Some big acquisitions of mortgage technology companies hit the headlines in 2002. We look at four deals that showcase the trends driving consolidation in the industry's tech sector.
THE MORTGAGE MARKET HAS LONG cried out for better information technology (IT). Participants in this highly competitive sector live and die by their ability to connect with clients-and each other-and to process huge amounts of data. IT promises speed, greater efficiency and the elimination of costly duplication in data entry.
But there are formidable obstacles to the full exploitation of IT within the mortgage industry. Not only does the mortgage process remain highly paper-intensive but the industry itself is fragmented, making common standards more difficult to achieve. Forms and procedures, for instance, vary greatly from company to company. Verifying and forwarding information that has been submitted manually is both expensive and time-consuming. And to date, consumers have not responded well to efforts to create a completely online mortgage market. The vast majority of customers still insist on dealing in person with a mortgage origination specialist.
Despite these barriers, there is an underlying appreciation within the mortgage industry of the potential that IT holds for transforming the business. In the last year, four deals occurred that suggest a new chapter in IT is being written. The deals are:
* Mountain View, California-based Intuit Inc.'s sale of Quicken Loans Inc., Livonia, Michigan, to Quicken Loans' management.
* The acquisition of Lender's Service Inc. (LSI), Pittsburgh, by Fidelity National Financial, Irvine, California.
* The acquisition of Eastern Software Corporation, Sharon, Pennsylvania, by Fidelity National Information Solutions (FNIS), Santa Barbara, California.
* The sale by Freddie Mac, McLean, Virginia, of its online mortgage processing and closing platform to BCE Emergis Inc., Montreal.
Intuit's primary focus is providing financial and tax-related software for consumers and small businesses. Quicken Loans sells mortgages online. In announcing the Quicken sale in August 2002, Steve Bennett, Intuit's president and chief executive officer, stated that Intuit's increasing focus "on the growing tax and small-business markets [meant that] Quicken Loans was no longer a good strategic fit."
Fidelity National Financial provides title insurance and real estate services. LSI provides appraisal management, residential title and closing services. Under the terms of the purchase agreement, announced in January 2003, LSI will join Fidelity's National Lender Solutions group.
Fidelity National Information Solutions, a subsidiary of Fidelity National Financial, provides technology and databases to the mortgage industry and the real estate brokerage business. Eastern Software provides mortgage origination systems.
Freddie Mac, the secondary market corporation, has taken an active role in the provision of mortgage origination software to the mortgage industry. BCE Emergis provides technology and services to support online sales in the financial services and health-care sectors. BCE Emergis is controlled by BCE, Montreal, the Canadian telecom company.
Annemarie Earley, vice president and research director for Gartner Inc., Stamford, Connecticut, says that IT has brought about quicker portfolio review, faster decisions on loan applications for consumers and quicker access to documentation in such areas as flood insurance and radon inspections. Earley, who believes there is much to be learned from the IT experience of other industries, is looking to the standardization of extensible markup language (XML) to generate further efficiencies. "I think in three to five years' time we will have a much more connected environment," she says.
Earley warns that companies in the mortgage industry, whether lenders or brokers, should consider their position in the market when contemplating making greater use of IT. Rather than acquiring an IT subsidiary, for instance, she says that a mortgage lending firm may prefer the less expensive option of forging partnerships with IT providers.
There are also human factors. Earley says that a lender adopting more advanced IT, for instance, should consider the effect that this will have on both employees and long-established procedures. "When you change the way people intersect or the way systems intersect," she says, "there is always a cultural shift."
Richard Beidl, president and chief operating officer of Centennial, Colorado-based Loangevity, sees determination by companies in the mortgage industry to increase scalability and leverage by expanding the range of products and services they provide existing customers. The strategic goal, he says, should be to "develop interfaces and connections between different products." This, according to Beidl, will require the cross-training or at least the very tight coordination of sales forces.
Beidl, who is based in Norwood, Massachusetts, describes Loangevity...