From Mo­tor City to Mort­gage City: How Detroit be­came a fin­tech hub

The ef­forts to bring fin­tech to the Mo­tor City haven’t yet made it a di­rect ri­val to the San Fran­cisco Bay Area, but Detroit-based busi­nesses have de­vel­oped a Sil­i­con Val­ley mind­set.

National Mortgage News - - Contents - By Bon­nie Sin­nock

While the West Coast still reigns as the epi­cen­ter of tech­nol­ogy de­vel­op­ment, the Detroit area has qui­etly emerged as a prov­ing ground for dig­i­tal mort­gage in­no­va­tions.

The area has be­come a cen­ter for in­no­va­tion largely due to the pres­ence of Quicken Loans, a non­bank lender that’s en­joyed mas­sive growth by us­ing tech­nol­ogy-based strate­gies that many in the in­dus­try now em­u­late.

Its Rocket Mort­gage plat­form has been the cat­a­lyst for the wave of new point of sale sys­tem im­ple­men­ta­tions in the in­dus­try.

“We com­pete on the de­liv­ery of the prod­uct to the mar­ket­place and that’s where tech­nol­ogy comes in,” Quicken Loans Chair­man Dan Gilbert said at the Mort­gage Bankers As­so­ci­a­tion’s Tech­nol­ogy Con­fer­ence, which was held in Detroit last month.

But it’s not just Quicken. Other ma­jor lenders in the re­gion also are pi­o­neer­ing in­no­va­tive tech­nolo­gies the larger in­dus­try is ex­pected to even­tu­ally grav­i­tate to as it moves to­ward a dig­i­tal mort­gage. United Whole­sale Mort­gage, head­quar­tered in the Detroit sub­urb of Troy, Mich., em­ploys 400 IT pro­fes­sion­als, is us­ing elec­tronic no­ta­riza­tion to con­duct vir­tual e-clos­ings through a mix of in-house and ven­dor tech­nolo­gies in al­most 20 states, ac­cord­ing to Justin Glass, the lender’s chief dig­i­tal of­fi­cer. And Flagstar Bank, also head­quar­tered in Troy, pre­vi­ously ran its own elec­tronic doc­u­ment man­age­ment plat­form, called DocVe­loc­ity, and its ware­house lend­ing di­vi­sion re­cently be­gan ac­cept­ing elec­tronic notes.

“All the mort­gage com­pa­nies are look­ing for great IT pro­fes­sion­als right now,” Glass said.

Sev­eral mort­gage tech­nol­ogy ven­dors also are based in the re­gion: Com­pli­ance Sys­tems Inc., Alti­source sub­sidiary Mort­gage Builder, and a broader fam­ily of com­pa­nies con­nected to Quicken, in­clud­ing Am­rock and Nexsys Tech­nolo­gies.

“It’s fair to say it’s be­com­ing more of an in­no­va­tion hub,” said Craig Martin, a se­nior di­rec­tor at J.D. Power that re­views cus­tomers’ sat­is­fac­tion with mort­gage lenders in the Detroit area and else­where.

The ef­forts to bring fin­tech to the Mo­tor City haven’t yet made it a di­rect ri­val to the San Fran­cisco Bay Area, but Detroit-based busi­nesses have de­vel­oped a Sil­i­con Val­ley mind­set. Detroit-dom­i­nated ven­ture cap­i­tal fund­ing for tech­nol­ogy com­pa­nies and other star­tups in Michi­gan, to­tal­ing just over $79 mil­lion in the first quar­ter, com­pared to a Cal­i­for­nia to­tal of over $16 bil­lion, ac­cord­ing to a study by the Na­tional Ven­ture Cap­i­tal As­so­ci­a­tion and PitchBook.

And while Detroit nar­rowly missed Ama­zon’s short­list for its new HQ2 head­quar­ters, the dig­i­tal re­tailer, along with other tech giants like Twit­ter and Mi­crosoft, have es­tab­lished a pres­ence here.

There also are now 35 ven­ture-cap­i­tal-backed star­tups there. That’s a 50% in­crease over the last three years, ac­cord­ing to the Michi­gan Ven­ture Cap­i­tal As­so­ci­a­tion.

What’s more, the Detroit re­gion’s more con­sid­er­able in­flu­ence in the mort­gage in­dus­try makes it more likely to give other mar­kets a run for their money when it comes to tech­nol­ogy used specif­i­cally by lenders.

Non­bank mort­gage jobs in the Detroit metropoli­tan sta­tis­ti­cal area have grown to the point where the lat­est Bureau of La­bor anal­y­sis sug­gest the con­cen­tra­tion of that in­dus­try in the re­gion is well above the aver­age for most MSAs.

When it comes to tech­nol­ogy Detroit is clearly not the only place in­no­va­tors in the mort­gage busi­ness but it is grow­ing in in­flu­ence.

“There have al­ways been a lot of lenders in the Mid­west and now there is a lot more tech­nol­ogy be­cause the in­dus­try is hav­ing an awak­en­ing,” said Bill Emer­son, vice chair­man of Quicken Loans. And as a mort­gage com­pany owned by a cor­po­rate parent that fo­cuses on ven­ture cap­i­tal and star­tups, Quicken has ben­e­fited from this broader view of tech­nol­ogy and in­no­va­tion, he said.

Quicken part­ners with some of the star­tups its Rock Hold­ing cor­po­rate parent works with as well as some with no ties to its parent com­pany if there’s a fit, said Emer­son. For ex­am­ple, it is work­ing on a pilot with a rel­a­tively young com­pany aimed at help­ing con­sumers save for ma­jor life pur­chases called BoostUp.

How many of these star­tups Detroit will be able to at­tract and main­tain the fi­nan­cial health of re­mains to be seen.

Those seek­ing em­ploy­ment and fund­ing in the startup world may “get a bit jeal­ous “when they see the larger amounts raised and larger salaries in a mar­ket like Cal­i­for­nia com­pared to Michi­gan, but Detroit of­fers more op­por­tu­nity to be a “big­ger fish in a smaller pond,” said BoostUp CEO Matt Rol­ing.

It’s also less of a cut­throat and ex­pen­sive mar­ket com­pared to Cal­i­for­nia, which is im­por­tant given the high rate of fail­ure for star­tups, he noted.

“They gen­uinely want to see you suc­ceed,” Rol­ing said.

Quicken’s in­vest­ment in Detroit has value that goes be­yond the amount of in­vest­ment in the area, said Emer­son.

Com­pa­nies can learn from their mis­steps and value is not al­ways quan­tifi­able, Gilbert told at­ten­dees at the MBA con­fer­ence.

“This con­cept, if you can’t mea­sure some­thing [ it doesn’t mat­ter] is the sin­gle big­gest mis­take,” Gilbert said. “It’s not just [about] money or cap­i­tal in­vested.”

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