When a company's stock sours, the boss has to think big and make even bigger promises.
Nationstar Mortgage Holdings Chief Executive Jay Bray, whose stock is off nearly 70% from its peak two years ago, is painting a grand vision to reassure shareholders: he wants to revolutionize the way consumers buy and sell homes.
The Dallas mortgage lender and servicer this week launched an ambitious digital and mobile service called Xome (pronounced Zome) and also made that the new name of its Solutionstar settlement-services subsidiary.
The online foray comes with tremendous risks, but it could be a boon to Nationstar as the mortgage industry struggles to generate more home purchases, particularly from technology-savvy millennials. Nationstar's servicing segment took a hit in the first quarter and the company's stock has plummeted from a record high of $57.95 a share in late 2013; it finished at $19.47 on Wednesday.
In a sense Nationstar is stealing a page from the playbook of big banks. It has purchased nearly all of the back-office functions involved in closing a loan, including title, valuation, escrow and settlement services. Nationstar hopes to boost fee income by selling consumers home loans under its Greenlight Financial and Nationstar brands and all the other services needed to buy a home.
Still, the effort seems ambitious. No mortgage lender has been able to create a completely digital homebuying process, whereby a borrower can search for a home, pick a real estate agent, get a home loan and follow the entire process through to the close. Past attempts to add technology to the process have either focused on using online tools for
"I haven't seen anybody do the whole thing," said Jeff Lebowitz, the founder and president of Mortech, a Bend, Ore., consulting firm. "It's a question of what expertise you have and how well you can do each of the functions and when a specialist is needed at each stage of the loan life cycle."
In November, Nationstar hired Kal Raman, a former technology executive at Groupon, eBay and Amazon, to create its digital platform.
Raman said his goal is to create the best front-end customer experience and provide more transparency for consumers making the largest purchase of their lives.
"How do you use technology to put the customer in control of the transaction?" Raman asked. "Searching for a house has become super easy online but everything else is a black box that is not completely coordinated. It's a very fragmented process that happens offline, and in today's world, given the current technology, most people expect that more of the process will operate like other types of e-commerce."
Raman said the best way "to disrupt an industry is to build an enterprise founded on selection, price and convenience. We are doing it was as little friction as possible."
Potential Pitfalls
Xome could face other hurdles, including its requirement that real estate agents give up at least 1% of their commissions to save borrowers money and induce consumers to use the platform. For now, the platform boasts more than 85% of homes currently on multiple listing services.
So far, 130,000 real estate agents have signed up to receive free Xome software. In return, they seek homebuyer referral s which could potentially increase the volume of homes they sell and reduce their marketing costs, Raman said. Xome will ultimately charge agents a fee of $300 to $1,000 depending on the price of the home sale.
Last month Bray told analysts on an earnings conference call that Xome "will lead to a tremendous increase in third-party business and revenue."
"There's going to be a ton of opportunity to originate product," Bray said.
Still, another potential snag is whether Xome offers consumers enough choice. Nationstar could run afoul of the Consumer Financial Protection Bureau if the platform steers borrowers only to its own loans and services and does not offer choices.
For now potential borrowers can get qualified for a home loan either through Nationstar's home-loan unit, Green Light Financial, or one other lender, Freedom Mortgage in Mount Laurel, N.J. Xome is currently in talks with other lenders to join the platform, a spokeswoman said.
A call center in Bellevue, Wash., provides 24-hour chat, email or phone services to assist consumers at every step in the process, Raman said.
"The moment they click a button, every transaction goes through our platform and we give a 24/7 concierge that is going to quarterback the transaction," Raman said. "We do all the heavy lifting."
All the disparate parties involved in a home purchase, from the property inspector to the lender, appraiser to title insurance provider, gets tracked online.
"We're really using the power of technology to empower everyone in the process to do higher-value activities and not spend so much effort on communications or paperwork," Raman said. "Everyone is working off the same set of documents and status updates."
X-Factors: Costs, Investors
Some mortgage experts are skeptical.
Terry Wakefield, the CEO of Milwaukee consulting firm The Wakefield Company, said moving the homebuying process online does not directly address the fundamental problem facing the industry: the rising cost of originating a home loan.
"If you walk into a mortgage company, you'll see hundreds of cubicles occupied by humans with stacks of paper on their desks," Wakefield said. "The only way to reduce your direct labor costs is to get rid of paper and people."
It now takes 40 to 45 days on average to close a home loan, up from 10 to 15 days a decade ago. Meanwhile, the cost to produce a loan has jumped 240% to $7,195, up from $2,113 in 2004, according to a quarterly performance report from the Mortgage Bankers Association.
"What's the point of investing in technology if it doesn't reduce your costs?" Wakefield said. "If you don't optimize your processes before you apply technology, the operational benefits will be limited or nonexistent."
Beyond the massive technological hurdles of integrating so many different processes that go into buying a home, a digital homebuyer platform must fundamentally work in the best interests of the consumer, Lebowitz said.
But that is very hard to do, when investors down the line will demand healthy spreads.
"The mortgage business is difficult because the real customer is the investor," Lebowitz said. "There's an inherent conflict between the investor and the borrower, which philosophically has to be resolved in an end-to-end system, where everybody's interests are served. And that's really been the bugaboo. Can technology do that?"
"It's a grand experiment and it's a grand technology experiment," he said. "You hope they figure it out but there are all kinds of risks."
