Will SaaS firms buy outsourcing firms or vice versa?
Transcription:
Paul Centopani: (
Good afternoon everyone, and welcome to "Is Underwriting and Other Outsourcing the Next Big Win for Lenders and Fintechs?" I'm your moderator Paul Centopani, content editor with The Mortgage Reports. And I'd like to introduce our panelists. We have Bob Groody, the vice president of mortgage operations at Maxwell.
Bob Groody: (
Good afternoon everybody. I lead our fulfillment business here at Maxwell and I've spent more than 25 years in residential mortgage lending. Where at Maxwell, what I'm doing is channeling our energy into growing our fulfillment business, which is a loan fulfillment solution offering reliable, onshore processing, underwriting and closing for lenders that serve America's communities. Maxwell is a growth-stage fintech based in Denver, Colorado. At Maxwell, we exist to give the small and midsize lenders across America a permanent disruptive financial advantage in their market, Maxwell and our mortgage optimization platform does that in three ways. First is technology. Through our point of sale and our processing workflow technology, these work to improve the efficiency and provide a better customer experience for our clients. Number two is people, as we're one of the largest onshore fulfillment providers that delivers tech-empowered outsource mortgage solutions. And then finally through our secondary market offering, where we buy mortgage loans from our clients. We take an agile and nimble approach in responding to market trends and customer needs. We've facilitated over $150 billion of loan volume to date through our platform. We've enabled our loan officers to close over 15% more loan loans per month. And our time to close is shrunk by about 13 days from where the normal trends are in the industry.
Paul Centopani: (
Thank you Bob. And we also have Paul Anastos, the chief innovation officer at Guaranteed Rate.
Paul Anastos: (
Thanks Paul, and hey everybody, thanks for having me here today. I am, as Paul mentioned, the chief innovation officer at Guaranteed Rate. We are a top-five lender in the country. We're gonna fund this year alone over $120 billion in volume and just shy or right around 300,000 loans. We've had incredible growth as a company, we're in pretty much every type of mortgage origination lending you can be in, whether that's retail or wholesale or direct-to-consumer, experiencing large growth in all those channels, as I'm sure many in the audience are as well. In addition to that, I founded and started our technology company called Gateless. That company is an AI solution that we've used for end-to-end in the process to help automate more of the origination and underwriting process and to deliver virtual underwriting without a touch in many circumstances.
Paul Centopani: (
All right. Thank you Paul. All right, so let's get started with a baseline question. Is the underwriting process efficient as it currently stands?
Paul Anastos: (
Who do you want? I mean, I'll take a crack at it first, Bob. At times, you know, it isn't always for sure. Some of that's things that we bring on ourselves in lending and some of that's, you know, a myriad of things, you know, what you're required to do with jumbos and things of that nature. But a lot of it's in how you set it up, how you introduce it to the customer, and how quickly you get them through that process. But the reality is it could be a lot more automated and a lot more streamlined and a lot more responsive to exactly what you need, not throwing a lot at the customer and having them over-provide. So lots of room for improvement I think in the industry as a whole. I think we'll get into, you know, what we're doing and others are doing nowadays to deliver a better loan and to do it faster for customers.
Bob Groody: (
Yeah. I would agree. But I think it's even blunter if I may, and it's not necessarily the right way to say it, but I would say no. I think that there's a lot of activities that happen as a result of consumer preference, consumer knowledge, lender knowledge, lender approach, to what Paul said, that make the process not unto itself inefficient, but the opportunity to make more of this as seamless as it can be where there's more interaction, more clarity and other opportunities like that would render, you know, where we can look for those efficiencies as we would move into the future.
Paul Centopani: (
Now, guys, there's an old saying in lending that underwriting is more art than science. Do either you subscribe to that?
Bob Groody: (
So I could try that first, if it's okay. I think the opportunity to think of it from, it has been more of an art because obviously to make a decision, there needs to be an appropriate amount of information provided as well as judgment made. But that doesn't mean that the opportunity to think of it in a more throughput approach, a more directed approach with clean data and those kind of things becomes where the opportunity could turn some, but maybe not all of it into more of a science than an art.
Paul Anastos: (
Yeah. I think that's spot on Bob. You know, like a very high percentage loans to me are science, can be science, can be very responsive to the findings that you see in front of you. As you get into more complexity in a loan, you know, if it's a self-employed borrower, if it's an investment property, if it's a jumbo with a certain lender, you might run into circumstances where it does become a bit of art. But I think by and large, for most of what lenders deliver today and probably what most of the audience does, it can be more science than art, for sure.
Paul Centopani: (
So that begs the next question: What does the future of underwriting look like?
Paul Anastos: (
I think we're starting to see it Paul, you know. Like, you see it a little bit in the industry. You see people adopting it out there. It's not fast enough. I think it started with people having a better UI and a better digital mortgage. I think that's just the front lines of it. Really what it is now is, a US ??? findings, as soon as somebody applies online, immediately showing the task to consumer at that time, clearing conditions automatically without a touch, getting digital validation of information versus actually supplying documentation. A lot of those things are happening and the key to it now is adding more and more efficiency to that process. People are just starting to do some of the Day 1 Certainty, there's so much more you can do from a consumer-facing perspective to make the whole process easier.
Bob Groody: (
Yeah. And we at Maxwell like the fintech opportunity that underwriting presents. As we look at it, it also aids a lot of consumer preference as we think about their ability to gather, you know, and interpret information and sometimes in a way that we've called self-service, but it also then help lets our humans get to a place where they can render their experience in a way where they can be of service to the customer from an advice perspective or from a clarity perspective, but also put it into a position where that effort then gets to the efficiencies and the speed that candidly most of the mortgage business is still learning how to get to as we think about the steps that we take today.
Paul Centopani: (
Now, guys, why should lenders outsource their underwriting?
Bob Groody: (
Well, it keeps me employed But I actually think that the opportunity to think of it beyond the word underwriting, where staffing opportunities to look at alternatives to having your own in-house staff are very viable ways at times, during the seasonality and the cycles of our industry, to work through those issues in a way where you can use the variable nature of our offerings versus a fixed expense that you have in terms of staffing that you would have on your own. You know, I can tell you that a lot of people also look for companies like Maxwell because we have the reach in order to recruit folks that small-to-midsize lenders may not be able to find in their local markets because we're more on a national scale.
Paul Anastos: (
Yeah. From our perspective, you know, we see opportunities for it. We try to be very specific and very prescriptive in terms of what our outsource providers underwrite for us, you know? So like if you can create a really smooth process, you can integrate that with a lot of good technology. There's always a place for it. And it definitely helps with, you know, large influxes of volume. I'm sure everybody in the audience, you know, went up in volume by double, triple, even quadruple what they were used to. And in 2020, and that carried over into 2021, that's hard to staff up for overnight. And if you have good outsourcing relationships and a good process around that, it can really help you through, you know, that kind of unforeseen volume push.
Paul Centopani: (
Now, Paul you're the chief innovation officer at a major lender, and that puts you in a juxtaposition between technology and people. Now what parts of the lending process are better served by tech, and which are still needed to be done physically?
Paul Anastos: (
So much of it can be done with technology, right? We look at, you know, or my role specifically, would look at both. You know, how do we make, or generate greater efficiency, from a people process perspective, and how do we do it through technology? So I would say on your agency, plain vanilla loans, you should be able to go end-to-end on a lot of those, you know, particularly if you're looking at W2 borrowers, you know, you should be able to go end-to-end with few to, you know, maybe one or no touches on those loans. So we kind of pride ourselves in looking at those loans and saying, "How much of that universe can we take off without somebody looking at it?" Where you see more involvement with people still comes in with a lot of the jumbo lending.
Paul Anastos: (
Like I mentioned earlier, a lot of the investment properties, multifamilies, self-employed borrowers and a little bit with the government stuff, but more and more, if you're smart about how you're implementing and using technology, you can really start to take a large universe of those loans and whether it's putting it to a separate team for them to underwrite or creating a situation where you can clear those conditions without a touch, there's a lot of automation that can help add efficiency in other parts of your process and make you more scalable when the volume's growing like it has.
Paul Centopani: (
Paul just a quick follow up, what kind of automation do you find most helpful?
Paul Anastos: (
For us it always starts at the front-end, like the consumer-facing experience. Like right from when we run AUS, we immediately provide borrower-facing tasks, particularly on all of our agency loans. Like I mentioned, we want them in that process right away providing documentation because we just find the engagement and the stickiness is super powerful. It can save you 7 to 10 days on average. That's kind of been our experience in terms of, from app to, you know, cleared for, approved for underwriting. So you save a lot of time because you get a lot of documents fast, you get typically everything that you need, and there's a lot less touches back-and-forth once that file is submitted. From there, we just layer on top of it, to be honest, we try to clear needs from a customer without physical documents, through digital validation like I mentioned. We try to do the stare and compare work on behalf of the underwriters so they don't have to spend a lot of time making sure both documents match what's in the loan itself. And then ultimately we clear conditions where we can on income and assets and credit as well. So there's so much that you can do, but we always start at the front-end, how we help the borrower first and then how we help everybody in the process after that.
Paul Centopani: (
Nice. Now Bob, you mentioned that Maxwell primarily works with smaller midsize lenders. What are the most common things that you help them with?
Bob Groody: (
Fundamentally, we help them with things that they may not have the financial or human capital to invest in, because some of these developments that Paul and I have talked about take a long time and they cost a lot of money. And as we look at that from a standpoint of then powering those small-to-midsize lenders with Maxwell potentially as an alternative to their own investment vehicle, we get to a place where we come up with the solutions approach based upon how we interact with them and really dig into what they really need and where we can be of help. What Maxwell tech turns into then from its fintech opportunities is a group of engineers, product, development people, but more importantly, people who actually know processing, underwriting, and closing. They can render back a solution that's viable to them as an alternative to them building it themselves, or investing in a larger-scale investment with another firm. Those things make the difference for Maxwell as we look across the country.
Paul Centopani: (
Nice. And before going on, I just wanna remind the audience that they could send in any questions that they have for Bob, Paul, or, you know, myself if you want, sure. We'll save a few minutes at the end to answer them. Now Paul, what does Guaranteed Rate outsource?
Paul Anastos: (
Right now it's very little, right? Because we came off the peak of the volume itself. So most of the stuff we're able to handle in-house, you know, like Bob was mentioning earlier and when we both kind of discussed to a degree. When volumes really ramped up, we try to take a percentage of loans and share them with our outsourcing team. And we try to make all those loans look and feel the same. You know, the more consistency, the more consistent what we deliver is to the outsource provider, the greater the turnaround, the greater the product that we get in return. So right now it's probably only a small amount of agency.
(
Why we do that kind of now when we don't really need to as much, is we like to keep that relationship going. I'm sure, you know, Bob appreciates that as well. But we want to keep those relationships strong, guidelines change as we all know. Sometimes companies change their risk perspective and with that, they change their guidelines a little bit. If you're working consistently with an outsource provider and they're up to speed on all those things as it shifts and you really need to ramp up that outsourcing, you're prepared for it and so are they. You know, they're not surprised by what your guidelines are, the training times a lot less. So we always maintain some level of it. So we're ready for when we really need it.
Paul Centopani: (
Got it. So in this whole outsourcing in lending, where does the role of software come into play?
Bob Groody: (
To me, software is critical as not just a component, but a driver to what we've been talking about from an efficiency perspective, from a cost to produce a loan perspective, from what we'll encounter, likely as we continue to work in a smaller market where price competition and then revenue becomes impacted. It is critical that there be thoughtful, practical implementation of technology and software that gets us to a place where we do the job better than we could with just people. It's been a long time to come, but I think the market opportunity for firms that are on top of that, that either do it, like Paul's talked about, majority in-house or use a firm like Maxwell, if they would like to think about somebody that can give them the scale that they otherwise may not be able to do on their own. I think those things are table stakes as we move into the future.
Paul Anastos: (
Yeah. And even when you're partnered up with an outsourcing provider, a lot of that relies on at least APIs, if not software, you know, where you're able to communicate what's going on a loan without somebody having to keep punching it in two places that, you know, the more efficient that process is, the quicker they can return their approvals and have that show up in our system as approved without anyone changing platforms. You know, that kind of connectivity and technology is super important and makes everybody a lot more efficient. So we look at it every part of the relationship, not only stuff we do in-house, but as well as the stuff we outsource.
Paul Centopani: (
So where are fiscal underwriters still needed? Are there parts of the process that technology can't do?
Bob Groody: (
I see it as the following. I think that the majority of the work that is on more traditional files with more traditional customer income and asset profiles, the real work of the underwriter is to me still to make sure that if there are open items, that there's a person with experience and expertise on the other end of that request, who's ready to answer a question to a loan officer or a processor, as you think about the, let's say the final ones that may be a little trickier than others. I also think that there are loan types, like Paul mentioned, where the ability to look at a critical area or a series of areas where there may be areas of layered risk in the loan itself, while the machine ironing and other things can eventually help get there, I still think one: While it may sound a little old fashioned, there still is the need from a credit risk perspective to have somebody actually take another look at something that may not come out right if you just relied on the machine. And then two: There will be situations where the information is so complex, that we'll be in a position where most of the work can be done, but the majority of it, you know, some of it still needs that human intervention, that human touch in order to make sure that we get to the right judgment call of yes.
Paul Anastos: (
Yeah. You know, with all the volume we've done over the last couple years, the reality is we would not have got through it without great people. You know, you need talented people to get through that type of volume. So we never look at our technology solutions as something that replaces people. It might reallocate or change their role slightly, but our underwriters are in many circumstances our most knowledgeable, most experienced, most talented employees that we have. So what we try to do is eliminate those really easy files that are more or less a waste of their time, you know, and a waste of the customer's time and everybody else's time. Those should fly through the process in minutes, hours, you know, that kind of thing. So they can spend their time on those more difficult and more complex files. You know, we needed every hand on deck, but if we could allocate, and our goal is always like, let's try to bifurcate at least 30% of our volume that goes through strictly end-to-end automation, and then start working through the rest of the 70% from there. And even that number, it might drop down, but we'll still be using a lot of good people in the process to make sure those more complex deals just get processed and underwritten a lot faster than they have in the past.
Paul Centopani: (
Got it. Now, just for the sake of argument, will tech ever get there for making those complicated decisions on those applications?
Paul Anastos: (
I'd say in a lot of circumstances it's getting there. Technology probably is not the biggest limitation or factor, you know. I think sometimes it's more the agencies that are more of a factor in the requirements and the regulations around it. Sometimes it's the risk platform of the jumbo provider that you're working with. In a lot of circumstances, jumbo providers, for example, don't allow for digital validation. They don't accept that. So you have to get the physical document. In some circumstances, you still need two appraisals done on a jumbo loan, so you can't totally eliminate it without some cooperation from the lenders that a lot of us sell loans to, but you can get very, very close to it. And even in the most complex circumstances, probably do some pretty cool things from a calculation perspective.
Bob Groody: (
I would concur. I think the eventual yes, to your question is to me still dependent upon those things that Paul mentioned. Because look, there's a lot of people who have been in the industries as well as other lending-type industries that understand risk theory and other things like that, that impact the ability for technology to be to your, quite the way you asked the question, the only way you do it. I think the other picture to the example about jumbo is first-time homebuyer. There still is a lot of need that they have in order to be clear with what we need in order to help them to a yes. You know, so if those two things become ends of the barbell, if you will, and the rest of it in the middle gets taken care of through technology, that still is a win for the customer experience, the companies that are in the business. It's really just, you know, how effective you make your investment in that technology that really is dependent upon the direction that you take with that journey.
Paul Centopani: (
Nice. Okay. So will software-as-a-service firms buy outsourcing firms, or vice versa? I know that's kind of a change of gears here.
Bob Groody: (
Go ahead Paul.
Paul Anastos: (
It's probably more your lane than mine, Bob, but, you know, I would say there's an opportunity for that to happen either way. I mean, sometimes just strictly from evaluation perspective, some of those SaaS-based solutions have a lot more money to spend and they might buy outsourcing to kind of prove their concept out a little bit more. You know, if you're trying to get from 85% doc recognition up to 100%, it's nice to have people behind that machine learning to make sure or that you can get there faster. Or to even use it as a backstop when you can't get there all the way with the technology they have. So I see it as something they could buy. I find SaaS-based solutions to kind of really strongly believe in technology. So, as much as I think they should invest in that, they don't always. And I think outsource companies, you know, I'll leave that to Bob. He probably has a better experience in that than I do.
Bob Groody: (
Yeah. I really think the opportunity to compliment the human work with the technology, or the SaaS-type firm creates the opportunity for that to be viable. I think of the fact that Maxwell serves the number of clients that we do and the small-to-midsize profile that we've talked, about as compelling. Because when you look at the combination of technology, and let's just call it the super user, if you try to train your existing resources in a midsize to smaller company about becoming a super user, do something different, that's a lot of change management for them to go through. Why not put the two together and offer that service to that same client in a way that gets them to the solution much faster? The other part of it, the other part of the picture is the ability for that to become something that people can depend on.
Bob Groody: (
So that if there is something with the technology that doesn't work at some point in time, for whatever reason, you're not now missing the opportunity to look at the other compliment to that, which is the people. And then finally, what the SaaS firms really also do well, and Maxwell's one of them, is our interaction with prospecting, where we have sales development that can serve that small to midsize market that we talk about, brings us to a place where the outsource firms would look at that and say, we can't touch some of those because we can't get to them. Now they sure can. But as you look at it, it really gets you to a place where the combination is not just because I'm sitting here with Maxwell, but is very viable to think about as a strategy as you move into, move through the industry cycle.
Paul Centopani: (
Kind of a bottom line. Does this outsourcing, is it helpful to the borrower in the end?
Bob Groody: (
If the outsourcing, if and yes, the outsourcing does deliver a more efficient and/or speedier process, the mathematics in our industry would suggest that then the customers can benefit from that speed or better, as they think about the overall cost that they incur in order to do the loan. Could be in the rate, could be in something else. So the idea that you can go faster and speed wins, does become a part of this picture, as you think about that question.
Paul Anastos: (
Yeah. Just to add on top of that, you know, and like I mentioned earlier, you know, it's really incumbent on you as the lender to kind of set up a process. So outsourcing can be beneficial to the customer. And that can be both customers, right? The external customer and the employees that you have in your operation. You know, like if purchase volume triples from where, you know, our capacity to where we are now, you know, when we come into the spring in the upcoming year, it's hard to staff into that. If you have a good process set up with a good outsource provider and you can keep your underwriting turn times really fast, like same day, next day, which is what the world really demands now, it can be super beneficial to the customer externally and also your employees. So they're not overwhelmed with the volume when it hits that rapidly. You know, we don't want our people working 80-hour weeks. That's just not good for their long term. You know, we want them working efficiently. We want them spending their time on the most critical, most complex things. And we want to use outsource in a smart way when we need it.
Paul Centopani: (
Yeah, totally. Yeah, 80-hour weeks, not good at any term. And now, we have a question from the audience, and we're almost out a time. So Paul, what role does Gateless play supporting G-Rate and what role does it play serving the industry?
Paul Anastos: (
Yeah. Good question. So whether it's G-Rate or anybody else, it really works the same. You know, we spun that company out. It's separately owned, so it's truly a technology business outside of Guaranteed Rate. We're obviously Gateless' largest customer at this point. What we use them for is a lot of those things that I mentioned off the front, you know, that smart task list that goes to the consumer, that's really taking, translating the guidelines into English so consumers can understand it, makes it easier for them to provide those documents. And then it goes all the way through the process where it does the stare-and-compare, provides all the information in an underwriting dashboard, so the underwriters can see exactly what happened every layer down, if they need to, and then does a lot of the condition-clearing on their behalf, that capability comes out in the early part of next year. So Gateless supports all of that for Guaranteed Rate. The beauty of Gateless for us is it was developed in sight. We've been able to incubate it in one of the largest mortgage companies in the country. So if something didn't work or wasn't working, we were able to fix it. And that's why we think it's beneficial for consumers to use. But right now it's strictly a technology company looking to grow like a lot of technology companies.
Paul Centopani: (
All right. So we are just about at time. Bob and Paul, thank you so much for your time, your insights, and thank you for everyone who watched.
Bob Groody: (
Thank you. Thank you all.
Paul Anastos: (
Thank you.