Optimizing The Mortgage Industry: Ellie Mae

Posted by Yari Wajid on March 21, 2017

Leveraging their proprietary tech solutions, Pleasanton based Ellie Mae is disrupting the status quo in the mortgage industry; creating opportunity for both professionals and mortgage applicants alike.

Overview

Founded in 1997, Ellie Mae, Inc. ("ELLI" or the "Company") provides end-to-end originations software to the mortgage industry. Its solutions enable mortgage professionals to increase efficiency, maintain regulatory compliance, and reduce errors throughout the originations process by automating the loan application, processing, underwriting, documentation, funding, and closing functions. ELLI serves a diverse customer base exceeding 165,000 active users. For the year ending 12/31/2016, the Company generated $83 Million of EBITDA on $360 Million of revenue.  

Solutions

The Company's flagship offering, Encompass, combines loan origination and enterprise management software while providing seamless access to investors, lenders and other third-parties on the Ellie Mae Network. The centralized platform helps to increase efficiency, consistency, and compliance with internal processes and regulatory requirements. It assists in all stages of the process including prospecting/marketing, underwriting, closing, and distribution. The Company also acquired AllRegs in 2014, allowing it to enhance its repository of information, documentation, and educational material relating to specific loan products, lending guidelines and regulatory requirements. In October 2015, ELLI acquired Mortgage Returns, LLC, further enhancing its customer relationship management (CRM) functionality and increasing its presence throughout the mortgage lifecycle.

Encompass is currently delivered via the web through a hosted SaaS-based subscription, which enhances revenue visibility and enables the company to continuously update the platform to reflect regulatory requirements and functionality enhancements. The online platform has also enabled ELLI to establish Ellie Mae Network, which enables mortgage originators to connect with investors, mega lenders and third-party service providers. Originators can submit loan files investors/mega lenders for pricing and order settlement services and third party reports electronically through the network, greatly streamlining the underwriting process. 

Opportunity

Since 2008, the industry has seen ever-increasing regulation, which has imposed a significant cost on its participants.  Largely due to increased regulatory requirements, total loan production costs have increased from $3,400/loan in 2007 to over $6,900 currently, according to the Mortgage Bankers Association. MarketWise Advisors (in a third party evaluation commissioned by ELLI in 2014) calculated that Encompass saves users an average of $570 and up to $970/loan. 

According to the Nationwide Mortgage License System, there are currently approximately 850,000 mortgage professionals in the US.  The Top 10 lenders represent 57% of total originations volume. ELLI serves 7 of the top 25 lenders.  Management estimates that its potential total addressable market is approximately $6.25 billion, the growth stemming from two areas:

  • Gain share in underpenetrated market: The Company has ~19% market share (~165K users of 850K professionals, according to the Nationwide Mortgage Licensing System (NMLS)
  • Maximize adoption and drive incremental sales within installed base: ELLI generated approximately $130/loan in 2016, and feels unit revenue could grow to 3x with full adoption of its current suite and 4.8x with the completion and adoption of its existing development pipeline. 

The company competes with pure-play competitors, proprietary solutions (often provided by third party providers such as Fidelity National Title or First American) and solutions provided by services businesses (i.e., Accenture).  We feel that ELLI competes favorably:  proprietary systems generally lack the network advantages and can become outdated as they are not part of the core business while services businesses that offer ancillary software rely on costly up-front implementation. ELLI wins business based on its low upfront costs and straightforward implementation, as ELLI’s success-based pricing offloads some of the initial burden and allows ELLI to capture in the upside. 

Tri-Valley Connection

Like UNchained Labs, Ellie Mae is headquartered in Pleasanton, and most of its 1,069 employees (as of 12/31/2016) operate out of its 280,680 SF corporate headquarters.   Based on the mission-critical nature of its platform, powerful network externalities, and abundant growth opportunities, we expect that Elli Mae will remain a pillar of economic growth within the Tri-Valley for years to come.

Topics: Company Profiles, Tri-Valley Research

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