Interview: Dan Sogorka of Sagent Lending Technologies
May 16, 2022 | In this issue of The Institutional Risk Analyst, we feature a discussion with Dan Sogorka, CEO and President of Sagent Lending Technologies. Payments provider Fiserv (FISV) in 2018 sold a majority stake in Sagent, which includes the Fiserv mortgage servicing business, to Warburg Pincus. We spoke to Dan last week just as New York Stock Exchange-parent Intercontinental Exchange (ICE) announced that they will acquire mortgage software and data monopoly Black Knight (BKI) for $13.1 billion. But the big news at the Mortgage Bankers Association Secondary Conference this year is how lenders will navigate an environment with rising interest rates and also rising levels of loan delinquency.
The IRA: Dan, thanks for taking the time to speak to us in a very busy week. Let’s start with the obvious and talk about the announcement of the acquisition of Black Knight by ICE. A lot of people were surprised by the deal due to anti-trust questions and the ambitious price as well. But several observers also suggest that the Sagent deal with Mr. Cooper (COOP) played a part in making this marriage come to pass. Do you take this deal as a compliment to Sagent?
Sogorka: The COOP transaction did generate a lot of inquiry from Buy Side investors about Sagent and the servicing sector more broadly. The ICE transaction with Black Knight also helps to raise the profile of the sector. I must say, after two years it feels good to be able to report that we have won some big pieces of business. We have state-of-the art technology, a fantastic team and a process to actually meet customer asks. We also have important partners like Warburg Pincus, COOP and other large issuers that want a better solution.
The IRA: COOP has a reputation for being savvy investors in technology, but having Warburg Pincus and FISV behind you is also a great endorsement. Of just about any PE firm in the business, Warburg Pincus is known for its success when investing in banks and other financial companies. Most recently they partnered with Varo Bank. We featured a discussion with former Warburg Pincus Vice Chairman Bill Janeway in 2018 (“William Janeway on Capitalism and the Innovation Economy”). In terms of highlighting the sector and the need for new solutions for manufacturing and servicing loans, in a way the ICE deal seems fortuitous for Sagent.
Sogorka: Our customers as well as both partners and competitors in the fintech space are asking how the ICE deal may play out and whether Washington will delay, kill, or require divestitures. The deal announcement said this will play out into 2023, so time will tell in the coming quarters. Regardless of what happens, Sagent remains committed to the industry and our customers. We are focused on two things (1) executing alongside our customers in the trenches every day to build stable, future-proof platforms for them, (2) staying in the lead on homeowner-first innovation for our industry. Our vision for data-first, cloud-native platforms that connect consumers and servicers in real time across the performing and non-performing loan lifecycles is accelerating each week. As we integrate 200 new Mr. Cooper mortgage fintech specialists into Sagent’s 600-strong team of mortgage innovation experts, we have the best team in the industry.
The IRA: We thought the $400 million breakup fee that BKI has to pay ICE in the event was of particular interest. Both ICE and BKI are hyper-acquisitive, heavily levered credits that grew more valuable during the upswing in mortgages, say 2016 on through 2022. Call it half a decade of rebound and then overperformance. Since we are on the backside of the interest rate cycle, don’t these names and the whole mortgage sector come under pressure? The public names in the industry are getting pounded in the options markets. How do you talk to clients and investors about the operating environment and also the financial markets going forward?
Sogorka: As I noted, we’re all about being in the trenches with our customers to do the precise work of innovating in this complex sector – which is as much about smart technology as it is about intimately knowing the needs and challenges of servicing operators and their customers. Marrying modern fintech with in-the-weeds operational expertise is Sagent’s special sauce, and it’s our unwavering commitment to servicers. This is how banks and lenders thrive even in acute market cycle adjustments like this. And the more we help them thrive – and operate in a way they see fit rather than forcing them into black-box solutions – the more they can seize on market consolidation opportunities as this cycle plays out.
The IRA: Sadly the changes at Ellie Mae since being acquired by ICE have not brought happy news for issuers used to a degree of customization. Can you deliver a hosted, cloud-based service for issuers that is robust and enables them to customize their version of the tool? Much like COOP contributing technology to Sagent? Giving lenders control and accountability over these key tools is crucial. We can see that many large issuers still maintain their own proprietary POS, LOS, etc. How do you deliver this level of custom service and at reasonable cost?
Sogorka: Sagent is all about the cloud-native, open-API model giving servicers optionality and cost control. That fintech development mindset is still new for our industry, but it’s the future. It’s how we deliver ongoing, fast innovation at a lower cost without surprises, and without charging customers for tools they do not use. Also, It’s worth noting here that the new technology that powers the Sagent-Cooper vision for servicing is already proven in the market. Mr. Cooper generates customer retention that’s two times the industry average. This clear performance doesn’t just lead to better experience, it also has significant implications for cost savings by not having to re-acquire lost customers.
The IRA: As we go through 2022 and the next several years, it seems pretty clear that interest rates are going to be higher for longer than in the post 2008 period. This suggests some pretty big operational and financial challenges in servicing. How does Sagent take advantage of this coming test for distressed servicing across the industry? Does the focus on expense management and loss mitigation help you further grow your share in the industry?
Sogorka: The simple answer is yes. We will continue to talk about the need to change the paradigm from merely servicing a loan as a debt collector into something that is more sympathetic and responsive to the consumer – again, it’s all about a customer retention mindset. We think that the need to manage expenses and better interact with consumers will make the industry ask whether they have the right technology for that job and the right technology partners. It is not just about efficiently dealing with troubled mortgages and offering the best options for consumers, but how do we get ahead of the process to give servicers and consumers more time to consider options.
The IRA: We learned years ago that keeping the family in the house and helping them to get back on track is always the best course for the consumer, the note holder and ultimately for the US taxpayer, who backs the credit risk on most residential mortgages. While investors are protected, servicers often lose money on foreclosures, even with record high home prices. How does Sagent address this pain point for servicers?
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Sogorka: No one wants extended foreclosures. Giving consumers options earlier in the process and making sure these are the right options is, to us, the key to effective loss mitigation. If you don’t have electronic tools that can effectively engage with consumers, then you lose precious time. These are human beings that are going through difficult circumstances. Being able to engage with them, understand their situation and intent, is the key. Doing this via the web or a smartphone is mandatory. Sagent was first to enable digital hardship care as the CARES Act rolled out, and it's because of our digital-native, cloud-native platform. This lets our servicers maintain real-time compliance and customer care during rapidly evolving market and policy changes – this is the world we live in, and Sagent is meeting the moment.
The IRA: Tell us a little bit about why Warburg Pincus got interested in mortgage servicing. How did you convince one of the premier private equity firms and investors in financials to dive into residential mortgages? And does FISV stay a minority but still significant investor?
Sogorka: Fiserv is still a partner but Warburg Pincus is the primary capital partner. As you know, they’re one of the world’s elite investment organizations, and an ideal partner because they understand the scale and speed required to power America’s $12 trillion housing market. They enable us to think big and execute on our visions to lead innovation in this space. We often say modernizing servicing is the last frontier of the fintech era because it’s the biggest, most complex operationally, and the most regulated. Having a lead partner like Warburg Pincus who truly understands this means we can keep going fast on making innovation a reality.
The IRA: For FISV, it obviously is a huge plus to have a credible partner like Warburg Pincus and now COOP in the mix and helping support the investment required, especially as the industry goes through a down period. As we go through this year and 2023, what is the message to the mortgage industry from Sagent as we approach the MBA Secondary?
Sogorka: With the recent transaction with COOP, we have a lot more tools to talk about with clients, tools that are highly relevant to an environment where credit and compliance only grow in importance. We’ve also brought on a lot of deep industry talent in the servicing space to support client implementation and execution. We are not going to hand you a proprietary tool and tell you to figure it out yourself. As I’ve said, we’re in the trenches with you to help you redefine how you perform servicing and actually make it a profitable business for your organization. We have found that consultative approach is what the industry wants and it is central to how we approach the market.
The IRA: And you are fully committed to an open source architecture? This is an industry that builds its own tools.
Sogorka: Yes, completely. We’ll show you what is possible today, what new products we’re delivering shortly and how you, the customer, can decide how to create your servicing and loss mitigation process to your specifications. The industry hasn’t had this before, and with Sagent, now they do. We start with a very different perspective, which is to listen to the client and tell them how we can build and maintain the platform that they want today and tomorrow to be cost effective and compliant. If they want a certain set of third-party tools added to the mix that they believe are best-in-class, we make it happen in a cost effective way.
The IRA: As Henry Ford said about the Model T, you can have any color you want as long as it is black. Thank you for your time Dan. Enjoy the MBA.