The US mortgage industry is a $2 trillion industry that is in constant change and rife with complexities. Yet, it’s an industry that has been run on spreadsheets and aging technology. While management teams work around the clock to process and evaluate marketplace and operational data, they have been forced to make big decisions without a true understanding of the future financial impact decisions and changing markets may have on their enterprise. That is beginning to change. There is a growing number of innovators trying to tackle these problems and we had the chance to sit down with one of the leaders of that revolution, Michele McGovern, CEO of Alight (pictured below), a San Francisco-based enterprise technology firm dedicated to the mortgage industry.
A new class of technology
Alight is among a new class of technology innovators breathing new life into the mortgage industry. At the epicenter of technology innovation in the Bay Area, Alight founders saw the need for a collaborative planning and forecasting technology solution that provides visibility into the financial impact of decisions and sudden market changes in highly complex and dynamic industries. Given its narrow sales funnel and ever-changing market conditions, the mortgage industry was a natural first place to start.
While most mortgage banks rely on numerous operational systems and inputs for running daily business, when it comes to predicting future operational and financial needs in areas critcal to maintaining the value of the mortgage banking enterprise—headcount and contingent liabilities that may strain cash flow beyond 60, 90 or 120 days, servicing advances and repurchase obligations, for instance—even the most sophisticated mortgage banking enterprises still rely on spreadsheets and educated guesses to make decisions about their future.
“We’re changing all of that,” said McGovern. “Alight Mortgage Lending was designed from the ground up specifically for the mortgage banking industry. With Alight, mortgage bank management teams can see the financial implications of decisions—on P&L, balance sheet and cash flow—before they make them. No one else is doing that.”
And the proof is in the pudding. In the first six months of 2016, Alight doubled its customer base over its previous best year, signing industry leaders like Guild Mortgage, a $14 billion originator with 250-plus branches, First Guaranty Mortgage and Union Home Mortgage onto the Alight platform. Stonegate Mortgage Corp. is among early adopters that have been using Alight for several years.
Innovation that changes the way mortgage banks are run
Alight Mortgage Solutions is unique to the industry because it stands on two pillars, McGovern contends, a team of mortgage industry and financial services veterans with over a century of direct experience in industry operations and financials, and an in-house technology team with roots firmly planted in the Bay Area innovation hub.
And Alight has invested in assembling a strong team from a cross-section of the industry, McGovern said, people with backgrounds in capital markets, mortgage insurance, warehouse lending, loan origination systems, financial services and vendor experience.
Alight enterprise-class software connects with systems already in place—G/L, LOS and data from capital markets providers—to deliver up-to-date information and a reference point to pull historical and real-time information. Mortgage bank management teams can access data about company performance, capital market vendors, interest rate shock data and portfolio valuations, and then create and compare multiple scenarios to see the financial impacts of marketplace changes and decisions ripple across the enterprise, through to P&L, balance sheet and cash flow.
Alight is partnering with key technology providers in the mortgage bank ecosystem—including both AMB and Loan Vision, that were among the first partnerships formed, for instance—to make the integration of firms’ operational systems and industry data into Alight as seamless as possible.
Recently, Alight upped the ante with its browser-based platform that improves accessibility to financial information by providing CEOs, CFOs and their teams permission-based access to critical systems and real-time information literally at their fingertips.
Lenders can use the application on handheld devices like tablets, phones and even smart watches, making real-time scenario analysis as easy as a flick of the wrist.
“We put enterprise and branch metrics directly into the hands of the people running each part of the business,” McGovern said, “Providing CEOs and management teams a 360-degree view of the enterprise.” Management teams can then optimize future performance by exploring alternative strategies for coping with marketplace volatility and then record decisions as a basis for future measurement and optimization, McGovern explains.
What’s keeping you up at night?
“We are trying to solve some of the big problems and issues management teams face when trying to prepare for the future,” McGovern said, “And while we have a really good understanding of what those issues are, one of the first things we ask our mortgage banking prospects and customers is ‘What’s keeping you up at night?’ That’s our starting point and, in most cases, where we can make an immediate and significant impact with a particular customer.”
And while the industry has enjoyed an environment of low interest rates, high volumes have put pressure on other aspects of the industry, like headcount, warehouse funding and rising compliance costs. Using Alight, management teams can pinpoint bottlenecks in processes and remove obstacles to increase profit.
“Firm owners want to understand collectively—across the entire enterprise—what the business looks like. Do they have the opportunity to be a $2 billion originator this year? Which branches are on target and how can they help the ones that aren’t? Success is largely about visibility and control,” she said, “And with Alight, they have that.”
Aspire Financial, a Texas-based lender, recently selected Alight to refine its financial reporting. “We see Alight as the answer to our financial reporting needs as it integrates all our existing systems to give us a real-time forecasting solution,” said Jason Spooner, chief operating officer of Aspire Financial. “Thanks to Alight, we will have insight into all aspects of our company, allowing us to make educated decisions surrounding expenses, branch acquisitions and pull through margins.”
A number of key areas where Alight technology can significantly improve processes and visibility:
- Cash flow requirements: Alight provides the ability to forecast long term cash flow requirements to reflect both liquidity and counter party compliance for warehouse lenders, correspondent relationships and investors such as GNMA, FNMA.
- Branch acquisition and expansion: With Alight, management teams can evaluate multiple scenarios, compare them and make a decision on how to proceed: What does a new branch cost, how much capital do you have to provide, what is the risk of the payback? Does the branch meet existing branch targets? “Using the Alight branch pro forma scenarios, one of our customers found that a branch they were considering would have cost them an additional $100k in acquisition capital, and they then decided they didn’t want to go forward with the acquisition. Knowing that in advance is invaluable,” McGovern said.
- Headcount: Using Alight scenarios analysis, management is able to plan for redeployment of headcount—for example, to loan production when volume suddenly jumps—rather than hire new people.
- Product Mix and Volume: Alight multiple what-if scenario analysis give visibility into how changes in product mix and volume will impact cash flow and other financials.
McGovern contends the opportunity cost of not using Alight can be significant.
“Without Alight, you have less visibility to breakeven points and branch performance, lack of headcount optimization, inability to optimize headcount at both the highs and lows of volume, lost opportunities and, ultimately, lower profits,” she said.
“Every day a mortgage banking firm goes without Alight, is a day of missed revenue and profit opportunities.”
Connecting the industry
Alight is quickly gaining a reputation in the industry as a leading technology innovator. “We are enjoying record growth, signing some of the industry’s largest independent mortgage bankers and several of the industry’s rare breed of public companies,” McGovern said.
But the company’s commitment to the industry doesn’t stop at implementing its technology.
To that end, the company partnered with the California MBA to provide a forum at high-profile venues for senior level finance members to network with peers, keep informed about innovations, learn from each other about financial best practices, share ideas about how to increase enterprise value, and garner inspiration from industry luminaries, trendsetters, and thought leaders.
“The feedback is tremendous,” McGovern said. “There are not a lot of places for senior financial professionals to network and learn about innovations. We viewed this as an opportunity to partner with regional organizations across the country to promote this kind of collaboration.” Alight’s next move will include expansion of the forum into other regions, working closely with state MBA affiliates and key industry groups.
“There’s so much going on in the market, a lot of innovation,” McGovern said. “It can be difficult for firms to stay ahead of it all and we want to help with that.” Regional forums will feature speakers from investment banks, capital markets and boutique consulting firms with a focus on the cost structure of firms and how to help improve operations already at capacity.
Alight’s investment in dynamic technology that can predict future financial outcomes is a game changer. And like any industry disruptor, McGovern’s enthusiasm and passion for the industry is palpable. “The truth is, no one else can do this. Alight offers the mortgage industry the only enterprise solution for forecasting and managing the financial future of lenders. It’s what’s needed, and the growth of our business is validating our story.”