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Could Zillow's Latest Buy Become a Mortgage Doc Play?

Fri, 07/31/2015

by Brad Finkelstein


DotLoop takes the headaches and duplication out of managing real estate documents - right up until the part of the transaction with perhaps the most voluminous and confusing documentation, the mortgage.

So it's only natural to ask whether Zillow, which closed on the purchase of DotLoop for $108 million Thursday, intends to expand its new acquisition into the mortgage doc space.

The online real estate listings giant already has a foothold in mortgages, after all, with its loan rate advertising business. And with a $1.5 billion market cap, Zillow has the resources to take DotLoop places a startup couldn't go on its own.

"It is probably a great opportunity for Zillow to expand its capabilities," said Mark McElvoy, the CEO at Pavaso, a Plano, Texas, firm that offers a similar collaborative document management system for real estate closings.

Such an expansion is possible, but it would be tricky to pull off, industry watchers said.

Mortgage and real estate sales operate under different regulatory schemes, said Scott Stucky, chief strategy officer at DocuTech, based in Idaho Falls, Idaho. While real estate brokerages are mostly regulated at the state level, mortgage originators are regulated by local, state and federal officials, he said.

Then there is the document package size. Real estate sales typically involve just the contract and a couple of other documents. Mortgage closing packages are known for their size and complexity.

"My guess is that it wouldn't be any different than us trying to move into the real estate space," Stucky said. "It's a different business, it's a different workflow."

Zillow declined to comment for this story. On a conference call after the deal was announced but before it closed, CEO Spencer Rascoff told investors that "we think that we can expand DotLoop's market share by applying Zillow Group resources to it," but did not mention any expansion beyond real estate brokerages.

There was a previous attempt to bring the two document worlds together, Stucky noted. In 2010, Emphasys, a real estate tech company, acquired Lender Support Systems Inc., but quickly found it tough to do both kinds of documents. Fifteen months latest, Emphasys sold LSSI to Stucky's company.

Tim Anderson, a long-time executive in the mortgage technology space, is also skeptical about DotLoop being able to migrate to the mortgage space, especially for closing packages.

For static documents like the mortgage application, "I can easily create an e-signable PDF with xy coordinates and lay a tag in the signature line to kind of a dumb document that doesn't change. That is why the realtor space is pretty easy to do. You are not dealing with complex documents," said Anderson, currently the director of eservices at DocMagic.

But closing documents are legal collateral with lots of regulatory and investor requirements; even product differences affect those packages.

"Who is going to maintain all these templates and forms for just the signature piece? Now, that is doable, but your forms library may be 300,000 [files] just around standard forms," Anderson said.

Consumer Financial Protection Bureau director Richard Cordray's long-stated goal is to develop the electronic closing. Even without the document prep part of the process, the DotLoop technology still could be used for e-signatures at closing.

Another issue that makes mortgage documents different than real estate is the need to work "with all the players in the ecosystem, with all of the lenders and the intermediate banks and the investors," said Michael Laurie, vice president of product strategy for e-SignLive by Silanis.

But McElvoy says there needs to be more collaboration among those players in the home sales process. His firm's platform attempts to link all of the stakeholders - lender, title, real estate agent, consumer and secondary market investors - into a collaborative atmosphere with closing process management, communication, audit, tracking and compliance all in one place.

It would be an incomplete strategy if Zillow stopped at the DotLoop deal, thinking that would cover every piece, McElvoy said. The real estate finance process would be better off for the long term if it changes the perspective from the individual needs of lenders, title agents and real estate agents into more of a collective approach that realizes the central focal point of the transaction is the consumer, he said.