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Loan Engineering Goes Digital

Tom Showalter

Seven seconds is not a long period of time—at all. 

There aren’t many activities you can do in seven seconds. 

However, if you have a background in NASA, aeronautics, and AI, one might be able to develop a loan engineering software that could underwrite a loan in seven seconds. 

And that’s exactly what Tom Showalter did. 

Showalter, CEO and Founder of Candor, has developed a Loan Engineering System that can process the entirety of a loan, performing over 9,100 intelligence acts, in just seven seconds. 

“If you can imagine an underwriter completing more than 9,100 edits, updates, additions, calculations, verifications, and validations with external, third party resources in a consistent manner  on every loan every time they access the file, that would really be something,” Showalter said. 

Showalter, a former C-level executive, spent nearly two years after the company he was working for was sold interviewing leaders in the mortgage realm. During the course of those interviews, Showalter confirmed the challenges centered around time to close and maintaining quality  which drove the cost to manufacture a mortgage from $5,000 to nearly $12,000. And, the heavily manual process prevented the ability to immediately scale to match market demands.

“So it's huge—huge problem for them, and it's eradicated margins. They used to make 500 basis points alone, now they're making 10,” Showalter said. It's not a good, healthy industry right now. That's problem number one.”

Another issue he discovered was trying to create a profitable disposition, while not cutting most of the labor staff. The lack of staff would erode loan quality and for lenders to shift costs from the front end of the process to the back end by losing money on the sale of the loan.. 

“You have a whole host of problems if the loan quality is not there,” he said. 

Showalter said he, and his team at Candor, set out to create a technology solution to solve those issues. Using his background at Digital Risk, First American and CoreLogic, he aimed to help the secondary market get quality data and analytics on how a loan would perform. 

His challenge was twofold, as the platform needed to be cost-effective, while also delivering a quality loan. 

It was through testing a variety of business cases that Candor solution would incorporate two separate sets of Artificial Intelligence and a Blockchain database. 

Showalter said one AI platform is focused on cost reduction, using robotics to complete redundant low value tasks, while the second AI platform performs the complex tasks, such as validating data accuracy using external sources, reading and verifying data from  pay stubs, verifying incomes, and then determine if the loan meets the eligibility requirements from among all a lender’s investors. 

Showalter said he relied heavily on his background at NASA to create this technology. 

“The same technology that's used to land an aircraft safely, will now land your loan safely,” Showalter said. “What that means is that we've found a way to use third-party data to corroborate the income, the assets, the liabilities, the house value, so that we can transform logical operations into a likelihood of defect that will enable the lender to know just what kinds of defects are in those loans, if any.” 

Showatler, whose last job at NASA was developing landing procedures for the space shuttle, said the Loan Engineering System has three legs: Cost reduction, loan data integrity, and speed. 

Additionally, Showalter said his team at Candor wants to help grow the industry. Now, the teams of people that might have worked on a loan, can be “more productive” and redeployed on the front end and used to grow the business. 

Underwriters, if utilizing this new software, would be able to occupy a “much higher-level role,” and can handle more loans. Showalter said the typical underwriter completes about 2.4 loans per day. Initial tests of the software are showing the completion of 10-15 loans per day. There is also data that shows the software can reduce the cost to originate a mortgage by $1,600. 

“The loan is actually as good or better than it ever was,” he said. “So they'll be able to redeploy it again to deal with customer needs, and to make sure that everyone who is potentially available for a loan, wants a loan, is paired with the right investor.”

When describing the technology and speed of the software, Showalter noted that Candor vets a pay stub with a 67-step logic tree. “Does anybody think an underwriter has time to go through 67 steps to vet a pay stub? I don't think so,” Showalter quipped. 

Another advantage of the technology is that it captures the complete underwriting history of the loan on an incorruptible Blockchain database. Showalter said the Blockchain keeps a record of every action on the loan, such as how income has changed, how property values have changed, and variations in assets as the process is completed.

He added that once the underwriting history is completed, the secondary market knows exactly where the data came from, and they are issued a certification by Candor called a “Candor Certified Loan,” which Showalter said is backed by a repurchase policy from Lloyd’s of London to eliminate a lender’s repurchase risk. 

Showalter noted that while these technologies are not new, they are new in the mortgage space, and one would need an aerospace background to understand how to utilize them. Also having experience in psychology, statistics, and acquiring an MBA from Stanford University doesn’t hurt.

“You just don't find too many people with that kind of depth and diversity to their background,” Showalter said. “We're doing something that it's very hard for the average lender to do. We've crossed almost every silo in the making of a mortgage. Every one. We've crossed them all.”

Showalter reflected on the nearly two years of research and more than 100 interviews that went into creating the Loan Engineering System, adding that he “bought more dinners and ate more salads” than he could remember. 

However, he was able to gather information from a wide range of experts and shaped their ideas into a product. 

“Given the demands on their time, and the call to immediately solve today’s problems, I just don't think the average mortgage executive  have the opportunity to take a step back and develop a holistic solution,” he said. 

The Loan Engineering System had a soft marketing launch in April, which attracted several larger companies. Candor says the platform is completing Beta testing and is scheduled  to be delivered in October. 

About Author: Mike Albanese

A graduate of the University of Alabama, Mike Albanese has worked for news publications since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, sports, and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the "Pilot Point Post-Signal," and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the "Dallas Morning News" and "Denton Record-Chronicle" over the past several years.

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