Ellie Mae Q&A: Onsite at MBA Annual
SAN DIEGO – Ellie Mae President/CEO Jonathan Corr, pictured at left, sat down with CU Times during the Mortgage Bankers Association Annual Conference. The leader of the Pleasanton, Calif., software firm discussed TILA/RESPA, compliance costs and what Ellie Mae has planned beyond Dodd-Frank.
CU Times: Is Ellie Mae TILA/RESPA compliant?
Corr: We are comprehensively compliant; but for us, it’s very broad and goes beyond a couple of little things like forms. It’s forms, calculations, work flows; fundamentally, we changed the world. In order of magnitude, it’s been the biggest thing in 40 years. I think it’s easier for consumers, no question, which is great. You’ve got one set of upfront disclosures, one set of back end disclosures. There are incentives to drive everything electronically. There is much more clarity for consumers.
It’s a big change for lenders. We have a huge base of lenders – 1,700 lenders, 135,000 users – we don’t have to worry just about the technology, which is super important, but we also spent the last 18 months really doing a tremendous amount of education for the industry.
Starting last summer we started running webinars, what TILA/RESPA means for you, how to be prepared, how to think about things in your organization, because a lot of it is about change management. How do you enable your loan officers to talk to the front line? How do you educate your real estate agents? How do you educate your closing agents? So we did in-the-field road shows where we trained people regionally in many cities, we did virtual town halls and webinars.
We’d gone through (ability to repay) and (qualified mortgage) last year, and it was significant. Not nearly what RESPA/TILA was, but what I was so happy about after ATR and QM was that our customers told us it was a non-event for them, because of what we had done with the software and how we had educated them.
Our goal for Oct. 3 was the same thing for RESPA/TILA. I’d say that was a pretty hairy, audacious goal, because that were a lot of moving parts. I think we got pretty close to it. We had a lot of customers calling us up that weekend, we had people available 24/7 over the weekend through the first couple of weeks. We had many calls, but when I went to my frontline folks, they had smiles on their faces because even though they were getting lots of calls it was people asking how to do things. The software was doing what was expected. And there were a lot of changes so that was a major accomplishment.
I don’t know how other folks did in the industry, I’ve heard little bits and pieces, but I don’t worry about that. I worry about our customers’ success.
The next piece will be the closings. We’ve seen very few closings so far, but come late October, mid November, that will be the next question. Probably a slew and questions and guidance and probably an additional variable in terms of how well the closing agents handle that.
Corr: You’re always going to have some little things that you’re improving but you prepare for it. In software, there’s no way everything is going to be completely bug free. What you want to make sure is there aren’t high severity things. Now the question is do you have releases planned so that on a weekly basis if you have to, you can get out the fixes quickly. We’re obviously set up that way and we’re doing things along those lines. But for the most part we haven’t seen anything that was significant. It’s been minor things and we’re really quite pleased.
CU Times: You’re anticipating that closings will come as planned in 30 or 45 days?
Corr: Maybe there will be some little delays and I think people have planned for it. I know there was a lot of advice out there to real estate agents that if you’re normally going to do a 30-day close, plan for a 45 just in case. Take care of your customers. I think that will be the case. I would expect some extension of time; we’ll see. The origination insight report, which we do on a monthly basis, has showed us where things are, consistently. And it went down to about 46 days, that’s an overall average, both refi and purchases. So it will be interesting to see what October brings and November brings … and how it’s affected by conventional versus FHA.
Corr: Yes, we have a relationship with the CFPB. We’re really looked at as a pulse on the market; they take our input. They don’t necessarily embrace everything we give them, but they’ve been very collaborative. There have been some great folks there that we’ve worked with over the last couple of years. They’re calling up to see how things are going and we’ve been conveying “this is how we’re seeing it.” Yes, they’ve said we will not enforce aggressively until Jan. 1. That doesn’t mean if people are negligent that they won’t hold them accountable. I don’t think that’s in our customer base because of the technology we provide. I think the market is still worried and I think that’s why they tried to run the various bills through the House and the Senate, addressing civil litigation because you still have class actions that can happen.
CU Times: Do you support those bills?
Corr: Fundamentally, we haven’t changed how we’ve priced the software. As we’ve added new functionality that allows (customers) to do business better, we’ve had some incremental costs along the way. But we’ve always looked at it as an obligation on our part. This is Ellie Mae. We’re going to invest significantly as our customers as partners, especially in compliance.
I have 40-plus people who only focus on the compliance aspects of the software. That’s bigger than a lot of the origination companies out there. Yes, our costs have gone up, but because we have such a large customer base we’re able to distribute that cost, that investment. So it doesn’t hit us the same way it might hit a very small technology provider.
Lenders absolutely need to embrace technology because they can’t afford to keep putting bodies to the problem. We talk about QM, go back to RESPA 2010, all the things we’ve seen since 2009. The gross cost to complete a loan has doubled, according to the MBA cost study. Why is that? People have thrown bodies at the problem. Fear of buyback, fear of fines, so what do I do? I throw bodies at it. I fill the holes with humans. Human spackle fills the holes.
People just have to embrace technology, there’s no question about it. I think it’s good. It’s what consumers want. They want technology, then they want some touch, and then they want to move back to technology. As an industry, we’ve kind of lacked a little bit. I think the regulation is pushing us there more quickly.
CU Times: How much, exactly, have your costs increased due to TILA/RESPA compliance?
Corr: I don’t have that off the top of my head. We’ve invested a lot in customers in infrastructure, in compliance, in our next generation. This year alone we’ll spend $80 million in R&D. And I’d say a big chunk of that was around RESPA/TILA. So now as we go into 2016, we’ll still maintain the same level of investment, but it will go into other types of innovation to help our customers do better business, capture more business and better serve their borrowers. As we’re shifting to a purchase market, they have to figure out how to do that.
CU Times: We’re heard that credit unions have had to increase closing costs due to increased vendor costs.
Corr: Lenders have had to invest. If folks weren’t investing already in compliance technology … our compliance is built into a platform and if you weren’t doing something like that, you probably really need to do that. If you weren’t using something like a closing corp to get your fees, you probably really need to do that now. Those are incremental costs these folks are facing. They do have to facilitate much more closely how they do things with their title agents and if they weren’t doing it before, using a kind of closing portal, there may be additional fees there.
Corr: We’re working on a lot of exciting things. We’re rolling out all kinds of mobile capabilities for loan officers in Q4. Basically the ability for a loan officer to work effectively with a consumer in person on any device, but it’s responsive design. So if they’re on a phone, it will be a different set of functionality than if they’re on a tablet or access it on a laptop. It gives them the ability to pull credit, do a price estimate, all those things they want to do in person with the consumer right up front in the process. That will start rolling out the end of the year and be generally available as we go into 2016.
We’re building on to what we did with consumer direct capabilities. So again, giving our lenders the ability to push more out to the consumer based on what the consumer would like to do. Some consumers want to do a lot of the process, some not so much, but give them the flexibility to do that as an extension of the Encompass platform. The original release of that will be in the first half of next year.
We’re building our next generation platform. We built Encompass 11 years ago. It’s a great solution, it does a lot of things well, but the world has changed a lot. There are definitely things we could do better for our customers so we’ve rethought the world and are developing a complete cloud-based offering. We’re looking at how it works from the ground up, very data-centric and lots of application programming interfaces, a very service-oriented architecture. Elements of that will start rolling out next year and that will completely roll out as we head into 2017.
And we just did a little acquisition. Obviously, CRM – marketing automation – is something lots of lenders are interested in. It’s become more important as we shift into a purchase market, maintaining those relationships with existing customers, past customers, referral partnerships. We’ve heard that need from our customer base. We decided we could build it but found a great partner in Mortgage Returns, so we decided to do an acquisition and announced it last week.
It’s already baseline integrated into Encompass, but we’ll comprehensively integrate that going forward. It provides a great foundation for our customers to leverage all the data they have inside Encompass: Past prospects, partner relationships, and really drive data driven marketing to drive more business. We’re really excited about that. We’ll close the deal sometime in early Q4. We’ll start selling the baseline integration immediately, and we’ll start adding more capabilities. We have a lot of joint customers so the two solutions work good together but we’re really excited about what we can do collectively for our broad array of customers, whether that be credit unions, community banks or independents.