Venture Capital and investing in technology with Chris Bixby and Jodi Hall of Rice Park Capital 
Welcome listeners to another podcast. Really excited about this one, because we're going to be talking to someone who is investing in technology. We have a unique insights as to what they're investing in, why they're investing in, what we should be thinking about technology as we look forward. I know for many of us, it feels like death by a thousand cuts, this technology investment we've been making. But joining us today is our good friend, Chris Bixby of Rice Park Capital Management, LP based in Minneapolis, on my old stomping grounds of Minnesota. Good to be there. Also joining us is a good friend, someone I respect tremendously, is Jodi Hall. Jodi, Who is working with Rice Park Capital. I want to really get right into it. So Chris, again, good to have you on the podcast, Jodi joining you and a smart guy, by the way, for picking one of the smartest people to be an advisor to you, Chris. So kudos to you for that, but share with you could a little bit more about Rice Part Capital and your role leading into strategic investing that you're doing. I'm really interested in what you're doing and why.
Yeah, Thanks, David and I have the same sentiment in terms of Jodi and the other people that we surround ourselves with of Rice Park. It's a way to scale our knowledge much faster and I think ultimately, hopefully make us better investors and people within this ecosystem so I really appreciate you having us on. Rice Park Capital is a Minneapolis based private equity firm that invests across the mortgage and real estate ecosystem. We have three separate strategies that are all interrelated in some different ways, but are all focused in that area. So one of them is an MSR investing strategy that invests in agency, Fannie and Freddie, MSR. A second one of them is a credit strategy, which is through an investment in a lender called ABL, which provides hard money lending, fix and flip lending to investors and single family. And then we have the vertical, which I lead up, which is our strategic equity investing vertical, which looks to invest in early stage real estate and technology companies in Mortgage and real estate and so I come from actually not the mortgage industry. I'm new to this. And so thus the reason that we need to surround ourselves with people like Jodi, but the team and partners at Rice Park have been in this industry for years and have been at various different shops along the way. Personally though, I've been operating for the last eight years, including at General Mills and a FinTech payments company called Sezzle, which became a unicorn in the couple of years I was there, and then I started my career on Wall Street and so the opportunity to be in and around mortgage and mortgage technology came a bit fortuitously in terms of a connection with Nick Smith. But I've really enjoyed the industry and I think being an outsider in terms of some of the lenses that I've had on in the payments world, or even in the marketing world or in the private equity world or growing up or starting on Wall Street, I think is provide a new lens to some of the things that we've looked at, but what we really value is the perspective of insiders from IMBs to service providers to people in title, et cetera. So we spend all of our time within this ecosystem. I've really enjoyed it, really loved it and appreciate you having us on today.
That's really good. One of the things, when we are talking the other day is you talk about investing in gaps, and I'm really found that interesting and I would like to have you just spend a few minutes of what you mean by investing in gaps and why you think that is such a good thing and a good strategy.
Yeah, thanks. So I think that a lot of this has come from really spending time with people in the industry and also being operators ourselves. So to be investors in MSR, we also have to be very operationally focused and it's very important to understand the agencies, very important to understand the compliance and regulatory environment, and really important to understand how it really works for both originators, service providers, servicers, and other companies in and around that ecosystem and what we've noticed is. There's some things that are relatively unique within mortgage compared to some of these other industries that investors like us invest into on the technology side, and probably the biggest part of that is the agency world and the regulatory and the compliance world that we live in. The second part of this is that there's been significant investment in some legacy platforms that have built things like LOS, things like servicing platforms and other various elements within the mortgage ecosystem that are what we call the incumbent technology and while some people point to this incumbent technology hasn't changed since the nineties, we actually take that in and appreciate how hard it is to rip and replace some of that tech and so as investors, what we're looking for is we're looking for the operational efficiency areas between, we're looking for elements of compliance and kind of the regulatory aspect of it and then we're looking for revenue generating ideas that, as you pointed out, are in the gaps of existing infrastructure where we can help provide that really expertise, but then capital to scale these things and so we're always looking for efficiency plays, but we're looking for it in the construct of this kind of existing ecosystem that's out there and we think there's a lot that the benefit of mortgage is that in a normal market, it's a two trillion dollar origination market and technology can and should be utilized from our viewpoint, more and more from a lender perspective to really do one key thing, which is attack the rising costs to originate alone and so we believe technology can solve that in a way in and around that kind of current infrastructure that's in place, which again, you identify and we identify as the gaps in the market.
I think it's brilliant. Jodi, you and I, by the way, listeners, I try to recruit Jodi to come to work with me in the consulting because she has such an outstanding reputation. So again, Chris, kudos to you for getting here. She says, Dave, I'd love to do it. We was here for a short time and she says. I found Rice Park Capital. I'm going to go do it. Just advise them. I love this. You have a passion for technology. You have a passion for process, Jodi and I think that's one of the things that you're best known for and all the things you do well in the consulting space. Talk a little bit about the gaps and why is it that you got excited about their specific strategy, if you could.
Yeah, absolutely. When I think of gaps, like one of the biggest things with the technology that exists today, we need to move everything forward in the process. Why do we have borrowers go upload documents, answer tons of questions, and then we just sit and wait for three or four weeks until they send everything and then we send it to an underwriter to come back and say, I know you gave us what we put on the checklist but that's not really underwriting conditions and then we come back to you a month after you started uploading information and tell you what you actually need to get the loan and it is crazy that we work in that environment but we've had to because we're in a very linear process where we have to wait for one action to happen to pass to the next and a huge gap that we have in the industry is that we can't create a task based workflow like why aren't we reacting to things as they happen? and by Rice Park's willingness to invest in gaps, we can use existing technology that we can partner with other resources that fill those gaps so that we push everything forward in the process and we know what the conditions are going to be once it gets to the underwriter so let's show the borrower that those conditions within 60 or 90 seconds of them entering their information into the system. These are the true conditions and they start uploading to those true conditions on the loan and you start underwriting at them as they're coming in so that's an example of one of the gaps that exists and we have those gaps all the way through the manufacturing process from top of funnel lead all the way through into service1ing and looking for areas for really Rice Park capitals portfolio to help solve those gaps that help solve them together. So many times, I think lenders, when you talk about doing tech stack audit, they think that it's rip and replace, and it's too daunting because they're not technicians and it's really not. It's about using the technology that they have and getting those vendors to work together, to solve the problems and really create collaboration across the entire industry so that we're solving problems, not just for lenders, but ultimately solving those problems for to be home buyers or existing homeowners.
I love the processes you've built out because you've mapped all those processes in great detail.
Hold up. I'll go to kind of what Jodi was saying is, as you look at the cost of produce, which is somewhere in the $12,000 to $14,000 range for the average IMB right now, only about 10 percent of that is currently being spent on technology which implies that the rest of it, is being spent on either the sales and marketing process, so lead gen and the LO. Processing or underwriting or other elements in terms of the infrastructure at an IMB. The other thing overarching that's happening or has happened is that IMB is now make up approximately two thirds of the origination volume and so what we've looked at, and this is with Jodi's help, and this is with kind of others around the table, is if we just targeted that ten percent in terms of technology, the ten is not as large as it would imply, and so what we have to be thinking about is the creative aspect of how an IMB thinks in this world and they're often outsourcing their technology. There's obviously some of the big ones that are doing it themselves, but most are outsourcing that tech and in some cases that team. And so we really look at the ten as the ninety percent of the origination side that's not currently being solved by technology and so I think that's allowed us to look at this slightly differently than maybe historically, which is, it's not a new LOS that is going to be the market share leader or going to produce the kind of outcomes that we as investors are looking for. But it's going to be something that can rework and rethink the operating side of the internal system and so the insight into this for us is that this really comes and has to come from like the deep knowledge from people in the industry to really identify even things like workflow and how workflow can be changed and addressed to be able to apply technology to that workflow or AI or machine learning or just regular old good tech to that workflow to make that more efficient.
Yeah, that's a really good and that's what Jodi's known for is that workflow mapping and understanding those processes so well. So again, kudos for having her in the process. One of the things we talk about is PropTech and I want to have you define what you mean by PropTech and then I want to get in and start getting, you're excited about that and I want to understand more about why you are, which is starting to get deeper into what you are focusing on.
PropTech is a relatively broad term and would it mean technology that is providing a service, or I guess technology, to the property ownership ecosystem? So I think that's involves the property.
It's broad, that's what I want everyone to understand.
It's a very broad term, and other investors and other groups have called it like the built world. So anything physically being built and the technology around that could be prop tech and so marketplaces like Picasso, home buying platforms like an Easy Knock or Orchard, but all the way through to construction technology companies like pro core data companies like Core Logic and then mortgage tech, which could include things like Qualia or Blend or Blue Water or real estate tech, like an Mojo Labs or Purlin. And so it's a very broad ecosystem. There's also some climate tech that's being lumped into the broad prop tech piece, and there's been about $30billion invested in prop tech and these types of firms over the last three years, since about 2020. So maybe four years now but what's happened is that this investment is dramatically scaled down. And so year to date, at least as of November 20, investments have dropped by about 50%. So there are about $9 billion in 2022, and then they went down to about $4 billion in 2023. This is all according to KBW, which I believe is one of the strongest kind of in the industry tracks this. And so outside of prop tech in terms of significantly scaling down their investments. We believe, and we've seen this certainly anecdotally in mortgage and mortgage technology and so outside of the fact that the market went from $4 trillion down to $2 trillion and just broadly, there has been less, I'd say investor interest in the segment, the overarching crop tech world has seen this as well. I believe, and I've seen and believe that mortgage has seen that even more precipitously in terms of the negative or the drop. And it primarily goes back to, I think, what we just talked about, which is being able to invest in mortgage looks like a big tam when you really break it down in terms of what you're looking to do and how you're looking to do it. You have to really segment the market in terms of those very specific areas and ways in. And so that's where we've doubled down. We've doubled down in terms of our approach to spending more time at conferences, spending more time with our advisory group, spending more time getting to know IMBs is because we think there's this really interesting market opportunity where IMBs have to work on their cost structure. There is this element of AI coming into the space and then being what we hope to be as knowledgeable in this ecosystem is going to allow us to be better finders of technology that can solve some of these areas and these gaps that we've talked about.
No, I think I largely focus on mortgage lending because my passion is to play a small part in revolutionizing the way that mortgages are done. When Rice Park Capital starts talking about anything outside of mortgage lending. I'm eager to learn. However, like my expertise lies within mortgage lending and that's where my passion is and I can be most effective when I'm working towards that passion and I've had a great relationship with Rice Park and team and them helping be the vehicle that promotes that passion on a wide scale.
Jodi. But what I would say there, I just came back from HousingWire. The gathering is terrific conference. And there is two main groups there. it was real estate, brokerages and teams, and then it was lenders, probably, and several of the topics and this is something that we've talked about. And I think Jodi, you'd probably acknowledge is there is seemingly, especially with the NAR lawsuits and settlements and some other things broadly going on within this world of real estate and mortgage, is that there's more and more opportunities of overlap between the real estate transaction and the mortgage transaction. So there's always been JVs. There's always been this idea that we're going to set up a mortgage group. We're going to set up a title group, but I think what we're identifying and seeing and I pulled Jodi into deals and things that we've looked at on the real estate side that I think seemingly from the outside don't appear to be why her background is applicable, but we think it is, because we think there's going to be more of this overlap between those two industries as the world is admittedly rapidly changing, and I think as the consumer and the homebuyers changing, it's something we don't talk about. I got to say, virtually, it feels like at all in mortgage, but the homebuyers changing, they're becoming younger, more diverse. They're more likely to have a part time job or a different kind of underwriting background and so we think this also pulls into the real estate transaction and so that's another quote gap in the market that we're seeing between real estate and between mortgage where things that we're looking to invest in and with Jodi's background that we're going to hopefully find some solutions.
Yeah. And one of the things Jodi tested is so well, mortgage industry has been slow to adopt tech solution and part of it again, as I mentioned earlier, was it does feel like a death by a thousand cuts. I really think it's a really significant that you brought out that the actual investment in technology is really a small percentage of the overall cost that's going into it. We got humans, which really goes to where you're looking to bring efficiencies, and that is in the gaps, where we have too many humans involved in too much of that. So I think it's a brilliant thing. What advice would you have for IMBs to change the way they think about the adoption of new technologies, Chris?
I'm going to kick this one over to Jodi and then I can follow up with it because I'd love to hear her thoughts. She's in this every day, but I do have some thoughts, but I'd love to hear Jodi's perspective on it.
So I think that the time is it's adopt or die because the bond market isn't getting any nicer to any lenders, IMBs, depositories, it doesn't matter. It's really rough and the only way to survive is to be able to change and I think that we are at a place where that is happening. But I also think that it goes back to mortgage lenders are not technicians and there are so many possibilities out there of technology, we see new technologies popping up everyday and mortgage lending, because everyone knows that it's a decades old process that the time is ripe for changing and lenders trying to operate the business are trying to stay alive. They're trying to provide service to the home buyers are trying to provide service to the referral partners and education to both and they don't have time to look at all of the different possibilities of technology and they don't understand how it all fits together for the gaps that we're trying to solve for. So it has been a hesitance to adopt because it's overwhelming being a lender when you're trying to run a business, to be able to look at all the technologies and make the right decisions and then you get what you think is the best technology, but you don't realize the return on investment because you don't know how to implement it. So the challenge I have for every vendor that is out there and something that we're working with all of the portfolio companies of Rice Park is how as a vendor can we work together with other vendors to create solutions? How can we be collaborative and competitive the same time to deliver solutions to lenders. And I really believe that's the only way that the landscape is going to effectively change is that if you tie multiple resources together in the back, we start solving the problems that lenders have and be able to deliver it to them so that they can pick the pieces and they know what the best technology is. That's the only way we're going to get the adoption. But also it's that lenders really don't have a choice right now that they're going to have to adopt because we know that there's going to be further consolidation in the market.
I mean, we're over capacity. We're still sitting and we were at a $4 trillion capacity. Now we're down to a $3 trillion, but we're only doing $2.1 trillion. And you shouldn't look over all the market, that's still a respectable markets where it was 2008 to 2018, a 10 year window and we're at the upper end of that window where we were. It is really important that we get this right. Chris, add on to what Jodi was saying.
Yeah, I'll give my framework, which admittedly comes from probably the world of payments, but I think is very applicable here. Is in my mind operating in IMB, there's three main metrics it's CAC. So the cost of acquiring a customer, it's lifetime value in terms of how much revenue you can drive from that customer. And then there's the underlying cost structure in terms of production and I look at that as efficiency play. So if I look at the three main areas that we break down, what we think about in terms of how to helping lenders, one is on that CAC side. So that really comes down to lead gen, CRM, prequalification kind of elements of basically getting them more eyeballs in more applications and more likelihood to get someone in the door on the lifetime value side, this is a little bit nuanced for the mortgage industry, but one is the pull through, so the ability to get an application and actually close on the loan. I look at that as essentially like the value of that customer once you've gotten them into your POS. And so that's a really important aspect that we look at is the efficiency level of getting them through the process and then secondly, and separately to that lifetime value goes in kind of three buckets in my mind. One, is this idea of closing the loan and getting them faster to close and more likely to close in terms of pull through. Two, is in terms of what are the other revenue opportunities on that loan that you can apply to it and think about and I would also put things like underwriting efficiency and making sure you can underwrite things like bank statement lending to that piece, because that's going to be the value of your customer. And then the last piece of that is the value of the customer post close. And so under the servicing side, and that's a big world that obviously we've played in and looked at the third bucket is again, this efficiency and kind of cost side and that comes into play across like any business. And I think we look at where this can be in the IMB world and a lot of it has to do with compliance. A lot of it has to do with the regulatory environment, but a lot of it has to do with just this is the way we did it. This is the way we did it when we were going into a $4 trillion market. And this is how we are doing it today, but they need to rethink it. And so as we look at kind of tech and we look at kind of opportunities, I think breaking those into that CAC piece, originating and finding the lead. The LTV in terms of the clothes, the value of that customer, and then the servicing side, and then I'll put efficiency and cost savings as the bucket, what I'll say, and I've noticed is it's been that order from what I've seen in terms of the likelihood of a lender to adopt things right now. They still, I believe, would care more about a revenue opportunity and or closing on a loan than they do care about the cost side and I think that's okay, especially in this market where they're still trying to find customers and so where I also think that too much time has been spent is on the cost saving side. We're going to continue to do it. We're going to continue to find ways, but if we go back to that 90/10 split of the $12,000 to originate. We think the 90 can be applied to the lead gen side and can be applied to that LTV side, not just on the cost savings piece and so when we go to, you know, help our companies sell in or position themselves and how do I get in front of a lender? Just telling them cost saving stories right now, even in this market is not enough. They have to say, how are we going to produce your loan faster? How are we going to underwrite it differently? And then why is that going to save you money? If we're going to save you money and you got to change out all this stuff, it's actually a reframe of kind of how that position is, even in this market, I think is important to that.
I want to explain to the listeners, Chris's LTV is the lifetime value, not the loan to value. So I want to clarify on that piece so that there isn't any confusion.
That's really good. But I think a customer acquisition and customer attention, everyone's focused on how we improve customer acquisition and reduce the cost on that and do that more efficiently. The big area where we generally failed as IMBs, is customer retention after we have made that loan, the statistics are pathetic. So anything you can do in that is really going to be amazing and really excited about that and kudos to you, Chris, you two years into this thing, and you're already starting to sound like a mortgage banker, other than you still using LTV and all that, some from your old life and some of that, but it's really important that we expand our thinking and look at us. I'm really interested. You mentioned about ChatGPT and you talked about AI and we look at the World of AI, large language models. It is changing the way we go get with and nurture or connect with consumers, nurture those relationships. I'm really interested in getting your perspective and how you see AI and systems like ChatGPT being leveraged in our industry in a way that is going to be impactful and what are you guys doing and looking at as far as investments in this?
Yeah. So David, I'm not sure if we're allowed to make plugs. But Ajit and I just wrote an article in National Mortgage Professional called when, where, and how to incorporate AI into your mortgage business and it goes through various kind of steps that we believe can be applied here.
If you send us a link to that article, well, not only that, we'll put it in the show notes so that people can go right to it.
So yeah, we'd love that. And Ajit's another industry outsider. He comes from the world of Deloitte and I think has really had a pulse on AI. Some of the things going in the Middle East helped me. I'm by no means an AI expert or Gen AI expert. We've invested in a couple of companies. One is capacity and then another one's called Purlin, which both have several elements.
I'm talking about, I'm talking about that and CANDOR in a minute. I just want to go there in just a minute. And it's globally, how do you see AI, and it's your macro perspective right now, as you're seeing this, is this a fad? Is this really going to move the needle?
I'm still wrapping my head around it, admittedly, but my head is at, I think it will be looked back at as a fad, similar to what we looked at like blockchain and what we looked at cryptocurrency and what we've looked at over the time, what I do also genuinely believe is that it can be a fad and it can incorporate and change the way we do business and I think the kind of current point in time around gen AI, the amount of blips on earnings calls in terms of CEOs talking about it is because they have to be talking about it and everyone's like, I think that's the fad part. I think in terms of the incorporation of what gen AI is doing and what ultimately AI is doing, it is where I think ultimately we are moving towards. There's elements and it's getting so fast and so good. We think there's going to probably be limited amount of winners in terms of the big gen AI world, but then we think there's going to be verticalization of that and so even when we go back to your initial kind of question around the gaps that are being solved within the mortgage ecosystem, we don't believe that these are going to be AI generation companies, we believe these are going to be companies that can apply what the large language models, like what the big diffusion models, what's out there to a mortgage industry in a very vertical, specific way. We think that's only just the tip of the iceberg. And so I think it's faddish in terms of the sense that we hear lenders telling us they're going to hire an AI expert. I think they have to. But I think what we're going to move towards is people are going to naturally incorporate this into various aspects of their technology, various aspects of CRM. I think broadly CRM lead gen and servicing are the biggest areas for the mortgage industry for the application of some of this stuff. And yeah, we'll see where it plays out. I think it's going to be big, but I don't think it's going to be big tomorrow is the way I'm thinking.
It's been around since the 50’s, but we didn't have the computing power until more recently to really take advantage of it. And everything's merging together. So it's really interesting to get your perspective on that, uh, book that I've recommended to our listeners. And again, I recommend it again is the Coming Wave by Mustafa Suleiman is probably one of the most interesting books. I'm reading it again for the second time because it really does put us in perspective what is potential where this whole AI thing going and separates out hype from reality. One of the investments you already talked about is Purlin. I want to get into that, understanding your thoughts beyond that one, as well as Candor is a company near and dear to my heart. They've been an advertiser on my podcast. I love what Tom originally set out to do and he and his daughter, and again, the whole team, why did you find these two companies of particular interest? What was your strategy in aligning with them?
Yeah, I think the two overarching ideas is one, there was opportunities as we talked about the origination process, so this is Candor related on the Candor side. There things going back to how we talked about the origination process and the idea that it is in some ways slow, I feel like I maybe shouldn't be saying that as an outsider, but you gave me some credit for two years and I think it's still broken. I think in terms of what Jodi was talking about from the POS, we're grabbing all this information yet. We're dropping it off. We're dropping it at LOS and we're not really, it falls into gaps. There's different teams, depending on how your branch structure is, a retail structure, et cetera. There's different admittedly underwrites in different ways it's underwritten depending if it's TPL, et cetera. And so what we saw with Candor is this opportunity to actually solve a couple of those different things. One, is actually in the lead gen side. So actually bringing that origination process and the automated underwriting that they're providing sooner and earlier into the process to get to a pre-qualification through the POS. That was something that we thought was very big here. The second part was on those lifetime value piece. Was actually being more certain around bringing a Candor underwritten loan all the way through into the secondary capital markets and so Candor underwritten about 500,000 loans, and they've never had a buyback. And we could look at that as a cost savings, but what I actually, and I think what we also look at it as it's a certainty in terms of closing, that's really important. And then the third bucket, which we already talked about is the cost savings element. And so there's a cost savings element in terms of the human underwriter and making them more efficient going from, call it two underwrites today towards something that's four to six to eight underwrites, especially in this market, as you already talked about, that is, is still a little bit over in terms of the number of, I think, people we think that takes to fulfill a loan, but is rapidly wanting to become more flexible. And so, we saw what was a really nice asset. We saw a really tough time they've had over the last 12-18 months, primarily because of the market and what we saw was this ability to apply a team with people like Jodi, but she's involved and very involved over there. And so we saw this opportunity, like resurrect and inject some kind of love and a new view on some of these things. So I'll pause in the Candor piece and let maybe Jodi jump in and then I'd love to talk about Purlin.
You have a wonderful, deep perspective on these guys. And why do you think this was such a good investment by them?
It solves a lot of gaps throughout that we talked about gaps in the entire process. So that gap where we wait for four weeks to be able to get the four weeks to gather everything to underwrite it with Candor prequal within 90 seconds. You can know based on a AUS run the borrower's information and credit pull what the true conditions are going to be for that loan so that the borrower is meeting the true conditions not waiting four weeks to find out that they provided the wrong information.
On the Purlin side, it actually also hits on a lot of the themes we already talked about. So one of the first themes was the idea. So Purlin provides various AI tools to primarily the residential real estate ecosystem. They work with Douglas Elliman and some other brokerages in terms of providing their AI led kind of vertical integrations here. And so one of the areas that they've been really able to identify as how can they help apply, call it big company into very specific kind of opportunities on a vertical SAS standpoint is around one, Lead Gen. So they have an ad platform that's automated based on data and insights around all of the portfolio of who's likely to ingest and engage with advertising and then getting them into their funnel. Once they get them into their funnel, then they're collaboratively working with that customer and the home buyer in the journey to understand from an agent perspective and a homebuyer perspective, how that individual's interacting with listings, in which ones they have higher propensities to actually close on. And so, one of the challenges I think broadly within real estate is that it is a very people centric and very relationship centric, but homebuyers, they know what they want, but they don't really know what they want until they necessarily see it or they'll tell an agent something, but it's actually not what they want. And so what Purlin's been able to develop is a collaboration model that is image based and behavioral based to say, what is that home buyer looking for? How do they actually interact with listings? What are they actually interested in? And what that provides is a more likely outcome in terms of closing an actual homeowner on a property and so as part of this is there's a big element of, I'd say, pulling in that AI element around either image or search or even personalization and machine learning into this and then applying it to the brokerages. And then the final thing that they're doing is they're automating a bunch of the process around the closing process and even in the title and closing process. And so they're taking all that information that even Jodi talked about the upfront stuff and pulling it all the way through that also wasn't happening in brokerage and that also wasn't happening on the real estate residential real estate side and so Purlin's helping get that all the way from lead gen to the collaboration process to the closing process. They're taking and adjusting the information that they have throughout to then automate actually the closing process in that piece and so we're excited for kind of what they're doing and then lastly, what I'll say is there is the overlap we believe between real estate and mortgage. And so again, in this kind of new NAR world, Brokerage commissions. I think we agree with where KBW has come out is that they're going to come down probably 20 to 30 percent broadly brokerage commissions are gonna come down, but to be a more influential agent to the home buyer is really valuable in this process, especially to secure kind of these buyer contracts and so we believe something like a Purlin can actually be more value add to the searcher.
I was wondering about that.
Exactly. We believe actually there's an element of it's more value add so that's collaborative search piece and actually getting them to the right listings can make the broker more valuable even in this market. That they have to show their value to, and then we think the closing element is actually very applicable to some of the things that's happening around the mortgage world. And so we see an intersection between the two that we're hoping that the team and it already has identified and continue to work on between real estate and between mortgage, and that's where people like on our side can help get involved and try to help them through that.
There's some exciting things. James Dwiggins is a good friend and he has a company called Rayse out there, which is really helping realtors justify their fees and that and so fascinating opportunities growing and more out there. Jodi, you have anything you want to say about Candor?
On the Candor front, Candor very much closes the gaps that we talked about initially in the review. But when you think about the number of places that underwriting happens throughout the life cycle of a loan, we're underwriting loans hopefully within the point of sale and that initial borrower contact. We're underwriting multiple times throughout the process until the loan closes. We're doing quality assurance checks, pre delivery and the aggregators are doing pre purchase, underwrite, QC underwrites, due diligence underwrites. There are underwrites that are happening throughout the entire process. If we have a trusted underwrites, like we do for candor, why can we not carry that through all of the processes so that we don't have additional cost within the system so that if you are an aggregator is using Candor for pre purchase review, or the lender initially used it why are we charging an excessive funding fee? can that cost savings be then passed back to the consumer in the ecosystem of the origination? The other part about Candor that I think is so important, Chris talked about taking an underwriter from two underwrites a day to five, six underwrites a day, and that's where someone like myself comes in, is why do we have underwriters working on conventional loans that have rep and warrant relief? Why aren't we pushing that forward for a processor to look at the ancillary items that technology can't clear because they're going to be things that aren't going to make a big impact on risk. So, it's very much eliminating having the underwriters work on the most value added pieces, whether that be government loans or loans where you have 5 borrowers on the loan who have three different self employments that make it a very difficult loan. That's where underwriters should be using their expertise, not on loans that the system can essentially clear and give relief to. So I think that the Candor presents an opportunity to close a lot of gaps, to reduce the cost, but also the greatest return on investment that a lender is going to see is by changing their workflow around the technology to realize that return.
Yeah, very good. That can cover whole podcast just on that one right there. As I'm sitting in, we're doing this podcast and anyone who realizes that we have someone from Rice Park Capital on the call making investments, I'm sure we have a fair number of tech companies that would love to know. Chris, how is it that you're going about evaluate potential investment opportunities in the mortgage and tech space? And what criteria do you use to determine the viability of a company? You alluded to it in one of your answers just a little bit ago, but I'd like to have you go a little deeper into that.
https://lykkenonlending.com/wp-content/uploads/2024/05/The-Ultimate-Guide-to-Choosing-the-Perfect-Mortgage-Lender.mp4
Yeah, I'm not going to get too far into the secret sauce here, but no, no, appreciate it. So, I break it down. It's a three step process that we like threes here. We really look at it as tech, team, and traction. And there's always more bullets, obviously underneath, and there's different elements underneath of that, but that's like the most simple kind of layer. And so I can go into the tech, is this real tech and is there some sort of moats here, in terms of what the team has built in terms of their technology, and is it solving things through technology that other groups or other services aren't actually solving. The second element is team. So, team is either experienced and or entrepreneurial focused and or has some sort of what we believe is unfair advantage in terms of their backgrounds and whether they've applied this before, whether they've come from a mortgage originator, whether they have a perspective, whether they've again, been an operator, there's something about the team that is really impressive, unique, et cetera, and it provides them an unfair advantage. And then the third one is traction and traction for us is typically revenue, but it's also traction in terms of customer base. How are they doing with their current customers? What are their customers saying? And then the second layer, the third layer of traction is, what do we believe it could be? So how do we believe this company could scale in terms of some of the proof points and some of the things that we've heard from our advisors or our companies on the servicing side, where do we believe this company could scale and what could they do to get there in terms of the traction? So traction is really kind of focused around the revenue kind of side of things and so in that quick three things, we can have a pretty good sense of whether this would be a fit broadly within our group and then we certainly go through a diligence process. We go through a lot more, call it deep dive into things and we work with our advisors. We work with our network, et cetera, to really have these perspectives. But that for me is the most simple, I think, way as we evaluate and look at new opportunities. Do they bubble up to something that we want to ultimately be able to spend some more time with?
Yeah, very good. Jodi, anything you want to add to that?
Yeah, I think that's the exciting part of being on the lender side and looking at new technology because my mind immediately goes, how do the pieces all fit together? How can an investment in a particular technology of Rice Park Capital be a benefit to the portfolio companies of the portfolio companies be of benefit to their investing in so that they can all work together and having those aha moments that happen, which it feels like they don't happen in lending very often, but they do in this space with Rice Park and being like, Hey, if you, if we connect this company, but this company, then they can do this or the company's only thinking like they're very narrow mindedly thinking, but they need to be thinking about this and more broadly and so that's a really exciting and fun part of participating with having a recovering lender into the technology world and piecing those together from a lender's mind. It's really exciting.
Yeah, when you're building a vertical solution and you're looking at this narrow sliver, if you're just doing that, then you miss the gap opportunities and that's where someone like Rice Park Capital coming in and seeing those things and connecting, I get it. That's really exciting. Chris, as we wrap this up, I'm really interested in getting your broader economic view of the landscape. What are you anticipating the mortgage and real estate markets to look like and evolve into in the next few years? You're certainly making an investment in companies and would suggest that you have an overall optimistic view.
Thanks for that. I will say two things. One, is I don't necessarily put myself in the expert category in this and then two, this is my opinion, not Rice Park or anyone else's. So I'll say that up front. I think for what we're looking at is there's obviously a lot of turmoil going on globally and we don't know what and where that could go, right? I think there's a lot of hotspots globally, and they do have impacts in terms of the confidence in the market and certainly from a spending standpoint, et cetera, I'd say that's a big unknown and that could disrupt any of this. The second one is obviously there's an election coming up and there's a little bit of, we'll see where that goes. And I don't admittedly don't think it's going to change either way, but that certainly will impact the markets in some ways in terms of whether it's regulatory environment, tax environment, et cetera. and so that's another big unknown. And then the third piece, though, of what we're seeing and hearing is that it does appear that this soft landing does feel like it's going to happen and I think that's shifted from the Fed standpoint as inflation numbers have come down and as we've looked at the job numbers overarchingly, but what we're also seeing is what I think everyone's talking about right now is that sticky inflation. So I had wrote in our newsletter called six months ago. That I was still waiting for something to break in the economy. I was waiting for whether that was commercial lending, whether that was the, a lot of us thought it was going to be commercial real estate, exactly. Commercial real estate at regional banks, whether that was going to be the consumer sentiment, whether that was going to be inflation, just finally broke something beyond. I hope and think right now that we're not sure. I guess I would, I've pulled back on my personal perspective that something's going to break right now, But I think where I'm looking is that sticky inflation is going to be a thing for a lot longer. I guess I'm optimistic in the sense that I'm hopeful that something doesn't break and I'm hopeful that from a geopolitical and global perspective that we're going to find a way through what we're going through and a whole bunch of areas. I think where I'm not optimistic on is any sort of light at the end of the tunnel in terms of mortgage volumes or real estate volumes. We are very conservative, and I guess I am very conservative. This is something I have been, I think a lot more conservative than certainly IMB is, I feels like. In terms of where mortgage rates are going to go, I don't see any kind of softening really over the next probably 24, 36 months. And I think that's going to be the same case with real estate volumes, et cetera, which are highly dependent on obviously rates, but also highly dependent on backlog of new builds and some other consumer demographics. So I think there's going to be a lot of pressure on the consumer. The affordability thing is real. I think there's going to be a lot of pressure on the consumer over the next 24, 36 months, but there hasn't been anything right now that would indicate that the jobs market isn't going to continue to keep up to that. So I think we're just going to be in this for much longer than we think and from our investment standpoint, we take that into account. We still think there's market share opportunities. We think there's a lot of kind of consolidation that will continue to happen broadly, both in terms of the tech world and the IMB and banking world and in brokerage world, even that's actually one area that hasn't started consolidating yet that could at some point on the real estate broker. I just think we're trying to find and be thoughtful around just looking for and partnering with our companies around just being good businesses at this point and being conservative in terms of what they're doing over the next 24, 36 months. But I think there's going to be a lot of opportunities that come out of this that are going to be good for some of the industry and admittedly not good for others in the industry.
Yeah, it's got to be, it's truly the survivor of the fittest, which seems to be going on again. We're over capacity. We're still at good volumes. 2.1 trillion is still a good market in respect of the overall historical perspective. But again, you look at what's going on. I think it's really interesting though, your perspective on where you're investing. I find it personally very encouraging that we have Rice Park Capital investing in the space because smart money looks for opportunities and the fact that you're here, that is that Jodi, you've been in the industry a good amount of time as I have been, we had hoped to see a spring surge. We're not seeing that, but we had hoped any thoughts on your perspective on the market.
I think that the companies who have been conservative and realistic are in it for the long haul and are going to make it and Rice Park Capital really is looking at companies and this 24 month period gives them the ability to build infrastructure and plan for when rates do come down and lenders have to be looking at doing the same thing to survive. They can't get to the end of the 24 months and interest rates drop and they do what they did in 2020 and hire an exorbitant number of people and have this flag. They have to be working on their infrastructure currently too and that timeframe also gives the tech companies some time to build their infrastructure and be really prepared for when the market does turn and Rice Park Capital is giving them the opportunity to be able to do that with their investments.
Yeah, I think it's so true. There's a great article in the Wall Street Journal about interest rates. There's one component, just a lack of supply is another one and we're finally seeing some movement and evidence of it. It was well documented on the Wall Street Journal article about people who said, we've got this, the two and through seven days interest rate. I don't want to give up or a three and a quarter. But life is happening and we've got to, and we're going to downsize. So they're selling that home that has that lower rate mortgage and I think there's reason to believe that even that component could be seeing some easing where many of us thought we were locked into these lower rates and was it over 80 percent of the loans have a rate, but way below where we're at to these days, maybe even with 90%. So I think we're going to see some.
I think there's tension there. It's something that basically the baby boomers are getting this point of downsizing does make sense. Retiring in that point. But I've just seen something that says they're planning to stay in their houses for longer. So I think there's this tension. There's a natural tension of life is happening that will continue to push down or increase kind of turnover of homes. But I think there's also this sentiment that's actually that's a stubborn sentiment, I could put my own parents in that camp stubborn at the least. I'm sure.
Yeah. At 73, I'm definitely a baby boomer. I have a kids would definitely say I'm stubborn. We didn't downsize. We added to the size of our kids and so it's crazy. Where is that? I think the American dream is alive and well, I'm very much alive thinking and believing in it and I think you're wise investing in it, Chris. And again, kudos for bringing someone like Jodi on to be a brilliant advisor to you and her expertise, especially when it comes to mapping processes, it's just legendary. So Jodi, it's good to see you again and have you on this call, Chris. So nice to meet you. I hope we'll be able to stay in touch. Kudos to Serako and associates who helped organize this, want to give them a shout out my old buddy, Pat Serako, who's, I think retired out at this point. But anyway, John's doing a great job. Amy is as well. So thank you to all of you for being here and I wish you all continued success. Please keep us posted and as you see opportunities where you think, Hey, are these listeners, we've got a massive listing audience and you see an opportunity where someone would benefit from knowledge that you're seeing. I invite you back anytime. I'd love to hear it.
David, thank you. And thank you for all of the kind words. I will try to live up to the bar that you have set. Thank you for having us.
David is super, super just friendly nice time with you, and generally, its a very dynamic relationship.
I'm from Minnesota, I'm up there with, from Minnesota, so there are many rows, so that's friendly roots living in Texas. We're pretty friendly down here, but it has really been good. Thank you again, very excited to get to know you, Chris, and I'm really looking forward to having further conversations. I wish you all the best.
Thanks, David. Thanks, Jodi.
Important Links
- Rice Park Capital website
- Purlin website
- Candor website
- NMP article by Chris Bixby and Ajit Prabhu
- LinkedIn - Jennifer Martinez
Chris Bixby is Managing Director, Strategic Equity Investing for Rice Park Capital Management and is responsible for sourcing, underwriting, structuring and managing investments in early to mid-stage technology companies operating in the real estate-based finance, equity, services and payments sectors.
Chris has a diverse background having served both in investment and entrepreneurial roles. Prior to Rice Park, Chris was Vice President of Growth at Sezzle, a rapidly growing fintech, where he was focused on building strategic partnerships with enterprise retailers. He joined pre-IPO as Vice President of Marketing and led the successful rebranding efforts. Before Sezzle, Chris joined General Mills in brand management and later founded Collaborate Brands where he advised early-stage businesses in strategy, growth, and fundraising. Chris began his career on Wall Street, working as an investment banking analyst in mergers and acquisitions at Jefferies, LLC, and later as a private equity associate at Castle Harlan, a $1 billion fund, where he spent three years investing in middle-market private equity transactions.
Jodi is the Founder & CEO of DandaRoad, a consulting company focused on technology strategy and execution for mortgage lenders and serving as a lending advisor to mortgage technology companies. Jodi, most recently, served as the President and COO of Nationwide Mortgage Bankers and prior to that, the COO of CrossCountry Mortgage.