Joe Tyrrell: Ellie Mae, Innovation and Moving Forward

Tom Wilkins of Mortgage Media was at the MBA annual event in Austin, Texas and sat down with  Joe Tyrrell, COO of Ellie Mae. Tyrrell has held several senior leadership positions over a span of more than 13 years. He discussed the acquisition of Ellie Mae, connecting with industry leaders at MBA Annual and other events, innovation, reaching millennials and more 

Tom Wilkins: Let’s start off with the fairly recent acquisition of Thoma Bravo. Tell us a bit about the acquisition and how this has changed, if it has, your pace of innovation at Ellie.

Joe Tyrrell: Yeah, well, I would tell you, it has changed our pace of innovation. You know, as a public company, oftentimes we would see opportunities and we’d have to pause for a moment to be contemplating, well, how will the public markets react to this and how will that impact our stock? The other challenge in being public for us was, our client base doesn’t really manage their business on a quarterly basis. They operate in an industry that’s highly seasonal with cyclical influences, of rate changes. And so, for us being able to be taken back to being a private company, which obviously is where our roots were, gives us an opportunity to really be laser-focused on our customers and how we can help align with what their needs are.

So, what Thoma Bravo’s done is come in, and they really understand and have bought into that vision of how we can remove days in this process and really lower the cost of origination and acquisition for our customers. And so, they’re excited about helping just to accelerate this journey that we’ve been on of driving automation everywhere in the industry, as evidenced by the most recent acquisition that we just did, now as a private company of Capsilon.

Wilkins: I saw that John Haring from Ellie Mae is on a panel regarding regulatory changes, and specifically is talking about the new URLA. So, how is Ellie helping lenders prepare for this change?

Tyrrell: Yeah, it’s a little bit of a bittersweet year for us. In 2019 we had fantastic results as a company, but we invested so much time in our roadmap associated with URLA. What’s interesting for us is with our customer base is, if you go back to even the initial HMDA changes, RESPA changes, TRID, ATR/QM, our customers now expect that we’ll just make those non-events for them. Like Y2K, they come in the next day and everything’s going to work and function, and they’ll just focus on driving their business.

We took the same approach with URLA. We’ve been working on it for over a year to make sure that when we introduced it, it would be seamless to our customers and they’d be able to comply with the new URLA requirements and yet still be able to drive their business forward. So, we’ve put in a ton of effort, double digit in millions dollars of R&D to make sure that this would go off flawlessly. And we actually shipped it last quarter, only to find out that it was not going to be effective in February as we all had expected.

So, the good news is we were ready. It’s actually in the product already. It’s just shipped dark. So, with the few changes that we need to make, we’re already actively making those changes and we’ll be prepared for as soon as the GSEs announce the effective date.

Wilkins: I remember hearing a little bit about that and the exercise that you’d gone through starting last year to get prepared when Jonathan was at the Executive Roundtable earlier this month, and some of the frustrations and everything. But the great thing is that your customer base expects it, and it’s like you said, like Y2K, they just wake up and it’s ready. So, that’s a great thing to be able to offer your customer base.

Tyrrell: Yeah.

Wilkins: Why attend this conference, and what do you hope to learn at this event to take back to the team?

Tyrrell: Yeah, first and foremost, it’s just a great opportunity for us to connect with our customers. With over 3,000 customers, often it gets a little difficult to be able to travel around and make sure that we’re touching base. So, these sort of industry events gives us an opportunity to really connect with them, to share with them what we’re doing, to make sure that we know what they’re doing, and that we’re putting them in a position where they’re able to grow into the technology and never have to wait for it to catch up with where they want to take their business.

Certainly our partners, it’s another great opportunity for us to meet with them. Given the fact that we’ve integrated virtually every provider in this ecosystem directly and natively into our system of record means that we have a lot of shared interests. So, it’s a great opportunity for us just to connect. And then certainly the MBA puts in a lot of pretty incredible content with the speakers that they bring, the information that they’re sharing. And so, for us, the opportunity to both participate on a number of panels, but also just to be a participant and come and get updated from the MBA also provides a lot of value as well.

Wilkins: They really do do a great job. It’s amazing. And with all of the other events that they put together during the year, you know, whether it’s for innovation or independent mortgage bankers, conferences, and things like that. Well, speaking of connecting with your customer base, you have a lot of news coming out of this event, so tell me a little bit about the momentum around Investor Connect and what this means for the mortgage industry.

Tyrrell: Yeah, Investor Connect is just a continuation of our vision and focus on automating everything in this industry. We’ve had some really great success this year. Just a couple of weeks ago, we surpassed having 1,000 customers use our Consumer Connect solution, so that digital POS, that way of engaging consumers wherever they may be, and automating a lot of that initial application-taking and making it really seamless for the consumer. And we think about the polar opposite end of that process is once that loan is ultimately been funded and delivered to the investor.

And so, it’s that same sort of approach that we’ve taken of no longer needing to require people to cull through documents and export data. One simple push of a button, and all of the data and documents required by that investor are packaged together, they’re automatically stacked and they’re delivered seamlessly into that investor system. So, a number of the announcements that you’ve seen at this MBA is around just a continuation of us delivering more and more investors in the ecosystem that are now participants in Investor Connect. Today we have over 50% of the loans being purchased by those acquirers are represented through the Investor Connect solution.

Wilkins: What an amazing statistic. Well, let’s go beyond that a little bit, because I know that you released the Lender Survey today at the conference. Tell me a little bit about the bridge between the service that the lenders are offering and the expectations of the home buyers. What can be done to bridge that gap?

Tyrrell: Yeah, there’s still a little bit of a disconnect, mostly around awareness and education, especially for the millennials. I think what’s interesting is a lot of people treat the millennials as a single kind of cohort, but the reality is, is what we’re seeing is, you really have to look at it almost birth year by birth year, because even within the millennial population, it’s so big. There’s a lot of kinds of rich diversity.

As you start to look at each year for the next five years, 4.5 million millennials per year will reach the age of 30, which is, according to all of our data through the millennial tracker, is the prime time when they start to enter into home buying. So, for lenders to understand how to really reach that population and not just apply generic kind of stereotyped millennial labels, I think it’s going to be really important for what happens over the next five years.

Wilkins: What would it be like if we didn’t have all those statistics to help us? How would we know? You know, it’s amazing.

Tyrrell: It’d be a lot of guessing and a lot of hope, but at Ellie Mae it’s-

Wilkins: Yeah, hit and miss.

Tyrrell: … it’s well known that hope is not a strategy.

Wilkins: Yeah. So, what’s the one thing that every company in our industry should be doing to help themselves succeed in the current market?

Tyrrell: It’s all around data. You know, from being in this industry for as long as you’ve been, as do I, this process has historically and traditionally been driven by paper, by documents, whether it’s documents we ask for the consumer to send us, or documents that we receive from the various providers in the supply chain, credit reports paper, flood report, title report, appraisal, and then even at the end of this process, the culmination, our success is producing two and a half inches of paper for the consumer to sit down and initial, initial, and sign.

And so as we continue, if not accelerate our journey towards automating this entire industry, the shift away from documents to data and making this a data-driven process and actually allowing real AI to come in and move this process along is going to really be where lenders are going to have to spend some time getting educated and understand all of the applicability of text extraction, automated underwriting, artificial intelligence, and machine learning.

One of the things we’re so excited about with our acquisition capsule is not only that it does all of the document recognition and automatically classifies the documents so you can drive workflow off of it, it extracts out the data. And then they take it a step beyond that with a solution called Instant Underwriter. They’re actually able to take the data… First of all, they recognize a W2 and a pay stub, and there’s a lot of different forms of pay stubs seen. They recognize it’s a pay stub.

What then happens is, the system’s able to extract the data out of the pay stub, then do underwriting calculations of that income, and then compare it to the income that’s on the W2, so you can actually ensure that you don’t have things like income going down on the pay stub according to what they earned last year. What that allows us to do is, 80% of all loans being originated, the primary verification of income is still pay stubs and W2s. Tax returns are used, but really the self-employed borrower is a minority when it comes to all the loans being originated.

So, for 80% of the loans, you could actually have our system do the underwriting for you, and then you can compare it to what those guidelines are. You now start to really move towards exception-based processing, where underwriters, instead of having to look at every document and perform every calculation and verify that everything’s correct, you can now leverage and trust the work that we’re doing through Instant Underwriter, you can have those underwriters really have the best and highest use of their time, which is evaluating those cases that are on the fringe, or those exceptions to policy, and see, “Is there anywhere else I can say yes,” instead of just having to rubber stamp the basic, regular, run of the mill loans that they’re underwriting and spending time on today.

Wilkins: It’s almost too much. It’s almost like it’s such a grand solution for all of these things that you’ve evolved into. That leads me to my next question. It seems like all industries, but especially the mortgage banking industry, is trying to catch up with the whole issue of data privacy, data breaches and you know, when it comes to security in that regard, what proactive steps can companies take?

Tyrrell: Well, there’s a lot. I mean, if you look at ransomware, it’s hitting our industry pretty significantly right now. Now, a lot of that’s not talked about because many lenders are concerned with brand damage if they were to let it out that they’d been impacted with ransomware. But we’re aware of a number of cases where companies have reached out in many cases, not our customers, but reaching out because of the focus that we put on security, because of our CSO, who’s nationally recognized, sits on a number of pretty significant overall cybersecurity panels.

At Ellie Mae I can tell you, the one thing that we do, aside from all of the measures that we take to protect our customers’ data, and there are many, it’s also a big awareness on our employee bits. If you think about where most data breach or cyber security issues happen, it usually involves a human. Oftentimes they’re using phishing attacks or some other way of presenting what looks like a fairly innocuous or normal email, and when that user clicks on it, nothing happens. And it’s because what’s happening is the malware is going through and systemically infecting all parts of that enterprise of that company.

So, we’ve instituted phishing campaigns internally at Ellie Mae for years now. In fact, we have reward programs, recognition, don’t get caught on the CSOs hook, on the phishing campaigns. We drive a great deal of awareness around it. And then, even at our recent CIO advisory board, we had one of our members come in and talk specifically about their experience with ransomware, and shared a lot of really great firsthand knowledge.

So, even though it’s a bit of a taboo topic for lenders to talk about and no one wants to admit that they’ve experienced it, I think the more that we can share best practices as an industry, the better prepared we’ll be when these things hit us.

Wilkins: Changing direction here, some people are thinking that there will be a potential downturn coming up, and it’s not a matter of if, but when. What piece of advice would you give to somebody in the industry around that? What should they be doing?

Tyrrell: Well, I think first of all, it’s a lot like looking into a crystal ball. I don’t think anybody can actually really tell you. There’s leading indicators, like when you come off of a high refi boom, like we’ve experienced recently, that there’s a natural kind of downturn from consumer interest because they’ve taken advantage of that. But if you look at 2020 being an election year, and you look at the current administration, I don’t think anybody can predict what the administration will do.

Clearly, there’s been precedent set where they’re not afraid to put pressure on the Fed if they feel like interest rate reductions can spur the economy. It’s not just at the federal level, right? It’s an election year at state levels as well. So, it’ll be an interesting year to see what happens. Our recommendations would be, and many lenders are already doing this now, regardless of the rate environment, you’ve got to focus on how do you increase your profitability for a loan? As the cost of loan origination continues to rise year over year, it’s time for lenders to look really hard at where those costs are.

If you look at Ellie Mae for example, we know the average cost of origination is somewhere between $9,000 to $10,000. However, for our lenders, the fee that they pay us is less than 2% of that. So, it’s getting together with your critical business partners, it’s understanding what you’re not leveraging of the technology that you already have deployed, or looking at what other technology you could start to bring into your organization, incorporate into your workflows so that you put less reliance on the human capital. Because that’s the biggest expense.

For us, it’s not about telling lenders that you can let people go. It’s the ability to capture the next boom that comes without having to scale your organization with people because you’re leveraging technology. So, whenever there’s a lull, that’s the time when you want to spend the time to invest in preparing for the next big opportunity.

Wilkins: So, now for a less serious topic of conversation, what does Joe do in his downtime? What do you do for fun and relaxation, and spend time with the family? Any activities, sports, hobbies?

Tyrrell: Yeah. I wish I could give you an extensive list of hobbies and sports. Unfortunately, I have none of those. For me, it’s all about the family. So, if I’m not thinking about Ellie Mae, I’m with my family spending time. I have four daughters, and they keep me pretty busy and occupied. With two of them now being out of the house, just trying to keep up with what they’re doing on a daily basis is obviously a challenge. But it’s one of the things that I love about where I work, just because I have my daughters drop by the office sometimes and we have lunch. It’s feeling of an extension of my family. So, I feel like I’m with family actually all day, 100% of the time.

Content has been edited for length and grammar.