Transcription:
Parvesh Sahi (00:10)
Hello and good afternoon. Unfortunately, I can't see everyone out there, but I'm really happy to be joining the session today. So a good morning and good afternoon to everyone that's in their respective time zones.I’m really excited that everyone was able to join here today. Thank you for joining and thank you to the Digital Mortgage team for putting on this conference the past couple days. I've ducked in and out of sessions. There's been really great innovation that's happening across the board, and I think is really a testament to what we've been seeing in terms of the innovation in our industry, and actually justifies, I think, quite a bit in terms of what we've seen in terms of [the] attention and funding that this industry [has] received from the investment community. So really, really exciting…stuff. A couple [of] quick things before we kind of jump into the session today, which I hope to be an engaging kind of…midday keynote.
Parvesh Sahi (01:17)
…Background on myself. As you can see, I am the senior vice president of business and client development at ICE Mortgage Technology…really wearing three hats within the organization. I lead the sales organization, which includes client management, also the partner ecosystem, and then… a third hat, really, on the M&A strategy team…So that's my role within the ICE Mortgage Technology team and I’m excited to continue on in this role under ICE.
Parvesh Sahi (02:00)
The second thing is we will be looking to take questions at the end of the session. So I'm gonna try to keep things concise and make sure that, you know, we hit on all the salient points, but I'm very interested in engaging the audience and taking any questions at the end. So we will try to allot some time on that side.
Parvesh Sahi (02:21)
So to get into the content, we're going to start and I'm just going to kind of share some thoughts on where we are seeing the industry go…I will share a few slides that kind of really congeal the concepts that we are going to be laying out today and then go to the Q&A thereafter. [The] topic that I'm really excited about talking about today is really one that hasn't garnered a ton of attention up until recently. This has been a topic that I've been personally interested [for] probably the past three or four years, but now we are starting to see technology and innovation teams start to dig in, and that's really the concept of secondary market digitization.
Parvesh Sahi (03:16)
…As you know, we have all embarked on the digital transformation journey together over the past several years. We've seen a lot of attention given to the consumer engagement side of the house, and rightfully so. Anything we can do to engage and attract borrowers into a digital experience is really gonna be core and foundational to the success of a lending institution. I think what's interesting now is that we now have the opportunity to think about the back end of the process in a little bit of a similar format from a digital experience that can start to afford lenders the ability to think about their selling, purchasing, and even pricing innovation in a very, very different way that can then even be tied back into that consumer experience that we are digitizing on the front end.
Parvesh Sahi (04:22)
So as we venture into this topic, I think there's lots of different components to it that we'll kind of walk through and are really kind of interesting areas to go a couple levels deeper outside of this session, and I’m happy to take follow up questions even outside of this session. So, it is interesting because…if you think about what we're trying to accomplish on the consumer engagement side, it is very similar to [the] secondary market approach that we want to take.
Parvesh Sahi (05:10)
Fundamentally, when we think about engaging a borrower in a digital experience, what we're looking to do is… improve that experience for the borrower, but there [are] also downstream benefits to the originator that gets the borrower into that digital experience. Things like automating the process, reducing costs, reducing time because the borrower started in a digital format and then has afforded the lender the ability to leverage that data and drive automation going…forward. Well, if you think about the secondary market sellers and buyers that participate in the back end of the process, it's very much a similar and analogous way to think about the business as that borrower to originator. So in the instance [of] secondary market digitization, the buyer really wants the seller to have everything start in essentially that digital format.
Parvesh Sahi (06:14)
What that does is two things very similar to…on the consumer engagement side. The seller ends up having a better experience for that particular buyer that they are selling to, but also, that transfer of the digital transaction from origination of the secondary market also affords the buyer, the downstream benefits of as well, similar to what happens on the origination side, where they're able to reduce time, costs and really everything associated with the post-closed purchase transaction.
Parvesh Sahi (06:56)
So [these are] all really kind of interesting ways to think about digitization, all the way from the consumer…to the investor. We also know that in addition to the buyer being able to reduce [the] post-close purchase review processes and duplicative tasks, they are also looking to innovate and afford very innovative pricing options to the seller as well. So again, we'll talk a little bit about how we're headed down this path of digitization and what it affords, but those are fundamentally, I think, things to keep in mind as we talk about this topic. So I think ultimately when you think about all the things that the seller and the buyer want to achieve in this digitization, it ends up begging the question of why haven't we been able to achieve this, and where are we at in the progression and in the continuum of secondary market digitization.
Parvesh Sahi (08:06)
I think it really comes down to two fundamental things. I think when you think about where the buyer and the seller want to go, they ultimately want to be able to be in a world where they can trade trusted data and documentation and exchange that information through a platform that allows them to have a seamless integration with that trusted data and documentation. And I think we all know that in the origination process, on the seller side, what ends up complicating the ability to achieve this goal is essentially that we have a lot of participants in the loan manufacturing process that participate in developing that loan. And so what ends up happening is [on] the origination/seller side, you end up with way too many opportunities for the data to leave the system of record and become disparate from what actually ends up getting generated on the loan documents. Ultimately, you want that data to be consistent [with] what's used on the [underwriting] side to what ends up on the final documentation. So absent that, it's very hard to create this seamless transaction between the primary market, which is the seller, and the secondary market, which is the buyer.
Parvesh Sahi (09:44)
The second thing is, and I've touched on this earlier from a pricing standpoint, is that a lot of times pricing decisions, as well as underwriting decisions, are made in a “point in time” data format. Ultimately it doesn't take into account the movements that happen in the market within…30 to 40 days out from when the loan is liquidated into the secondary market. So what that does is…cause is a whole bunch of potential margin compressions and things that are not really contemplated up front.
Parvesh Sahi (10:25)
We know that there have been a number of institutions that have tried to solve for this by cobbling together legacy technology, but ultimately those solutions are not interoperable and don't allow for that straight through processing and insight from price to close to make sure that margins stay whole. So that's one area that really needs to [be] solved for: How do you create a trusted data set that can get exchanged from the seller and then into the buyer? I think…we all know from the mortgage technology space and the mortgage industry in general that we live in a fairly fragmented ecosystem, and in order to achieve secondary market digitization, you really have to create a world that enables the interoperability among several key constituent bases that are fairly fragmented across the board.
Parvesh Sahi (11:41)
When I'm talking about those constituent bases, I'm not talking about the solution providers that I mentioned earlier that help with the manufacturing of the loan, like credit or appraisal or fraud. It's more about probably four key constituents that need to come together to be able to create that ability to trade that trusted data and that trusted documentation among each other. I would say that constitutes the lead community, the title and settlement service community, the secondary market or buy-side community, and you can kind of break that down into two or three folks, whether that's an aggregator, an agency or a securitizer. Then the fourth [constituency] is really the servicers, and if you're able to tie those four together and figure out how we can create interoperable system-to-system connections among those different areas, then what that really affords us to do is to be able to really eradicate a lot of these costs.
Parvesh Sahi (12:58)
I saw the slide pop up, but I don't know that I'm ready for the slide yet…So [to be] really be able to create that interoperability across the entire industry, and really [the] piping to trade the trusted data and documents across the board…what [are] the motivating factors to do that? I alluded to some of the post-closed purchase costs that need to happen. Some of the things that can get eradicated are really a lot of those duplicative tasks that happen on the back end that can be brought up into the front end. If the trusted data set is put on the delivery rails into those four constituent bases to help clear that transaction, disperse the funds wherever the funds need to go, and then receive the security or the asset on the secondary market, they are able to do a lot less, and operate with a lot higher velocity on that side.
Parvesh Sahi (
So I think ultimately, all of those are kind of key areas that we want to be able to look at…To kind of help articulate some of this, because I know some of it can be nebulous…we do have some slides that we can pull up and share with you that I wanted to show.
Parvesh Sahi (
This is a return on investment study that we…did here at ICE Mortgage Technology that really identified where a lot of the gaps are in the industry from the seller side. So you can kind of go across this heat map and you can see all the inefficiencies that are associated with automated purchase reviews, classifying documents, [and] ingesting loan packages where people are having to take key data points and re-key them into systems. A lot of these things are things that… I think most of the folks in this forum the past couple days would say…are not hard things to solve for from a technology perspective. It's really about all of the other things that I mentioned earlier. [It’s] about how do we bring the ecosystem together to solve for [those] things?
Parvesh Sahi (
…Then you get to what's on the next slide, which is really talking about that system-to-system connection that we need to create among all these participants. This is just kind of starting with one connection between the lender and the investor, not the other participants, with servicers and settlement agents, but this shows that ultimately what we're able to do is start with data [and] loan delivery and create that system-to-system connection. Once you get those rails connected, you have the ability to ingest the trusted data into the investor side, and then ultimately what ends up getting built out from that is the ability to extend those capabilities on that system to system connection, to be able to centralize and innovate through tha [and] through those connections. So it's not just about taking the trusted data and delivering it into the system, it's then affording the ability to eradicate the cost on the backend, and then have that system [communicate with] the front end, from the buyer to the seller. That allows you to do things like…provide purchase advice and loan bids and, and real time pricing.
Parvesh Sahi (
… I think a byproduct of creating this environment that I think we're all kind of going after is also the ability to…really [use] the data…that comes from all of these different components in the seller to investor transaction when it is digital. One of the things that we look at a lot at ICE, and I know that the industry has looked at, historically, is how do we get to this model of a predictive analytics, whether it is looking at potential prepayments, loan performance and things of that nature that will help the investor make proper buying decisions [or] mitigate risk…
Parvesh Sahi (
So, as you think about the evolution of originator, starting in a digital format, or getting into a digital format…and…documents [that] are trusted, and then delivering that through…a secure pipeline into the investor community, where they can receive the associated data…[If] all of that data that is flowing from origination into investor into servicing and into the title and settlement agents is uniformed and trusted, then what can you actually do to start to connect these different components from origination to servicing to then start to inform predictive models for loan performance. So I think those are the things that really are exciting and also start to add to a lender's true bottom line. At the end of the day, yes, we have to continue to digitize the consumer experience on the front end, but we also have to be able to think about how we actually effectuate [improvements to] our margins, our efficiencies, and ultimately move the needle forward [for] a…front-to-back digital transformation.
Parvesh Sahi (
I think those are the things that I think we're really excited about. I know we just want to spend 20 or so minutes kind of talking about that at this digital mortgage conference, but I'm happy to take any questions along these lines as we here at ICE think about this a lot. I know the overall industry is thinking about it a lot, and there [are] going to be a lot of participants that are going to be needed in order to move this needle forward. So with that, I'm happy to take any questions that may be top of mind. So it looks like I'm getting a couple here.
Parvesh Sahi (
One question is how soon do you think correspondent digitization can actually reach critical mass and move the industry forward? So I think of this, really, as a continuum. I think the industry thinks of this as a continuum. I don't think I'm unique in this sense…Ultimately, today we already have a number of bespoke portals and we're leveraging legacy technology like email to facilitate really mundane tasks and, and communications. I think that it's been recognized that if we're able to build a system-to-system connection, that you can get rid of a lot of those portals and emails, [which are] not necessarily the best and most secure way to communicate. There's a whole time-in-motion issue where if someone sends an email to give purchase advice or condition clearing [it] doesn't necessarily get injected back into the workflow to clear the transaction.
Parvesh Sahi (
So I think that's been recognized that some of these legacy systems are there. We have seen one-off builds. We've seen several folks try to kind of build direct delivery. So those pipes are starting to kind of get built, but ultimately what you want is you want an overall marketplace and ecosystem that interoperates with each other. So I think that's going to be the “phase two,” where I think the industry has recognized the benefits of the system-to-system connection…Then the next step is to convert that system…into a true marketplace, bringing the buyers and sellers together. [The] next question [to address] is, we're really focused on security in my organization, what is the impact of this methodology? I think it actually [addresse that] very well on the security side.
Parvesh Sahi (
I think when you think about…the data and document transfer...today, if you go into a portal and you upload and type in information that does allow for a direct input into a secure portal, but the seller… is…pulling the documents onto their desktop, or they're going into…their folder to upload things into that portal. A lot of that can present a lot of risk for the seller on that side. I think the other part is when you do have this back-and-forth between [investors] and sellers about condition clearing and steps and things like that, a lot of times, there'll be an email request, where there's follow up documentation requested and the originator will send it via email, whether it's a letter of explanation or whatever it might be.
Parvesh Sahi (
A lot of times in those free-form documents, you don't really know what data could be in there, and it could seem fairly innocuous, but, a lot of times, it can have proprietary information in there. So to whatever extent that you can leverage a secure encrypted system-to-system connection, it's going to afford you a lot more security in that sense. I can tell you as being part of ICE now, security is top of mind, really, in everything that we do given our global footprint across our exchange business and some of the other areas.
Parvesh Sahi (
Let's see, [this question] says, you mentioned ICE, have you experienced more benefits coming together? What is the plan with MERS, Simplifile and formerly Ellie Mae. I guess I'll answer this in two ways: one, within the three components that are coming together, and then two, just thinking about how we think about things as ICE as a whole…I think with Simplifile, MERS and Ellie Mae coming together, it really does touch on what I was alluding to, which is interoperability within the ecosystem. To the extent that we are able to leverage our assets where Ellie Mae represents about 50%, I guess I should not say Ellie Mae anymore, Encompass represents about 50% of all us originations, MERS, represents 85 to 90% of all loans originated from a registration perspective and Simplifile represents a large market share as well.
Parvesh Sahi (
We're able to really create that interoperability in the ecosystem across the board. So the things that I was talking about earlier really achieve those things that are being asked [about] here. Then I think, to take it one step [further] for folks that don't know, ICE is really…we're kind of boiled down into three business units. We have our global exchange business, we have our fixed income and data services business, and then we have our mortgage technology unit, which make up MERS, Simplifile and Ellie Mae. I think the historical charter for ICE has really been to create digital networks and convert things from analog into digital. For people that don't know, the New York Stock Exchange is one of our 12 global exchange businesses that we own.
Parvesh Sahi (
In that environment by itself, it historically was analog. People were on the trading floor, exchanging notes and bids and trades and asks. Ultimately what we did at ICE when ICE acquired the New York Stock Exchange is we converted that to much, much more of a digital transaction. Yes, we still have people on the floor that serve their part, serve their purpose, but [it’s] largely a digital network where we've brought buyers and sellers together. So I think, the things that we think about there really help in terms of how we frame up this problem as well.
Parvesh Sahi (27:23)
I think we have time for one more question, and then I can wrap it up and let everyone get on to their next session. “Can you give us your contact [information]?” Yes, I'll give contact info. for follow up questions…I'll send that out to the team and then that can be distributed as well.
Parvesh Sahi (
I think that's it. I think those are all the questions. In summary, I'm very excited about where we're at in this space. I know that we are starting to get more and more attention from the entire industry about how we're going to start thinking about digitizing the secondary-market transaction between the sellers and the buyers, and ultimately it really affords the entire industry a number of things where lenders are going to be able to really think about as we enter into a purchase market and if there's margin compression, what we are going to do to effectuate and offset those potential headwinds…Also as we're digitizing and innovating on the front end, if we are able to start to think about bringing the backend digitization and the cost reduction into that front end equation, you start to think about it a little bit more holistically and [that] affords lenders, borrowers, and buyers/investors all the benefits of the digitization journey that we're all on. So thank you for your time. I appreciate everyone's attention and am looking forward to seeing you all in person.