| Industry Firsts and Historical Accomplishments Scott Cooley Many in the industry remember much of the innovation that occurred in the 80s and 90s as mortgage technology came into its own. Historical records are limited, though. This document is intended to record some of the history of mortgage technology as it happened, and to identify some of the products and ideas that I, Scott Cooley, have worked on through the years. It starts from the days when I first established Contour Software in 1982 while I was completing my last year at the university, and extends through the decades to include some of the 100+ articles I’ve written, many of which helped improve the industry and even were precursors to industry-revolutionizing technologies. At Contour, my role as president and CEO was to come up with ideas and direct the company’s research, developing solutions to the problems that our customers were facing. Over the years, we were frequently the first to introduce a technology solution, yet we often introduced solutions too early. For most of the solutions listed in this document, it would take years to achieve their widespread adoption. There were exceptions, though, such as the credit reporting interface and the loan origination system (LOS). Decades later, most of our ideas went on to become viable products and were often duplicated by other vendors. In fact, it was fairly common for other vendors to look at what Contour came out with and go to work to improve upon it. Not listed below are the hundreds of original minor features that first appeared in the various products we developed. Since we led the market for almost 20 years, we never looked at competing systems. We were forced to design and develop from scratch what we thought our customers needed. Some might call it a mistake to never have filed any patents on the many inventions I worked on. I suppose I was never a big believer in patents. I often thought that they would hobble industry innovation if I prevented others from using new concepts and technologies. A few of the dates below were estimated. 1982 Loan Origination System I built the first LOS after I performed an exhaustive search for anything that could print a loan application at the time – and none was found. The original software was written for the Apple II in Applesoft Basic and required one 5.25 inch diskette for each loan. This is widely considered the birth of the LOS as it is known today. However, there were loan tracking systems built on multi- million dollar mini or mainframe computers by the large banks and lenders. The primary competition at the time was the IBM Selectric typewriter because of its speed for typing. Also, there were even better typewriters by Lanier that would allow for pre-programmed tab stops which was a big feature for typing onto pre-printed forms like the loan application. In one of the first demos to a loan processor, the remark came back asking, “why would you put a TV on a typewriter?” 1983 Laptop Loan Application The Apple IIc was introduced which was Apple’s first attempt at a laptop computer. While this computer was more a portable computer than a laptop (it didn’t even have a battery), it did allow loan officers to take loan applications in a consumer’s home. Contour’s The Loan Handler was used to take the loan application. Later, portable printers allowed for the printing of the loan application and other upfront loan documents. 1984 PC-Based Prequalification Software The Loan Finder was introduced by Contour and was the first application designed for loan officers to use for prequalifying borrowers. It would compute ratios, solve for unknowns, store a loan product database and allow a loan officer to compare various loan scenarios. Financially, this product was always difficult to justify as the amount it cost to build couldn’t be offset by what the loan officers could afford to pay. A tragic aspect of this product was that I worked extensively with a great loan officer who died from a car accident. He was just behind me on a curvy road and went head on with a car from the opposite direction – it could have easily been me as well. 1984 IBM PC and Hard Drives Contour migrated its software to the IBM PC and left the Apple II line behind. The addition of a 10MB hard drive was a large enhancement as it ended the requirement of using diskettes to store loan files. Contour’s software programs were migrated to MBasic which IBM sold and which came from a small, little known firm called Microsoft. When Apple refused to allow Apple II software to work on the new Mac, it was time to move to a different platform – one that was more appropriate for the financial industry. 1985 PC Based Loan Tracking Contour introduced The Loan Tracker as the first software application that brought a larger office the ability to track loans in the pipeline. It included a large number of canned reports and later, a built-in report generator to allow users to design their own reports. Many of the reports were fashioned after what was previously mainframe-based tracking systems. I then designed a large number of reports that I thought would be great for our clients. 1985 Multi-User LOS Up to this point, the LOS was for individual users. The invention of network PCs was a major boom for Contour and its users. Contour developed the first multi-user LOS that would allow users to access the same database of loans and protect two users from overwriting each others’ information should they try to work on the same file at the same time. Contour sold PCs, software and Arcnet networking equipment (a private label version of Novell). Such systems were complex so at the time, mortgage companies found it almost a requirement to buy the entire system from Contour. This thrust us into the hardware business which further expanded the firm. 1988? Laser Printed Loan Documents Prior to HP entering the laser printer market, there were some very expensive systems. Contour spent significant resources to program the various forms so that The Loan Handler could print the entire form and data on blank paper. Just a few units of high end systems were sold as HP then came out with their far less expensive printers (around $3000). Contour re-programmed to support the HP printers and of course, the usage of such took off. The first laser project was a failure though and we should have waited for a less expensive printer before jumping in. 1989 Forms on the Screen Contour was the first to introduce the ability to actually see the lending forms on the screen for data entry. The impact was significant from a training perspective and for ease of use. Later, many competitors followed the lead. 1990 End to End Solution By 1990 Contour had assembled enough software products to offer a true cradle to grave solution that was integrated. For the first time, when a borrower’s name was entered in a prequalification package, it could flow all the way through to servicing. Further, mortgage companies could obtain all of the software programs from Contour in a package called the Mortgage Banker Series. However, not all of the modules were built internally as several were private labeled from third parties. It was also very rare that any firm would buy the entire series of 15+ modules. Still, many firms bought from Contour because it allowed for long term expansion regardless of how their business grew. It was an innovative concept at the time. 1991 LOS to Credit Interface In 1990 and 1991, I knocked on most of the doors of the major credit reporting companies with the hopes of building an interface. None were really interested in doing so. The reasoning was that they received a fax of the loan application and would then fax back the credit report. Thus, the question came back, “why would we need an interface?” Finally, a small credit reporting firm named Chase Credit Research agreed to build an interface so that data would move via modem (dial-up) from the LOS to Chase. When the report was ready, the report would go back to The Loan Handler and would populate all the debts and liabilities. This was a major breakthrough and began a long, slow adoption of moving all transactions electronically. This one interface was so successful that it allowed Chase to grow very quickly, until the other credit vendors started to copy their success. 1992 Fax Reporting The Fax Reporter was released as the first automated system that could take data and status information from an LOS and fax it from a network fax server to fax machines. The primary purpose of this was to send status information about loans to Realtors. Later, this was expanded to do the same thing via email with the name changed to The Fax/Email Reporter. I believe this was also a first for the industry. 1993 The Loan Phone While not much of a success, it was the first system that allowed a borrower, Realtor or loan officer to call an 800 number and obtain status information on the loan. They just needed their loan number and it would speak back to them details about the loan. They could also request a faxed copy of a full status report. It very well might have been the first PC/telephonic solution designed for our industry. 1993 ContourAble Network By this time, Contour had built many credit interfaces with the major players and was starting to work on appraisal and flood certifications. Contour announced the ContourAble Network which was an entire host of third parties that interfaced electronically with The Loan Handler. This formed the basis for today’s LOS-based electronic transaction networks though the requirement of dial-up lines made the system unwieldy. The reality is that it wasn’t until the widespread use of the Internet that this invention really became feasible. Dial-up lines were slow, point to point, and very troublesome. The ContourAble Network was the first of its kind. 1993 The Remote Closer This was the first product that allowed closing documents to be printed remotely such as at a title company. It just required a copy of the software along with a modem. The data file would be transmitted electronically through a dial-up modem. It was often used by a headquarters branch to generate the documents with The Loan Closer and then to print them at a branch office. 1993 The HomeBuyers Guide This was the first PC-based software that loan officers could ship to consumers that would answer hundreds of questions, teach them about getting a loan and finally, take the loan application. It did a lot of what the Internet later became used for. It was fairly successful even though the consumer had to install the software on their PC. 1994 The Loan Expert (aka KnowMor) I designed this product and worked with an education expert with mortgage knowledge. It was marketed as KnowMor under a separate company name so that it could be sold to other LOS vendors as well. It was the industry’s first PC-based interactive training software program for loan processors. 1994 Rules Based Processing Contour created the first such system that would allow rules to be built around processing. A program would then run each night to determine if any loans on the system violated a rule. Users could build their own rules with the rule generator. Thousands of rules could be used to help ensure everything in a loan file was done right and on time. While it was a good idea, this feature did not prove effective as users just wouldn’t spend the time to build the rules. 1995 Value Added Networks VANs were all the rage as hundreds of millions were invested into them by Fannie Mae, Freddie Mac, CPI-Alltel, MixStar and others. I wrote an article in Mortgage Banking Magazine and gave a number of speeches stating that these networks would not take control of transactions for credit, flood, appraisal title and other orders. Instead, they would be owned by the loan origination systems. Well over $1B was lost to these failed systems. 1995 Bidding Rooms In June 1995, IMX founder, Steve Fraser, called me after he read my article on bidding rooms. He thought it was a great idea and asked a lot of questions about how it would work. He later went on to start IMX, a company that built the second bidding room system for the industry, the first being a system called LION. The LION bidding room was not brought to market because of lack of funding. The concept of a bidding room environment had been talked about for at least a couple of years before this. However, I can’t say it was my idea (I just can’t remember if it was or not). I was the first to write about it publicly early in this year. I can remember talking with Steve about single blind versus double blind systems but that ultimately, I thought that the bidding room concept wasn’t feasible. I spoke with a number of wholesalers in 1994, all of whom wanted to stay clear of being in such an environment. As with so many other technology innovations, I’ve found that if the technology disrupts personal relationships, it will likely fail. This proved to be the case for both IMX and bidding rooms in general. 1995 Web-Based Loan Application It is not known who actually built the first online loan application as many firms were working on this at the same time. Contour was, at least, one of the first to have an online loan application coupled with building web sites for their customers. I believe we were the first to have the data download directly into the LOS as this feature was there from the start. 1995 Article: “The Emperor Has No Clothes” I published a highly controversial article on the X12 standards highly supported by the MBA and the entire industry. The article was buried in a SourceMedia publication but obtained more negative feedback than any other article I had previously written (or have written since). Much had been invested into the X12 standard by many hard working individuals. Coming out against it was difficult and sort of gut wrenching as I had many friends that strongly supported it. When it was published, I received a string of calls and many argued with me at the conferences. This was somewhat pivotal as it cast me into a somewhat negative light. Still, it started the consensus building to see X12 for what it really was. The highly positive result was the formation of MISMO which set out to resolve many of the problems of X12 as described in this article. It took the demise of X12 to open a door for MISMO which later became very successful. 1995 Article of the Year Award This was given to me by National Mortgage Broker Magazine for the cover article titled “The Information Superhighway” in which I outlined how the LOS-based transaction networks would take over and become widespread. It was an early predictor that the ContourAble Network and its successor ePASS would be highly successful. 1996 Web-Based Loan Status Contour was the first to introduce a product called The Web Reporter that allows data and status information from The Loan Handler to be posted for loan officers, Realtors and consumers on an automated basis. The information was presented via a web site hosted by Contour Internet Services (a division of Contour). 1996 Over 250 ContourAble Partners Available This was certainly the largest eCommerce network that existed at this time. For the majority of the service firms, Contour was the first interface they built. We were the first to have an entire staff dedicated to setting up communication solutions with third parties. 1996 First Image Add-on for an LOS Contour released the Electronic Mortgage File which allowed images to move with the data file via modem or the Internet. This was helpful for branch operations and broker to wholesaler communications. Clearly though, this was a solution that would take ten years before it really became successful. Again, Contour was on the bleeding edge with this one. 1998 Sold Contour to First American Financial After getting to the altar with both IndyMac in 1995 and GE in 1997, I sold Contour to First American. The primary reason was for the ability to obtain electronic orders from the Contour user base through the ContourAble network. Ironically, after being with First American for several years, First American’s Credco division was the only credit company that didn’t have an interface to The Loan Handler. A few other problems arose as many of the vendors that were so supportive, switched allegiances to Calyx after this acquisition since Contour was now owned by a competitor. First American also wasn’t effective at increasing the sales of Contour productions through its massive sales force. Despite this, it was great to be with such a great firm. I enjoyed being part of their M&A team and helping direct their technology initiatives for all of First American. 1998 Contour Processing Services While other processing services existed at the time, this service was the first to use a full web- based environment in which mortgage firms would enter loan applications, review all status information and could even see imaged copies of every document that had been received or generated. This was the first use of the Virtual Loan Folder (VLF) which is a term I coined to describe the idea that the paper loan folder would be placed on a protected web site. I had very high hopes for this division but it never received the funding required as part of First American, and Ellie Mae shut it down upon acquisition. I still feel this could have been a tremendous success as did all that were involved with it. 1999 WebIT Contour was the first to introduce an ability to take information from the LOS and post it on any web form. This was crucial as it allowed for rapid adoption of ecommerce or transaction processing. For example, all a vendor had to do was to build a web site with an order form for their service and WebIT could place all of the information directly on the form. Today, we know this type of application on the Google Bar as AutoFill. This allowed Contour to have the most robust transaction platform that existed at the time. I remember it distinctly as a very exciting technological breakthrough that the competitors weren’t able to replicate for years. 1999 Broker AUS/LOS Interface with Freddie Mac We worked closely with Freddie Mac to bring out a solution called FAST-AU which was the very first time brokers could use LP from Freddie Mac. We also provided the on-site installation and training to quickly roll it out. We later received retribution from Fannie Mae for working closely with their rival. 1999 Internet Based Underwriting from Images A division called Contour Processing Services was built to process loans on behalf of customers. A feature of this service was that all forms collected would be imaged and stored on a web site as a complete digital loan package (called the Virtual Loan Folder or VLF). This was the first time a complete digital loan package was placed online for viewing and for data access. Also as an industry first, the mortgage insurance firm United Guarantee had their underwriters go online and render an underwriting decision based upon the data and images stored on the Contour servers. A number of loans were underwritten this way. This solution was eventually shut down when acquired by Ellie Mae. 2000 Article: “Technology Lacking Experience” This article predicts the housing bust of 2007-2010, though it was very early on. I blamed the loan officers and the automated underwriting systems for not properly ensuring borrowers could really afford the loans they were getting. I also hinted at how the stock market was overvalued. Perhaps the best sentence was “I fear record loan default rates that haven’t been seen since the 1930s”. 2000 “Bloodbath in Six Months” This is what I said about the Internet Portals and it certainly occurred. I’ve made a lot of predictions over my career and the vast majority of them seem to come true. 2001 Sold Contour to Ellie Mae Within First American, Contour was being somewhat stifled and I wanted to build a larger LOS firm and transaction network. I went to Sig Anderman, the CEO of Ellie Mae, who had significant funding, and proposed that Contour and Genesis be combined together. I also provided a business plan that outlined exactly how the transaction network would work and why the LOS was required. Sig had previously attempted a business center to thwart using an LOS to gain transactions. I explained and he knew by then that the business center would never work because the LOS owned the transactions. The business plan I wrote had all the strategies for maximizing revenue to the LOS owner and explained how each transaction would work and how much we could charge. Later, this business plan was used very successfully with ePASS. After Ellie Mae bought Contour and once the three firms did come together (Ellie Mae, Genesis and Contour) there were three separate transaction platforms (Business Center, ePASS and ContourAble Network). A big 5 accounting firm came in and decided that ePASS had the best technology. It was the right choice and credit goes to Kami Tafreshi as the designer of ePASS. Years later, ePASS revenues would far exceed software revenue. An interesting tidbit about Ellie Mae is that of the $75m plus raised, the vast majority of this was spent on web site hosting and then the business center both of which never returned much in terms of revenues. 2001 Cover of Mortgage Technology Magazine I was on the cover with Anthony Wright of nCommand who also won the prestigious Steve Fraser Award that year (the first recipient). He advocated that soon, the Internet would be used for all mortgage industry origination and transaction solutions whereas I advocated that a hybrid approach of Windows and the Internet would serve the industry for the foreseeable future (5-10 years). His firm went out of business that same year and he wasn’t heard from again. Windows is still used as the primary platform for mainstream loan production solutions. 2001 Largest LOS Market Share At its peak, Contour had 150 employees and was the largest LOS firm by market share as determined by Wholesale Access. It also had 19 software modules that were integrated together – perhaps the most complete line of products in the industry. There were also three services, Contour Document Services, Contour Internet Services and Contour Processing Services. The document service continues to this day while the latter two were shuttered by Ellie Mae. 2002 Mortgage IT All-Stars Recipient Selected by Mortgage Banking Magazine to the list of Mortgage IT All-Stars for my contributions to the industry. 2002 GSE Technology Testimony I was asked by industry leadership to travel to Capitol Hill and discuss the future impact of the GSE technology initiatives on consumers and the industry. I met personally with a number of Senators and Congressmen and had breakfast with Senator Charles Shumer. My predictions on how the GSE technology could be used improperly was groundbreaking and helped the legislature place limits on its technology advancements. My papers and testimony were the ones used for this process (exclusively as best I know). While it’s not possible to say my work directly resulted in changes at Fannie Mae and Freddie Mac, we did see major changes afterward. Both GSEs backed away from plans of handling transactions related to title policies, flood certifications, appraisals and others. Further, most R&D that went beyond its core purpose was eliminated. Clearly, there were a lot of changes at the GSEs after my work on Capitol Hill. I was told that I was chosen because of my understanding of the mortgage industry (and how technology works within), my ability to communicate effectively and my ability to write persuasively. My political experience was certainly lacking so it was a very interesting process to go through. While there is no proof, I believe it is this testimony that resulted in Fannie Mae CEO Frank Raines absolute demand for my dismissal from Ellie Mae which did occur (in exchange for the DU fee arrangement/contract to Ellie Mae). 2003 Semi-retirement or Sabbatical? Most of this year was spent in a state of semi-retirement/sabbatical though I continued to author many articles. I spent some time thinking about the next major technological revolution for the industry and authored an original article titled “The Ultimate Technology Solution” which was published in Mortgage Banking magazine. I still believe that this last major revolution, as outlined in this article will come to fruition in the years to come. Further, it is the final major technological change that really can save everyone a lot of money. 2003 Cooley Consulting Started After receiving numerous requests for predictions on where the industry was headed and how to proactively respond to what lay ahead, I became an industry consultant. There was enough demand there to fill the hours I was willing to work. From 2003-2007, I’ve worked with over 20 clients to help point them in the right direction and provide innovative ideas that they could take to market. I’ve consulted in many different areas of mortgage technology. 2004 Speech at MBA Technology Conference I’ve given speeches at most of the Mortgage Technology Conferences but this one stood out. While it was a break-out panel, they provided an oversized room. Five minutes before the start every seat was taken. By the start time, the crowd of over 300 spilled into the hall and latecomers couldn’t see it. The title was, “Success Never Comes Easy – Learning from the Past and Planning for the Future”. I provided many predictions during this speech such as the demise of the eMortgage Alliance, the need for an eNote Registry, the over developed market for Lender ASP systems, the pending failure of most transaction systems (except those within an LOS) and the bright future for eVaults. 2004 Article: “Technology and Mortgage Economics” It’s ironic to read this article today as it exactly predicted the subprime meltdown and general housing industry downturn. Still, I think this article was largely ignored. I was also very outspoken in speeches and in meetings with industry executives including Countrywide CEO Angelo Mozilo. I effectively stomped my feet at any chance I could just to try to stop the train. There wasn’t any question that we were headed to a major crisis -- it was just a question of when. I believed so much in this problem that I placed large stock shorts on firms like New Century. The follow-up article in 2007 stipulates how we can prevent this from happening again. 2004 Article on how Consumers Are Hurt by Automated Underwriting Systems This article brings to light how the GSEs have policies in place that are forcing many consumers to pay higher interest rates than they should be paying. 2005 Article “Is Technology to Blame for Lost Loans?” This article points out how automated underwriting systems could be modified to qualify more borrowers simply by allowing multiple automated underwriting systems to be tied together. Every consumer should be allowed access to all of the available loans. 2005 Paper to Congress Similar to 2002, I was asked once again to write a paper to be used in Congress in dealing with the GSEs. Some of the original findings written are that 1) the $1000 savings stipulated by Fannie for the use of their AUS was fabricated and that it might have actually increased costs to the industry; 2) their move to sell third party products would likely increase the costs to the consumer; 3) the GSEs are building a consumer repository without clear indication of what they are doing with such information; 4) the GSEs are stifling technological innovation for the industry; and 5) since DU and LP can’t easily be used together, many consumers are paying higher costs than they should be. I concluded with a list of recommended regulatory recommendations for Congress to adopt. 2005 Article on Web-Based Loan Origination Systems This article provided industry direction on the pros and cons of such solutions. Many CTOs lacked direction on the real issues around ASP based loan origination systems. 2005 Article: “Calling on MERS” This innovative article calls for MERS to make changes so that the industry can begin to build the next major revolutionary change to a centralized document and data repository. I understand that MERS is now in the process of doing so. 2006 Article on Freddie Mac It had seemed that the tremendous changes within the technology arena of Freddie Mac went unnoticed. This article brought light to how much change really occurred in the prior two years. 2007 Article on the Subprime Meltdown This article provides some original thinking on how technology was primarily to blame for the industry’s problems including skyrocketing delinquency and the housing bubble. More importantly, it implores the industry to come up with a solution to the problem in the future and also proposes a solution that I think could work. 2007 Dynatek Sale to MortgageHub Served as the advisor to Dynatek, wrote the book and found the buyer for this transaction. 2007 Ellie Mae Introduces Dynamic Loan Screening This is an idea I came up with before Contour was purchased by Ellie Mae. It was one of the key options available that could generate sizable income and I pushed its development when I served as CSO at Ellie Mae. I also pitched it to lenders like IndyMac and Countrywide. It’s very powerful as Ellie Mae controls the ability for a wholesaler to give a quote on a loan that they otherwise wouldn’t have access to. It also has negative effects as you could upset other wholesalers in the industry when a loan is lost to a competitor. It’s good to see Ellie Mae develop this feature and bring it to market. 2007 www.MortgageTechGraveyard.com I built this web site to keep tabs of all the mortgage technology firms that have gone out of business. |
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FIVE YEARS AGO: National Mortgage News reported about a
coming shakeout in mortgage Internet portals. (Remember
those?) NMN quoted Contour Software president Scott Cooley,
saying, "There's going to be a blood bath six months from now."
The verdict? Scott was right on the money.
