April, 2012

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FEATURE as several hundred small to medium-size customers, offers many of the same features of products on the market. But unlike the competition, Katalyst boasts a patented process called Automatic Document Recognition. Automatic Document Recognition is able to go through the mounds of paperwork that come into an office and sort it into secure, private documents. The loan officer can then name the documents. "So it doesn't matter if you stack it a certain way because you just go to the search bar and say, 'Bring up the loan application,'" he said. To make collaboration easier, Katalyst has an electronic version of a manila folder that allows a processor to see the data in different ways. It also controls who can view which documents. Allowing people to connect and exchange documents across organizational boundaries means employees at remote branches or from outside the organiza- tion can collaborate and use the document simultaneously. "We built a complete tax- onomy and a set of tools for you to be able to organize the information and then share it either within or across the orga- nization in a controlled way," he said. "You can centralize process- ing operations and yet collabo- rate with somebody at a remote branch. Therefore, you get huge economies of scale." The software manages the entire loan transaction right down to preparing it for sale in the secondary market. Finally, it archives the documents in compliance with the law. Katalyst is a scalable software solution that is hosted in the clouds, so there is no software to buy and customers only pay when they use it. The company is an open system and publishes information, so other technolo- gies can write software to inter- face with its products. As for savings, Malaney says most customers see a 90 percent drop in their costs for paper, toner, and other paper-related items. "It's a great business model. It's easy to adopt, and we can get you going very, very quickly. And there is a significant savings that we've proven," Malaney said. "Think of us as a company whose mission it is to move the mortgage industry away from physical paper into using digital paper." Personnel Problems: Unemployment Continues to Upend the Industry As the nation continues to recover from the housing crisis, one catalyst is consistently stunting growth—American jobs. Despite strong numbers and improvements, statistics show that the employment picture in the U.S. is still weighing heavily on borrowers and the marketplace. By now everyone is familiar with the obvious factors weighing down home sales. First and foremost is unemployment. In fact, the relationship between unemployment and homeownership is the only trend that has stayed true during the current recession. "Historically there is an inflection rate somewhere around 6 percent unemployment when you see homeownership go up or down," said Rick Sharga, EVP of Carrington Mortgage Holdings. "But most trends in housing sales have been broken in this cur- rent cycle." Most mortgage industry professionals can cite verse and chapter the reasons for the sagging home market. But it's only when you peel back a layer of the housing crisis onion that you understand there are other, influential yet intangible factors at work. "There is a very real impact that unemployment continues to have on the housing market," Sharga says. "That's tangible. But we believe psychologically it 24 | THE M REPORT really does keep marginal buyers on the sidelines because they don't want to make a huge financial commitment and then become the next foreclosure statistic." Unemployment has also dampened consumer confidence because millions of people have lost their savings. Other people who would have purchased a house simply can't scrap together enough money for a down payment. And people who would have used the equity in their current houses to buy up can't because housing prices have fallen so dramatically. "There is another group that should be the next generation of homebuyers who aren't psychologically ready to commit right now," Sharga said. "They may be in jobs they are really not happy with and want the flexibility to pick up and move to where the job they want might be when the economy improves. They can't do that if they are in a 30-year mortgage in a difficult housing market." Another intangible is the impact of distressed properties. The inventory is expected to grow over the next few years. Sharga estimates there is between four and five million loans that are poised to go into foreclosure, or are at least 90 days past due. Another 1.5 million are either on lenders books or in the foreclosure process. "We're selling those properties at a rate of about 900,000 a year," he said. "So you are looking at potentially a six-year supply of distressed housing. When the tangibles and intangibles are added together, the result is a housing market that will continue to decline before stabiliz- ing and starting to grow. "Next year, prices will be pretty much flat but starting to go up a little," said Sharga, who considers himself an optimist. "If things go the way they should, we should see sub- stantial growth in home prices by 2014. That doesn't sound like great news, but at least there is a light at the end of the tunnel, and we're reasonably sure that it's not a train."

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