April, 2012

TheMReport — News and strategies for the evolving mortgage marketplace.

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M ost people would not consider paper a technology. It has been around since at least 86 B.C. Technology, on the other hand, conjures up 21st century images of computers and smartphones. But don't tell that to Sanjeev Malaney. The founder and CEO of Capsilon, a software com- pany that provides intelligent document management for the mortgage industry, sincerely believes that paper is his main competition. "Paper, in my opinion, is a fantastic technology," Malaney said. "The mortgage industry has clearly shown us how they can build an $11 trillion industry using paper technology." Perhaps more than any other business, the mortgage indus- try is awash in paper. From origination to closing, paper is a seemingly irreplaceable product for the mortgage business. But it does come at a cost. NVR Mortgage did a study to find out exactly how much it was paying just to store the 600 mortgage documents it averages every month. Each document packet contained 150 sheets. If you do the math, it means NVR stores 90,000 pages a month. You don't have to be an ef- ficiency expert to recognize that dramatically reducing paper usage would save a bundle of money, not to mention a forest's worth of trees. In fact, NVR calculated that storing, retrieving a file box, re-filing it, transporting it, storing it, destroying the documents, and updating its database was costing the company $10,370 a month. "Paper is a very powerful technology," Malaney said. "But that doesn't make it efficient, and it doesn't make it cost effective." So why has the industry been so slow in adopting software so- lutions that would reduce paper usage and increase efficiency? Malaney believes the risk-averse industry is simply following the old business rule of: if it's not broken, don't fix it. "The industry grew up with that mentality," said Malaney, whose company is based in a San Francisco. "But those that take that philosophy are really not go- ing to succeed. If you don't have a vision for efficiency and scalabil- ity, you really don't have a chance at surviving in today's market." Trading Type for Technology W ith today's tight profit margins, that is changing. Mortgage lenders are looking for ways to squeeze out every savings. To get those savings, lenders have to streamline the process by giving people quicker, easier access to documents. To do that, the mortgage industry needs 21st century software that replaces physical paper with digital images. That's where companies like Capsilon and Calyx Software, based in San Jose, California, come in. Both have spent years, even decades, developing, testing, and refining software that reduces the mort- gage industry's paper trail. "Loan origination systems have evolved over the last 20 or so years," said Ted Hicks, direc- tor of project management for Calyx. "We've been in business since 1991, when we provided a simple system for replacing the electric typewriter." Two decades later, Calyx's flag- ship software, Point Central, offers mortgage bankers, community banks, and credit unions software that encapsulate the entire mort- gage process, from origination, processing, and underwriting, to sale in the secondary market. "The number-one selling point of our product is our usability," Hicks said. "We pride ourselves in being able to provide a system that, beyond anything, is the easiest system to use." Screen Shots C alyx prides itself on having the easiest interface software that anyone familiar with the industry can use. The process begins with a loan originator putting the pieces of the loan together. The software follows the exact order of the forms used by loan originators and processers. So the first screen covers the bor- rower's information and contains all the key elements. "The flow of the screen fits the way you would actually conduct an interview with the borrower about the information you need to collect," Hicks said. "So a loan originator needs to provide initial disclosures and a 1003. The first screen you come to is what we call the borrower's information screen." The screen is designed to walk the processor through so that it feels like he or she is having a conversation with the borrower. The process then moves to Point Central, where he or she will find several screens and features specifically designed to help un- derwriters, closers, and funders fulfill their jobs. "When an underwriter opens up Point Central, they'll look at software with a couple of screens and go, 'Oh, the things I need to do in order to complete Malaney sees paper as a great technology that drives the mort- gage industry, while Hicks views the loan process like building a car. A loan, like a car, has many parts and pieces that have to fit together in order to work and be attractive to secondary investors (car buyers). The car manufactur- er has a plant where it assembles the pieces and presents it as a nice, shiny package. "Loan origination software is much like that car factory," Hicks said. "It allows you to package up a loan from the be- ginning, starting with taking the loan order. You put together all the shiny pieces like you would put together a car in a factory, and then you prepare it for sale." my job are located in this specif- ic screen.' So it is very intuitive in that way," Hicks said. Point Central is deployed directly at the mortgage lender's office. It can, however, be hosted in a cloud using one of Calyx's hosting service partners. The software is compatible with other banking and mortgage industry programs, and the company has established a network of partners and interfaces with a variety of industry-specific companies. "Point Central is a centralized hub for working internally with branches and sending piles of documents between branches," Hicks said. "The branches con- nect with one another directly. If there are different branches using different technologies, we can convert their files from the standard Fannie 32 file." A 'Katalyst' for Change M alaney may believe paper is a great technology, but he sensed that the industry was ready for a software product that reduces paper usage. So seven years ago, Capsilon decided to create a software product that would help the mortgage industry make the move from physical paper into the digital world. Four years ago, it launched Katalyst Enterprise Edition. Unlike many programs on the market, Katalyst doesn't tackle the paper problem from a computer science approach. It focuses on usability and stopping paper from getting past the front door. "Our product helps you capture the mounds of paper that come into an organization," he explains. "Once you capture that piece of paper, we want you to use it. So we built a technology that not only captures it, but then very quickly allows you to share the digital paper in real time simultaneously." Katalyst, which counts among its customers three of the top 10 largest banks as well THE M REPORT | 23

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