[I am away from the computer on a daily basis, and I cannot respond to e-mails until September 11th. In my place are daily commentaries from a series of very knowledgeable mortgage industry people with different backgrounds, and they have been given very little direction about what to write about - the latest is below. Our views may or may not coincide, but I thank them for their time in volunteering and helping out.]  

Reshuffling the Deck

Frank Fiore
e: ffiore(at)matchboxllc.com
w: www.matchboxllc.com

Last month's news that Datatrac was being acquired by Ellie Mae definitely created some shock waves in the industry.  Shockingly, there are many who still haven't heard the news!  Any time the two leaders of an industry segment join together it changes the landscape and I for one am curious to see how this combination will affect the market. As the recent press releases have stated, the combined entity now supports 30% of the mortgage community and we all know they're looking for that number to grow. Like many other industries, the mortgage market has become increasing dependent on technology and while there are more offerings, it's clear that with this move, only the strong will survive.  And I always say that competition breeds innovation so I imagine that other LOS providers have their development teams working overtime.  

This acquisition was clearly a combination of alternate business models, Datatrac has employed a module based model where its product offerings are external and  integrated origination, document management , web portal, and commission systems tied into its core banking software Datatrac. Included in this model was the premise that clients could use the "best in breed" philosophy in allowing clients to select their choice of third party vendors to integrate into Datatrac. It gave the clients more versatility in vendor selection and if the integration was built, it provided a seamless process. The multiple software connections sometimes proved to be cumbersome for support but overall the model worked well. The best is breed philosophy led to many vendor relationships wanting to develop integrations with Datatrac. The system began as a mortgage banking software truly tied to mortgage banking procedures from submission through post-closing. Over the years they saw the need to integrate into other areas of the loan process through technology.

Ellie Mae on the other hand took the route of building an end to end solution. Through acquisition and development, the Encompass 360 banking software increased its offerings within the same product. The system evolved overtime to offer increased amount of functionality within the same system. Through the Ellie Mae network, clients have the ability to also engage third party vendors and have the results in most cases delivered back into the system.  It has a robust offering of services that come with the product and has made the end to end promise a reality. Through the acquisition of a document company, pricing system, and compliance engine, it has made the Encompass 360 banking platform a one-stop shop

The combination of the two firms creates an interesting merger of philosophies and it will be intriguing to see how, if and when they combine and integrate the systems.   I'm sure they're working overtime as well, looking at how to pull the best part of each system and roll out a unified system in the future.  Imagine the best of the Datatrac suite of products being re-branded or re coded to an Ellie Mae product in one form or another.  There is an incredible amount of talent within each company and the combined mindset working together instead of as competitors makes for a game changer for the market. The new entity will control a good portion of the market and will look to take on more with a unified message. As the unified approach becomes clearer the best of both systems will be obvious. I think that the current products being offered will change for the better and ultimately will benefit the user which is the most important It appears that the end to end model is taking the lead on what the future holds for mortgage technology .

The bigger picture speaks to the future of technology providers and further consolidation.  This is only one of numerous acquisitions in 2011 but I'm sure not the last.   The remaining players, although strong, have to be thinking about strategic moves in order to complete.  If Datatrac and EllieMae can combine forces, anything is possible.  Vendors will also be re-thinking integration options as the new Ellie Mae will be a strong entity and will most likely determine who they would like to have relationships with.   With Calyx purchasing Loan Score this year, there have been integration moves that point to merging technology under the same platform.  Who's next?  This is only the beginning of technologies merging as unfortunately, if they fail to do so I'm afraid they'll begin to lose their competitive advantages.  As with any integration, changes take time and although the benefits of the combined entity are clear today I think it will take some time for them to be achieved and reach the market.  Ellie Mae was already a strong system and got much stronger with the Datatrac acquisition. I look forward to the combined entities offerings as I am sure it set the bar for the entire industry.