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In July, Rob Clements and John Surface, two veteran bankers who had led EverBank Financial for more than two decades, joined LenderLive Holdings as chairman and CEO and president and COO, respectively. HousingWire recently sat down with Clements to discuss his new role and his and Surface’s vision of how to take LenderLive to the next level.
HousingWire: What prompted you and John to join LenderLive?
Rob Clements: Over the past 18 years, LenderLive has grown into an impressive, diversified services provider to mortgage companies, banks, auto loan servicers and other financial services firms. Today, our company is the leading onshore provider of private-label fulfillment services for banks, credit unions, and wealth management companies that want to offer mortgages, but don’t want to be in the mortgage industry. At the same time, our services business supports banks, nonbanks, and servicers that need the capabilities to efficiently provide title services, electronic documents and highly compliant critical borrower communications.
LenderLive is a great platform and one that John and I believe is poised to evolve and grow. We see similarities to EverBank, a company we grew from $200 million in assets to a nationwide $28 billion diversified financial services company. We plan to use that experience to take LenderLive to the next level.
Q: What opportunities do you see for the company?
A: On the private-label side, our opportunities will come from meeting customers’ changing needs. Mortgages are a cornerstone product for banks and credit unions, but the business itself is challenging. In the last year, mortgage lending volume has fallen by about 20%, while the cost to originate a loan is now nearing $9,000—up from $3,400 just five years ago. Compliance is driving much of the cost increase and there are few signs that this is going away.
Meanwhile, the banks’ customers are changing. Many are younger and digitally sophisticated who want to explore their options online and not talk to a loan officer, at least not at the beginning of the process. This means banks have to invest in new front-end consumer direct solutions while maintaining and continually updating their mortgage infrastructure.
Partnering with LenderLive gives these banks the ability to leverage our investments in technology, compliance and infrastructure to lower their costs and shift their investments to front-end solutions that level the playing field. As we add new fulfillment clients, we get the benefits of scale and new customers for our document management and title services businesses. Both businesses have a strong and deep list of blue chip clients.
Our services business is also poised for continued success working with mortgage servicers to provide integrated document management services. Our current clients represent 65% of the servicing market, and we are excited about the new clients in our sales pipeline.
Another point that I’d like to make is that “partnering” to expand capabilities is a new paradigm that many businesses are moving towards. What makes this possible is the ability to align or integrate new technologies that streamline processes more seamlessly. This is far different from the old concept of outsourcing, and it is an approach that we are emphasizing. We’re encouraging our clients to think of us as a partner, an extension of their organization.
Q: Last year, the largest player in the private-label fulfillment space announced it was exiting. What has this meant for the sector and your business?
A: Basically, it’s created new opportunities for us. LenderLive assumed PHH Mortgage Corporation’s private-label fulfillment operations, which allowed us to add a significant number of talented mortgage professionals and establish a new operations center for our company in Jacksonville, Florida. That team is handling loan processing, underwriting and closing activities for current PHH clients until the contracts are completed or transitioned to LenderLive.
Q: LenderLive recently reorganized into two divisions—LenderLive Network and LenderLive Services. What’s the strategy behind this move?
A: Because our businesses have achieved significant growth, creating two divisions allows us to improve our operations and better focus on the needs of our clients. LenderLive Network handles mortgage fulfillment and secondary market execution for lenders who want to outsource mortgage fulfillment. LenderLive Services allows us to provide a complete and compliant document management and delivery solution from origination through default to banks and mortgage companies that are committed to lending and servicing.
The new structure makes it easier for us to work with regulators and accelerate the expansion of our title operations, while still benefitting from synergies between the businesses.
The divisional focus has helped us identify new business opportunities. For example, we have now created a new business line called LenderLive Compliance Solutions that provides a customized compliance offering in addition to our traditional bundled service of compliance and document fulfillment.
The new customized offering gives regional banks and credit unions doing smaller volumes of mortgage and auto loans access to our compliance solutions on an a-la-carte basis. This leverages the investment and talent that we’ve put into our document and critical borrower communications businesses.
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Q: As a former banker, what do you see as the challenges that regional and smaller banks are facing in terms of their mortgage operations?
A: Regional and smaller banks face many operational challenges today. The most obvious is compliance. A relatively small bank that engages in mortgage lending has to comply with the same level of regulation—at both the federal and state level—as the largest mega-lenders. The scale may be different, but the needs and costs are the same.
And the costs are escalating all the time. Based on discussions with clients, the cost of compliance for a regional bank originating 150 loans per month ranges between $25,000 and $30,000 per month, or roughly $200 per loan, when you factor in the cost of relatively high-paid compliance officers and outside counsel, infrastructure and technology.
Regardless of size, we are able to provide clients with the ongoing regulatory support that helps improve efficiency and reduce costs. Working with us, they can leverage our significant in-house expertise along with our extensive template library, which includes origination documents for all 50 states, as well as borrower communications for loss mitigation, pre-foreclosure/default and general servicing.
In addition, regional and smaller banks are competing against the megabanks and mortgage companies for qualified compliance specialists, underwriters, processors and closers. To support growth, many face the burden of continually recruiting and maintaining staffing.
As banks grow, private-label fulfillment can help shift a significant portion of costs to a third party that can absorb the additional expenses because they’re spread across a number of clients. The cost of origination changes to a predictable, variable cost, fixed fee—enabling a bank to scale up or down, knowing what their costs will be.
Of course, banks still have the obligation to maintain oversight of their fulfillment partners, to monitor their vendors’ policies and practices, and to be alert for consumer complaints. Because we work with the nation’s leading banks, we help to make that process easier and more efficient as well.
Q: Since the enactment of the Dodd-Frank Act, the mortgage industry has been almost entirely focused on compliance. Do you think deregulation will happen and result in the industry reducing their emphasis on compliance?
A: The short answer is no. While leaders in Washington, D.C. are considering diminishing the authority of the CFPB, regulators are busier than ever. In fact, there have already been 17 CFPB enforcement actions to date in 2017, up from eight last year. Of course, if some relief does come at the federal level, we expect state regulators to continue pursuing an aggressive regulatory agenda.
States like New York and California have a strong appetite for increased regulation and no pressure to end oversight. These larger and politically influential states can have a quasi-federal impact in terms of regulatory requirements, and actions taken by these states will dilute any softening of federal rules.
In addition, as the recent enforcement action taken by 20 state attorneys general, in conjunction with the CFPB, against a major nonbank mortgage servicer shows, many states are active in enforcing the CFPB’s agenda.
Regardless of the administration, the state regulators are key players in our dual-banking system and will continue to take an active oversight role.
That being said, the mortgage crisis brought about a much-needed regulatory framework. While there may be disagreements on implementation and enforcement, there is a general consensus that the current mortgage regulations serve a purpose and strengthen lending organizations, consumers, and the economy overall.
Q: Are banks re-thinking their mortgage strategies given the growth of successful digital mortgage products and new fintech entrants? How can LenderLive help level the playing field for banks?
A: Advancements in technology certainly have everyone thinking about how to improve the customer experience. We’re seeing consumer demand for the mortgage loan buying experience shifting to digital. The advent of technology now allows for a personal, guided online experience in what may be the single largest investment many individuals will make. However, lenders should not lose sight of a crucial point: when borrowers need guidance, a human loan officer is a necessary component of that buying experience.
Moving to a digital mortgage also produces steep cost reductions. The cost of originating and manufacturing a digital loan is a fraction of a traditionally originated, processed, underwritten, and closed loan because it’s much more data-centric and less human-centric, thanks to automated decision making. Historically, loans required a human to make the cognitive decisions. Using a data-enriched process now allows humans to focus only on exceptions.
LenderLive is heavily investing in technology and digitization to totally transform the mortgage experience.
