Michael Detwiler entered the mortgage market in the late 1990s with one goal, to really redefine the conventional definition of a loan origination system. He turned the standard LOS concept on its ear and sought out to build what he coined an enterprise lending system or ELS. Over the past 10 years Mortgage Cadence went from being an LOS to a company that has five different products that include an LOS, doc prep, imaging, loss mitigation and compliance offering.

The company now automates forward originations, reverse origination and servicing. All of Michael’s hard work was validated when Monitor Clipper Partners invested in the company last year. With that investment under him, Michael is ready to once again do his part to reinvent the mortgage space for the better. He shares his insights on how Mortgage Cadence and others can help foster broad industry recovery.

Q: With the extensive regulation requirements taking hold of the origination industry, what will lenders need to do to better adapt?

MICHAEL DETWILER: What I see happening is an atmosphere of denial. What do I mean? There are a lot of lenders looking to the past saying, “I’ve never had to buy back a loan, I’ve never lost a license, I’ve never seen any penalties, so that eventuality is not going to happen in the future.” What I say to them is the historical context of what they have experienced is not indicative of what they could experience going forward.

It’s all about the data. We’ve been preaching about the data since 2005. However, we just started talking about it in 2005 even though that has been our strategy since 1999. What lenders are going to have to do is invest in technology that will enable them to support policy that is compliant. The system should stop them from making high-risk moves, or at least warn them when they are crossing that bridge. It’s also important for people to understand that systems that have been siloed like the LOS and the doc provider will need to come together. You’re going to see lenders wanting one system. Lenders don’t want to shoulder the burden when those two systems are not aligned.

Q: Where will the opportunities lie for lenders and vendors in the coming year?

MICHAEL DETWILER: Studies show that lenders will spend 15% more on technology this year as compared to last year. I don’t agree that origination volume will be under $1 trillion this year. That statistic does not take into account the prime-jumbo market that I think will come back. I’m looking more at $1.4 trillion this year. Vendors like us need to drive home the message of data validation and compliance in a core system that also extends to documents. I also think there’s opportunity for lenders to do more with imaging when it comes to OCR and data extraction.

Lenders ask us how your system can help me stay compliant, how do your documents help me stay compliant and how does your imaging allow me to streamline the process? There’s a lot of opportunity there. As a result of market conditions, lenders will move to consumer direct. Lenders want to control their own destiny. Lenders will look to better connect to their borrower using technology, cross selling, etc.

Industry Predictions
Michael Detwiler thinks:
  1. Investors that understand the industry will come back into the space. For example, Wall Street will re-enter offering prime conduit origination through correspondents and mortgage products such as jumbo mortgages.
  2. Originators must embrace the new lending paradigm and be prepared to deal with more regulation and transparency through market products and services geared towards a more savvy and concerned customer base. Therefore, the consumer-direct channel will expand to introduce online, intuitive tools for the borrower to communicate with the lender.
  3. Servicers working with loan modifications will move towards principal reduction as opposed to rate reduction in order to retain borrowers and prevent foreclosure. They must also communicate more effectively with the customer by utilizing consumer-direct technology that will establish acknowledgement and confirmation of received documents through an online portal.
  4. Advanced imaging solutions will become needed so documents can be received through a variety of sources and formats and then recognized, categorized, indexed and have appropriate data extracted into the system of record without human intervention.
  5. Housing prices will continue to stabilize
     
Q: What new products do you believe will be introduced based on the requirements of consumers?

MICHAEL DETWILER: In our case, we are expanding our consumer-direct functionality. You’ll also see more Web-enabled applications that are accessible through a smart phone. When you talk about things like e-delivery and e-sign, people will want to review and do those tasks on their phone. Lenders will embrace mobile technology and social media, as a result. These two hot areas of technology are coming together and lenders are moving to adopt.

Q: Mortgage Cadence also automates reverse mortgages. Will the reverse industry see a turnaround any time soon?

MICHAEL DETWILER: The big issue with reverse is valuation. The reverse market is based on equity. As far as the macroeconomics go, valuation is key. So, it’s a complicated question. When are the macroeconomics in the United States going to come together so the banks are confident that we’ve reached the bottom? You do see pockets of stabilization, but there still isn’t overall confidence. Until that issue is resolved, reverse will be impacted.

By the same token, you are seeing more and more baby boomers retiring. For those baby boomers that lost out in terms of their investments, reverse will be a big part of their retirement. The short answer is we need valuations to stabilize and more education about the product. But reverse will be a big market going forward as we have more retirees take that step.

Q: With all the talk about how HAMP is a failure, do you believe loan modifications will be around much longer?

MICHAEL DETWILER: Another interesting question. You have empty homes on every block. In most cases, those houses have not gone to foreclosure, but they haven’t been modified either, and in some cases are still occupied. Short sales have also not taken off the way most expected. You’ll see more programs by the Fed sponsored by investors that include principal forgiveness.

I’ll give you an example. If you’re in a home, you’ve gotten notice of default, you owe $300,000 on your home, your neighbor’s home was a short sale for $200,000 and the house down the street went into foreclosure and got picked up for $150,000, well if you get an offer from a servicer to mod into a 40-year fixed rate loan at $300,000 the borrower won’t do that because they know their house is not worth $300,000. So, there are challenges getting people into a mod, but the servicer doesn’t want to evict. However, you are not going to get buy-in on a mod at the market value of years past.

We just got an RFP from a servicer that does not expect that their mods will peak until next year and won’t ramp down until 2014. So, mods aren’t going anywhere. The talk that loan mods are over is overblown. The shadow inventory can’t just be pulled back onto the books of the banks so we need to get more creative. If you keep foreclosing and doing short sales you’re devaluing that whole neighborhood, which drives the whole market further down.

Q: What type of technology will be required in the back office to ensure documents are meeting guidelines and are efficiently being managed?

MICHAEL DETWILER: If you have an enterprise lending solution once an application comes in, the system should be able to run analytics to determine what’s on that app is compliant. You also need to work with a company that can dynamically generate documents upfront. A lot of the doc preps have a forms library and lenders just choose forms. It’s a point and click solution. That is very, very dangerous.

With Mortgage Cadence Finale Document Services Division, once an application comes in analytics are run to ensure licensing, it looks at the origination channel, it detects if origination guidelines have been met and it won’t allow the lender to pull documents unless the compliance thresholds are met. Being able to analyze and generate documents based on the data before you get a form is key. The day of dumb doc prep that is forms based and does not include analytics and dynamic creation will come to an end. Companies that are hocking forms and don’t have a system that analyzes and works of the data will have a short life.

Q: Given your new investment from Monitor Clipper Partners, what can we expect from Mortgage Cadence this year?

MICHAEL DETWILER: We continue to expand our products and services in both origination and servicing. We’ll continue to invest in our intellectual property. You can expect to see acquisitions from us. How many? We’re talking to many companies and it all depends on opportunity. You will also see us moving down chain into the midtier and lower tier. You’ll also see continued expansion of our sales and marketing arms. When you look at the new licensing laws and liquidity requirements, regulators are looking for accountability. People have to protect themselves from that because it is a matter of life and death. The risk is real.

Q: Personally, what’s your biggest professional success and failure?

MICHAEL DETWILER: I know you’re looking for a professional success, but my biggest success is being married for over 20 years and raising a wonderful daughter and a successful son. That’s not a professional success, but to be married all these years and have two great children is something that I’m very proud of. It’s important.

Professionally, the biggest accomplishment has been building and managing Mortgage Cadence over the course of 10 years without any outside investment. Being successful and profitable helped us establish a relationship with Monitor Clipper Partners. It was a great reward for all of our years of hard work. Now we can take the company to places that we couldn’t before when we were privately funded.

Equal with that is the loyalty among our customers. We are thought of as a partner. Our clients don’t call us a vendor. That’s a big accomplishment, too.

On the other side, I believe that business is all about the people that you bring on. I need to work on doing a better job of finding the best talent. Our employees have a lot of longevity, but when we’re in a growing mode it’s hard to find the best talent. You have to be more patient when you’re looking for top talent.

Through it all, I’ve learned that it is possible to achieve your goal if you work at it. We’ve delivered. I’ve learned that if you focus and get together the right people, you can really achieve anything.

Q: What advice do you have for entrepreneurs looking to improve their businesses in 2011?

MICHAEL DETWILER: I would say that the residential finance market is a fundamental part of the U.S. economy. We’re still facing challenges, but the market will sort itself out. I don’t agree with the political pundit that said years back that owning a home is a right, I don’t know if it’s a right myself, but you should continue to have that opportunity. So, hang in there.