Dark Matter Technologies, formerly Black Knight Origination Technologies, is focused on mainly two things: the smooth transition to new owners, and lowering the cost to originate loans for lenders.
Executives from Dark Matter Technologies, under the Constellation Software umbrella, said that a down market is the best time to make investments in technology and prepare for the next cycle.
With lenders focused on bringing origination costs down in a tough origination environment, the firm saw up to a 300% year-over-year growth in new user numbers for the past couple of years.
“We actually do well in any kind of market,” Rich Gagliano, CEO of Dark Matter Technologies and former president of Black Knight, said in an interview with HousingWire on Friday.
“Now we’re in a down cycle, they need to do it with fewer people and they need to be more efficient to get the cost down. So it’s really the same story, just different markets,” Gagliano said.
Dark Matter Technologies, which completed the acquisition of Black Knight’s Empower and Optimal Blue last week, will be working towards a smooth transition over to Constellation Software with its 1,300-plus employees for the remainder of the year.
The company doesn’t plan to raise pricing for Empower and is focused on services and products that will drive down the cost of origination and employee borrower retention, executives said.
Gagliano, Sean Dugan, CRO of Dark Matter Technologies and Tom George, co-president of Romulus, part of the Perseus Group of Constellation Software, participated in the interview.
Read on to learn more about Dark Matter Technologies’ plan for mortgage.
This interview has been condensed and lightly edited for clarity.
Connie Kim: Constellation’s Perseus Group has a pretty big real estate portfolio. What were the reasons for buying Black Knight’s Empower and Optimal Blue? What opportunities did the firm see?
Tom George: The way Constellation operates is that we focus on acquiring vertical market software companies and portfolios of vertical market software companies with the intent to stay in these industries forever.
We started almost 20 years ago and Perseus in the homebuilding industry, we built a significant player in homebuilding software, that led us to an adjacency residential real estate where we bought over 20 companies. More recently, we started acquiring businesses in the mortgage tech space.
We plan to be in the mortgage tech space forever. And we plan to continue to acquire there.
Kim: What other mortgage tech companies has Constellation Software acquired?
George: We’ve acquired three other businesses in the mortgage space. We bought Mortgage Builder Software from Altisource Portfolio Solutions in 2019. There have been two additional acquisitions – ReverseVision, which is a leader in the reverse mortgage LOS space, and then a document storage product called Back Support.
Kim: Are you expecting any layoffs during the transition? Will the same management from Black Knight’s Empower and Optimal Blue be in place?
Rich Gagliano: We’re not expecting any changes. [About] 1300 [employees] are going to move over with us and it’s business as usual.
Kim: It’s a tough mortgage origination market right now. How does the company expect to manage profit amid industry consolidation, bankruptcies and attrition?
Gagliano: We’ve seen a strong pipeline. Even though the markets are down, what we encourage and talk to clients about is when you’re slow, that’s the best time to make technology changes. Now is the time for that change, and get yourself ready for the next cycle.
We actually do well in any kind of market. But honestly, when the market is crazy, lenders are looking for efficiencies because they can’t find and hire enough staff. Now we’re in a down cycle, they need to do it with fewer people and they need to be more efficient to get the cost down. So it’s really the same story, just different markets.
Kim: I definitely hear a lot of mortgage tech companies saying ‘this is the time to invest, especially when the market is down.’ You mentioned a strong pipeline, are we talking about new clients?
Sean Dugan: We’ve had 200% to 300% growth year-over-year for the last couple of years. And we don’t see that backing up. Those are not financial metrics, that was just on the number of clients acquired. When we took the Empower LOS platform to the down- to mid-market clients and really focused on that, we saw the number of acquisitions per year grow in a really significant fashion.
Kim: Empower has an estimated market share of around 10-15% after ICE’s Encompass which takes up about 40 to 45% of market share. How does Dark Matter plan to compete against Encompass?
Gagliano: We believe strongly in technology. We’re generally in most of the deals when we know about them. We believe that the automation, and the technology and the solution that we bring, and the ecosystem that we have, is best in the industry and really helps these lenders drive cost out of the system.
We compete with multiple product providers out there, including Encompass. But we like where we are positioned and I think our clients like the innovations that we’ve brought over the past over years.
Kim: When I talk to lenders, they say when using a company’s LOS, using the same company’s add-on products makes it more cost-efficient and seamless. What are some of the add-on products the company has already developed or is seeking to develop to win over lenders?
Gagliano: Just over the past couple of years, we’ve added Ava, which is our artificial intelligence capability. Ava has added a couple of additional products over the past two years. We’ve added an underwriting efficiency product, we’ve added a post-close product that’s going into production – so fairly new products.
We’re going to continue to use the products that we have in our bundle today and sell those so no changes there. But we are incrementally adding new technology, new innovations, that are going to help drive that cost down.
Dugan: We’ve also delivered digital portals for each one of our business channels within Empower, which would include retail, wholesale, correspondent, home equity and assumptions. We also have business intelligence as a component, and then a vendor aggregation platform, which was by the name of Exchange. Those are some of the components that make up the Dark Matter-owned bundle of services within Empower.
Kim: I know Ava has some kind of AI aspect to it. Right now, a lot of mortgage tech companies are focusing on AI. How they’re going to utilize AI to be that middleman between the customer and the loan originator. I’m curious how Dark Matter is going to integrate AI and machine learning (ML) to the LOS and other products.
Dugan: Regardless of what the technology solution is, clients are looking for flexibility, configurability – things that they can configure to meet their particular requirements. They’re looking for a really significant return on their investment, and they’re looking to drive the cost of origination as well as employee and borrower retention.
Kim: One of the concerns about the ICE-Black Knight merger was the fear that ICE would raise prices on the LOS products. Will there be any pricing changes for Dark Matter Technologies?
Gagliano: We don’t have anything planned at this point. Our Constellation partners haven’t asked us to come in and raise prices. That’s not part of their strategy, their strategy is to acquire quality companies and run the businesses.
Kim: Who does Dark Matter Technologies consider as competitors right now?
Dugan: It’s any origination technology provider. There are a number of providers that are delivering services specific to underwriting capabilities, so we would compete with them. So I think it’s a host of providers and vendors across the ecosystem of this particular vertical that we compete with on a day-by-day basis.
Kim: What are your prospects for the remainder of the year for mortgage origination? What are some of the larger goals for Dark Matter Technologies?
Gagliano: Through the end of the year, we’re going to be transitioning to Constellation moving off Black Knight Technologies. We’ve added some corporate-level capabilities already. So we feel good about where we are and stay focused on that through the end of the year.
