Magazine article Mortgage Banking

LOS Market Share Drama

Magazine article Mortgage Banking

LOS Market Share Drama

Article excerpt

LOOKING OVER THE PAST 10 YEARS, THE loan origination systems (LOSes) that were popular a decade ago are still popular today. However, there have been significant changes in market share, and the only thing we can say for sure is that it's almost impossible for new entrants to gain a foothold. In fact, none of the top LOS vendors was new to the market in the past 10 years.

What is worth noting is how the market has migrated among the top four vendors. Wholesale Access, Columbia, Maryland, has done a great job in surveying both the mortgage broker industry and the mortgage banking industry. I have seen and evaluated other surveys, and Wholesale Access has done the job exceptionally well. Wholesale Access takes a very large sample size of the industry, which ensures statistical significance. This article will discuss some of the findings of the mortgage broker study that provides the LOS market share by vendor. A future article will discuss the findings of the LOS market shares for mortgage bankers.

Figure 1 shows the changes in market share for the top four LOS vendors among mortgage brokers.

There are several things we can conclude from Figure 1. One is that the top four LOS vendors, as a group, have increased their market share over the years. This has been at the expense of a number of smaller firms. Several firms have gone out of business while others weren't able to penetrate the market and, in fact, had a challenging time even hanging on to the customers they had. Clearly, any new LOS that came to market found it nearly impossible to get its foot in the door.

Those mortgage brokers that purchase an LOS from any other than a topfour vendor likely found themselves in a dilemma. LOS software vendors with a small customer base aren't able to fund their research and development (R & D) to keep up with the major vendors. They really only have two options: to spend far more than they earn, which eventually puts them out of business; or to charge their mortgage customers far more than the competing LOS vendors. For these and other reasons, in most situations, mortgage brokers are better off purchasing from a top-four vendor.

Another very interesting development illustrated in Figure 1 is how Calyx Software, San Jose, California, has significantly expanded its market share at the expense of the other vendors. The survey doesn't help us determine why this happened, although I've done a number of informal surveys on my own with mortgage brokers.

Some will say that Calyx has developed a terrific product with a great price. Others will fault the other LOSes for taking some wrong steps. There's also the Microsoft[R] effect that tends to happen throughout the software industry. That is when one software vendor eventually dominates a segment, and as it grows larger it has greater resources to develop the software even further--which ultimately makes it impossible for the other vendors to catch up. As the previous owner of Contour Software Inc., I know very well that the more customers you have, the more you can improve the software because you have much higher revenues to commit to R & D.

When I look at Figure 1, it's my belief that changes in ownership and management can explain the migration in market share. All the LOS vendors except for Calyx had a complete change in ownership and management.

I sold Contour in early 1998, and as we can see, the market share for Contour dropped the most as it was the first major LOS to be sold to First American Corporation, Santa Ana (it was sold again in 2001 to Ellie Mae Inc. …

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