Ellie Mae Finds a New Revenue Stream with Consumer-Direct

Randall Scott

Ellie Mae has long tied its fortunes to its clients' success with a pricing model that charges lenders based on the number of loans that close each month. Now it's found a way to monetize the applications that flow through its origination software but don't get funded.

Ellie Mae's new Encompass Consumer Direct technology will create a new revenue stream for the mortgage technology developer by providing a borrower self-service portal that connects to its flagship loan origination system. Lenders that integrate the technology with their websites will pay a monthly subscription fee to accept a base allotment of loan applications and a per-file fee for any overages, regardless of whether an application actually results in a funded mortgage.

The portal allows borrowers to research loan products, fill out applications, order and pay for credit reports and upload and e-sign documents — functions lenders are already paying for when their employees use Ellie Mae's LOS technology. But by offering consumers direct access to these tools, executives of the Pleasanton, Calif. vendor said they can help lenders improve efficiency.

"By allowing the borrower to do more of the process themselves, [lenders are] actually lowering their cost of acquisition as the borrower is able to do part of the process themselves and therefore lower the amount of time that a loan officer may be working on that loan prior to qualification," said Ellie Mae President and COO Jonathan Corr, during the company's July 21 second-quarter earnings conference call.

The upshot for Ellie Mae is that Encompass Consumer Direct will generate an additional revenue stream on each origination, by charging lenders on both the application and closing sides of a loan.

"The beauty of this is that we're getting paid on both ends of it…We're getting paid a subscription fee there and, above a certain volume, getting an application fee," for Encompass Consumer Direct, Corr said. "We're still also getting the fee for Encompass around the success-based pricing."

Corr estimated that Ellie Mae can generate between $20,000 and $50,000 in annual revenue for each lender that uses Encompass Consumer Direct. If each of Ellie's 1,500 lender clients were to use the technology at the median price of $35,000, Encompass Consumer Direct would generate more than $50 million in annual revenue — though it would take a considerable amount of time for Ellie Mae to onboard all of its clients, and it's unlikely that all of its clients would use it.

Ellie Mae reported profits of $4.4 million in the second quarter, an 18% increase from the same time last year. The number of active Encompass users jumped 12% over the same period, to 98,996.

Profits grew despite strong industry headwinds, CEO Sig Anderman said, noting that mortgage volume plummeted 40% over the same period.

"We are a SaaS technology company with ever-increasing recurring revenues, serving a very needy mortgage industry," he said.

The recent launch of Encompass Consumer Direct could signal that lenders are beginning to warm up to self-service technology — a big shift for a historically paper-heavy industry.

Other vendors also provide consumer-direct tools. DH Corp.'s Mortgagebot point of sale system has a consumer module, while imaging data processing firm Kofax recently released a consumer-facing technology that lenders can integrate into their websites. The product allows borrowers to upload documentation. It also integrates with back-end originations systems, giving lenders' the tools to spot any irregularities.

The Encompass Consumer Direct also harkens back to Ellie Mae's early years, when got its early start hosting websites for mortgage lenders and brokers.