Users of Ellie Mae’s self-hosted loan origination system will soon have to make a choice: migrate to the software-as-a-service version of Encompass or switch technology providers altogether.
The Pleasanton, Calif. mortgage technology firm will wind down support of the self-hosted version of its LOS by the end of 2016, a move that will affect approximately 20,000 mortgage professionals, newly appointed CEO Jonathan Corr said during Ellie Mae’s fourth quarter earnings conference call on Thursday.
The company will attempt to convert its self-hosted users to the SaaS version of Encompass, which is already in use by about 78% of its customer base.
“We expect to see a good chunk of those moved this year and the remaining stuff make its transition the first part of next year,” Corr said.
But at least one analyst is skeptical about those prospects.
“We find it somewhat difficult to believe that the majority will convert given the fact that some of these users have stayed on for a very long time for specific reasons and are unlikely to change their minds or else would have earlier,” William Blair Co. analyst Brandon Dobell wrote in a Feb. 13 note.
Lenders that use the self-hosted version of Encompass pay site licenses and large upfront fees to use the technology, while the SaaS version offers lenders lower upfront costs in exchange for a recurring variable pricing model that’s comprised of a monthly base charge and per-loan transaction fees.
“The market is very much interested in embracing a SaaS total cost of ownership, highly configurable solution that they can deploy in less than 12 months,” Corr said. “And so the success we’ve had is that our offering enables that you still have the tremendous amount of flexibility and extensibility, but it doesn’t put folks in the burden that some of these other players do, and that’s why we’ve been successful.”
But part of the challenge converting self-hosted users to SaaS is that lenders have already made investments in servers and other hardware that they’ll no longer need. Since lenders will have to switch to a new system no matter what, they may look to other self-hosted LOS options, including Black Knight Financial Services’ Empower and Blueberry Systems’ Relay, which also offer SaaS versions of their respective LOS technologies. However, switching to an entirely new self-hosted system is a significantly more complex process than migrating from the self-hosted to SaaS version of the same system.
Ellie Mae must also convince its self-hosted users that the stability upgrades it made following an embarrassing outage in April 2014 are sufficient to support their operations though self-hosted users weren’t immune to that outage because they couldn’t connect to Ellie Mae’s servers for user authentication and access to third-party services through the Ellie Mae Network.
To Dobell, it’s plausible that approximately half of the remaining self-hosted users will convert to the SaaS version. But, he continued, these users have not been faced with the fact that Ellie Mae will no longer support the hosted LOS, which he said will be “underpowered” to deal with the changes in RESPA/TILA slated for August; that could make their decision to switch easier than before.
“The process of converting these legacy self-hosted users to SaaS will be something to monitor closely since it does have accretive implications on the company’s financial results,” he wrote.
This isn’t the first time that Ellie Mae has given a not-so-subtle nudge to lenders that have been reluctant to update to the latest version of its software.
Ellie Mae severed third-party integrations with its Del Mar DataTrac LOS at the end of 2014, and Corr told analysts that Ellie Mae has completed the process of converting the DataTrac customers to Encompass. Ellie Mae acquired Del Mar DataTrac in August 2011 for $25.2 million.
The company’s customer makeup has also evolved along with the industry. Its early users were predominately mortgage brokers, but as market dynamics shifted, Ellie Mae moved away from offering its technology to brokers to better focus its business on mortgage bankers.