Mortgage Media sat down with Brian Simon of Lenders One to talk about a range of topics including how the company works to help its members become more profitable and agile in an ever-changing market.
Suresh Ramakrishnan: This is Suresh Ramakrishnan from Mortgage Media. I’m here today at the MBA Annual Convention with Brian Simon. Brian heads up Lenders One. Lenders One is a part of Altisource. Brian, thank you for taking the time to talk to Mortgage Media today.
Brian Simon: It’s my pleasure. Thanks, Suresh.
Ramakrishnan: There’s a lot going on in the industry. Euphoria is probably too strong a word because you could have euphoria today and depression tomorrow. But people seem to be more optimistic. So, if you could give a background of what Lenders One does. I know it’s one of the oldest cooperatives in the industry, but give a description of that and sort of how you play a role in this kind of topsy-turvy market, especially now, where we are.
Simon: First, just a quick background on Lenders One. We’re going to be 20 years old. I think August is the 20th anniversary, so it’s been around a long time. We’re collectively, the number fluctuates, call it 220-ish members, mostly independent mortgage bankers, some banks, some credit unions. And the group as a whole, as one, is far and away the largest originator in the country. We’ll fund, as a group, well over $300 billion this year.
We represent nearly 20% or one in five mortgages that are done by a Lenders One member. So, it’s a nice group. We’ve got a good cross section, a geographic cross section, of product types and sizes of companies.
Ramakrishnan: And all IMBs of different sizes?
Simon: Yeah, all IMBs. We’ve got some very large members. The bulk are mid-size IMBs, I would say, half a billion to $3 billion a year. But we have some very, very large members. We have some small members. The bulk of them probably fall in that group. We’re truly cooperative. What we want to do is harness and leverage the power of all those originations and all the lives and all the people and the scale and go out and help our members compete with the biggest originators.
What we’ll do is all the way from capital markets, which I know is one of your questions, we can talk about that in some more detail, down to purchasing. We have a purchasing platform for them, where they can go in, and they can get the same price as a big company for their computers and things.
And one of the really cool things we’ve just done is we just stood up a healthcare captive. So, now the members can actually participate in the Lenders One health care initiative, and they can buy their healthcare for their company and their employees. Instead of going to one of the major medicals, they can do it through this conduit. And we’ve got probably about 30 members geared up to go on it in the first quarter. And the savings, depending on the size of the company and number of lives, range anywhere from a few hundred thousand dollars to millions of dollars a year.
So, it’s pretty significant. Lenders One is not an insurance company, so we don’t make any money on that, but we do it as a value-add for them. And then we have deals with a wide range of these vendors that you see here. We’ll go out and negotiate better pricing for the members and better service and things like that.
Ramakrishnan: So, the value proposition for an IMB is a bigger buying population, better deals, but also, from an execution perspective. You’ve talked about capital markets. What do you do on that front?
Simon: What we do is we have a number of preferred investors, and what we’ll do is we’ll negotiate with the preferred investor to offer the members generally the best rate that they have available. So, if they’re publishing different pricing or different rate sheets, they’ll commit to giving Lenders One the best commercially-available price they have. They’ll also, most importantly, agree to pay Lenders One a dividend, which is basis points on volume that the members sell to the preferred investor. And then most of that dividend passes back to the member.
It’s great. They can choose to use it as an extra incentive for their sales team. They can just take it as profit onto their P&L. They might be selling to those investors anyway, but now they get extra capital back in their pocket for doing this. So, better pricing and a dividend.
And we also, now, are moving closer towards putting our own skin in the game and getting in the chain of title and doing some things in the aggregation, where we will actually be helping manufacture and purchase loans from the members.
Ramakrishnan: So, you are setting up a conduit, almost…
Simon: Yeah, on a limited basis because we don’t really want to go out and compete with our existing preferred investors. We’re thinking niche product. Call it non-QM is one area where we’re focused, right? Most of our members, most lenders for that matter, don’t really do non-QM as a matter of fact. They get it as a biproduct.
Ramakrishnan: But increasingly, people are doing it now because we keep getting requests saying, “Hey, do you guys have service or underwriters for non-QMs?”
Simon: We bring a really unique value proposition there because we’re doing a few things. One, we’re part of the Altisource family company, so we own Trelix, who is one of your competitors. Trelix is approved by the rating agencies, so we can underwrite non-QM. We own another company called CastleLine, which is a rep and warranty insurance company. We put a rep and warranty insurance wrap on the non-QM loan.
What we’re able to do is we can help train the originators how to go fish for non-QM and add that arrow in their quiver. We teach our members how to do it. We offer them better execution. We can underwrite it for them. We insure it for them. We take virtually all the ATR risks, except for first party fraud, off the table, and then we provide an execution path for them.
So, the execution… If you’re a mid-tier mortgage banker or mid-sized, and you’re selling individual loans here and there to you name it, Angel Oak, Verus, any of the guys that are out there really buying non-QM. They are, and rightfully so, taking most of the spread because they’re taking all the risks.
But the execution that’s being passed to the seller isn’t really very strong. So, what we’ve done is we’ve taken out most of that aggregator spread because we’re going direct to the end securitizer. And because we’re not really an originator, we’re functioning as a pass-through and doing some of the risk functions, we can operate on a much, much lower cost basis. And we’re able to pass most of those economics back to the members.
This is launching now actually. We’re going to start buying our first loans through this conduit, I believe, in the next week or two. And then we’ll see how that goes, and we’ll expand to other products as it makes sense.
Ramakrishnan: And your members are already aware that you’re starting it?
Simon: We’ve been working on this plan for six months, and so everyone knows about it. We’re taking our time. We will have a pilot group of clients. We’re doing it in a partnership with some others, so it’s not just us. And we’re really excited about it. That’s just one way that we’re going to get closer to helping the members make more money.
Ramakrishnan: Okay. So, it’s not just about lower costs, but also better execution?
Simon: Yeah, and less risk.
Ramakrishnan: And in this environment, with the euphoria suddenly, what sorts of challenges have you guys at Lenders One faced with the needs? Because everybody’s needs are going up.
Ramakrishnan: Staffing and, yeah.
Simon: Well, the biggest challenge is getting people to pay attention to me because they’re busy making loans. And mortgage bankers know, I ran a bunch of originators for a long time, make hay when the sun shines. So, euphoria probably is the right word. It was unexpected that it happened in the first place and certainly unexpected that this market has lasted as long as it has.
Everyone knows it will end, and no one wants to be left without a chair when the music stops. For us, the member engagement is hard just because they’re busy making money. But what we’re focused on here is throughput and helping them, in addition, to making money. We want to help them spend less money and be more agile. We can do that in a number of different ways. We have a number of partners, some of our Altisource family companies. We help with outsourcing.
We’ve partnered with a number of technology, AI, and robotic companies where we’re helping them leverage up their existing teams of underwriters. Mostly, underwriting is really where the bottleneck occurs. For example, we’ve recently partnered with a company called Candor Fintech. They have an automated underwriting platform, artificially intelligent underwriting platform. So, we have an e-close solution, where we’re automating the closing process for the members.
What we’re trying to do is bring them solutions that help them do more with the staff they have and reduce FTE’s. We focus on cost savings. That’s things like the healthcare. We focus on the capital markets and make better execution, and then we’re focusing on the automation of processes to help them increase their throughput.
Ramakrishnan: Yeah, and that’s one of my questions. As mortgages, at least in theory, get more digital. And they haven’t quite gotten to where everybody wants them to be, how does Lenders One help in this initiative? You’ve talked about using AI and ML from an underwriting perspective. How else do you help your members get to that point or get more with it, if you will?
Simon: We do it a couple of ways. We act as consultants that members have access to. So, if you think about it, you’ve got me. I’ve helped build and run three of the largest originators in the country, and I’ve got a team of people who have similar experiences, and we have the greater Altisource community, where we have lots of high-powered leaders in technology and process and things like that.
We’re able to actually just go in and help a member look at their process and just help them be better, just from a strictly experiential perspective. I can look at them and say, “Hey, I stepped on that landmine. Here’s a faster, better way to do that.” And we do it all the time. So, we do that.
On top of that, we’re also scanning the market constantly for what are the new and best technologies? I was in Vegas two weeks ago for the Digital Mortgage conference and spent my time really seeing what was out there that could really help and brought that back to the membership, and we’ve brought on some partnerships as a result of that.
We’re able to help the members. They might not have the time or the staff or the experience to really evaluate those offerings, so we go out, we find those opportunities for them, we make a better deal for them, and then we bring it back to the members.
Ramakrishnan: I think that many folks just don’t know which way to go. There’s so much noise- in that space, right? Everybody throws around AI, ML, block chain.
Simon: Right. They don’t know. And why should they know? Their job is to find customers and make loans. Where we help is we help sort through the noise. We help vet out who the partner should be. We have a whole team of technology experts who can go in and can look at the product. We test it, we put our seal of approval on it, then we bring it to the members, and we help with the implementation. We really help them figure out what’s the best fit for them.
The best fit for one of our larger members is certainly not the best fit for one of our smaller. We have guys like Movement, which does $20 billion a year, or a HomeBridge who we just added. Their needs are very different than one of our Mortgage Unlimited or one of our small members who does $200 million a year. We have to look at the landscape and bring the right solution to the right member. And they’re all important. We want to help all of them. As a matter of fact, the smaller guys probably need our help more because they have fewer resources.
Ramakrishnan: Right, and they don’t have the kind of technology expertise in-house. So, what keeps you up at night in the mortgage industry?
Ramakrishnan: But from a competition perspective, what is your view?
Simon: The biggest challenge for us is just we have to continuously evolve. And that’s why we’re moving more into this area of the conduit and helping with capital markets. That’s where the real value is. There’s so much sheer mass of origination volume being created by my group. We really need to get better at harnessing that and giving the members a better way to execute. Because there’s a big gap between, call it, the haves and the have-nots, meaning the top 20 originators and everybody else. It’s a steep cliff, in terms of their cost to produce, their execution, how they even get paid, even with agency execution, the servicing pay-ups.
Ramakrishnan: Even the guarantee fees, right? For example.
Simon: That’s leveled out a bit, but I’ll give you an example. I’m not going to name names, but even in the MI world. I’m negotiating with a bunch of the MI companies. We all know that the biggest lenders pay less for their MIs than the smalls. They work on a smaller profit margin. So, we’ve been working to bring an MI solution to the members that will let them be more cost-effective and compete.
And when you think about it, we’re dealing in the business of pennies and nickels, right? So, when you do thousands of something every month, or even hundreds, a couple bucks on each one of those things adds up and makes a big difference. For example, we have a terrific partnership with CoreLogic where we offer their flood product. That’s L1 flood. We have a true partnership, a joint venture, with them on that end. We have been able to bring flood to the members at a price where they can compete with what the largest lenders pay for.
So, talk about something you do on every single loan, thousands of times a month. And we’re looking at the rest of the products in the loan life cycle at the top of the funnel. For me, that means things that are done on virtually every level of the products, fraud products, all those things. That’s where we’re focused on. And for me, because I was an originator for so long, I look at it through the same lens as our members would and say, “What would I want Lenders One to do for me?”
So, the things that just keep me up are: can I get there fast enough? Can I move my membership in the direction that I can bring value to them quickly enough? I know we bring value every day, but we want to do more and go faster.
Ramakrishnan: Yeah. That challenge to always keep up. Now that I asked you what keeps you up at night, how do you relax?
Simon: What keeps me up is the Sixers are 3 and 0. I’m worried if they’re going to lose the game. I watch a lot of basketball, but I play tennis. I like whiskey and cigars. And I hang out with my four-year-old. So, that’s number one.
Ramakrishnan: Taking time out. That brings it all down to such a reality. Go back home, and all that goes away, right?
Simon: Yeah. It’s the best thing that ever happened to me. And honestly, we all work really, really hard. The thing for me that’s great about this job is that we’re domiciled in Luxembourg.
I work from home, or I travel. So, the nice thing is that even though I’m on the road a lot, and I’m always working, I’m able to make some time for the family because when I’m home, I’m home.
And it’s really been a nice work-life balance. Altisource, for me, is a really cool company because we do so many different things. We’re really able to help a lot of different people. And the Lenders One opportunity to go to many of these members. Most of the members, many of them, were my clients at one of the businesses I ran.
Ramakrishnan: Oh, yeah. So, you’ve known them for a long time.
Simon: Right. And so, now to go in and be able to help them in a different way beyond just saying, “Hey, sell me your loans,” we really can get in. And we’ve got long-lasting bonds and friendships with these companies. We’ve really become a part of their group.
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