Any owner of a successful independent mortgage brokerage will tell you that bigger isn’t always better. In the private mortgage space, however, the perception that larger private lenders and mortgage investment corporations (MICs) typically have more to offer brokers and their clients is well ingrained.
Paul DeMelo, CEO of Home Ownership Solutions, says smaller private lenders don’t need to play second fiddle to the space’s biggest players.
DeMelo told Mortgage Broker News that a savvy use of technology can result in the same lightning quick turnaround times promised by the country’s biggest MICs. At a time when properties in most Canadian cities are snatched up within days of hitting the MLS, agility, the ability to be both fast and precise, is often a private lender’s most powerful weapon.
After a long career at major institutions like JP Morgan and National Bank, DeMelo entered the private space seven years ago. When he did, tech was quite literally his first priority.
“I didn’t start my business until I had the technology in place,” he said. “I didn’t start a business and then try to figure out how to bring in technology and improve my workflow. I didn’t make a single loan until my technology was launched.”
DeMelo’s platform is driven by algorithms. They automate his marketing emails, determine who should receive follow-ups, and ensure all communications are only sent to licensed mortgage brokers. They replicate the work of underwriters by performing accurate, line-by-line analysis of applications in seconds. They review the markets where his loans are twice a day. They allow him to run his entire business, and provide an end-to-end private financing solution, from his phone.
“I never come off-system,” DeMelo said, adding that his algorithms allow for “immediate” quotes and can generate approvals in “literally 30 seconds, probably less than that.”
The idea of driving a business with algorithms may seem somewhat overwhelming to smaller MICs and privates, who are rarely owned by career lenders. DeMelo said the more experience a lender has with the mechanics of lending, the easier creating bots that think like a lender becomes.
“You have to have some sort of skillset in developing and imagining the process,” he said. “Unless you’ve got some sort of background in how to engineer and think about lending, it’s going to be hard for you to imagine that.”
But once an algorithm’s duty has been identified, it’s not as if the lender putting it to work needs to be a coder. There are thousands of students hungry for experience that can turn formulas into functionality. DeMelo has been leaning on the talents of the same student for three years.
He said cobbling together a similarly powerful platform from bits and pieces – Filogix Expert for submitting deals, Mortgage Automator’s back-end wizardry, an additional marketing platform – is unlikely to result in the same kind of seamlessness or ease of use a custom platform can deliver. Building a platform from scratch is also an opportunity for small lenders to take advantage of their size and add the functionality that excites their owners without needing corporate approval.
“Some of the smaller guys can be nimbler,” DeMelo said. “We don’t work by committee. We’re able to really imagine what’s required and do it.”
Building a private lending business around an algorithmic backbone can also help lenders stand tall while increasing regulatory fees and tighter margins shrink their competitors’ profits.
“I was regulated for most of my life in the banking industry. Regulation doesn’t loosen up. It only gets tighter, and the costs associated with it only go up,” DeMelo said.
By this point, most readers will be wondering where customer service comes into play. Algorithms are smarter than most people, but they aren’t known for their ability to comfort or educate. At this stage in his life, DeMelo has little appetite for being on the phone all day, so he hires people who do.
“It’s a very cost-efficient way of doing it. I hire out a, licensed administrator [Raven Financial Services]. They pick up the phone, they answer the questions. They’re dealing with all that front office stuff for me, and on the back end, they’re collecting direct deposits, etc.,” he said.
“I’ve eliminated the need to talk to clients, because I have a regulated person doing that. Everything else that goes with it is handled by an end-to-end system,” DeMelo continued. “All I need is a thumb and my cell phone.”