Financial services companies concerned in recent years that the almighty Microsoft Corp. would encroach on their territory or even run them out of business have another reason to breathe easier.
Microsofts plan to sell the mortgage technology division of HomeAdvisor Technologies Inc., a joint venture it spun off with great fanfare in mid-March last year with Freddie Mac and four leading bank-owned mortgage companies, underscores the difficulties that have beset online mortgage originators and vendors of related technology for traditional lenders.
The sale plan (initially reported overnight last Thursday on AmericanBanker.com) may also show that the software giant is not ready to take on the banking world. Microsoft gave many bankers a scare when it cast its eye toward the financial services industry several years ago and its chairman, Bill Gates, dismissed banks as dinosaurs.
But its ventures have done little to speed the extinction of brick-and-mortar financial institutions.
Transpoint, an electronic bill payment and presentation system that was originally a joint venture of Microsoft, First Data Corp., and Citigroup Inc., was sold last February to CheckFree.
And MSN Money, though still in existence, has not had the widespread impact that many had feared it would. It is more a Web site supported by Microsofts billionaire chairman than a viable stand-alone company.
While it seeks a buyer for the HomeAdvisor tech unit, Microsoft is integrating the HomeAdvisor.com consumer Web site and Realty Desktop, a transaction management product for the real estate industry, back into Microsofts portal, MSN, where both started before becoming pieces of HomeAdvisor Technologies. The software company has reached agreements with its two remaining equity partners, J.P. Morgan Chase & Co. and General Motors GMAC-Residential Funding Corp., to dissolve their equity participation in the venture. Bank of America and Wells Fargo Home Mortgage of Des Moines pulled out of the venture early last summer after examining the start-up.
Dave Chase, director of marketing at HomeAdvisor Technologies, said the move was driven by Microsofts desire to concentrate more on core businesses.
HomeAdvisors chief revenue generator has been advertising and sponsorship, not mortgage lending, Mr. Chase said, and Microsoft decided that the technology unit is better off in the hands of someone focused more on mortgages.
The news may come as a jolt to some who follow the industry, given the initial push the venture made and the financial stability of many of the players involved.
Its surprising in the sense that in the last year they came out strong in support of this effort with key strategic partners, said Nick Karris, an analyst with Gomez Advisors in Lincoln, Mass. They raised more than $100 million, and now theyre essentially doing an about-face.
But the venture has been plagued by controversy right from its inception. In addition to having two name investors, Bank of America and Wells Fargo, pull out only weeks into the project, the companys first leader, general manager Bryan Mistele, quietly left in August, and the company never really replaced him.
Moreover, the mortgage industry lobbied against Freddie Macs modest financial involvement in the joint venture, charging that Freddie might be violating its charter of only operating in the secondary market.
Ultimately, however, the ventures greatest strength may have brought about its demise.
Richard Beidl, a director with TowerGroup, a financial services consulting firm in Needham, Mass., said he was not surprised to learn about the sale plan.
The companies intended to develop technology from Microsoft, Freddie Mac, and the other major institutions, but there was not a lot of existing technology and synergy between them, Mr. Beidl said. As a result, for about four months the technology seemed to be dying on the vine.
More important, Freddie and Microsoft clashed in their views of what HomeAdvisor Technologies should be. Mr. Beidl said it quickly became apparent that Microsoft, the only partner without a background in mortgages, was trying to drive the initiative. That created big headaches, he said, particularly for Freddie Mac, which provided the domain expertise.
Realities are, when two 800-pound gorillas get into bed together, some bananas are going to get squashed, Mr. Beidl said.
Mr. Chase said Microsoft has been talking with possible buyers, but would not name them. Michael J. Kozlak, president of GMAC-RFC residential capital group, said the Minneapolis-based company may buy the spinoff company or forge a commercial relationship with the eventual buyer, but we havent made any decision on that. Steve Rotella, chief operating officer of J.P. Morgan Chases mortgage unit, said his company is not a candidate. Strategically, our interest is not to be a large software developer, he said.
Mr. Chase denied that the venture had a corporate-culture clash.
The partnerships have been going great, he said. Its been a great working relationship; theyve deployed the tech in their operations.
He said the company hopes that the buyer of the technology division will have a special relationship with HomeAdvisor.