John Paasonen, co-founder and CEO of Maxwell, joined FinLedger for the following conversation on the company’s mortgage automation solutions and path moving forward.
Paasonen also recently spoke with Housing Wire Editor-in-Chief Sarah Wheeler on the Housing News podcast – that discussion can be found here.
Q: First off, can you just describe Maxwell and the services you offer?
A: Maxwell is a digital technology enabled platform that provides services across the mortgage origination value chain, so everything from the point of sale at the front end to pricing underwriting closing in the middle to capital markets execution on the back end for our clients and we serve, you know, small- to mid-sized lenders across the United States, community banks, credit unions and independent mortgage banks.
Q: When you founded Maxwell, what aspect did you start with and what has been the biggest movement factors since then?
A: We started as just a pure-play software company, on the point-of-sale (PoS). So really providing that front-end borrower experience, and then an experience for the loan officers to drive consumer engagement and create a great experience, for the loan officer and their clients.
That’s kind of where we started. As we started to see the data, and see the impact that we could have on the efficiency and productivity of the mortgage, that is when we really started to get to the back office stuff. That’s where we think there’s a huge lift to improve not just the efficiency approach, but also the quality of mortgages that are coming through.
Q: Let’s talk about the small- and mid-size market. Why did you choose to focus on this market?
A: So if you look at the composition of the mortgage market, there’s over 15,000 registered mortgage institutions in the United States. Over half of the loans in this country are done by small- to mid-size lenders, and these are the folks that are present in their local communities. Those are where the loan officers and bank presidents are coaching soccer teams, and neighbors to the folks, right?
They understand what their community needs and how to serve them. A big focus for us is, ‘How do we increase access to homeownership?’ And we think one of the best vehicles to do that is through these institutions, that know what their communities need and can speak into those needs more directly.
Q: It’s an interesting time with prices up, but also supply super low, so it’s kind of hard for some to get started in homeownership. How can people bridge that gap and where do you think things are headed as far as homeownership?
A: When we started Maxwell, homeownership was at its lowest level since I think the Lyndon B. Johnson administration. And so when you disaggregate that by segments of our national community, what you see is that the roughly 30% gap between white homeownership and Black homeownership, for example, really has persisted for the last 30 to 40 years.
I think two of the biggest challenges to homeownership, is one: downpayment. You have to come up with this large amount to put down to buy your home.
And then the second: credit underwriting. How are we making a decision that, say, Joseph is worthy of getting a mortgage and has the ability to pay? We’re still using models and have been using the same models for a very, very long time.
I think one thing I’m excited about is the Biden administration is very focused with FHFA. How do we address the downpayment issue, and what new programs and assistance can we put in place? Yes, that’s a product issue.
The second is, I think folks like Fannie Mae have been super creative around thinking about ‘What else should we be looking at to validate someone’s ability to repay?’ For example, looking at trended rent payments. Have you made your rent payments on time for the last two or three years? That should inform your ability to pay your mortgage, and especially now that we have access to that data. I think that’s really powerful as an example of how we can begin to evolve how we typically define that credit box.
Q: On that same point, besides what you said about paying rent, what have you seen when it comes to the amount of data and how you handle Knowing Your Customer (KYC)? Have you seen that change?
A: We love data. We’ve been investing a lot in our data engineering and data science capabilities here. What we do is, we collect the data from the minute the consumer applies, and then we’re using that data throughout the entire origination process for our clients to streamline it.
We’re an investor in a fluid industry, and buy the loans from our clients, we can use that data to identify loans that we think will perform better downstream, and eventually begin to create products ourselves as the investor that we can then distribute through our network of lenders across the United States.
Data is incredibly, incredibly powerful. For example, as we look to buy loans, we don’t do this today, but could we look at other things that typically don’t appear in a bid tape, like the age of the borrower, for example. A 95-year old consumer that is looking to get a 30-year fixed mortgage, they’re probably not going to be around to pay for that over the next 30 years. So how do you factor that into your risk score? Versus a 35-year-old with a good job, who just had a baby and is pulling out some cash to refinance. That’s a different risk profile, right? So by building these risk models, we can look at a much broader set of data than typically is available, or typically has been used in the past.
Q: Buying a home is usually the biggest purchase in a person’s life. What are the most important things to make people comfortable with technology in all the steps of the mortgage transaction?
A: I think technology needs to deliver on the promise of making it easier. I think it’s our responsibility, as the ones building and designing the software, to take away problems from the consumer and make those our problems.
If the lender is asking you for your W-2, for example, I don’t know if you know where your W-2 is from last year. You know, I’d have to think about that for a little bit to figure out how to get mine, right? So, how do we, as a software provider, take on that problem for the consumer?
That’s how we build trust, by saying, ‘Hey, we can help you as the software that you’re using to get this done a lot faster,’ and you build those in little incremental steps. The other thing we like to do is to have these little micro-moments as you go through the software, that just sort of reinforce the progress.
For example, when you submit your loan application, we have a little bit of confetti fall, and it might be viewed as a little silly or whatever, but we find that’s a huge step in the process to propel the consumer to the next step. It’s like, ‘Hey, we had a little win here. We submitted a loan app, now we need to get your documents right.’ How do we think about making that as easy as possible for you? I think it’s about taking away pain as much as we can. Let’s celebrate progress as you move through the process.
And then thirdly, I would say there’s an element of just transparency. I think that’s where software helps a lot. Knowing where you are in the process, what’s expected of you, what’s coming next and making sure that communication is consistent and clear.
Q: What are some of the biggest challenges that you’re excited about tackling as we move forward through 2022?
A: Wow, I have to pick just a couple? I would say we just released a new piece of software called Processor Edge in December, that looks at helping a processor manage their workflow.
So the processor is like the quarterback of the loan, right? They’re trying to organize, manage and look at the entire field for a loan, but they’re doing it for typically 30 to 50 loans at a time. That is, in many ways, an inhuman task. And so we built this piece of software that helps them as the processor, to manage that field of play — all the players — and to keep track of the ball. So I’m really excited to see that rollout across the industry and start to have a real impact on processors’ happiness to borrowers’ results, and the quality of loans that are getting into the market.
Second thing I’m excited about is Maxwell Capital. We just launched that last fall. So again, we’re an investor in the loan. I’m really excited to partner with our lenders as they start to see margin compression this year, and to be able to give them some margin back through our loan investing unit in Max Cap.
Q: You recently raised a Series B. How have you been using that already and what other plans do you have for deploying that moving forward?
A: I’m just really thrilled with the Series B raised last year, and the partners that we brought on board. This isn’t just capital, but it was also strategic for us. For example, Wells Fargo was an investor that joined in the Fall, and will be a phenomenal strategic partner for us as we build. Particularly on the Maxwell Capital side.
We’re going to be deploying that primarily for research and development, so product engineering. That’s going to be a big portion of our investment. We’re going to be probably tripling our investment in R&D, and continue to look at how we drive quality, efficiency and a better experience throughout the entire mortgage process.
Q: Looking forward a little bit, are there any products that you’re not working on right now, but you think down the road could actually change the way that you do business and that you’re excited to see how things play out?
A: We’re just starting to lay the groundwork. I mentioned the investments we’re making on the data side, and there is opportunity for blockchain. I think we’ve been talking about blockchain and fintech for years or decades, and I think mortgage is actually one of the genuine, real-life applications for blockchain.
I think there are phenomenal companies doing work there. We’re looking at ‘How do we partner?’ Again, we collect the data for tens of thousands of loans every month, and then we directly affect the quality of that data, right?
So to be able to take that data, and write it to an immutable record that can then be used well into that loan’s life is incredibly valuable. So we’re excited to lean into that over the next half decade.
Q: Looking at embedded finance and APIs, how has that grown in your eyes and where do you see it moving forward?
A: I would say the incumbent technology players, like the LOSs, invest a lot in their APIs, which is fantastic. Of course, a lot of the modern entrants to the space, like us, are investing heavily there as well.
At the end of the day, it’s about delivering a better experience to our customers and to the lender. If the components of your technology stack can talk to each other and work well together, then they’re happy.
I’m hopeful that those investments will continue, so that as a technology partner to our customers we can all sort of disappear into the background and help them run their business more efficiently, Without having to worry about, ‘Does it work or not?’
We have great partnerships, for example, with ICE Mortgage and their Encompass platform and with MeridianLink. Both of those companies have invested a tremendous amount into their APIs over the last few years, and it really shows in the quality of the technology experience that we can deliver together to our clients.
Q: What do you look for in people and companies to partner with?
A: I think the first thing, obviously, is a customer orientation. We’re all here to serve the lender, our customer, and make their experience better. We’re not here to just take all their money. We’re here to actually help them drive efficiency and productivity.
We love to find others that are value-aligned, in terms of wanting to really impact homeownership, because I think that goes far beyond just APIs, and ones and zeros. But it really becomes about ethos stuff. How we partner, how we talk about things and where we go.
Those are a couple of things we look for. Obviously when it comes to technology, we’re looking for a more modern technology stack, a little bit of APIs and web hooks, and things that allow our platforms to talk well together. So again, how can we not make it a user problem?
Q: It is obviously a huge market. It seems like there’s a lot being done, but there’s more to come. How would you judge the saturation of the market and how much more room is there?
A: I think we’re through the first five years of a multi-decade transformation of the industry. For example, look at Redfin. When Redfin came in, gosh, 15 years ago, they wanted to disrupt the real estate agent. Today, Redfin is one of the largest employers of real estate agents in the United States.
You never really know where it’s gonna end up. In reference case, they’re a decade and a half into transforming the industry. They’re certainly not the only ones out there trying to do that still.
At the same time, I think mortgage will be the same, right? There’s a lot of stakeholders in mortgage. You have everyone from the regulators, to the investors, to the servicers that have this huge downstream impact on the originating businesses. They are creating these loans that eventually end up in those different places.
To drive change at scale, you’ve got to have all these players that are rowing in the same direction. And I think we’re headed in that direction for sure. I think there’s a lot of goodwill to do that, but it’s a big investment for an industry to do that over time.
Q: Is there anything I didn’t ask that you think I should know about Maxwell? Or just where you think the industry is going?
A: I think as we head into this year, obviously with some of the Fed movements and the rates going up, we’re eager to be a partner for our customers to drive margin enhancement. They’re going to see a lot of compression this year, and I think some of them will probably be rethinking their business model as well. Wherever we can help them become more efficient, more productive, higher quality. That’s really where we focus.