Consulting, technology and outsourcing company Accenture today has agreed to acquire Mortgage Cadence, a privately held loan origination software company based in Denver.
The deal, which is expected to close in 30 days, is well timed: the mortgage refinancing boom is dying down, mortgage rates remain low, new regulations emphasize mortgage quality and banks aren't exactly being applauded for the way they process mortgages. Terms of the deal were not disclosed.
With this acquisition, Accenture hopes to become the largest end-to-end provider of mortgage services in the U.S., offering technology, business process outsourcing and software to banks.
"We see huge opportunity in the mortgage space," says Terry Moore, global managing director of Accenture Credit Services, the outsourcing arm Accenture founded in 2011 that also houses some of its software products. Accenture will use Mortgage Cadence's technology internally in its mortgage outsourcing business; it will also sell and support the software independently.
Why expand its mortgage technology business now?
"We've had a tremendous wave of refinance activity in the last couple of years that's masked an inefficiency in the mortgage process that's going to be important as the market shifts to purchase business," Moore explains. Accenture expects to see a 30% drop in refinancing as early as the second half of this year. "That's going to put the challenge on the lenders to get their cost per loan down and get a much better customer experience," he says. "If you look at the mortgage process today, it's one of the most inefficient and un-customer friendly experiences in business." According to Accenture Credit Services, it now takes the nation's biggest mortgage lenders an average of more than 70 days to complete a refinance, up from 45 days a year ago.
"Nobody walks away from a mortgage transaction and says 'Wow, that was one of the best experiences I've had'" Moore notes. "We're attacking that issue. We believe that with Mortgage Cadence's technology, we can drive significant improvement in the industry. We think the most efficient manufacturers in mortgage processing will be the winners."
The current cost per file of mortgages will be unsustainable, Moore believes. "We think lenders are going to have to come up with solutions that meet QM requirements cost-effectively," he says, referring to qualified mortgage rules stemming from Dodd-Frank. "The lenders we run across all say there's an opportunity for better technology," he says. "Some of them have 15 systems that are all part of that mortgage process. Archaic technology drives data inconsistency and errors in the process that have to be taken care of. Loan quality hasn't been higher in a long time; the end product is good but it's awfully expensive to get it there. Automation can drive a more consistent high-quality loan on the front end."
Mortgage documentation is another area due for an overhaul. "If you think about the amount of paperwork required for a loan, getting all those pieces of paper gathered with all the right data elements is a challenge for lenders," he says. Mortgage Cadence provides documentation as well as loan origination.
The backdrop to today's news is that in August 2011, Accenture bought Dallas mortgage processing company Zenta and began offering business process outsourcing to banks that no longer wanted to handle all the grunt work behind mortgages. "When we made that acquisition, we made a pretty aggressive entrée into the mortgage business process outsourcing business," Moore says.
This business provides processing, underwriting, closing, and default services to the largest U.S. lenders. Until today's purchase, this outsourcing group used banks' own systems to process their loans, tapping into their programs through Citrix. Going forward, Accenture's outsourcing services staff will begin using Mortgage Cadence technology.
There is no headcount reduction planned for the acquired company, Accenture executives say. "Having Mortgage Cadence employees who have deep mortgage technology expertise adds to our capabilities," Moore says.