The growing economic and regulatory demands placed on lenders is changing the process of mortgage origination.

And to control the unpredictability of the increased costs and activity that arise from meeting those demands, lenders are automating their originations — helping one mortgage technology firm outpace the industry.

Pleasanton, Calif.-based Ellie Mae (ELLI) boosted revenue 28% in 2011, according to its annual earnings report filed with the Securities & Exchange Commission. This compares favorably to the overall mortgage origination technology market, which sank 20% in the same time period.

Further, Ellie Mae expects to accrue $68 million to $70 million of revenue in 2012, a 27% spike from 2011’s $55 million figure. And during that time, industry revenue is expected to sink another 20%, Ellie COO Jonathan Corr says.

It’s a model that Ellie built on top of the classic software-as-a-service model that many companies use. There’s intense relevancy to the mortgage market, Corr says, because all of the compliance and regulatory changes put pressure on mortgage lenders. “Our handling and managing of that for them and having that in our data centers and our cloud is really attractive.”

Despite the firm’s growth, its stock price volatility is apparent, dipping from nearly $7 a share a year ago to less than $4 then back up again to more than $10. When the firm went public last April, it slashed its initial public offering from roughly $10 a share to $6 a share.

Shortly after the Dodd-Frank Act’s passage in 2010, Corr, Ellie’s chief strategy officer at the time, told HousingWire that technology will play a larger role in cost-effective operations in the sets of changes brought on by the Act and other regulations.

The firm’s Encompass software, which handles business and management functions for mortgage originators, allow it to control about 20% of the national volume of loans. In August, it purchased a competitor, Del Mar Datatrac, using proceeds from its initial public offering. Corr said Del Mar Datatrac controls about 10% of the volume going through their platform.

Even in this depressed lending market, originations surpassed $1 trillion in 2011.

“The plan over time is to bring those two solutions together and, without adding any new customers, bring the volume to 30% of the national volume,” Corr said. “We have yet to penetrate that volume with all the automation and services that our customers would like from us. That’s the great opportunity in the near future.”

To accommodate the expansion that could arise from those opportunities, Ellie Mae continues to hire seasoned talent and even create C-Suite positions.

All the byproducts of the recession and housing crisis — tighter underwriting, greater levels of verification, increased buyback risk and compliance concerns, more regulation, etc. — has accelerated the use of technology and automation.

“The vast majority of the 7,500 lenders in the nation are small to medium-size businesses,” Corr said. “The only way to cost-effectively deal (with) all the new demand is automation.”

Origination market and broader market is dealing with quality issues such as investor verifications, making sure everything is checked. Also with regulatory changes — RESPA, truth in lending, Dodd-Frank, CFPB.

“All those things put a tremendous amount of addition cost on small, mid-sized — and even some of the larger lenders — which is our target segment, and they’re embracing automation,” Corr says. “Addressing a lot of those things, even as market volume has gone down, folks have embraced our offering to help them be more efficient and stay compliant.”





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