Tom Wilkins of Mortgage Media recently sat down with Rajesh Bhat, Co-founder and CEO of Roostify. Bhat founded Roostify after a challenging home buying experience instilled in him a passion to increase the transparency and simplicity of the experience, and the consumer lending journey overall. Bhat, who started his career with Ernst & Young and has had several executive positions in management consulting, discussed Roostify’s genesis, adoption of technology, data security and more.
Tom Wilkins: Tell us about your career changing decision to create Roostify, and the challenges you faced.
Rajesh Bhat: Yes, so I’d been a management consultant for about 14 years. With the last firm I was with, we opened up an office in San Francisco. My wife and I were living in DC when I worked with that firm. And then we moved out to San Francisco to help build out the practice. We spent about a year looking for home when we got there. It was a very long, memorable journey. During that year, we hired and fired three real estate agents because we weren’t satisfied with what we’re getting. We felt like we’re steps ahead of them in the process. We ultimately just did the work ourselves. We found a home that we wanted ourselves. We went to the open house. We ran the comps and we downloaded a purchase offer, filled it out, and sent it via email to the listing agent who then responded and said, “You need to go find another agent to present this to me,” with what was even then, this was in 2008, a competitive market in the Bay area.
So, we went and we found an agent, and that person then wrote the same offer for us, submitted it to the listing agent. The offer was accepted and that agent that worked with us probably spent tops three, four hours with us over the course of 30 plus days and they received about a $25,000 commission. So, yeah, I was just really fascinated about this model where people could do so little work and make so much money.
We then went through three different refinancings. Long story short, each one was eventful in its own right. In each case, it really emphasized the information asymmetry that existed between the consumer and the bank, the real estate agent – all these third parties that are behind the curtain if the real estate agent and the banker are in front of the curtain onstage.
We began by the third refinancing by asking a lot of questions about the process, and understanding the fees that were showing up on the closing statement. It was kind of interesting as we had asked about certain fees, that they would be removed because they couldn’t be justified. Then finally, on that third refinancing a notary came to our house. The closing statement that we were presented with showed that the amount that we were paying down was actually less than the amount that we were assuming. What was happening was that the cost of the broker was being passed onto us.
I told the notary, “This seems a little bit silly. How do you make sense of that?” He said, “It doesn’t matter if you send me away, you’re going to be charged 85 bucks, and this is going to translate to maybe 10 bucks tops on your monthly payment amortized over 30 years. So, is it really worth it to you?” I said, “Yes.” We sent them home, we negotiated, renegotiated everything. Cost was removed off the principal, and it actually was a $10 difference on a monthly mortgage. But it was the principle, no pun intended of the whole thing.
From there, I began looking at the space, trying to understand why something that seemed very obvious from the consumer’s perspective didn’t exist. We launched the company with two other former classmates of mine that I went to school with at Washington University in St Louis.
We initially focused on real estate transaction automation. The initial use case we tried to solve for was that use case that I experienced where I wanted to send an offer directly to the seller and be able to just close it ourselves without anyone else. We created a purchase offer wizard that allowed a consumer to create their own purchase offer, submit it to a seller, and the seller could accept, reject, or counter. If they accepted it, then they could DocuSign it. Then we move them into a closing experience where we automated for the State of California the contract to close experience across property disclosures, inspections, appraisals, title escrow, then, of course, financing. Kind of ambitious. And the buyer and the seller could bring in third parties like the real estate agents. A buyer can bring in their loan officer, a title officer could be brought in, etc.
Based on the information in the purchase contract, we automated tasks for each of those constituents as they were brought in. We had a whole bunch of people line up to use it. Prospective buyers used the solution to submit offers, and we didn’t get a single offer accepted because invariably the seller would get it, they would say, “What’s this,” and share it with their listing agent who would of course get freaked out and ignore it entirely. So, we went back to the drawing board. We created more agent oriented features that allowed the agents to drive the consumers in, the agents to collaborate together, share commission agreements, compensate and things like that, and then we started driving live traffic through. Consumers loved it. They liked having everything in one place, and having more transparency in what was going on. Real estate agents felt very neutral about it because it wasn’t moving the needle.
They don’t get a lot of value out of automating this sort of experience. If anything, it starts to undermine their value in the process. But what was interesting is that each loan officer that was brought in got really excited about it. They’d all follow up with us, and ask how they can drive their own traffic. We looked at the space, looked at what it took to sell into the real estate space on an enterprise basis. You’re selling to the franchise who is then effectively making sure there’s an agreement at the LLC level, and then they’re in turn making it available to the real estate agent who’s a 1099. So you’re selling to the enterprise, and the consumer at the same time. It’s really tricky, and probably more importantly, it was thematically kind of at odds with the reason we started the company.
So, we took what we had, and we positioned for the mortgage industry. The way we did that is we took that purchase offer wizard and we replaced it with a loan application wizard, which allowed the consumer to submit an application to their loan officer, and then they would move into that collaboration experience, which we then optimized for the consumer and the banker, but they were still able to bring in those third parties. That was what we launched in January 2014, and when we went to market, we assumed that the collaboration experience was going to be the killer app. It was going to be unique and differentiated. We quickly discovered that people were assigning much more value to the loan application wizard because at that time, remarkably, no one had moved this 1003 form online in a very intuitive, consumer friendly way to capture applications.
So, we got that, and we just started doing little things. We integrated with LinkedIn. We integrated with TurboTax. We integrated with Yodlee. And we started just changing the narrative around what it is that we’re doing. It was being able to capture applications more efficiently, but also to bring in more pristine data into the experience to decision and drive to the right outcome more quickly for the benefit of the consumer, and the benefit of the bank.
And, so, that’s where things kind of took off. It’s really only in the last year to a year and a half that we started to see the scaling of the fulfillment experience, that’s what we call it now instead of the collaboration experience where we’re now we’re taking consumers all the way from the lead stage through the closing phase through the solution. That’s because of the complexity around deploying that sort of capability where it’s not just changing consumer behavior, which is a lot easier than changing enterprise behavior and all the end users, and that’s where we’re at right now. That’s very long story sorry.
Wilkins: But a great story born out of frustration with the process, yeah. So, is the purchase offer wizard still happening within the real estate side with Roostify?
Bhat: That is gone. What exists today is an ability for a loan officer to create a connection with a real estate agent who can then basically share the loan app wizard with their clients. When they do so, then the real estate agent is brought into the experience. That’s one way real estate agents and loan officers are collaborating. Another way is post application. A loan officer can bring in a real estate agent to collaborate, to be able to share docs, message, and just track the mortgage. Ultimately, the goal is to be able to integrate with these real estate transaction platforms as they evolve so you can pull in the data to drive that mortgage origination process for purchase transactions.
Wilkins: So, why attend this conference? I know the MBA’s important. This is the annual conference that has the most attendees and everything, so obviously the networking opportunities and meeting with your customers and prospects is important. But what do you hope to take away that you could share with your team when you get back to San Francisco?
Bhat: Obviously, we’re meeting with customers, with partners, with prospects and others. I think it’s a great way to get a pulse on what’s happening in the space from all sorts of different perspectives. One is obviously from a regulatory perspective, but we’re obviously first and foremost trying to understand how the market is perceiving evolution, the evolution of technology in this space, and how it’s driving things, and the players as well.
I always come away from these conferences with a better sense of how we’re perceived as a company based on what we hear, and then just based on what we don’t hear. I get a better sense of how what we’re doing over the next six to 12 months calibrates with where the market is in terms of not just readiness to accept. It’s what’s more critical for us is the readiness to adopt.
There’s always going to be interest in some point solution delivering a certain capability and willing to play within their proof of concept capacity. But we’re just completely committed to figuring out ways to help our customers scale with these capabilities because that’s really the only way you’re going to be able to drive change. Understanding the ability and willingness to adopt it’s not just putting the tech in front of people. It’s also just seeing how they’re reacting, and observing certain issues, and how ready they are to solve them. So, LO comp is an issue, the cost to originated as an issue. The ability to drive down cycle time is an issue, but these are actually competing issues. To solve LO comp means you’re potentially going to create an issue in how you drive the cost down to originate, or you’re potentially changing the role of the LOs.
If you’re an independent mortgage bank that’s heavy retail, and you tend to work with loan officers that are high producers, your LO comp challenge is completely different than if you are a very streamlined consumer direct lender on the other end of the spectrum who is a very fine tuned machine that has less of that retail force. Understanding just where these pain points are in their lifecycle, whether people are willing to change in order to address it is really important for us because that gives us a signal of why certain things we’re developing, whether it’s the market readiness to adopt it is there or not. Does that make sense?
Wilkins: Yeah. So, tell me Rajesh, what differentiation can you say that Roostify has over perceived competitors, and I say perceived because people that you have as prospects are probably talking with other companies. What can you say that is different that will distinguish you and what your application does for them?
Bhat: I think it’s the metrics. And from our perspective it is adoption. Adoption signifies several things; one is the ability to scale from an operational perspective and from a technology perspective to be able to handle large volumes. It also signals how robust the solution is. Can you support multiple user journeys for consumers? Can you support multiple profiles of loan officers and in different channels so that you can drive north of 80% of your volume through a platform? That’s what we’re finding is the real differentiator in this space right now. This is also why, frankly, you still hear that a lot of these banks that have made these investments in similar technologies haven’t seen the ROI because they haven’t figured out how to use this as the rule as opposed to the exception.
We hang our hat on our customers. I think when we first came to market, we hung our hat on our product, and our product worked sufficiently well that we hung our hat on our customers. We really didn’t do any marketing until Courtney (CMO Courtney Chakarun) joined this year. So, being able to demonstrate empirically that this can be adopted at scale and deliver material and measurable value is what we think is differentiating, so that’s the metric to watch. But then what drives for that is their capabilities, the ability to have configurability and modularity, the ability to work as a true platform that can talk to any system, be completely agnostic.
It’s also how we partner with our customers, which is really about solutioning, and understanding their unique workflows, being able to support it, being able to challenge them constructively to drive through transformation. It’s also making sure that we’re not taking an existing process and digitizing it, but we’re looking at it as an opportunity to take out processes, take out systems, take out people because that’s ultimately what as you move closer and closer to the consumer you’re going to need to do to deliver an experience that is in line with what they experience in other verticals digitally today.
Wilkins: It’s really all about data now, right in all aspects. One of the points in the 12 interviews that I did yesterday that kept coming up is data security, and privacy, and breaches and all of those kinds of things. In fact, Bob Broeksmit (MBA CEO) said yesterday, he mentioned two or three times about ransomware, and how this is something that should be high on the radar of every company… and consumers, and phishing, and how they get in through an unsuspecting employee, and he hits the button, and it goes through everybody in the network of that company. What is Roostify doing in terms of data privacy and security?
Bhat: So, as background, one of the vicious and virtuous byproducts of working with very large banks is you over-index on information security, risk, and compliance. I think two of our first 20 hires were on the GRC side. Now we have a full-time regulatory change management function. We have information security practices in place, etc. I know this is a roundabout answer. We’re, for most of our customers, the first provider that is in the public cloud handling personally identifiable information. So, it’s a big deal. The security architecture that we have built out over the last couple of years, which has been certified, gone through rigorous third party risk processes but with some of the largest banks in the world, has become our calling card, and that on the technology infrastructure.
We have double encryption hardware security modules, and we’re encrypting data at rest and in transit, making it very difficult for the data to be read to begin with. We have practices in place that you would expect of a company that just works with tier-one banks in terms of how we standardize vulnerability testing practices, how we standardize social media hacking tests, and we hire third party firms to come in and do all those things. Sometimes we have them do it without any notice to our employees just to test things out, actually all the time we do that. So, we’re doing this, and we’re doing it as part of larger internal audits where we’re tracking it, documenting it, and reporting out as part of third party audits as well.
It’s something that we take very seriously because we know it’s a differentiator for us. Companies at our stage, at our scale are not doing this sort of thing because they don’t know how to do it. One of the benefits of coming to market at the time we did, and moving upstream as quickly as we did, and having some of our customers kind of nurture us through that process, is that we are way far ahead of others.
Wilkins: You were recently honored by Goldman Sachs among the top 100 most intriguing entrepreneurs. What drives you to innovate?
Bhat: When you have an idea, and you realize it’s unique, and you see it being picked up. And you take an idea, you conceptualize it into a product, and then you deploy that product, and it delivers the value that you thought it would, it’s very redeeming. You get excited, and you want to build off it. We almost create a promise as entrepreneurs that when we have a vision, we can deliver on the vision. That’s what gets people excited to engage with us. That’s what gives us permission to be able to bring new concepts to our customers and to the market in general is this fact, and this ability to deliver on that vision.
It’s a challenge to think about what could potentially be next. In this space in particular, there’s a calibration exercise that’s required. You can not be too many steps ahead of your customers as you’re conceiving of ideas, and you’re productizing and trying to bring them to market because it will fall flat very quickly if you’re too far ahead. So, that calibration exercise, making sure that what you’re bringing to market is something that they’re ready for, they’re willing to adopt in a capacity that potentially will scale is a big deal. I’ve changed myself as I’ve thought about innovation. In fact, I probably wrote more pieces when we first started about this than I do now because I’m a little humbled about being too far out there and talking about things that we can’t deliver because we can’t get it in market and scale.
I now put a premium on the ability to do that. But in the background, we are executing on this longer road, which kind of circles back to the original vision we had of being able to bring all these parties into the single digital experience for the benefit of the consumer, and to truly automate it. But we know it’s a longer road, and it requires a certain amount of scale, and requires a certain amount of trust among the consumers and the other stakeholders in the ecosystem. That’s what we work towards. It’s innovate, scale, and innovate at scale, and that’s what we’re moving towards now.
Wilkins: My last question, and this is one that I ask everybody, and it has nothing to do with mortgage finance or anything. Tell us a little bit about yourself on a personal side. What do you like to do in the spare time that you have? I’m sure there’s very little spare time, sports, hobbies, travel, family?
Bhat: Yeah, I definitely spend as much time as I can with my family. As corny as that sounds, it’s probably the most important thing to me, certainly at this stage where if you’re not thoughtful about it, you’re not careful about it, you’ll just fall into your own individual vacuum. They’re to me the guiding lights, and they’re the stabilizers for everything that I do. So, it’s kind of the sounding board. It’s the home base, and so that’s the corny thing. Yeah, other than that, I read, listen to a lot of music. As people in my company know, I can rap pretty well. Otherwise it’s just doing increasingly, my hobbies are just things that we do with our kids. So it’s whatever it is, camping, tennis, things like that.
Content has been edited for length and grammar.