It’s 2017 but the mortgage process is still stuck in the days of family sitcoms like Family Matters and Full House back in the late 80’s and early 90’s before “Google it” was a term and computers were a luxury rather than a handheld device.
Something has to give. Imagine at the crux of a $1.5 trillion market is a process that looks more like the Dewey decimal system than Google. That is where individuals like Orion Parrott come into play.
He and his team recognize that the labor intensive, paper based process of underwriting a loan is out of whack and in need of a refresh. Through a SaaS platform, Orion and his team are streamlining the process of collecting and processing original documents into a matter of simplistic clicks. It’s a new age of lending, and Lendsnap wants to make sure the consumer experience reflects that. Check out our discussion on their innovative approach to fixing the mortgage process below.
CL: From Electrical Engineering at Virginia Tech to being a Systems Engineer at Raytheon and Teledyne Microwave Solutions, you had an engineering-heavy path, so why the switch to mortgage-tech and being a startup founder at Lendsnap?
OP: In addition to being an engineer, I was exposed to the mortgage industry early on in my life. I watched my father build a portfolio of 150 rental properties growing up. He got me involved in some real estate investing when I was a teenager, of course, starting small. I had saved money from mowing grass and I bought a few mobile homes.
I’ve actually been a landlord ever since, so I have been active in finding properties and renting them out and keeping them up for years. And I got my first mortgage when I was 20. It was just a problem that was close to home for me. I had been through the mortgage process several times and had really wanted to apply my software skills to something that more directly impacts consumers’ lives and gets out in front of a lot of people. That’s where my software capabilities and understanding of the pain points of the mortgage markets converged and led me to found Lendsnap.
CL: For those that don't know, how do you define Lendsnap as a business?
OP: Lendsnap is serving every lender with account-aggregation technology. Account aggregation was created in the personal finance management vertical over the last 10 plus years. Mint was the first big example. They’ll link to your bank accounts to import data to bring you some kind of value. Most of these services up to now have been informational. At Lendsnap, we’re building the first transactional account-aggregation system.
That means that we can import your documents and data to help you apply for a loan. By doing that, we can give consumers a much better experience and access to the best lending products. I say that because the CFPB, Consumer Finance Protection Board, reports that four out of five people stop their search for the best mortgage with one lender because the paperwork hassle keeps them from doing more. We want to empower consumers by helping them talk to more lenders and to get more done with less work.
CL: Some of your competitors such as StreamLoan are putting the consumer in control of their financial data in the mortgage process. Are you also placing the consumer at the center of the mortgage experience and enabling them to control their personal data?
OP: We have definitely focused on building a product that has the consumers’ needs in mind so that we can look to serve them best. We feel like the best way to be able to help the most consumers is actually to sell into the lenders first. We’re a little bit more focused there right now, to be honest, but we are also available on mobile today as a consumer experience, but we market that through the lenders. That kind of loan shopping for the consumer is exactly where we want to go.
CL: It makes a lot of sense to take the B2B approach, but also empower the consumer to control their data because that enables them to stay on the Lendsnap platform and shop around to different loan providers?
OP: That is exactly how we pitch it to our lenders. They’ll say, “Well, who owns the data? Do you own the data?” Because usually they want to make sure they own it. We say, “Hey, the consumer owns it. They’re in charge.” We’re giving consumers better access to their own financial data. But, by giving the consumer control they are much more likely to engage with Lendsnap and pursue a mortgage on it, which increases the chances of a sale for the lender.
CL: Would you ever consider offering Lendsnap as a private-label mortgage origination tool or do you want to continue to brand it as Lendsnap so you become more of that interface between the consumer and the lender?
OP: We’re definitely open to white labeling it and we’ve talked to some lenders about that. Actually, what we found so far is lenders are very enthusiastic to have their name linked with a tech brand like Lendsnap. The banks have really dealt with the regulatory issues over the last nine years since the financial crisis. Now, they’re ready to get out and compete.
Partnering with tech companies is one of the major ways for them to do that. We offer white labeling, but so far, our lender-partners have chosen the co-branding. For instance, it would say something like Wells Fargo powered by Lendsnap.
CL: It’s like the Intel Inside approach in personal computers, but applied to the mortgage space?
OP: That is a great comparison and I think that’s part of the value. Actually, I was recently reading a book by Andy Grove who was running Intel back then. It was a big shift for them to go from thinking of their customers as the computer manufacturers and then when their branding was Intel Inside was so successful, it made them much more of a consumer brand and they had to really learn to focus on those consumers.
CL: It’s a fascinating strategy. Moving forward, is Lendsnap actively seeking to build partnerships in the mortgage ecosystem and if so, what types of providers are you trying to partner with and why? Be it notary, advisors, lawyers, etc.
OP: There’s definitely strong demand from our lender-clients to do several add-ons. Right now we are focused on rolling out to lender partners that we think really get the product and can help us launch successfully. So in the near term we’re not doing a lot of add-ons because we want to focus on making the core product better and better. It can feel at odds with what the market may ultimately want, but it can be challenging to build competitive advantage by just reselling a lot of other people’s services.
We’re working more on our core technology around a really smooth consumer experience to be able to get all the documents and data processed in record time. When we perfect that, then we can focus more on things like 4506-T tax transcripts, and credit report services that you would buy from a third party and bolt on, but in the near term it doesn’t really make us a unique defensible company on its own.
One of the most significant things we are currently working on is we are collaborating with Fannie Mae, one of the largest buyers of mortgages in the U.S., to do a Day One Certainty pilot. We’re actively searching for the right lender-partner who sells mortgages to Fannie Mae to perform this pilot with.
CL: What is the Day One Certainty solution and how is Lendsnap uniquely positioned to provide it?
OP: Day One Certainty is a product that Fannie Mae sells. It’s really a promise that they offer. This promise has to do with circumstances and experiences that lenders have faced since the financial crisis in 2008 in particular. During the mortgage crisis, not every loan was written properly meaning not all of the data was accurate. In 2006 and 2007 there were mortgage products that were questionable, including no-doc loans where consumers didn’t have to prove much with actual data.
The result of this was that in the last maybe six years Fannie Mae and Freddie Mac have forced lenders to buy back $90 billion worth of mortgages. This is a really bad thing for the lender. Imagine if your business is selling something and you have to buy back $90 billion worth of it.
Those are called putbacks. The Day One Certainty is really a promise that if you use the right data providers that Fannie Mae has approved to underwrite your mortgages, Fannie Mae is saying, “We will not make you buy back the loan. We will not put it back to you for data errors,” because they’ve done that work upfront. By working with companies like Lendsnap and Plaid, Fannie Mae can get all of the data they need to basically make sure that the loan is accurate, because they can pull the data from the source. They give you that certainty on day one that you sold the loan that you’re going to be all set.
Every lender feels like they’ve got to have this Day One Certainty Data. It’s what we call in economics a shadow cost. The shadow cost is something that you need insurance for.
CL: How is Lendsnap utilizing APIs in order to deliver an optimized experience?
OP: The development of our software relies on several third-party APIs to get the job done. These are things like Stripe for secure and simple online payments. Then there’s Twilio, which enables us to provide seamless emails SMS integration that is also secure. And lastly, we run on Amazon Web Services to securely store data, which is not an API exactly, it’s another interface that we leverage to deliver our service. We also provide Lendsnap as an API for lenders that want a tighter integration.
When you combine a lot of these services, it really lets you get more done quickly. I mentioned Plaid. We do you use the Plaid API for getting some data from banks. The reason a lender may use Lendsnap instead of Plaid is if they don’t have an internal software development team. Those lenders can’t just go to Plaid and say, “Hi, we’d like to use your API.” Most mortgage lenders don’t have a software development team, but Lendsnap is making account aggregation technology accessible to them.
CL: In terms of your core consumer, do they tend to be offline companies or are there some digitally native companies that are just looking for a tech solution to enable better processes?
OP: The division between offline and online is really blurred. I think everybody knows that they want to have an online presence, but there are a lot of lenders who still don’t. I guess if I refer to offline lenders, I would say even those lenders know that they want to be online and so we serve more of those companies. But we do have both.
So far, company size has been the best ways to segment the market for us in terms of who is looking for solutions that are more turnkey. That’s where we fit in. Plaid is not a turnkey solution. It’s a great solution, but it’s not something that you can take live in a day. We can help lenders. They can sign up for our service, and get started the same day.
Our sweet spot is lenders with ten to a few hundred loan officers where they are mostly doing things offline. Maybe they have a website, but all it does is get the consumer to call a phone number or give a phone number and then a loan officer will call them. That’s their current version of state-of-the-art, so we’re working to improve on what state-of-the-art can mean for them and the process.
CL: That makes so much sense. I have this thesis that in the next five or ten years, you’ll see a ton of growth in the SME banking space because essentially, all of them are going to have these white-label digital solutions. You just look in the windows of a lot of the local banks that are in my area. They started expanding and they’re opening up more store fronts. And then you look in the windows and you see all of these great offers like 2% CDs, and mobile banking.
I think that the best utilization of technology is when you can balance getting more out of people by utilizing technology to empower them. I could really see a lot of growth in software like Lendsnap because you enable local banks and lenders to provide solutions that very much look like the larger providers. I think that will be interesting to see play out and it feels as though you are well positioned.
OP: I think you’re totally right about that. Because we’re serving lenders who are mostly offline, and we’re helping them to onboard online practices. Our primary workflow can help facilitate the old-fashioned way loan officers collected documents. Instead of having a long drawn out process with tons of emails and phone calls back and forth, they could simply invite the borrowers to Lendsnap where they can input all their data in one motion.
All that time processing documents now goes away and that loan officer can now spend way more time with the consumer. A couple banks have said, “Great, I don't need my loan officers anymore,” and we said, “Wait a minute. That’s not what we’re doing. We’re supporting your teams and your people and making them more efficient, and allowing for a better overall consumer experience.”
CL: What about the Lendsnap positions it well to best serve the mortgage-broker market. That represents 12% of the one and a half trillion dollars in mortgage originations per year. Are you considering pursuing a larger slice of that pie?
OP: It comes back to the fact that we deliver not just the data that is needed to analyze and underwrite the loan with software, which is what Day One Certainty does, but we are also delivering the “original documents.” When we do the account aggregations to link to your financial and employment accounts, we pull in the original documents. This is important because it is what lenders and brokers use to underwrite the loan.
Without the original documents it is not consider to be Day One Certainty data, which means they will be limited to who they can sell the loan to, which is really something that doesn’t not work for brokers, because they want to sell the loan to whoever can provide the best deal for the borrower.
The lender in particular, for now, for the next few years is definitely still relying on those original documents and by being able to provide that our solution really works well for them. That is not to say that we cannot expand away from just this group over time. Nothing is stopping us.
CL: What growth hacking initiatives is Lendsnap undertaking to help grow the reach of the business and hit some of those profitability numbers in December of 2018 that year that you’re hoping to hit?
OP: One of the things that we’re doing, which is also unique in the industry is lenders can actually sign up for our service online just like a typical SaaS product. It doesn’t seem revolutionary, but in lending software a point-of-sale solution actually is a big deal. They can still have an enterprise-sales conversation if they want, but that’s been one of growth hack is just getting online. It’s quite different to be able to streamline the process to the point where lenders can just sign themselves up and get started.
CL: In many ways, the pricing structure seems extremely simplistic. It’s interesting to see. Typically, what you might see is they have the three grades, the good, better, best options for the executive level. Then they have that other one like, “You know, if you’re looking for something bigger, go here.” Is that a strategic move to make purchasing more simplistic?
OP: It goes both ways. It’s us again meeting the market where they are. Most people do seem to want what we would call a high-touch relationship. They want to talk to us. They want to know us. Trust is very important. But, it’s also about also marketing a solution and making it more well known to people. We’re working to find the right balance. There’s nothing wrong with transparent pricing. That’s always a good thing for the customer and helps to get us in front of the customer with something that at least grabs their attention to start.
CL: How do you see the mortgage-software market developing moving forward?
OP: I think there’s going to be consolidation over the next five years. The mortgage market itself among just lenders and brokers really tends to expand when there’s opportunities, basically depending on interest rates, the global financial climate, and the mortgage industry more specifically. It’s interesting. Even though it’s seems like a closet industry, there are a million people working in mortgage, but that’s not a vast amount of our population.
Yet, it controls a massive amount of the U.S. wealth, which then triggers the world financial system. We’ve been in a rich time. Basically, there’s still a lot of room to grow, because this year we’re doing $1.5 trillion of mortgage originations, when back in 2006, it was $4.6 trillion. When things get tougher, some brokers and some lenders leave the business or consolidate. I think we’ll see the same thing in the financial software that is enabling those lenders.
The Minute Rundown with Orion Parrott
CL: If you could provide one tip to someone considering starting up, what would it be and why?
OP: I think one of the biggest things is finding the right team. When you’re building a company, a lot of things need to go right. There’s a lot of things to keep track of. Starting with the best team and the right people, not just the right team is crucial. It needs to be somebody that you are going to be friends with, that you know will stick together through thick and thin. You need a special relationship. Good enough is not good enough. I think that really can start with the team.
CL: What was your favorite part of being in the Y Combinator accelerator, and what would you tell someone considering getting involved in the program?
OP: I actually do get a lot of people asking me how can they get into Y Combinator. For that, I have to point them to some great online articles. A lot of people want to know the answer to that and it’s been well blogged online. My advice for people would be that they should apply. They can learn about what goes into it by reading online and what can increase the chances. I think what was my favorite part of the experience was just a relentless focus on short-term results.
There’s a place for long-term thinking and we have to plan ahead, but a lot of times in a startup, it’s very easy to say, “Well, your six-month plan doesn’t matter, if you aren’t here in six months and your one-month plan may not matter either. So what’s your one-week plan and how are you going to start to get velocity to move forward?” That was a big takeaway for me at Y Combinator. That doesn’t apply to every phase of business, but definitely for very early-stage companies it does.
“Product market fit” is something that every VC, angel investor, and entrepreneur says ad nauseam. Yet it is hard to deny when you see those products that do exactly that. Lendsnap is the SaaS solution so desperately needed for the mortgage-broker market at the right time.
Imagine overnight being able to sign up for Lendsnap and fully automating the data collection process that used to take weeks to complete and consume most of your day. The freedom, the cost burden and the time associated with the loan process is suddenly minimized. All that time with backend BS is out the door and now you are sitting client-side more often, selling and driving profits for yourself and the organization.
The need is so great for a more efficient and consumer-centric process mortgage process. Lendsnap is here to answer those prayers. It’s a big idea and very much a needed technology. I am looking forward to watching Lendsnap’s growth moving forward.
I’d say Orion and his team check the box on Simple.Innovative.Change, way to go Orion.
"Disclaimer: Author is an investor in Lendsnap on SeedInvest."