Among the allegations of misdeeds and unfair practices in the mortgage industry during and after the housing market implosion was New York Attorney General Andrew Cuomo’s 2007 lawsuit of appraisal firm First American eAppraiseIT for collusion with Washington Mutual (WaMu). Cuomo claimed that First American eAppraiseIT allowed WaMu to pressure it to use appraisers who inflated home prices by giving artificially high appraisals. In 2009, to bring more transparency to the appraisal process, Fannie Mae reached an agreement with the Federal Housing Finance Agency (FHFA) and the New York Attorney General’s office to adopt the Home Valuation Code of Conduct (HVCC) regulating relationships between lenders and appraisers. Another measure, the Housing and Urban Development (HUD) Mortgagee Letter 09-28 Appraiser Independence (ML 09-28), stresses the importance of lenders, mortgage brokers, and real estate agents remaining independent of the appraisal process.
One company that aims to capitalize on these new directives through its open-platform approach is InHouse Inc, a lender services company providing a full spectrum of appraisal solutions from appraisal management, self-service software, and customized appraisal processes. A home appraisal, a report estimating how much a home is worth, is one of the necessary steps to complete when negotiating a mortgage with a lender.
CEO Tim Nguyen started his career as an appraiser and built a one-man shop into a statewide appraisal company and then as a nationwide appraisal management company (AMC). Today, InHouse performs various types of appraisals (full, drive-by, or desktop using photographs) and reviews appraisals. It also offers mortgage technology services, including the development of mortgage software and integration of technologies such as loan optimization software (LOS), automated underwriting systems (AUS), and e-mortgages and paperless mortgages. The idea for a self-managed platform came about through need from a current client; InHouse built it and the client piloted it.
Nguyen describes the mortgage space as “old and slow” and feels that in general, technology companies in the mortgage space use technology to “handcuff” their clients. InHouse Inc wants to take a different approach and push for an open platform that has no startup costs, no monthly minimums, no long-term contracts, no gateway fees, no integration fees, no wait time, and low transaction fees. Every appraisal comes with an appraisal transparency report as evidence of HVCC compliance.
No one doubts that the housing market has taken a severe hit, but residential mortgages alone will still originate $1.3 trillion in 2010. This equates to roughly $39 billion in origination fees. This does not include interest on loans, reselling of loans, and the lender services sector. For the appraisal industry in particular, the TAM (lenders) comprises more than 2,000 mortgage bankers with more than 650,000 appraisals per month ordered, at $375 per appraisal for a total of $2.925 billion. For ACMs, the TAM breaks down to more than 300 AMCs and more than 520,000 appraisals per month ordered, at $375 per appraisal, which is $2.34 billion.
InHouse Inc was started in 2002 in a one-bedroom apartment in Santa Ana, California, and is entirely bootstrapped. The company is profitable, and 2009 revenues were $33 million. InHouse is not seeking financing.
InHouse gained traction through contacts built up over the years and now has more than 50 lender accounts, including Wintrust Mortgage (top 100 lender), ClearPoint Funding (formerly known as Virgin Money), SchoolsFirst Federal Credit Union (a top 10 federal credit union), Sun West Mortgage Company and Dover Mortgage (which piloted Connexions for InHouse).
There are several hundred traditional AMCs operating across the country that offer different combinations of satisfaction guarantees, automation of processes, turnaround times, fee structures, and Internet-based content and services. Competitors with a greater tech focus include FNC; Global DMS, which uses an SaaS model; and Canada-based Solidifi.
InHouse Inc aims to grow by moving to a SaaS model and through Connexions, which it will unveil the Mortgage Bankers’ Association National Secondary Market conference on May 23 in New York City. Connexions is an appraisal management process software program that will allow users to self-manage their appraisals, outsource their appraisals to multiple vendors, and combine both self-management and vendor outsourcing together. Essentially, it connects lenders and vendors on a centralized platform with sufficient tools to collaborate efficiently. It aims to be a combination of workflow and business functions, not just a conduit for data between parties. The company’s ultimate goal is for 50% of all appraisals done in the United States to go through InHouse’s systems in some shape or manner.
As for an exit, Nguyen says, “Honestly . . . it’s not even on our minds. We want to pass this company on to our families.”
This segment is a part in the series : Deal Radar 2010