Housing data giant CoreLogic buys mortgage fintech Roostify: what’s in it for lenders and consumers?

Housing data giant CoreLogic just bought digital mortgage software maker Roostify for an undisclosed sum — the rumored number is favorable for CoreLogic, and pragmatic for Roostify given acute cycle stress. Here’s a strategy overview as CoreLogic acquires Roostify, and what’s in it for lenders and consumers.

CORELOGIC ROOSTIFY DETAILS

CoreLogic went private in mid-2021 in a private equity deal that valued the company at about $6 billion. Founded in 2012, Roostify raised just $65 million, including a Series C of $32 million in January 2021. This total funding is several times less than key competitors.

I’ve long respected Roostify founder Rajesh Bhat’s bootstrap approach to building incredibly complex software in a highly cyclical market.

Roostify and its competitors such as Blend* (founded 2012, IPO 2021, market cap $401 million today) and SimpleNexus* (founded 2011, sold to nCino 2022, which has a market cap of $3.16 billion) enable consumers to apply for, manage the process and close mortgages on their phones.

They also enable lenders to run this process alongside consumers and remain compliant with all the details required by a range of regulators.

It’s push-button mortgage software that lenders brand as their own to make things easier for themselves and consumers.

The consumer convenience part has worked, thanks to companies like Roostify.

The simplicity part for lenders has proved elusive for several reasons.

3 KEY OBSTACLES TO LOAN SOFTWARE

First, the early selling point of these point-of-sale (POS) systems was making the mortgage application process easier for consumers. But the rabbit hole was always deeper than that. POS systems must be where the lender and consumer run the entire process together from application to closing. This is harder than it looks with all the parties – lenders, consumers, realtors, title companies, appraisers – and all the regulatory requirements.

Secondthe POS value proposition was first based on directly linking bank accounts, payroll providers and tax registration partners, so that consumers did not need to transact with paper or uploaded documents.

But approved loans consisting only of directly attached data (and no supplementary uploaded documents) are still a minority of the 4.63 million mortgage industry will do this year, per MBA. We’ve moved away from paper over the past 10 years, but too much data is still stuck in PDF documents. Which makes loan approval still manual.

Third, the POS systems were supposed to get loan officers out of the registered loan origination systems (LOS) used by lenders. ‘Let merchants sell with lightweight POS software, not monkey around with complex LOS software.’ Unfortunately, the larger systems — dominated by Encompass from ICE ($58b market cap) and Empower from Black Knight ($10b market cap) — are still where most of the lending happens, despite the messages we’re all telling each other.

Also, those who control LOS systems control revenue and leverage in the giant mortgage origination software space. And it’s truly gigantic: America has averaged $2 trillion in new mortgages in each of the past 29 years.**

ENDGAME AS CORELOGIC BUYS ROOSTIFY

Still, POS systems are quite valuable to lenders and consumers. But full success – and utility for lenders and consumers – depends on all three elements above, especially the last two, being clear.

To achieve point 2 above, Roostify made a smart deal with Google in late 2020 to machine read documents. This extracts data from documents that lenders can use to make formal, regulatory lending decisions. Roostify was a leader here, and I hope they continue this important progress under CoreLogic.

There is a chance of post-deal inertia here as CoreLogic already has its own revenue/asset analysis tools. But the CoreLogic loan package has other useful tools to make Roostify’s POS better (more below).

To achieve point 3 above, I will be very interested to see if CoreLogic acquires a LOS provider. Black Knight just put their Empower LOS up for sale, ostensibly to quell antitrust concerns about their pending acquisition of ICE.

And The Basis Point often hears from investors that other LOS platforms are willing to sell.

This could be an interesting play for CoreLogic as they build their software capabilities.

Also of note: because CoreLogic is so deep in real estate and valuation data, this should provide a big boost to Roostify’s consumer experience and lender efficiency.

For consumersthey may be able to do a home search as part of the mortgage process.

For lendersthey can make lightning-fast property valuations when Roostify loan applicants get a contract on a home they buy.

This would be powerful for lenders and consumers.

BOTTOM LINE AS CORELOGIC BUYS ROOSTIFY

For CoreLogicthis deal gets a formidable data company deeper into mortgage software with a credible digital mortgage SaaS leader.

For Roostify, this gives them access to CoreLogic’s customer list of long-term borrowers, including major financial institutions. These large organizations, in this acute part of the market and fintech cycle, require software partners with scaling resources. This deal does that for Roostify.

Congratulations to both parties on the agreement.

I love watching the industry structure take shape as the fintech era matures.

Comment or contact us directly with questions.

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Reference:

– CoreLogic buys Roostify, and expands the possibilities for digital mortgages

– Details of CoreLogic’s mortgage package

– Strategy briefing on Roostify competitor Blend*

– * The mixed IPO was valued at close to $4 billion, and the market cap is now $401 million due to adverse market shifts. Blend raised $665 million before going public. SimpleNexus raised $128 million before being acquired by nCino, a core banking platform that is now worth $3.16 billion. Blend expanded its mortgage POS capabilities to also address other banking products before nCino acquired SimpleNexus. Now the two firms compete more directly not only on mortgages, but also wider banking fintech. In a post-IPO Blend strategy post, I noted 5 valuation drivers for Blend, with point 5 asking if they should go much deeper into mortgages, as some claim. With nCino SimpleNexus competing on the mortgage-plus-bank side and CoreLogic Roostify competing on the pure-bred mortgage side, this is a question I’ll be revisiting soon.

– ** The mortgage servicing software space is also gigantic, enabling all customer and investor interactions for $13 trillion in outstanding mortgages. And the bid by ICE (dominant in origination software) to buy Black Knight (dominant in service software) is a clear indicator that origination and service software strategies are converging. More on this convergence is also coming soon.