage winners demonstrate a crop of innovators that understand the dynamics of the housing industry.
And from our vantage point and review of each company’s elevator pitch, metrics and client impact, it becomes increasingly clear that the real winners in today’s housing economy have latched onto the concept of sustaining innovation. Mortgage lending has its problems. It’s inefficient.
According to the Mortgage Bankers Association, total loan production expenses exceeded $9,000 per loan in Q3 2021. This isn’t good. After years of investing in technology, IMB’s and mortgage banking subsidiaries need to be more efficient. But is turning the industry on its head by eliminating commissioned MLOs, moving 100% of borrowers to digital POS and building robots to handle all servicing problems the likely endgame for the mortgage sector? I bet no.
Housing is dynamic. Real estate is local. People are complicated. Consumers have different preferences and capabilities. It’s these viewpoints that color my vision for the future of mortgage innovation. In no way do I intend to imply that AI, ML and RPA won’t make the sector more efficient, but they won’t be the end of the mortgage lender as we know them.
Today’s leading mortgage banks will continue to dominate the HMDA lists. They will partner with the best mortgage technology and SaaS companies. They will build indomitable technology teams that develop products and integrate solutions. They will consolidate, acquire or outcompete the mortgage banks that resist. The sector will become more efficient but will remain the fragmented, independent and differentiated marketplace that we all have grown to love.
The companies honored in the 2022 Tech100 Mortgage award program spotlight the innovators that are making the housing sector better and more sustainable by increasing efficiency, improving borrower experience and bringing elasticity to mortgage origination and servicing processes.
Tech100 Real Estate Winners
By Tracey Velt
Many real estate professionals remember the heyday of the 2000s when technology companies were determined to disrupt the real estate industry and replace real estate agents. And, why not? Real estate is a $206 billion industry, according to IBISWorld.
However, it didn’t work. Time after time, real estate homebuyers and sellers choose to work with a real estate agent. According to the National Association of Realtors, in 2020, some 87% of homebuyers purchased their home through a real estate agent or broker, and that number has steadily increased each year since 2001.
But today’s tech leaders are different. Instead of trying to push consumers to do the transaction without real estate professionals, these new tech companies are choosing to partner with them. In addition, brokerage companies are building their own suite of technology tools to serve both agents and consumers rather than piecing together a platform of products and services from multiple vendors. To answer this call, consolidation is still happening in the proptech world.
Still disruptors, but also partners
Proptech companies are still disrupting real estate, but the end goal has changed from trying to replace the agent to trying to streamline the transaction while keeping the real estate agent at the center of it. The newest of these real estate technology companies are involved in offering buyers and sellers financing options so they can compete with cash buyers and investors, buy a home without a contingency and win in a multiple offer situation. Knock.com offers solutions for both buyers and sellers.
KnockGO (guaranteed offer) fronts the buyer their loan so they can make a cash offer. For sellers, they offer HomeSwap which is a modern-day bridge loan so consumers can buy a home without selling their other home first. Companies such as Ribbon and Easyknock, as well as brokerage Flyhomes offer similar services. Let’s not forget the iBuyers, such as Offerpad and Opendoor.
Both are partnering with real estate brokerages to offer consumers choices when selling their homes. Proptech company zavvie takes it one stop further and allows brokerages to offer a menu of products from a host of different companies to homebuyers and sellers, such as iBuying, modern bridge loans and more.
Consolidation in the industry
Another trend we’re seeing with the Tech100 Real Estate companies is the consolidation of companies in the tech space. It’s somewhat the nature of the beast in the fast-paced and entrepreneurial tech arena. However, real estate brokerages who don’t have their own development teams are looking for one solution to solve their transaction problems, rather than piece together multiple platforms.
Since 2020, Lone Wolf Technologies has acquired five different technology platforms to boost its real estate solutions and offer a one-stop-shop for brokerages. Zillow acquired ShowingTime in 2021 to offer more to its agent marketing platform. In 2020 and 2021, eXp World Holdings purchased Showcase IDX and SUCCESS Enterprises.
RealTrends expects to see a lot more of this happening this year as companies build their all-in-one platforms and expand offerings to real estate brokerage firms. After all, according to NAR research, more than 40% of the brokerage firms surveyed in the report, “Real Estate in a Digital Age,” say that “keeping up with technology” is their primary challenge in 2022.
Brokerage tech solutions
The national brands and larger independents are investing millions of dollars into proprietary platforms of their own.
Companies like Compass, United Real Estate, Keller Williams, Redfin, Fathom Realty and others have full-fledged development teams working on tech solutions to streamline the business and boost the broker’s bottom line. United Real Estate Group flew under the radar for the past 10 years, bringing on about $35 million in institutional capital to accomplish the construction of its tech platform.
Meanwhile, Fathom Realty recently launched intelliAgent 2.0, the second generation of the platform that features an enhanced CRM system for agents and brokers as well as new marketing resources for building and customizing personalized websites, video messages and launching multi-platform marketing campaigns.
No matter where you look, there’s no question that disruption, as defined earlier, is happening in the real estate space, as tech leaders start to introduce very different systems and processes into the standard home shopper and agent relationship. But that doesn’t mean the other real estate players are left out as they look for innovative ways to adapt.
After all, the industry is still navigating which route is better — innovation or disruption. While the real estate industry has fallen behind in technological advances compared to other sectors, all of that is changing, and this year’s list of Tech100 winners embody that shift.