Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision in global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism, right here, right now, at the NYSE and at ICEs exchanges and clearinghouses around the world. Now, welcome Inside the ICE House. Here's your host, Josh King of International Exchange.
Josh King:
This election we've all been through talked so much about the American dream. Whatever your definition might ascribe to it, one of its central tenets is homeownership. It's a theme explored in countless works of literature, spanning centuries. Yeats wrote about a small cabin of clay and wattles made in The Lake Isle of Innisfree, and in The Cherry Orchard, Chekhov mixes ideas of escape and tranquility with feelings of grief and loss, as his characters face losing their ancestral home. Beyond this imagery, let's face it, homes are valuable possessions. Owning a home allows families to build wealth and serves as a measure of financial security. Homeowners have lower financial risk in retirement, and policymakers around the world encourage expanding the population of these folks.
Josh King:
Owning a home is often the largest investment an individual or a family's ever going to make. To help them achieve this goal, most investors like me, like you probably, take out a mortgage, a loan secured on the borrower's property to purchase the asset. Before the Great Depression, homeowners would often renegotiate their loans every year. It's not that bad today, but mortgages and the technology behind them seem otherwise to have remained stuck around the 1920s. They require physical signatures, hard copies, and often take months to process. It's a labor-intensive and complicated process, even looking down on it from 30,000 feet.
Josh King:
Multiple versions of documents are needed along with different forms and applications. Lenders send packages of thousands of papers to lawyers who comb through them to check for errors and then send them back for corrections, adding even more time to the process. Signatures happen in person. Those papers are notarized, and if everything goes according to plan, you may, just may get the keys to your new investment. The process is arduous, expensive, and relies almost entirely on manual checks and physical copies.
Josh King:
A little over 20 years ago, a group of people got together and started asking what this system would look like if it was maybe just a little more automated. The story may sound familiar to some of our listeners. The idea of taking a complicated and outdated process, and bringing it into the digital age, but no, we're not talking about Intercontinental Exchange's founding. Instead, we're examining how Ellie Mae and ICE's Mortgage Technology continue to revolutionize the mortgage world.
Josh King:
Our guest today, Joe Tyrrell, is president of ICE Mortgage Technology and spends a lot of his time thinking about homes, and mortgages. We're going to ask him about his story, Ellie Mae's history and the future of mortgages. Our conversation with Joe Tyrrell comes right after this.
Speaker 3:
Board diversity is important.
Speaker 4:
Board diversity is important.
Speaker 5:
Board diversity is important.
Speaker 6:
Board diversity is very important.
Speaker 7:
Not just because it's the right thing to do, but because diverse leadership at companies creates better companies.
Speaker 8:
This is about value, not values.
Speaker 9:
With board diversity, you build better companies.
Speaker 10:
Diversity of thought, diversity of perspective.
Speaker 11:
Different perspectives often yield better outcomes.
Speaker 12:
You need to have different perspectives with different backgrounds to really inform and find the best solutions for organizations.
Speaker 13:
Companies that have more diverse boards perform better.
Speaker 14:
Diverse teams are better performers. That is absolutely true in the boardroom as well.
Speaker 15:
It makes a difference to the employees who work for companies. It makes a big difference for the communities in which they work.
Speaker 16:
Our business is about building leaders for the future, and that talent cannot only be half of the population of the world.
Speaker 17:
What are you waiting for? 50% of the population, for some reason, isn't qualified? Let's put the smartest people we can in the boardroom. Why ignore people or exclude people for any reason other than that they're not qualified?
Josh King:
Our guest today, Joe Tyrrell, is president of ICE Mortgage Technology, an ICE subsidiary that provides the technology and infrastructure to transform and digitize U.S. residential mortgages. Joe previously was the chief operating officer of Ellie Mae, and prior to its acquisition by Intercontinental Exchange, he joined the company in 2002, and previously served as vice president at Providian Financial, in addition to several other executive positions in the mortgage industry. Welcome, Joe, Inside the ICE House.
Joe Tyrrell:
Thanks, Josh. I appreciate being here.
Josh King:
When did you get your first mortgage?
Joe Tyrrell:
Gosh, I think my first wife and I got our first mortgage when I was age 26.
Josh King:
What were your memories of it?
Joe Tyrrell:
It's funny, because one of the few pictures that we have of that time was me carrying her across the threshold into our first house. My memory was I couldn't believe that we had actually been able to get a house. At that time, we just thought that it was a little bit beyond our reach.
Josh King:
Were you in the mortgage business at the time? If I got my research right, you spent some time as an underwriter.
Joe Tyrrell:
Yeah, so interesting. I'm a financial analyst by training. In fact, I remember numbers much better than people's names. My first job out of college was working for Wells Fargo. What was great about that is that they put me in this program where I took on these transformation assignments, and so they moved me across all the various areas of the bank, and I spent a good amount of time in the consumer lending division. It gave me the opportunity to work on transformation projects in auto lending, auto leasing, student lending.
Joe Tyrrell:
Then I got shifted over to spend some time in the mortgage division. While I was there, I got to train, basically, in all of the positions. I was able to do everything from originating loans and talking with consumers, to actually underwriting loans and kind of everything in-between. It was during that time at Wells when I first got my first mortgage with my wife. What ultimately happened is the executive vice president that ran that division for Wells Fargo, he left the company to become a CEO of a mortgage bank, and I joined him. That really started my career in the mortgage asset class.
Josh King:
I mentioned Yeats and Chekhov in the introduction. Was home and hearth a big central tenent of the Tyrrell family, growing up?
Joe Tyrrell:
It's interesting. My parents, when we grew up, my father was a police officer in San Francisco and my mom drove a school bus, so very hard-working, blue collar, very humble. The importance of the home was always really well-understood in my household. They didn't have a lot of things to show for all their hard work, but they did have their home, and so they were very proud of it.
Joe Tyrrell:
Essentially, I'm the first and only member of my family to graduate from college. What's interesting is this background that I had growing up, honestly, it helped me more than any class I've ever taken in college, because it helped me understand three things, the power of work ethic, the importance of service, and the value of owning your own home. I try to make sure I do my best to, hopefully, that shows up in what I do every day.
Josh King:
Talking about that third part, Joe, the value of owning your own home, I want to spend a little time diving deeper into Ellie Mae's history. Can you tell us about what the company set out to do way back in 1997? How did you find yourself there five years later?
Joe Tyrrell:
Yeah, well, you mentioned just a few minutes ago, I was at Providian Financial, so I was running a division of the company there, and I got a call from the head of HR at Ellie Mae. She explained to me the vision of what this company was trying to do. Because, quite honestly, I knew of names like Fannie Mae, but I certainly knew of names like Sallie Mae in the student lending industry, but I had never heard of this company called Ellie Mae. First, I thought they were a lender. As she explained to me the vision of the company and what it was trying to accomplish, I was really intrigued.
Joe Tyrrell:
I went and I met with their founder, Sig Anderman, and just the passion, the energy, the excitement he had for what he was trying to accomplish, I literally, I was sold in the first conversation. Once we were talking, the thing that really came out is we both understood, both Sig and I, that there was so much friction in the process. As you just mentioned in your opening, it's just this laborious process, especially as it relates to all of the different parties in the ecosystem working together. Originating a loan is like manufacturing a car. Even Chevy, Toyota, even Tesla, they don't make all the parts of the car. They rely on partners for things like tires, and windshields, and other parts, but they're responsible for the assembling of all those parts.
Joe Tyrrell:
It's the exact same way with a lender. They need data, they need services from all these third parties, but at the end of the day, the lender's responsible for assembling all of that data and documents to ensure that it meets the specifications of the secondary market, who's going to buy that loan. What we did at Ellie Mae, especially in the early days, is we created this incredibly valuable, intuitive, automated network where we brought all the participants together. There was just one problem, which was nobody wanted to use it. They didn't want to use it because they were originating loans in their system of record, and that's where they wanted to stay. They don't want to jump to some other portal, so we knew we were going to have to take this incredible network and somehow marry it with the systems of record that were being used called loan origination systems. The industry refers to the term as an LOS.
Joe Tyrrell:
We went out and acquired two loan origination systems and we integrated this network into it. When we did that, it just took off. Because this is exactly what this industry needed, but it just needed to be integrated into the workflows. Over time, now we've got these two loan origination systems we knew we needed to consolidate to one, and so we had to make the decision on which one of these would survive. Ultimately, the decision that was made was neither of them should survive. Instead, we should build a new system, essentially from the ground up, but do it in a way where we completely change the paradigm of loan origination being a process built on documents and forms, and design a system for the actual users, and so that's what we did.
Joe Tyrrell:
We designed and built this solution called Encompass. Today, it's the industry's leading platform with the largest network. The combination of those two things, the platform focused on the user and the network focused on removing the friction has, essentially, allowed us to become kind of the backbone of residential mortgages. It's just a little ironic that now we've designed and built the next generation of Encompass and we've shifted the focus again, this time, focusing on a data-driven process using machine learning and artificial intelligence so we can really help lenders accomplish three things. We want to help them fund loans faster, fund more loans, and do all of this while reducing the overall cost of lending.
Josh King:
You mentioned Sig Anderman at the beginning of your answer to that question. I found this video of him on YouTube really telling his own story. It scratched the surface of who he is. I think he's 78 or 79 now. He started as a lawyer and then went off to become CEO of a company, American Home Shield Corporation. By the end of his tenure there, between his work in the law, and then his work in the mortgage industry, he could have rested on his laurels. In fact, I think he just became a gentleman farmer, at that point, but I remember watching this video, Joe. He felt drawn back into this effort. What made him put his away his plow and his rake, and come back into trying to revolutionize the world of mortgage technology?
Joe Tyrrell:
Yeah, what I love about Sig is it starts with his upbringing. He was born in Hell's Kitchen. He had to fight his way out of the neighborhood. Sometimes, literally, had to fight his way out of the neighborhood. He's just somebody who developed this incredible work ethic and who was always very inquisitive about solving problems, which is fascinating because it's not an engineering background, as you mentioned. He's got a legal background.
Joe Tyrrell:
He always saw things that other people didn't see, and he had this audacity to question, why couldn't they be fixed? I had the opportunity now to meet and talk with Jeff Sprecher, the CEO Of ICE, and it's the exact same sort of mentality. It's been so great to see that this is a company that's led by an entrepreneur who's not afraid to make big bets, who's focused on digitizing these legacy financial systems that technology can significantly help improve. I've been pretty fortunate to be around people like Sig, and now I look forward to learning from and getting to know Jeff even better.
Josh King:
With Jeff, the issue was, just like Sig, finding something that is so ingrained in so many people's lives, whether they realize it or not. With Jeff, it was power, and then oil, and then commodities, and then equities, and then data. With mortgages, it's a loan that's critically important to so many people's lives. You were on another podcast recently, Joe, where you talked about how crucial Ellie Mae's work was. The anecdote, I think, that you provided was that if your solution happens to be down, lenders need to send hundreds of people home in the middle of the day. Talk to us about how Ellie Mae's position in the market is so critical in that way and the people that you're working with on a day-to-day basis.
Joe Tyrrell:
Yeah, we have a big responsibility. Just under 50% of all loans in the United States are being originated on our platform, so when we hire a new teammate into ICE Mortgage Technology, we put them through a three-day orientation to ensure that they understand this responsibility. We put them through specific exercises to reinforce our culture and the priority we place on our clients. We tell people all the time that when you come into work on any given day and you want to request time off, typically, what you do is you go through your ERP system and you request time off, and it routes through your supervisor. If that ERP system doesn't work, it's really not that big of a deal. You just send him an email saying, "Hey, just a heads-up. I'm going to take Wednesday off."
Joe Tyrrell:
If you're a customer of ours and you come in in the morning and Encompass doesn't work, you're sending 500 people home at noon because it's not a critical tool for running their business, it is the lender's business. Now that we're part of ICE Mortgage Technology and we bring in the combination of Simplifile and MERS, we now in some way touch virtually every loan in the United States, so our responsibility just increased exponentially. It's all about getting up every day and understanding that there's not just a couple of key customers, that there is a major part of the U.S. economy that is relying upon you to perform, to execute, and to scale, and to be available to them. It is something that we talk about all the time. It drives every decision we make. It's the core part of how we think about our roadmap and what we do.
Josh King:
There's another synergy here in this combination between ICE and Ellie Mae that centers around how you approach data and connect real estate and technology. Can you explain how Ellie Mae thinks about the data that you're capturing? How do you use it to make new decisions?
Joe Tyrrell:
Yeah, it's one of the areas that we're most excited about in the next chapter of our growth and our journey, now being part of ICE Mortgage Technology. A lot of how mortgages have historically been originated is exactly what you talked about, Josh. It's this papers being shipped back and forth, and checkers checking checkers. As somebody who had the opportunity to do underwriting, I know that, fundamentally, what this is all about is comparing data. It's data that you're receiving from all of these disparate sources through that manufacturing process, and ensuring that it matches the requirements of the specifications of underwriting that loan and, ultimately, approving that loan.
Joe Tyrrell:
Making a lending decision is about ensuring that the data you're receiving matches the requirements to say yes. What we're excited about is to now, as we've made the paradigm shift of moving from it being all about the documents to being all about the users, we're excited for this next part of our journey, which transforms it from being all about the users to all about the data. Because the ability to receive data, to create automation quality data so that you can actually make decisions off of it and not have people spending time pushing buttons, but have the technology be able to look at what a lender's threshold is and automatically take the next action necessary, creates a huge increase in capacity for the users on our platform.
Joe Tyrrell:
Instead of them looking at every piece of data and making sure it matches and then clicking the button, the system can do that, the technology can do that. Now you can take your most valuable asset as a lender, which is your people, and you could have them do more. You can grow your business without having to worry about where you're going to hire people from. You can shift to an exception-based process that allows you to only look at those loans where it's really on the edge and you really want to find a way to say yes, but you need someone with expertise to look at it, not having them spend their day looking at vanilla components of a loan that is very easily identified and decisions are very easily made through technology. Data's going to be a huge part of the next stage of our journey. It's one of the things that we're really excited about with the expertise that ICE has to help us unlock this value for all of our customers.
Josh King:
Joe, those who've followed your company for a while, those who've been on the Encompass platform for many years know that Ellie Mae had been a public company in its own right for many years, until it was taken private by Thoma Bravo. Thoma Bravo's ownership with the company, I think, spanned really only about 18 months, but you made incredible strides during that period. What were the key transformation aspects between that time that we used to see the Ellie Mae ticker symbol here at the New York Stock Exchange when it was private, and then when ICE looked at it again and thought, really, it could be part of this family?
Joe Tyrrell:
The irony here is, really, not a lot changed. Thoma Bravo was an incredible partner for us because they got what we did and they understood the value that we brought. The reality is, is that we were just continuing to execute on our vision and our mission. It was interesting, when we were a public company, we were one of the best performing stocks on the New York Stock Exchange almost every year that we were publicly listed. It was a focus on executing on our customer and putting them first that put us in that position. Really, what was interesting is, is that despite what would happen in the housing market or despite what would happen in the technology sector, we as a public company, just continued to execute, and we continued to exceed expectations.
Joe Tyrrell:
It was almost as if there was this pent up kind of bear mentality about, "Well, at some point, this company's got to fail. They can't keep bucking the trend." Ultimately, when we announced our third-quarter earnings in 2018, even though part of our report was very, very positive, there was a slight miss that we had based upon a convergent of perfect storm in the industry at the time. As a result, we got punished for it. When that happened, we knew that we were a completely undervalued asset. You, obviously, start getting PE firms that become interested. We knew, at that point, we wanted to take a little bit of the control of our destiny and keep it in our hands.
Joe Tyrrell:
As we got engaged by a number of different companies, we looked for what we thought would be a great home for us. Thoma Bravo was one where they recognized that we were unlike any other company they were going to buy because this was not a turnaround situation. We were already incredibly profitable, and we're profitable because it was part of our culture. We're not just responsible for 2,200 employees, we're responsible for 2,200 families. We took being profitable very serious as part of our charger, so we just executed. Thoma Bravo came in and helped us identify some areas where, as you continue to grow, you lose sight of some things that are on the fringe, but they helped us get refocused, and we just continued to deliver.
Joe Tyrrell:
When COVID hit, we were in a unique position of we had not purposefully prepared for a pandemic, but all of the things that we had done in the years leading up to it made it so that our customers could seamlessly transition to a work from home model. They could stay tightly connected to one another through the collaboration capabilities of our system. Because we had brought the entire network into the very fabric of the workflow, they could work with their partners and continue to get the services and data that they needed without skipping a beat. That just further, not only accelerated our mission, but it jumpstarted everything that we were doing from helping lenders understand the importance of adopting technology.
Joe Tyrrell:
Luckily for us, we had always been on ICE's radar. We were aware of that, but they could see that we were focused on delivering a digitized experience and revolutionizing this market, exactly as what they had done in every other asset class. It was just a perfect outcome for us, and for our employees, but also for our customers.
Josh King:
Joe, every month, even during the pandemic, even when we're all working from home, Ellie Mae still shares this vital amount of mortgage industry data every month through its origination insight report. The data is mined from a sample of closed loan applications that have flown through the digital lending platform and the Ellie Mae network. Why is sharing this data so important? Why is access to real time information about what market participants are doing compared to their competitors crucial for a well-oiled mortgage market, whether we're in the middle of a pandemic or not?
Joe Tyrrell:
Yeah, that's a great question, Josh. We've always been more than just a technology vendor to our lenders. We are their most critical business partner. We have a vested interest in the success of our lenders, so we're constantly evaluating opportunities to help them. One of the things we pioneered a number of years ago was a billing concept called success-based pricing. Because if you're a lender, you're operating in an environment where you're dealing with seasonality. In June, July, and August you're going to see much higher volume because people are moving during the summer so they're not disrupting their kids while they're in school. Likewise, in November, December, January, historically and typically, you see lower volume because people aren't interested in packing up their home during the holidays.
Joe Tyrrell:
Also, these lenders deal with cyclicality because as interest rates go up, sometimes refi volume goes down. As rates go down, as we're seeing today, refi volume goes through the roof. We partnered with them to introduce this billing component where they pay us on a per-funded loan basis. The more loans they do, the more they pay. In times where their volume goes lower, they pay us less. Now, we're a SaaS company, so we can't deploy hundreds of thousands of dollars of technology and not get paid, so we have minimums like every other SaaS company does, which is why we have a really great balance between subscription revenue and transactional revenue.
Joe Tyrrell:
That introduction of that billing process fundamentally changed the way our customers viewed us. Now, all of a sudden, their most critical vendor became a partner because as they succeeded, we succeeded. Data, to us, is a critical component to help them compete in this always evolving, highly regulatory, and incredibly competitive market. For a lender, being able to know, real time, where they may be less competitive, whether that's related to rates they offer in a specific zip code, or a loan type, or a borrower profile, but knowing that when they can actually make a change in time to still impact the results is invaluable to these lenders. This also provides real value to consumers because they benefit from getting the best loan possible as lenders are trying to get more and more competitive. It's our data that we believe can provide those advantages.
Josh King:
My family's had a second home up in Upstate New York in the Catskills for about 10 years. Every year, I try to think that the Catskills is really going to have its rebirth and tourism and population that was so dynamic in the 19th century, early 20th century is going to return. Every year, people would say, "This place is done," but now you pick up a newspaper and there's so many stories about people either relocating, or trading-up for larger spaces because of the pandemic. The Journal even published a guide to buying a house in this crazy COVID market. In numbers, the Mortgage Bankers Association is expecting mortgage originations to reach record highs in 2020. What have you been seeing in the housing and mortgage world and how has it changed, probably, since last March?
Joe Tyrrell:
It's a great point, Josh, because even for my own family, the way we look at our home has just changed. Now, it used to be where kids would come to after school. Now, it's where they go to school. It used to be the place that you'd come home to after work. Now, it's the place that we go to work. It's where grown children are moving back to because their colleges have closed, or they lost their job, or they don't want to live in an apartment with a couple of roommates who don't take the pandemic seriously. I've actually heard of each of these situations taking place.
Joe Tyrrell:
Things have changed, but for many of these consumers, their current home is not capable, being everything they need it to be. It can't be a classroom. It can't be the workspace, just because it's not configured that way. With so many businesses shifting to a work from home model, and where we're at, out here in Silicon Valley, you've had major companies say work from home is permanent. Even post-pandemic they're saying this is the new normal. As they've all shifted to this work from home model, consumers now realize they have some options that weren't previously available to them, like moving to a lower-cost area, or even a lower-cost state. That's giving them the ability to purchase a larger or a more suitable home.
Joe Tyrrell:
It's this incredible dynamic that we're seeing where, as that happens, it actually creates inventory in the homes that they're selling. In many cases, that's allowing first-time homebuyers access to inventory that's really been scarce for them. You're starting to see the millennials realizing, as we come out of this pandemic, that they can actually have homeownership that's attainable to them because for the last year and a half, it's been hard to find those starter homes because of this concept called aging in place, where the boomers who normally would be retiring and relocating have been staying in their home, in fact, remodeling and doing all sorts of things.
Joe Tyrrell:
Now, as people are looking at their home very differently, it's creating a lot of different dominoes that we think will actually create more opportunity for purpose transactions next year as people are looking to move up or to move out, and then freeing those homes up for other people to enter into homeownership.
Josh King:
What comes out of the big machine at Ellie Mae that paints this picture of what's really happening for you?
Joe Tyrrell:
Yeah, it's amazing the data that we have. If you think about just our platform, out of the box, has over 10,000 fields and the ability for lenders to add thousands and thousands of more custom fields if they want. Then every element of data that is captured for the purposes of manufacturing the loan, credit reports, appraisals, title reports, fraud reports, verifications of incomes, assets. We have all of that data that comes in as well. We're really in the early, early innings of figuring out the best way to unlock that data to help our lenders use it to make better, more informed, more real time decisions.
Joe Tyrrell:
To give you a glimpse, we introduced this solution a number of years ago called the Millennial Tracker. Basically, it's a completely free website that we provide to anybody, but it was really designed for our lenders to use so they could understand the changing dynamics of millennials and their position in the residential real estate market by basically allowing a lender to go into any zip code in the United States and see what percentage of loans were being closed by millennials. We can tell them what the interest rates are, what type of loan products they're looking for, what age, marital status, gender. It's been fascinating to see because when you actually start to look at the data, it debunks a lot of the traditional thought processes around when people enter into homeownership.
Joe Tyrrell:
Historically, people thought, "Well, it's a family formation. When someone gets married or they have a child, that's when they start looking." Then you can look and there's certain zip codes where the majority of loans being originated by millennials are actually by single female borrowers. When you start to see that, as a lender, it should give you the opportunity to say, "If I'm marketing in that area, and I'm using a standard picture of a family of four with a dog standing in front of a sold sign, that's actually not going to resonate with what's happening in that zip code if the majority of the millennials are single females because they're not waiting for family formations." They're well-employed, and they want to own a home both for the peace of mind, but also because of the financial investment that it represents.
Josh King:
I'm wondering how rate-sensitive the millennial is to taking on debt. When I was growing up and facing either getting my first mortgage or taking out my first student loan, I looked at what the rates were back in those decades and I said, "Boy, that's a pretty high single digit, or even a high double-digit." The Business Insider reported recently that the average U.S. 30-year fixed mortgage has fallen to 2.78% from 2.8%. I think that's the 12th record year in a row, and the lowest in Freddie Mac data going back nearly 50 years. What does this all mean for homeowners and the mortgage process, whether you're a millennial or you're one of these aging in place people?
Joe Tyrrell:
What's interesting is what we're experiencing right now is a convergence of two things coming together at the same time, which is unprecedented low rates and unprecedented equity from home price appreciation. Now you've got these homeowners who've all built this equity in their home, and they have these incredibly low rates, so they're actually able to start to tap into that equity. What's been interesting is this has resulted in homeowners not just being able to refinance, but they're actually taking cash out of their property because it's so inexpensive to do it at this point.
Joe Tyrrell:
As their taking that cash out during the refinance, they're using it to upgrade existing space, expand and add new space. That just makes it easier to live, to work, and to go to school in their homes. For all of the demand and I think that's what these interest rates are highlighting, all of this demand, the process is to getting improved as fast as it could, especially given the fact that the technology is available right now to improve it. Now that's partly due to how busy lenders have been with all the increased volume that they're dealing with.
Joe Tyrrell:
I think the thing that we're seeing that we're excited about it is the lenders are, even with this high volume, especially, are recognizing the need for the improvements and the need for them to adopt those technologies. One, because it's going to benefit them. They're struggling with scaling to handle all the volume. I can't tell you how many lenders I've talked to that have said, "We're having to turn down volume because we just can't process it all." In the same conversation, they're then asking us, "Hey, when can we get in line to implement your AIQ solution or your Velocify solution?" I think that's one thing that's opened their eyes is it's not just about cost-efficiency, it's also about how they scale their business up and down.
Joe Tyrrell:
The other is, they're really looking at technology to help them benefit the consumer experience, so looking for ways that the lender can use technology to create an advantage in capturing client interest, turning that into pull-through, and also lowering the overall cost of origination, while keeping these borrowers informed. The millennials are fascinating because when you really get into looking at the data, and we've done a number of surveys on them, you'd think, "Well this is an age cohort that's grown up in the internet age, so all they want to do is tap and swipe. They don't really want to talk to anybody."
Joe Tyrrell:
The reality is, it's just the opposite. They want to use high-tech in the initial stages of learning about a mortgage and seeing if they qualify, but when it comes to the point of having to make a decision, it's not about high-tech, it's about high-touch. It's having technology that enables both, the efficiencies in the process, but then allowing that lender and that consumer to connect however that consumer wants, whether that's by chat, by email, by text, by phone, by Zoom, and doing so, so that they can have that confidence to know that they're making the right decision by actually talking to someone who's experienced in it.
Josh King:
High-tech, high-touch, all with the goal of lowering the overall cost of origination. After the break, we'll dive into Ellie Mae's transition to ICE, examine the regulatory landscape, and explore what's next for Ice Mortgage Technology with Joe Tyrrell. That's all coming up right after this.
Speaker 19:
We started with a vision to transform energy markets using technology to boost transparency and level the playing field. That vision and customer focus continues to drive how we look at opportunities and challenges in our industry. Today, we connect participants around the world so they can trade, hedge, invest, and raise capital. We establish prices across asset classes and create opportunity to solve complex global problems.
Speaker 19:
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Josh King:
Welcome back. Before the break, Joe Tyrrell, president of ICE Mortgage Technology, and I were discussing his background and the background of Ellie Mae. At the beginning of September, Joe, ICE completed its acquisition of Ellie Mae. Tell us a little bit about why Ellie Mae was so excited about the combination with ICE. I heard, I think, on one of the conference calls with Ben Jackson and Jeff Sprecher, and you, these formative moments when even in the height of the pandemic, Jeff and Ben just really needed to get on a plane and come out and meet with you guys, because this turned out to be a fortuitous time to actually do this combination.
Joe Tyrrell:
You said it, Josh. This was one of the craziest experiences I've had in my career, but it was also incredibly telling. Jeff and Ben wanted to come out to meet with myself and our CEO, Jonathan Corr. They planned to fly out and meet with us at our offices, and it was going to be just the four of us. We were going to be socially distanced. In the week leading up to that meeting, I was spending countless hours putting together all of this material, and was prepared to go through this really comprehensive presentation with them to explain the value of what we do, and how we do it, and how unique we are. I was excited for this meeting because I knew about ICE and I thought we'd be such a great fit.
Joe Tyrrell:
Jeff and Ben arrived, and we went into our conference room, and we socially distanced. I was prepared to walk them through, "Okay, let's turn to slide one," and Jeff said, "Look, we don't need to go through the deck." It wasn't because he didn't care about the information. He and Ben clearly had already gone through it, were well-versed in all of the information. They flew across the country because they wanted to sit down with us and they wanted to understand if we were going to be a good cultural fit for them. This was such an incredibly positive experience for myself and for Jonathan as well because, for us, everything starts with culture.
Joe Tyrrell:
We have always believed that we were somewhat unique in our fanatical focus on our clients, and so during this first meeting with Jeff and Ben and throughout the acquisition process, we realized we're not alone in this approach. ICE Is equally fanatical about each of their customers. What's interesting is, and especially when you talk to Jeff, or when I talked to Ben, they know their clients' business. They know the markets inside and out. They know their clients' competition. They know all of this so that they can determine the best way to help their clients succeed. It's super impressive. It's what we thought made us so unique, so culture is critical for us.
Joe Tyrrell:
Then after that, it's really about our North Start, which is to automate everything automatable. As you learn the history of ICE, it's the exact same mission. As you and I were talking about earlier, we've long known that we sit on a very unique set of data. Mortgage data or mortgage-related data, it's a multi-billion dollar TAM, and the vast majority of the data being consumed today is actually based upon public records data. That data tells you what happened. Our data tells you not only what's happening right now, real time, but it also tells you what's going to happen. The reason why I say that is, is because in some cases, public records data is as much as six months older than our datasets right now.
Joe Tyrrell:
I can tell you, I certainly wouldn't eat bread that's been sitting around for six months, let alone make financial decisions based upon data that is just that stale. While we've known how good our data is, we've just, honestly, lacked the expertise to understand how to unlock it to help our lenders as well as a lot of other people. There's never been a shortage of people who've called upon us wanting to get access to our data so that they can make better, more informed, real time decisions, but we just didn't have that expertise. You can imagine how thrilled we are now to have Lynn Martin and her team help us explore what we think is a huge opportunity.
Josh King:
You mentioned this four-person, socially distanced meeting out in Pleasanton, Jeff Sprecher, Ben Jackson, yourself. You also mentioned Jonathan Corr, who at the time, was Ellie Mae's president and CEO. Shortly after the deal is done, Jonathan announces his retirement and says that you're going to be succeeding him as president of this newly formed unit at ICE, ICE Mortgage Technology. You and Jonathan, Joe, joined the company the same year in roles that both focused on strategy. What was it like to, through this long journey that you'd been together, I guess, since 2002, to say goodbye to someone you worked so closely with, and what are the lessons that that partnership is going to remain with you?
Joe Tyrrell:
Yeah. That's a really good question. Jonathan and I were both drawn to Ellie Mae for the same reason. There was a clear mission that it would, fundamentally, transform a trillion dollar industry, so that was exciting to both of us. Our charges were a little bit different. My charge was to build a network, where all the members of the supply chain could come together, exchange data, complete millions and millions of transactions each year with real ease in working with one another. Jonathan's was, he had to come in and basically build the platform that would deliver all the automation, do it at scale, and allow us to support the largest lenders in the country, but also while changing the way that lending was being done and integrating this network into the fabric of the workflow.
Joe Tyrrell:
We worked really closely together, and I've always found that he was an incredible partner. He was an even better boss, but quite honestly, he's an even greater friend. I think one of the other things that ties us together is we both really, really care deeply about people, and that's our clients, that's each of our teammates, and it's also one another. Just as Sig fostered that sort of environment for Jonathan, Jonathan fostered that same sort of environment for me, and it's what I strive to do for all of the other leaders and teammates that we have at ICE Mortgage Technology.
Joe Tyrrell:
I think it's our culture that made us such a great company. It's that same culture that brought Jonathan and I together, and those are definitely the lessons that I take away. Thankfully, it won't be hard to maintain that culture because it's those exact same characteristics we've experienced with the ICE team as well.
Josh King:
Somewhere in Jeff Sprecher's head, he's had his eye on the mortgage business for a long time and he talked about it in one of our recent podcasts. In 2016, engineers this majority position in MERSCORP, which encompasses a national electronic registry that tracks changes in servicing rights, and beneficial owners for, I think, about three-quarters of the U.S. mortgage market. It also severs as the system of record for the comptroller and the location of the authoritative copy of that electronic note, the golden record, as Ben likes to call it.
Josh King:
Last year, ICE completed its acquisition of Simplifile, which was the largest network connecting both agents and jurisdictions that underpin all of the records of residential mortgages across the United States. ICE Mortgage Technology now comprises these three companies. Ellie Mae, always perhaps thought of more as sort of at the origination point, Simplifile and MERS more at the endpoint and post-close. What's the vision for this new ICE Mortgage Technology idea going forward?
Joe Tyrrell:
Yeah, you really hit on it, Josh. At Ellie Mae, we're the largest network of lenders and the largest network of providers in the supply chain. Simplifile is actually the largest network of title, escrow, and individual settlement agents, and is then connecting them to the largest network of counties. Then you throw MERS In there, and MERS is the largest network of investors, servicers, and beneficial owners that are all registering and tracking their loans in the market.
Joe Tyrrell:
The vision, for us, is to connect these networks to drive even greater automation and greater digitization. It's achieving that straight-through processing leveraging automation. As we are able to do that, we're going to help lenders to reduce their overall manufacturing costs. That increases their profitability, creates competitive advantages for them. They can then take those costs and invest them in growing their business, which again, benefits all of us. It's about removing that friction that just doesn't need to exist. What's great is we are truly in a unique position as maybe the only provider that can actually do this, that can actually remove this friction, bring these networks together, and deliver this real value to the entire market.
Joe Tyrrell:
I did just want to touch upon what you mentioned with Jeff. The thing that Jeff has in common with how we've tried to operate Ellie Mae is we've always used the analogy that Wayne Gretzky would use to explain what made him so great. He would say he never, ever skates to where the puck is. He always skates to where it's going to be. I think that's what you saw with Jeff, is he realized where this market was going to be at some point and he, through a really smart acquisition of MERS and in a great acquisition of Simplifile, was actually ... We were, Ellie Mae was trying to acquire Simplifile. It came down to us and ICE in bidding for Simplifile, and ICE won. The fact that we're now all together, I know he wouldn't say this, but I wouldn't put it past that that was part of his master plan all along. He's got that vision to see where the puck's going to be, and we're grateful to be part of it.
Josh King:
There's been so much excitement about mortgage providers beginning to use artificial intelligence to help the need for speed advance. Ellie Mae's offered AI to its customers to help loan analysts validate documents for a while now. What kind of AI has Ellie Mae been leveraging, and what have you seen since adopting this technology?
Joe Tyrrell:
Yeah, you are so right. Everybody's talking about AI. Unfortunately, it's becoming a term used so often, I think it's lost it's meaning. I actually did an entire keynote on this topic of AI for our 2020 user conference called Experience. In that keynote, I explained that at the heart of AI is just a really simple kind of calculation. It's, "If this, then that." What that means is that if a specific data element meets a specific requirement, then another action should be taken without any human confirmation or interaction in the process. The secret sauce of AI is not the algorithm, but it's making sure that you're leveraging automation grade data, and then ensuring that when you invoke AI, then you're not exposing yourself to some unnecessary risk, or the flip side of that, to a missed opportunity.
Joe Tyrrell:
In mortgage, the lending stakes are really high, so if a lending opportunity is missed by a lender because the automation thresholds are set too high, then you don't just lose out on revenue, but you may have unwittingly violated a Fair Credit standard and exposed yourself to regulatory enforcement actions. The other side of that is if your thresholds are too low, you may have created significant liability because now you have a loan you can't sell on the secondary market, and you got to carry that loan and count it on your books, and you no longer have the liquidity event that you need to make the next loan.
Joe Tyrrell:
When we leverage AI, it's first, we're using it to automatically recognize a document that contains data, and then automatically extract the data element out, and then perfect the data so that data becomes automation grade quality. This is AIQ, a solution that we offer to our customers. Once we've done that, now we can really use AI because we know the quality of the data that we're basing these decisions on is accurate. As I mentioned, we've re-engineered and re-architect Encompass with our next generation version. What that does is it really, it's not only web-based but it's also task-based. Why that's important is because now we're using AI to automate the tasks.
Joe Tyrrell:
When you go back and look at that manufacturing process, assembly lines today look very different from assembly lines of the past. Now you have robots, essentially, assembling cars. We're looking to do the same thing with AI and the loan manufacturing process. A simple example would be like underwriting. When you're underwriting a borrower's income, there's lots of different flavors of that, right? Tax, self-employed borrowers, and those that have traditional W-2 pay stub. We could have definitely started with automating the review of complex tax returns, which we will do, but knowing the lenders' needs, to get comfortable with automation performing certain tasks and making decisions, we instead started first with the income that is substantiated with pay stubs and W-2s.
Joe Tyrrell:
Why do we take that versus the more complex? Because these are the income types that represent 80% of all loans being originated and very, very straightforward calculation. With our approach, we create the biggest capacity gain for underwriters, 80% of the loans, with the most direct and easy to understand automation, which builds the confidence of the lenders, preparing them for even greater adoption of AI. The demand we're getting right now is significant and so we're focusing on task automation and doing it in a way where we raise the comfort level as well as the capacity for our customers.
Josh King:
Joe, at the beginning of our conversation, I mentioned the Great Depression, and maybe it makes sense to go back there now because some of the most formative housing regulations came out of that period in American history. 1930s, the federal government's intervention created the Federal Housing Administration, the FHA, and the Federal National Mortgage Association, the FNMA, which would later become Fannie Mae, and we've followed the track of this for so long. What does the regulatory landscape look like in the mortgage industry today?
Joe Tyrrell:
There's a ton of regulations in the industry. In fact, it's not just at the federal level, it's at the state level and in some cases, it's at the county level, so there's a lot to navigate if you're a lender. I think for the heart of the formation of these agencies, as well as all the regulations that's come out since the Great Depression, has really been driven by the vision that every citizen should have the ability to pursue homeownership. That's the same dream that exists today. The problem is, is the process has gotten so confusing, so cumbersome, so unnecessarily difficult.
Joe Tyrrell:
Today, so Josh, you or I could walk into a car dealership, and in two hours later, we'll be handed the keys and we can drive off in a $100,000 Mercedes. If we don't make the payments on that Mercedes, the lender's going to have to pay somebody to try to find us because we might have moved, not told the lender. We've taken that car across the country. If we want to buy a $100,000 home in Plano, Texas, where the lender will always know where that home is if we don't make the payment, it takes us 60 days to get the keys. This is where technology has to make a difference. It's where ICE Mortgage Technology is and will continue to make a difference. It's not instant, but that's the vision, that's what we're after.
Joe Tyrrell:
If we have the largest network in the industry, basically every provider in the supply chain, and we can gather that data instantly, and we have automation across the platform to consume that data to make decisions, and we got the most widely used consumer engagement system called Consumer Connect, and now we got Simplifile and MERS on the backend, why can't we underwrite the loan real time, while the consumer is filling out the application? Why can't we get much, much closer to two hours than we are to 60 days? That's exactly what we intend to do.
Josh King:
Two hours instead of 60 days. Did you ever think that when you and Jonathan were working with Sig that eventually, all these tools of the mortgage process would ultimately, in November of 2020, be at your beck and call, Joe?
Joe Tyrrell:
We always thought we could accomplish the goal of real time underwriting and bringing it closer to the two hours than the 60 days, but we wouldn't have ever dreamed we'd have the resources that we have, that we have Simplifile and MERS as part of the team, and that we would be part of an organization like ICE that has such incredible experience digitizing other asset classes, so it's the best possible outcome we could have ever hoped for.
Josh King:
There's a lot of focus on TRID or Know Before You Owe regulation. TRID requires mortgage lenders to provide borrowers with certain pieces of data and regulates the fees that those lenders can charge over the course of a loan. How did Ellie Mae help lenders adopt these changes, and what was the feedback you got as a result?
Joe Tyrrell:
Yeah, we've gone through so many of these changes now that, unfortunately, we don't get credit for the work that we do, because we've turned each of these major regulatory initiatives into Y2K for our customers. It's just a non-event. The reason for that is every time there's a significant regulatory change in the industry, we win new clients. This happens because while other providers are looking at these requirement changes and either issuing new fields or creating new forms, in both cases, they're expecting the lenders to do the work. Or worse, sometimes they're charging the lenders just to help them stay compliant, and that's not the approach that we take.
Joe Tyrrell:
TRID's a perfect example. With TRID, we created 2,600 new fields, but then we auto-populated those fields for the lenders. We created new forms, we populated the forms, and we rep and warranted that the forms were correct. When we have a major event, it's our mission to make sure that the lender can seamlessly adjust to these new regulations without their business ever skipping a beat.
Josh King:
Here at the NYSE, we've spent a lot of time over the past couple of months talking about these special purpose acquisition companies, or SPACs, Joe. More recently, there's been a lot of news coming out about SPAC support for lenders that are looking to go public. Just last month, the Finance of America Equity Capital, a Blackstone portfolio and consumer lending platform that services traditional home mortgages, reverse mortgages, and commercial real estate loans announced that it too was seeking to go public. Feels like the worlds of ICE, both in the mortgage side and the equities side are colliding. How should we think about SPACs' increased interest for helping public lenders go public?
Joe Tyrrell:
That's a great question. Let me first answer that as someone who's own company has gone through the process of going public. With Ellie Mae, we chose more the traditional path of going through underwriting. We also chose to be listed on the New York Stock Exchange, despite the fact that we're a technology company, and there was a great deal of advice saying, "You want to look at NASDAQ." For us, with the New York Stock Exchange, it wasn't about the fee structure or the tradition. What it really came down to was the support and resources that the New York Stock Exchange provides, especially for companies accessing public markets for the first time.
Joe Tyrrell:
We're a technology company, but we're one that operates in a market that has both seasonality and cyclicality. We just felt like the New York Stock Exchange got that, and they deployed resources to help us navigate that reality and educating the market. Today, we know a number of our lenders who are either preparing for, or at least starting to consider accessing public markets to fuel their next chapter of growth. Especially those lenders who've embraced technology, and a lot of them leverage it as a competitive advantage, just as we have. What's so great, at least from my perspective, is all the different pathways that they now have to access the public markets, including SPACs.
Joe Tyrrell:
I think what's happened with these lenders is, for some of them, the traditional underwritten IPO, it's either too complex, it's too costly, takes too much time, so SPACs definitely provide an interesting alternative. I think what you're going to see with the continued demand for homeownership from the market and the growth of, especially the large independent mortgage banks, I think you're going to see more and more lenders taking one of these many paths available to them to the public markets. We're thrilled for our customers who've decided to do that. Even more thrilled when they choose the New York Stock Exchange, simply because, not just because we're part of ICE, but because we had such an incredible experience ourselves.
Josh King:
As we look into 2021, what should we expect to see from new things at ICE Mortgage Technology?
Joe Tyrrell:
It's just going to be about delivering for our lenders. In a couple weeks, we'll be launching our hybrid e-Closing, and that'll allow lenders to provide just a great signing and closing experience for their borrowers. We're introducing new AI tools in our credit analyzer, our AUS analyzer, the collateral analyzer, and a number of other automation tools, all designed just to help lenders leverage automation quality data. We're deep in the throws of integrating Simplifile and MERS to allow for that straight-through automated processing and removing even more friction.
Joe Tyrrell:
We're going to be expanding our machine learning-based business intelligence service which we call Insights. I know there's another ICE Insights as well. Our Insights is the only solution in the industry that enables a lender to perform real time pure comparison and analysis, so again, knowing where they stand and knowing how they can make corrections. Then earlier this year, we deployed the largest lender in the country on our new web-based task-oriented next generation architecture of Encompass, so you'll see in 2021, we're excited to help more lenders take advantage of this kind of automation-centric platform. Then, for me, just as you mentioned, where we're at in the season. I have four daughters, so I'm already way behind on holiday shopping.
Josh King:
Well, on that note, I'll let you fire up Amazon and get some of that done. Joe Tyrrell, thank you so much for joining us Inside the ICE House. Can't wait to see what comes next at ICE Mortgage Technology.
Joe Tyrrell:
Thanks, Josh.
Josh King:
That's our conversation for this week. Our guest was Joe Tyrrell, president of ICE Mortgage Technology. If you like what you heard, please rate us on iTunes so other folks know where to find us. If you got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @icehousepodcast. Our show is produced by Stephan Capriles, Erica Bigley, and Pete Asch with production assistance from Ken Abel and Ian Wolff. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
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