CAMPBELL, Calif. -- Whizkid Scott Cooley used the $700 left from his student loan to create Contour Software, now the largest provider of residential mortgage loan software in the U.S.
Flourishing in Silicon Valley, Contour Software has won over 4,000 customers since its founding in 1982. Mr. Cooley, 33, owns 100% of the business and refuses to release the company's financials. But in an interview last week, he said revenues were up 35% in fiscal 1993.
Part of the reason business has been so good, said Mr. Cooley, is that compliance is part of every product. "Half of what a mortgage office is doing is complying with some sort of law or regulation," he said.
Loan Expert, introduced last month, is the newest of Contour's 20 products.
The software gives bankers a step-by-step guide to loan origination and processing. Since it is interactive, even recently hired employees can adhere to all the regulations governing mortgages.
"If you have someone green to the industry, instead of having them constantly bug someone else in the office, they just reference the software," Mr. Cooley said.
Another product, RegFinder, is a database of all regulations. It allows bankers to conduct searches for rules, which appear exactly as they were put out by the agencies.
Loan Tracker gives bankers a complete accounting of every fee charged to a borrower. Loan Handler helps banks comply with Truth in Lending and the Home Mortgage Disclosure Act.
One reason customers choose Contour, according to Mr. Cooley, is that regulators are rewarding banks that sign up with big-name compliance companies.
"A lot of the regulators these days will look at the system a bank is using," he said. "If it's a well-known system that gives them a better feel that compliance is going to be done correctly." Price Based on Users The average Contour customer -- a community bank that books about 50 to 60 mortgages a month -- buys $3,200 worth of software, and then adds another $2,000 worth over the next two years, he said. Products start at $1,750. The price of Contour's products is not based on bank size, but on the number of processing centers and number of users on the bank's network.
In addition, customers pay annual maintenance fees of $900. For their money, customers get access to a toll-free help number and receive a faxed monthly newsletter written by Mr. Cooley.
The maintenance fees, currently kicking in one-third of the company's income, provide Contour a steady cash flow, Mr. Cooley said.
Regulators Like Automation
New technology has allowed government to expect more from banks, Mr. Cooley said. "As companies become more automated, the regulators put more emphasis on compliance," he said.
As a result, regulators rely on computer companies.
When an agency makes a change, software companies alter their systems and explain the new rules to customers. That takes some if the responsibility off the regulators.
"They see us as killing 1,000 birds with one stone," Mr. Cooley said.
Like the industry they cater to, the success of mortgage software companies is linked to interest rate swings. As refinancings boomed over the last couple years, Contour took off.
Ready for Retrenchment
Now that rates are climbing, Mr. Cooley is bracing for hard times. "We haven't taken losses yet, but I expect we will as we get into the full phase of this bust," he said. A shakeout is coming.
"If you don't have a significant customer base at this point," he said, "You probably aren't going to be a player a few years from now."
After graduating from San Jose State College with a double degree in marketing and computer science, Mr. Cooley started writing mortgage software programs. He was 21, had one client and no employees.
Today, Contour's 4,000 customers are served by 85 employees. The company bought a three-story building this year.
Entrepreneurial Spirit
"I always knew I was going to start my own company," he said. "Technology always enthralled me. I was one of those people who took a computer class and stopped reading the book halfway through." Being young hasn't hurt him, said Mr. Cooley, who added that he's been described as "the Bill Gates of the mortgage industry." "If I was sitting on a board of directors for a bank I think I'd look pretty strange," Mr. Cooley admitted. "But in the computer world, it's different. There's no lack of respect for youth in this industry."
