HQ location: Jacksonville, FL
Number of employees: 8,700
Dan Scheuble, COO
It's been a rocky 18 months for Lender Processing Services. In summer 2010, regulators began investigating whether LPS and its former parent, Fidelity National Financial, had forged documents to help mortgage servicers expedite foreclosures. In the ensuing months, the scrutiny grew to include a number of LPS's large lender clients. The resulting "robo-signing" scandal jolted mortgage finance and briefly brought much of the nation's pending foreclosure activity to a screeching halt.
As the regulatory noose tightened last spring, LPS was one of two technology providers that, along with the nation's 12 largest mortgage servicers, submitted to a multiagency review and subsequent consent order that requires the company to conduct external and internal reviews of its policies, procedures and risk management processes.
"These actions address significant compliance failures and unsafe and unsound practices at LPS and its subsidiaries," the Federal Reserve said. "The action requires LPS to address deficient practices related primarily to the document execution services that LPS, through its subsidiaries DocX LLC, and LPS Default Solutions Inc., provided to servicers in connection with foreclosures."
Then, as LPS began the process of meeting the consent order requirements, president and CEO Jeffrey Carbiener abruptly resigned to address what the company has only called significant health-related reasons.
Despite these challenges, COO Dan Scheuble says the future is bright for the Jacksonville, Fla., company. After all, 2010 wasn't all bad for LPS. For the year the company posted net earnings of $302.3 million — up 9.6% from 2009 — off total revenue of $2.5 billion, up 3.6%. In addition, the document execution subsidiary that was at the center of the investigations is no longer in existence.
While a committee searches for Carbiener's replacement, Scheuble and CFO Tom Schilling continue to lead various components of LPS and are assisting interim CEO Lee Kennedy in running the company. Kennedy is LPS board chairman and has also served as CEO of the company's former parent, Fidelity National Information Services.
And there's even a silver lining in the consent order. It's a "tremendous opportunity" for LPS to extend its reach into mortgage lender/servicer operations, Scheuble says.
"There is tremendous pressure on our customers to comply with the new regulations and to prepare themselves for the future," he says. "The one thing that's absolutely, positively for sure is that the only way servicers are going to meet their obligations and comply is with the application of new technology. We believe LPS is very well positioned to create these new technologies. And in fact, we're already developing these systems, which is going to lead to new revenue streams in the future."
LPS is both a technology developer and a mortgage services provider in the origination, servicing and data and analytics sectors.
Its flagship software, Mortgage Servicing Package, is the system of record for more than half of all mortgage servicing companies in the U.S.
"Technology is our DNA, but we also offer services that take advantage of that technology," Scheuble says. "If we're into something, it's because we believe we have a superior technology and we're out to prove it in the marketplace."
LPS made a strong push this year to expand its technology and services offerings to small and midsize lenders with the acquisition of PCLender, a mortgage loan origination system that's complementary to its enterprise-class Empower loan origination system used by large lenders. Regardless of the customer, LPS uses both origination platforms to sell additional add-on products and services to support lenders.
"We believe that as we get our technology into those environments, that can be a platform to sell other products and services that we have to those institutions," Scheuble says. "You'll see us increasingly putting together a suite of services and approaching and attacking that market that way, both on the servicing and origination sides."
For the first half of 2011, LPS posted net earnings of $77.3 million, down 49%, off net revenue of nearly $1.1 billion, down 9%. The decline was in part the result of continued delays in the foreclosure process and an elongated default time line. But eventually that inventory will have to be dealt with — and that will be another opportunity for LPS to offer its technology to mortgage servicers who need to catch up, Scheuble says.
"No matter what the disposition is, a foreclosure, loss mitigation or short sale, we have products and services that benefit," he says. "Short term, foreclosure activity slowdowns do impact our revenues from a default services perspective. But from a technology perspective, it's all been positive."
