A candid, slightly irreverent chat with a technologist from Silicon Valley.
Sanjeev Malaney is the founder and chief executive officer of San Francisco-based Capsilon Corporation. The company's location within the Silicon Valley ecosystem feeds the innovative spirit that drives the company and its CEO. [paragraph] Capsilon's flagship product, DocVelocity[R], is a document and data management platform. The company provides cloud-based document imaging and data capture solutions that boost productivity and lower costs for mortgage lenders. The company's primary focus is all about the ongoing battle with paper in the mortgage business. [paragraph] The company saw a 58 percent increase in the number of DocVelocity users in 2014. It grew its employee head count by 25 percent last year. Revenue growth has averaged more than 50 percent in each of the past four years. [paragraph] Last year, the company unveiled its vision of straight-through processing of mortgage loans, supported by a new release of DocVelocity that provides automated data extraction capabilities and rules-based decisioning. [paragraph] Malaney sat down with us in Las Vegas last October and shared his unfiltered thoughts about technology innovation and the mortgage industry.
Q: Let's start with the Consumer Financial Protection Bureau's [CFPB's] Integrated Disclosure rule. The industry seems to be having kind of a heart attack over this. I'm just wondering is it as big a technology challenge as it sounds?
Q: OK. Tell me why it isn't.
A: I don't get why it's a technology challenge. Maybe it's because I'm a technologist. It's a form that needs to be filled out. It needs to be sent and it needs to be signed. I don't see what's complicated about that. It's not like the same borrower remembers how to sign the old [form], so I'm not convinced that it's a technology issue, No. 1. There's something else going on maybe around the calculations or the ambiguity around it, but it certainly isn't a technology problem.
Q: If you were to rank the top three, five, whatever, true technology challenges for mortgage lenders right now, what would they be?
A: I don't think there is any technology challenge. I think there is an adoption and implementation challenge, and I think it's partly because people are not sitting back and really analyzing their businesses.
As an example, I'm looking at some very interesting statistics about how the cost of origination has gone up in the last three years. Notwithstanding the cost of paying people sales commissions and everything else, it's a ridiculously high number.
The question is why? If you're using more human labor, then shame on you. You should have somebody in your organization or some consultant sitting back and saying, "OK, you're spending $4,500 per loan. There's something wrong with that." Just to collect information, do a risk analysis-- which any good underwriter could do, given the data, in a timely fashion.
I've been at lenders' sites where I have been doing polls. People are talking about [having underwriters do three loan applications] a day,... per person, and I'm thinking it should be more like three an hour.
There's a big disconnect between what technology is capable of doing [and what's being done in this industry]. Of course we're coming up with some very cool stuff to demonstrate how you can do three underwrites an hour--but three a day [is the norm], and you're sitting there counting pennies on what you're spending on technology. It should be the other way around.
Maybe you should be spending 80 percent of your money on technology and 20 percent on people. It's like you should have an 80 percent automation and 20 percent exception handling [ratio]. Exception handling understandably is done by subject-matter experts who make sure the technology did the job right or caught some exceptions ... that maybe technology can't do, but that's on the margin.
Right now it's the other way around, in my opinion. It's 80 percent labor and 20 percent technology. I'm totally biased toward technology, but I think that we could prove [it's possible to switch those numbers around]. We're going to spend 2015 proving it. We're going to show people how to switch to 80 percent automation, and that's our goal.
Q: So you're going to show people how to spend 80 percent on technology and 20 percent on people?
A: [I'm saying] instead of spending $4,500 per loan on labor, maybe you should be spending under $1,000 in labor costs-- more like under $500 in labor, if you ask me. There's no reason to spend that kind of money, and then all that [savings becomes] profit.
I'll show you an example. So if you take a correspondent lender, for every day they aren't funding that loan, for every day they're delaying, they're losing 1 basis point. That's $20 a day just on waiting, just on the interest--so if you're taking 10 days, you just wasted $200 on interest.
Technology can close that [loan-funding] life cycle down to a day or two.
Q: So who's doing...