Ellie Mae Takes a Mulligan with Second CRM Acquisition

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Ellie Mae hasn't been pleased with the customer-relationship management vendor it acquired in early 2014. Those disappointing results, along with the desire to offer clients more robust capabilities, prompted the mortgage software provider to acquire another CRM vendor, Mortgage Returns.

Acquiring the St. Louis-based vendor and its approximately 220 lender clients (a number of which currently use Ellie Mae's Encompass loan origination system) was a preferable strategy to trying to further develop capabilities to MortgageCEO, which was rebranded Encompass CRM after the January 2014 acquisition.

During an Oct. 28 conference call to discuss third-quarter earnings, Ellie Mae CEO Jonathan Corr said the company recently won an arbitration proceeding with the previous owner of MortgageCEO, Jaret Christopher.

"Unfortunately the CRM product we acquired has not lived up to our quality standards. Last week, the arbitrator determined that certain representations made by [Christopher] were not true and we received a favorable award," he said.

"We made a mistake, we moved forward," Corr added later during the call.

Christopher, who left Ellie Mae after a brief stint with the company, did not immediately respond to requests for comment.

Ellie Mae intends to maintain the Mortgage Returns name for the foreseeable future because it is a solid brand, a move that parallels its acquisition of AllRegs, which it acquired in August 2014.

Ellie Mae is expecting to report a fourth-quarter loss between $3.3 million and $3.8 million due to the expected purchase accounting impact of its acquisition of Mortgage Returns, as well as normal seasonality in the purchase mortgage business.

"We need 12 months or so to write off all of the deferred revenue the acquisition brings to Ellie Mae," Ellie Mae CFO Ed Luce said during the earnings call.

In the third quarter, Ellie Mae posted net income of $6.2 million, up 24% from $5 million one year ago. Revenue year-over-year was up 61%, to $68.9 million.

While Mortgage Returns doesn't have all the elements that Ellie Mae was looking for in a CRM system, the platform is a significant move forward, Corr said in a recent interview with NMN during the Mortgage Bankers Association's recent annual convention.

When Corr visited Mortgage Returns during the negotiations, he got to see how that company has "made such progress with a limited set of resources." As part of Ellie Mae, Mortgage Returns will be able to build out new functionality and add capabilities at a much faster pace, Mortgage Returns founder Jim Blatt said during the interview. The companies are also a good match because they're both data- and results-driven, he added.

The pair said synergies between Mortgage Returns and AllRegs could produce new marketing products for lenders. For example, AllRegs educational content could be leveraged in a targeted marketing campaign directed at first-time homebuyers.

Industry economists are predicting the share of purchase originations to increase over the next few years and that calls for a different style of marketing than a refinance-focused business. Among the drivers of that change is an influx of first-time home buyers.

Lenders "have to work with their referral partners and get their leads across the goal line," Blatt said, adding that targeted marketing is more effective than traditional mass-marketing, especially when it includes an educational element.

Plans are to bring the entire Mortgage Returns staff out to Ellie Mae's headquarters in Pleasanton, Calif., in two groups as part of a three-day initiation process. This helps to eliminate a lot of the uncertainty the Mortgage Returns staff have about the changes, Blatt said.

In addition to its latest acquisition, Ellie Mae has entered into a new strategic partnership with Freddie Mac to further integrate the government-sponsored enterprise's risk management tools into the Encompass LOS, the company announced on the earnings call. This is similar to the partnership with Fannie Mae announced in July.

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