Companies say deal paves the way for first “cloud-native” mortgage servicing platform.
Mortgage servicing giant Mr. Cooper has sold the rights to its servicing platform to software developer Sagent in exchange for a minority stake in the company, with Sagent planning to upgrade the platform and license it back to Mr. Cooper and other mortgage industry players as the first cloud-native servicing platform.
The deal — which capitalizes on Mr. Cooper’s deep customer base, and Sagent’s ability to innovate rapidly — is a “very significant development for the industry and for Mr. Cooper,” said Mr. Cooper CEO Jay Bray on a call with investment analysts.
Bray expects the collaboration to be “a complete game changer” that will “force every single operator to migrate their system to the cloud or face significant competitive disadvantages. For Mr. Cooper, this new platform will drive efficiencies, both in terms of operating costs and ongoing cost of maintaining and upgrading the technology.”
In a regulatory filing, Mr. Cooper disclosed that it sold the rights to its servicing platform for $250 million, including 200,760 Class A-1 common shares in Sagent plus $9.875 million in cash. Mr. Cooper will gain two seats on Sagent’s board of directors, to be filled by Bray and Chris Marshall, vice chairman and president of Mr. Cooper Group.
The deal also commits Mr. Cooper — a top mortgage servicer that collects payments on more than 3 million home loans — to license Sagent’s servicing platform for seven years, said Sagent CEO Dan Sogorka.
Sagent and Mr. Cooper “share a vision of powering borrowers to manage their entire home and loan lifecycle from their mobile devices, and powering servicers to manage every single loan detail for consumers, regulators, investors, and partners,” Sogorka said in a statement.
Sagent plans to integrate Mr. Cooper’s platform into a cloud-native core, and license the resulting cloud-based servicing platform to Mr. Cooper and other servicers — including Sagent’s customer base of banks and independent mortgage companies. Sagent says it will begin marketing the cloud-based servicing platform to other mortgage companies next year.
“The really attractive thing here is that Sagent is going to take our technology that we’ve developed over many years,” Bray told investment analysts. “Our visionary technology leader, Sridhar Sharma, has made sure that every line of code we developed in the company over the last six years has been cloud-native code.”
Sharma will serve as senior technology advisor to Sagent’s board, the companies said.
Bray said Mr. Cooper’s roughly 20 percent stake in Sagent values the company at about $1.25 billion. But, “If Sagent’s valuation does half as well as we think it can, it will be worth multiples” of the $225 million gain Mr. Cooper will recognize next quarter on the sale of its servicing platform to Sagent, Bray said.
Bray briefed investment analysts Friday after Mr. Cooper reported $1.4 billion in net income for 2021, as its servicing portfolio grew by 17 percent, to $710 billion.
Loan servicing — which involves not only collecting monthly payments from borrowers, but also helping them avoid defaulting in tough times — can be a dependable source of revenue for lenders. Because loan servicers have details about the borrower’s interest rate and loan balance, they’re also in an advantageous position to offer homeowners refinancing when opportunities arise.
Mr. Cooper, which acquires loans through a correspondent lending channel and by refinancing existing loans through a consumer direct channel, funded 65,971 loans totaling $17.2 billion during the last three months of 2021.
Bray said Mr. Cooper is “in the business of continuously building solutions for our team members and customers, and we also look for ways to extract value from our assets and platform.”
Mr. Cooper sold its title unit, Title365, to San Francisco-based software developer Blend last year in a $422 million deal that closed June 30.
Bray said “part of the reason we got such an attractive valuation” was an automated title underwriting engine the company developed internally, called X1.
“As another example, you’ve heard us talk about our award-winning cloud-based document reading technology, which we now call Pyro,” Bray said. “Thanks to machine learning, we can scan enormous quantities of documents with a very high accuracy rate. This is a huge advantage to us in onboarding large portfolios. We’re now licensing this technology to other mortgage companies, and I’m pleased to report we just signed up our first customer.”
Sagent, a fintech software company that’s a joint venture between Fiserv Inc. and private equity firm Warburg Pincus, last month announced the extension of a multi-year servicing partnership with Gateway First Bank, which employs more than 1,600 workers and operates 170 mortgage centers in 43 states.
In December, Sagent signed a 10-year deal to power loan servicing for Land Home Financial Services, a California-based independent mortgage bank.
Sagent signed a seven-year deal in November to power loan servicing for Servion Mortgage, which partners with credit unions and community banks to provide mortgages to consumers.