The broker portal space: there's lively competition in the broker portal space. The big question is will independent portals survive, or will brokers seek this functionality from inside their origination systems?
However, mortgage technology pundit Craig Focardi, a San Francisco-based research director with TowerGroup, Needham, Massachusetts, two years ago was saying there were many challenges for BrokerOneSource to overcome, and that Ellie Mae would survive because it had a different model.
And GHR's view? A slowing mortgage market led to the withdrawal of the product in March, says Cy Brinn, president of GHR Systems.
A very short history
Back in 2004, Focardi wrote a lengthy and comprehensive review of mortgage B2B exchanges/portals, which he called, "Online Wholesale Mortgage Lending: The Mortgage Megachannel."
In the report, Focardi noted the rise of B2B exchanges, which, when lumped together with business-to-consumer (B2C) exchanges, were believed by mortgage futurists to be an online system that eventually would replace high-cost, brick-and-mortar retail lenders and independent mortgage brokers along the fragmented mortgage distribution chain. These predictions, Focardi wrote, "were most common in the wholesale lending channel."
However, by 2002 all of these exchanges had failed, he reported, because they delivered little value and wholesale lenders built their own single-lender online wholesale mortgage portals for their mortgage broker customers. The goal of B2B exchanges was to be a kind of multilender product catalog hub with loan transaction capability. While the portal, says Focardi, provides data transfer from the mortgage broker to the wholesale lender in a way that reflects the lender-broker business model, lending processes and third-party supplier relationships.
In particular, Focardi wrote, B2B exchanges failed because they provided lenders and brokers with weak value propositions in terms of service and price; automated only selected parts of the wholesale lending transaction; did not provide simple transfers for products, prices and loan file data; and were generally not well-integrated with broker point-of-sale (POS) systems.
While noting the decline of B2B exchanges, Focardi also highlighted the rise of portals--or, in 2004, what he called wholesale transaction facilitators. He spotlighted two--those by Ellie Mae and GHR Systems.
In a comparative statement dripping with a whole lot of prescience, Focardi wrote: "Tower-Group believes the Ellie Mae business model and fee structure is more attractive to mortgage brokers and lenders. GHR may find a market niche among midsize wholesale lenders that lack the budget to create their own full-function wholesale lending portal, but will be hard-pressed to attract significant transaction volume from many of the top-25 mortgage lenders."
GHR Systems eased into the portal business by buying the assets of Ultraprise Loan Technologies Inc., Frederick, Maryland, in 2002. "GHR applied some of Ultraprise's technology--along with other IT [information technology]--to help create their BrokerOneSource," explains Focardi. By midyear 2003, the BrokerOneSource Web site was unveiled.
What's interesting is that as late as July 2005, GHR was still issuing press releases stressing BrokerOneSource gains--in particular, that it had reached a milestone by surpassing 10,000 registered brokers.
There were other big changes going on at GHR around this time. In June 2005, Milwaukee-based Metavante Corporation, the financial technology subsidiary of Milwaukee-based Marshall & Ilsley Corporation, acquired the company. Meanwhile, broker adoption of the online system began to slow.
"BrokerOneSource was a product that was initially met with enthusiasm by lenders and brokers alike," says GHR's Brinn. "At the time we introduced it, the market was interested in exploring the benefits of the online marketplace. Most recently, with lenders competing over smaller loan origination volumes, lenders have become less interested in participating in this type of online marketplace."
Fewer lenders led to slower adoption of BrokerOneSource, Brinn adds, "and we decided to withdraw the product."
Says Focardi, "The challenge BrokerOneSource had was that it had to establish business relationships with thousands of small brokers around the country, which Ellie Mae already had. They found that to be expensive, and the difficulty of these models is having the capital to develop business relationships and tech integration with both sides of the transaction."
Ellie Mae's portal, now called ePASS[R] Network, came to market in 2000. At the time a lot of big, corporate players manned the field, including the likes of General Electric Co. and Microsoft[R] Corporation. "There were a lot of companies that were trying to say 'I want to be the B2B portal in the mortgage industry,'" recalls Jonathan Corr, Ellie Mae's chief strategy officer. "It was the product of dreams."
There are a number of reasons why most failed, but the key reason five to six years ago was that most people who had to use exchanges or portals were salespeople who were not completely at home with technology. At the time, mortgage brokers' chief technology concern was their LOS system, and "for them to go and leave that for a separate application was too much of a stress for folks that were not comfortable with technology," Corr says.
Ellie Mae realized the only way to get brokers to comfortably use a portal was to bring it right into the core operating system--to make it seamless with the LOS. So it did what none of the other companies had even considered: It acquired LOS companies.
"Of the four big [mortgage broker] LOS players at the time--Calyx [Software], Byte [Software], Genesis[R] and Contour[R]--we bought two technologies, Genesis and Contour," says Anderman. Genesis was acquired in 2000 from San Francisco-based iOwn, a company that doesn't exist anymore, and a year later Countour was pinched from First American Corporation, Santa Ana, California.
"The whole idea was to bring the network inside the desktop application," Corr adds, "because once you get used to it, you will not go anywhere else."
In addition to Genesis and Contour, Ellie Mae in October 2003 introduced a third LOS called Encompass[R]. This is what distinguishes Ellie Mae, says Focardi. "It has a built-in broker/customer base."
Brinn knew that having an LOS was an advantage because GHR has its own suite of origination technology. After GHR withdrew the BrokerOneSource product from the marketplace, Brinn says, "We decided to focus our efforts on continuing to evolve the LOS and POS solutions that our clients are using with great success."
To which he adds, "At some point in the future, we may re-introduce BrokerOneSource or a different form of an electronic marketplace."
All the technology changes to the wholesale mortgage marketplace began to settle out during 2004, which has proven to be the year between the old and the new.
In 2005, Columbia, Maryland-based Wholesale Access Mortgage Research & Consulting Inc. published its mortgage brokers study conducted for the prior year. There were two key questions in regard to technology that reflected upon portals and LOSes. For the first question, there were no surprises: When asked to name a firm's loan origination software provider, 67.9 percent named San Jose, California-based Calyx Software, reports Tom LaMalfa, a managing director at Wholesale Access. In second place with 27 percent of the market were Ellie Mae's three systems--Genesis, Contour and Encompass. The small remaining percentage was claimed by Byte Software, Kirkland, Washington.
Then the questions got more interesting. When the more than 1,000 survey participants were asked if they used any of the "universal portals," approximately 64 percent said they didn't. Of the 36 percent that said they did, 16.4 percent used ePASS, but the biggest percentage said they used eMagic[R], a "service-fulfillment platform" created in 2000 by MGIC Investment Corporation, Milwaukee.
Then there's eMagic
"We are a portal, and our model is based on transaction and hosting fees," explains Margaret Crowley, vice president of client services for eMagic. "eMagic took the approach that we are all about the lender. We are going to let them enforce business rules on our platform, we are going to let them declare who they work with, how they work, etc. By giving the lenders their own business model to work with, we got a lot more traction."
She adds, "When I think of portals, it's really down to two major ones. We are in a similar space as ePASS."
Or are they? Ellie Mae's Anderman doesn't think so. In the retail arena, not wholesale, lenders either use an in-house portal or a product like eMagic, he explains. "eMagic is a retail portal," claims Anderman.
While Anderman might have a point, the fact of the matter is eMagic can work with any LOS, says Crowley, and it has an association with Calyx Software and Byte Software, which obviously defines the competition to Ellie Mae's three LOS units.
"Our market penetration has definitely been growing annually," says Crowley.
Redefining the competition
Without debating whether eMagic and ePASS compete head-on, it's obvious they do bump up against each other because of their relationships with LOS suppliers. Those independent LOS companies are not sitting idly by, especially as Ellie Mae takes direct aim at their market. Byte Software and Calyx Software can directly reach out to vendors and other service providers without the use of a portal.
"What we have found is that by supporting MISMO[R] standards, we don't need to go through portals in order to establish relationships with service providers," notes Joe Herb, general manager of Byte Software, a division of Kirkland, Washington-based CBCInnovis.
Byte has an interface with ePASS, Herb adds, "but we find most of our volume goes through our direct interfaces, which we have been successful in signing up with credit vendors, lenders, etc. Most of the interfaces are built directly into our software, and if a broker has a requirement to go through ePASS, we will support that. Again, we have found that the volume going through those portals is essentially smaller than the direct volume we have going from Byte to service provider."
Portals were a stop-gap that accelerated development to meet the real need, which was true integration at the desktop level for the originator, says Todd Luhtanen, president and chief technology officer for Dynatek Inc., a mortgage software and LOS company based in Livonia, Michigan. "Portals were stop-gap because they were easier to bring to market, but they were not an end-game solution. We don't believe there is any need for it with our customer base," he says. Asked if that customer base was the same that Calyx and Byte would compete for, Luhtanen responded, "There's a bit of overlap, but we're really in the middle market--a step above where they normally serve in the broker segment. Our clients are mortgage bankers and banks in the $40 million to $500 million range."
Citing the Wholesale Access broker study, Calyx Software, on its Web site, reports that "66 percent of mortgage brokers and direct lenders use Point[R]--a figure greater than all other mortgage automation applications combined." This claim no doubt would be quibbled with by others in the competitive LOS space.
"For the last several years, we have gone down the path of essentially building interfaces into our product," says Ben Wu, Calyx Software's director of technology. "We don't have our own portal per se, but you can directly access lenders and service providers from directly within the LOS."
Adds Wu, "Calyx Software boasts two technologies in regard to interfaces. The first is a direct connect, which is a suite of interfaces where Calyx has adopted MISMO standards for very specific transactions like credit, flood and title. The second interface is a Web connect that allows a third-party Web site to be launched within the Calyx software."
The problem with the portal concept, according to Wu, is that a portal aggregates together business partners almost like a directory, but there are a lot of places to go to access a directory. "The real question is, what is the portal experience like? How many steps do you go through? How many hoops do you have to go through to start doing business? What are its capabilities? We want to make sure we built an interface that is bi-directional--that is where we see value."
Future prospects for portals
If the direct interfaces being accomplished by Byte, Calyx and others are an embedded answer to independent portals, then is there a future for portals?
Gallagher Financial Systems Inc., South Miami, Florida, operates in the high-end loan origination software space for mortgage lenders. As its promotions explain: "Whether you're seeking an eCommerce portal, a complete loan origination system or interfaces to customers and third parties, we will keep you ahead of the competition."
Gallagher offers a Web-based product called NetOxygen, which has 23,000 users, according to Chris Anderson, the company's president.
Anderson sees Gallagher's strength more at the front end of business, such as collection of data and generating documents. "We would be more complementary to Ellie Mae or Calyx," he adds.
As an observer of the technology side of the mortgage business, Anderson says that companies with an LOS across the enterprise have an investment, "and prefer to extend that to brokers rather than maintaining a separate portal. The concept of an independent portal is going away, and there is an expectation on the part of customers to use what's in their LOS to service brokers," he says.
While eMagic stands as an independent portal, it can be argued that ePASS is not an independent portal at all but part of Ellie Mae's LOS suite.
Byte and Calyx may have some need to be worried about Ellie Mae. The company has boosted its Encompass product and will be moving Genesis and Contour customers into it, making for just one main competitor.
Spoiling for a fight
"Genesis and Contour are two separate product lines, but those customers are getting moved over to the Encompass product over the next 18 months," says Corr.
Between 2001 and 2003, Ellie Mae re-engineered and restructured Genesis and Contour to make the portal interfaces as seamless as possible, "and this gave us a huge advantage over the other portals," claims Anderman. "For about 25 percent [as per the Wholesale Access survey] of the market, users had a friendly, easy experience that did not require re-entry and manipulation of data."
Encompass was built from scratch with ePASS in mind. "The integration of Contour and Genesis was [a] 7.5 on a scale of 10," says Anderman. "The integration of Encompass is 9.5 or 10 out of 10."
"There will be only one platform ahead, and we will have a different strategy," Corr adds. "We are focused on taking market share away from our No. 1 competitor."
And that would be Calyx Software.
Calyx's Wu dismissively notes, "My understanding was that ePASS transaction volume comes from credit activity, which makes sense because everyone needs to order a credit report. We don't have a portal per se, but we have built-in interfaces supporting over 100 vendors and we have on an annual basis been doing over 10 million credit reports per year. The 10 million that goes into our system hasn't been going elsewhere."
For its part, Ellie Mae is not shy about stating its goals: LOS. "We focus on third-party originators, the people that do two-thirds of all the loans in the United Sates," says Corr. There are a number of industry analysts who doubt the broker market share is that high, but that doesn't in any way affect the intensity these competitors bring to the broker origination space.
"Basically, there are two solutions out there--Ellie Mae and Calyx. As for Byte, I love the people there, but they have a lot of challenges," Corr maintains.
Calyx Software has grown to about 300,000 "active desktops" that use Calyx software on a regular basis, says Wu.
The question is, is that enough? According to Anderman, it's not. "We launched the Encompass product, and lo and behold the market jumped on it," he says. "It took a lot of effort and money to build it, and a lot of money to market it, but we have gone from 25 percent market share [again, per 2004 Wholesale Access survey for the three Ellie Mae products] to 50 percent in two-and-a-half years."
If that's true, the market will probably have to wait until the next Wholesale Access survey in 2007 to get confirmation. But if Anderman is accurate with his comments, then Ellie Mae had to overcome some serious initial defection.
"Ellie Mae initially said, 'We are discontinuing the software products [Genesis and Contour]; we would like you to look at Encompass,'" says Scott Cooley, founder and former chief executive officer at Contour, ex-chief strategy officer at Ellie Mae and now a principal with Los Gatos, California-based Cooley Consulting. "The users realized that if Ellie Mae was going to discontinue Contour and Genesis, then they were are going to look at everything else that was out there," says Cooley. "Contour and Genesis users went to the competition in droves. Ellie Mae gave the wrong message."
Anderman hammers it home: "Of the larger brokers, eight of the top 10 in the country switched from Calyx to Encompass, and about 175 of the top 250 switched. They did so not because it was cheaper--we are actually more expensive than Calyx--but because we address their needs, most importantly the seamless connectivity to the rest of the mortgage system."
Wu disregards the claims: "Ellie Mae likes to talk sales numbers," he says. "Initially with Encompass, they were giving out bargains--one year free if you were a Contour user. I don't know to what degree people were given software or even purchased software and actually converted over." He adds, "What we measure is the number of desktops that are running our software. That is the most objective measure. That [number is] 300,000 and it has held steady."
In October, Ellie Mae stole another boasting point from Calyx. Tampa, Florida-based America's Mortgage Broker LLC (AMB), with its 150 branches, announced it had dropped Calyx Point and shifted to Encompass.
"We had been pretty loyal to Calyx," said AMB Chief Executive Officer Mark Collins in a prepared statement. But according to Collins, the company elected to go with Encompass for a number of reasons--including that "it was critical to our long-term goals that we got a better handle on loan production and pipeline management."
Yet Calyx is still the leader in the broker LOS market, counters TowerGroup's Focardi--"although Encompass is gaining market share pretty quickly," he says. "Calyx did have a type of integration with about six to eight lenders and brokers, but they actually pulled back from that approach and are trying to be more similar to Ellie Mae."
Cooley, who, as noted, has been critical of his old company, nevertheless notes: "Doing electronic transactions with third-party vendors--every system has to have it. Every LOS vendors has a 'portal solution,' but they are not as advanced as Ellie Mae. One of the beauties of ePASS from the very beginning was the ease of doing interfaces. [LOS company competitors] can do this, but they haven't put in the resources to bring those portals up to where they should be."
Who is Ellie Mae?
Bruce Eppinger, a mortgage broker in the Philadelphia area, was fed up with some of the substandard automation in the lending industry, especially when it comes to matching a loan to a lender. So he got together with some associates and formed LendingGear Network LLC, Wayne, Pennsylvania.
The key launch in September 2006 for LendingGear was a new broker-lender mortgage auction portal on its Web site (www.lendinggear.com). "Since brokers need to connect with lenders who can fill their borrower's needs, and lenders need to connect with brokers to continue a quality flow of business, LendingGear established this portal to give both sides these abilities," says Eppinger.
Wasn't there anything like this out there already?
"We got tired of using the automated things that are available, because they are not up-to-date, didn't do what we needed them to do, and if we needed to find a lender it was difficult," says Eppinger.
Basically, Eppinger's chief complaint with existing portals was that it was easy to get a loan placed as long as the loan was completely conforming, but if there was anything unusual with the property, automated engines didn't work.
Where LendingGear fits in, says Marcus Cudd, business development manager for LendingGear, "is that we are a Web site that offers the ability for brokers to connect with new lenders. Brokers can post loans [ones with issues] they are having difficulty with, lay out the profile and types of loans being looked for, and we alert those lenders that might be interested so they can go to the Web site to pick up the deals."
Eppinger is not necessarily a walking commercial for any existing company or its offerings. As a mortgage broker, he uses Calyx Software. When asked if he considered Ellie Mae, Eppinger responded, "What does Ellie Mae do?"
Cudd, however, did know about Ellie Mae. "We are not that kind of play," he says. "LendingGear.com is more of a networking site, not necessarily a true portal."
That's one less competitor for Calyx and Ellie Mae--perhaps.
Steve Bergsman is a freelance writer based in Mesa. Arizona. He can be reached at firstname.lastname@example.org.