The ROI of Ellie Mae s Ecompass All-I-Oe Mortgage Maagemet Solutio MAY 2017
Legal Disclaimer All iformatio cotaied withi this study is for iformatioal purposes oly. Neither Ellie Mae, Ic. or MarketWise Advisors, LLC provide ay warraty, represetatio as to their accuracy or beefit. Both Ellie Mae, Ic. ad MarketWise Advisors, LLC disclaims ay resposibility for the use of this iformatio. All iformatio is subject to chage.
Executive Summary At the close of 2016, MarketWise Advisors, LLC, completed a itesive evaluatio of the retur o ivestmet (ROI) leders could achieve from usig Ellie Mae s Ecompass all-i-oe mortgage maagemet suite. The study, coducted from the secod through fourth quarters of 2016, is a follow-up to the first MarketWise ROI study of Ecompass coducted i 2014. The ew study takes ito accout chagig market dyamics ad ew Ellie Mae fuctioality to provide a up-to-date picture of the ecoomic impact of Ellie Mae solutios o a leder s cost of origiatio. The Ellie Mae product offerig was aalyzed as a whole as well as by product, icludig Ecompass Product & Pricig Service, Ecompass Docs Solutio, Ecompass Compliace Service, Ecompass Flood Service, ad Ecompass 4506-T Service. For the 2014 study, MarketWise developed a ROI calculator with the ability to determie ecoomic impact across a broad rage of both qualitative ad quatitative factors. I 2016, the ROI calculator was updated to cover additioal Ellie Mae products. Based o a set of bechmark participats, the result is a five-year impact aalysis that ca be used by both existig ad prospective Ellie Mae cliets to estimate potetial future cost savigs. Study participats realized a average ROI of $967.67 per loa for mortgage firms ad $1,084.58 for baks ad credit uios. Key Fidigs MarketWise s rigorous operatioal reviews ad fiacial aalysis provided importat isights ito the beefits achieved through Ellie Mae s Ecompass all-i-oe mortgage maagemet solutio. The ROI study provides tagible results across leders that reflect the impact of Ecompass o improved efficiecy i loa origiatio processes ad improved loa asset quality. Total ROI Participats ivestig i Ellie Mae solutios realized a average aual ROI of 697% over five years, or early seve dollars i expected retur for each dollar ivested. Operatioal Efficiecy Gais O average, study participats achieved gais i operatioal efficiecy of $5,817,860. Average ROI per Loa The study participats realized a average ROI of $967.67 per loa for mortgage firms ad $1,084.58 per loa for baks ad credit uios. 1
Total Potetial ROI per Loa While there was a impressive icrease i ROI Study participats achieved a aual average of $5,817,860 i improved efficiecy ad operatioal gais. achieved with the study participats, the potetial cost savigs ad operatioal improvemets vastly icreased from $970.14 to $1,331.48 per loa betwee 2014 ad 2016. This represets the total potetial ROI, which grew as Ellie Mae rolled out ew products, features ad optios, effectively icreasig the size of the pie from which cliets ca draw value. Cliet Efficiecy Curve Study participats who were evaluated i 2014, ad agai i 2016, realized a 68% higher ROI per closed loa o average. The icrease was attributable to icreased productivity, level of feature/fuctio use, ad the applicatio of advaced workflow ad audit rules that streamlie processes. Acceleratio Effect Ellie Mae products ad services workig together create a aggregate impact whereby the combiatio of product offerigs accelerates productivity ad efficiecy for leders. This is a critical fidig that uderscores the effectiveess of a best-i-class, all-i-oe system to maage mortgage fuctios. Break-Eve Poit The average aual breakeve poit is 1.91 moths per year i each of the first five years after implemetatio of Ellie Mae solutios. Profit Advatage The study provides empirical evidece of a profit advatage (lower cost of origiatio) relative to the competitio i the rage of 5 10% The Cliet Efficiecy Curve For Ellie Mae cliets, the total impact for all services ad products reviewed was $1,331.48 per closed loa. This represets the total potetial ROI assumig a perfect uderstadig ad complete utilizatio of the solutio s features ad fuctios. The total potetial is costraied by various factors icludig the time to implemet ad productivity metrics. I 2016, the efficiecy level amog bechmark cliets was 90%, up from 85% i 2014. This metric demostrates the leders icreased system experiece, embrace of ew Ellie Mae products, ad staff kowledge of Kow Before You Owe rules ad other idustry best practices. 2
The Cost of Origiatio ad Impact of Ellie Mae This study provided clear evidece that the compliace capabilities, process automatio, third-party service itegratios, ad iteractio of a sigle system have a marked impact o cost of origiatio. This impact is quatified so leders ca gai a clear view of aticipated aual beefits. Durig the course of both the 2014 ad 2016 studies, it was apparet that participatig cliets accrued a substatial amout of icremetal reveue through the use of Ellie Mae solutios. I may cases it was the differece betwee profit ad loss for the mortgage ledig operatio. The study clearly shows that a ivestmet i techology produces a average aual retur of 697%. So for each dollar ivested i Ellie Mae products ad services, the bechmark cliets achieved a retur of early seve dollars. Based o the expected productivity ad performace demostrated by the bechmark cliets, it is possible to project o a aual basis the impact of Ellie Mae o the cost of origiatio. The chart below is a sample sceario output from the ROI calculator. It is importat to ote: Bechmark cliets i this study realized 697% ROI with a 1.91-moth aual break-eve. Implemetig a ew system takes time ad effort, so the returs ad the impact to the cost of origiatio build over time. The most critical drivers to origiatio cost are productivity level, applicatio/system use level, ad teure post-implemetatio, that is, the legth of time after Ellie Mae systems are live ad fully operatioal. Itegratio of various leder systems ad process flows teds to bolster the value of Ecompass ad the Ellie Mae etwork of services over time. Reflects the average aual fiacial impact to the bechmark cliets. 3
Cost Aalysis ad Fiacial Plaig It is a solid busiess practice to establish a clear fiacial model that substatiates ay ew ivestmet i techology. Deployig a systematic, aalytical approach helps miimize subjective factors. The bechmark ROI establishes a performace expectatio that is aliged to iteral goals ad objectives. Best practice is to establish aual metrics based o the origial ivestmet expectatio. I the chart below, the sample leder expects a 11.33% decrease i origiatio cost by year five. While this is a sample leder with $1.2 billio i aual origiatio ad all products implemeted, each sceario is uique, ad it is importat to leverage the cash-flow aalysis with your ow assumptios to develop a idepedet view of what is your expected ROI. Reflects aual expected cost-of-origiatio decrease for sample leder sceario. The cost of origiatio is perhaps the sigle most importat fiacial bechmark discussed with Ellie Mae cliets. By icorporatig the level of expected productivity gais by year, MarketWise Advisors projected the cost reductio impact over time. I additio, the study revealed the followig: Best-i-class results are achieved by leders who icorporate automated workflow ad reportig ito their loa processes. The elimiatio of repetitive steps, data etry, ad difficult or broke itegratio poits is paramout. 4 Improvemets i data quality as a result of automated compliace ad itegrated system documet geeratio are essetial. Participatig leders drove ROI through better asset quality, pipelie visibility, ad lower post-closig error rates.
Elimiatio of process steps for loa lockig, pricig, re-pricig, ad ivestor registratio further improve efficiecy. The adoptio of additioal Ellie Mae product offerigs, such as Ecompass Product & Pricig Service, Ecompass Docs Solutio, Ecompass Compliace Service, Ecompass Flood Service, ad Ecompass 4506-T Service helps create sigificat ROI acceleratio. Profit Advatage vs. Competitio MarketWise bechmarked the expected fiacial performace for cost of origiatio based o the average performace of the study participats. Usig the cash-flow model developed i the ROI calculator, the study measured the differece betwee the expected ROI ad the mortgage idustry s average over time. The bottom lie is that the study provides empirical evidece of a profit advatage (lower cost of origiatio) relative to the competitio i the rage of 5 10%, depedig o the situatio factors. While there are may factors that ifluece this figure, such as implemetatio level, iteral productivity, traiig ad products deployed, it is ot ureasoable to expect a 5 10% decrease i origiatio cost per loa over a period of three to five years. Products ad Markets The 2014 ad 2016 studies aalyzed Ellie Mae s Ecompass, Ecompass Product & Pricig Service, Ecompass Docs Solutio, Ecompass Compliace Service, Ecompass Flood Service, ad Ecompass 4506-T Service, as well as the credit orderig ad esig capabilities of Ecompass. Productivity curves, discout rates ad other advaced-model assumptios varied by depository (baks or credit uios with mortgage lies of busiess) ad o-depository istitutios (mortgage firms). Idustry cost of origiatio bechmarks were tied to the market segmet (whether baks, credit uios or mortgage firms), i order to more precisely idetify the profit advatage of Ellie Mae cliets relative to idustry cost of origiatio bechmarks. Separate retur o ivestmet calculators were utilized for depositories ad o- depositories. For existig cliets, the impact of additioal product lies was projected so icremetal impact could be evaluated ad isolated. 5
Methodology MarketWise established profiles to aid i participat selectio ad developed a stadard questioaire to gather data. Iterviews were coducted at the leders locatios ad, i may cases, icluded detailed reviews of fiacials datig back five years. With this sigificat level of fiacial detail, MarketWise determied productivity gais ad level of use relative to the total potetial ROI. The level of productivity by year after implemetatio provides a clear view o how the Ellie Mae product lie positively impacts a leder s cost of origiatio. Observed beefits were validated ad all cost data assembled. After the ROI for each of the idividual leders was determied, the bechmark performace level was developed to capture expected beefits realized by Ellie Mae cliets. The bechmark ROI was the used as a baselie productivity assumptio withi the retur o ivestmet calculator. Study Participat Profiles The bechmark cliets icluded idepedet mortgage firms, credit uios, ad commercial baks. The average aual origiatio productio level of these cliets was $1,315,863,809. The cliets averaged 379 Ecompass users. The combiatio of existig ad ew study participats added sigificat isight for tracig the operatioal gais, improved ecoomic beefits, ad chages i cost of origiatio. ROI Calculator MarketWise Advisors developed a ROI calculator that ca provide ew ad existig cliets a clear uderstadig of the potetial fiacial beefits of Ellie Mae product lies. The calculator eables users to eter basic mortgage operatios iformatio, icludig origiatio level, umber of users, ad use of products. The model the leverages the expected performace from the bechmark productivity over time ad completes a five-year fiacial projectio for every product ad service combiatio. At a product level the fiacial impact, beefits, ad costs are evaluated, ad the the et preset value of the expected returs is calculated. For a more detailed demostratio or discussio of the ROI calculator, please cotact your Ellie Mae accout maager. 6
ROI Calculator Features Four separate ROI model assumptio sets were used based o differet istitutio types: prospective o-depository, prospective depository, existig Ellie Mae cliet depository, ad existig Ellie Mae o-depository. Basic ad advaced model assumptios are available to customize the iputs for particular leders. The efficiecy curve provides a empirically developed bechmark of expected productivity. A detailed cash flow aalysis is completed for each product lie or combiatio selected over a 60-moth period. The cash flow is discouted by a appropriate discout rate by leder. Cash flow aalysis illustrates the aual impact to cost of origiatio. Usig ROI to Improve Performace I our 2014 ad 2016 studies, MarketWise Advisors developed a rigorous process to idetify costs, idetify beefits, ad calculate the potetial retur. The key for leders is to apply this process to everyday maagemet ad to icorporate ROI expectatios ito the budgetary process. Withi this framework the orgaizatio ca improve its efficiecy with products ad services desiged to streamlie operatios ad icrease profitability. For more iformatio: ifo@elliemae.com 888.955.9100 Takig a best-practice approach, the followig steps should be utilized to develop ad icorporate ROI ito your decisio-makig process: Rak ad justify techology ivestmets by ROI level ad returs. Uderstad total potetial ROI. Evaluate actual results ad establish departmetal accoutability. Use ROI to assess performace ad idetify areas to capture beefit. Create a feedback loop o how to capture additioal returs. By followig these steps you will establish a solid decisio-makig process for evaluatig ew products ad services. For more iformatio o a custom i-depth ROI aalysis for your orgaizatio, please cotact your Ellie Mae represetative or cotact Ellie Mae directly via email at sales@ elliemae.com or 888.955.9100. 7
FAQ Cocepts used i this study are outlied below to help clarify their use ad defiitio: What is ROI? Retur o ivestmet (ROI) is a performace metric used to uderstad the rate of retur that a firm ca expect to receive i cosideratio for a ivestmet. Whe applied to a techology ivestmet, it is a key idicator to help allocate resources ad prioritize projects. Why is ROI importat for mortgage leders? There are several reasos why ROI is a very importat metric for mortgage leders. First, it provides a aalytical basis to drive a purchase decisio ad compare optios. If implemeted correctly, expected ROI sets the bar for orgaizatioal impact, performace measuremet ad budgets. Last, it provides a solid methodology to aalytically uderstad the impact that additioal products, add-os, upgrades, ad platform chages ca make. What is total potetial ROI? The total potetial ROI is the aggregate beefit that a firm ca expect to achieve if all fuctios were deployed ad all products implemeted with maximum efficiecy. The total potetial ROI is defied as the implemetatio ad full use of Ellie Mae s Ecompass all-i-oe mortgage maagemet solutio, Ecompass Compliace Service, Total Quality Loa program, Ecompass 4506-T Service, Ecompass Docs Solutio, Ecompass Flood Service, ad Ecompass Product & Pricig Service. How does Total Potetial ROI differ from Bechmark ROI? Bechmark ROI is the result achieved by the set of cliets that participated i the study. This is differet tha total potetial ROI, which a cliet ca potetially achieve with complete rollouts, maximum utilizatio, ad licesig the complete Ecompass all-i-oe mortgage maagemet solutio. Naturally, every cliet i this study had differet use cases ad varyig levels of traiig ad products licesed, which limits total potetial ROI. What is et preset value? The et preset value is a formula used to determie the preset value of a ivestmet by the discouted sum of all cash flows received from a project. What is a discout rate? The discout rate is the iterest rate used to determie the preset value of cash flows. Ofte, the discout rate is the weighted average cost of capital for a firm that is risk-adjusted for project ivestmets. What is the acceleratio effect? The acceleratio effect occurs with the adoptio ad usage of a umber of products ad services that are tightly itegrated ad workig together. This creates a aggregate impact whereby the combiatio of product/service offerigs accelerates productivity ad efficiecy for leders. The result is a higher retur o ivestmet of the combiatio tha the idividual products/services. What is the efficiecy curve? The efficiecy curve is the expected average productivity level achieved by participats after implemetig a Ellie Mae product or service. The retur o ivestmet calculatio icorporates a efficiecy expectatio based o the historical experiece of study participats. Their iput provides the basis to develop a expected efficiecy curve over a five-year period post-implemetatio.
MarketWise is a maagemet cosultig firm located i Jacksoville, Florida. MarketWise provides cosultig services for leders to streamlie techology operatios ad icrease productivity. MarketWise was fouded i 2005 ad has completed over oe hudred cliet egagemets across the fiacial services sector. For more iformatio, visit us at www.marketwiseadvisors.com or 1-800-815-9494. Ellie Mae, Ecompass, Total Quality Loa, TQL, Ecompass 4506-T Service, Ecompass Compliace Service, Ecompass CRM, Ecompass Docs Solutio, Ecompass Flood Service, Ecompass Product & Pricig Service are trademarks of Ellie Mae, Ic. 042817AB