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Competition Intensifies Between D+H & Marlborough Stirling

DnH_MSDavis and Henderson (D+H) has long dominated mortgage origination technology in the broker market. Estimates of D+H’s market share put it north of 90%. But now, its scrappy competitor Marlborough Stirling is attacking D+H where it hurts: price.

Currently, lenders subsidize the software that brokers use to submit applications. Up till now, lenders have reportedly paid 5.5-6.5 basis points or more to receive mortgage applications from brokers over D+H’s and Marlborough Stirling’s systems. (That’s at least $110 on a $200,000 mortgage.)

Now, Marlborough Stirling president and CEO Tim Brown says his company has launched a brand new pricing structure. It is a “move away from the standard basis points (model) on funded loan amounts.”

For confidentiality reasons, Brown couldn’t provide details on how or how much Marlborough Stirling is undercutting D+H. But we got reactions from the broker industry’s two biggest lenders who just switched to the new model: Scotiabank (Scotia Mortgage Authority) and First National. (Both Scotiabank and First National will still remain D+H customers as well.)

profitability-analysisJim Smith, vice president of Scotia Mortgage Authority called Marlborough’s cost reduction “significant.” He says broker origination technology is a “7-figure cost for a large operation.”

“Anytime you make a meaningful cost reduction in a channel, it makes that channel a lot more sustainable. Everyone speaks of the concern about losing…balance sheet lenders. We’re very pleased that we’ve been able to be committed to the channel, and this makes it a little easier to be committed to the [broker market] when you see costs in that channel come down.”

First National’s vice president of residential mortgages, Scott Mackenzie, agrees. “It gets down to economics. We were approached by Marlborough Stirling and [its proposal] clearly reduced the cost of receiving deals from brokers.”

First National, a publicly traded company, has “been under pressure to reduce costs this year,” adds Mackenzie. “There will be a material improvement in costs if brokers sign up with MorWEB.”

MorWEB is Marlborough’s mortgage origination software. The big question now becomes, will brokers move over to that platform in any significant number?

MorWEB’s Achilles heel is lack of connectivity to all lenders. Brokers don’t want to use two systems. If Marlborough is able to sign up the big lenders it’s missing (e.g., TD and National Bank), MorWEB would be significantly more attractive to brokers, many of whom seem to prefer its user interface over D+H’s “Expert” platform. (Brown says Marlborough is making progress with the lenders it’s not doing business with currently.)

ReliabilityCost cutting wasn’t the only reason Scotia and First National entered into new long-term deals with Marlborough. Reliability is the other story. Broker origination software is mission critical and outages can cost millions in lost revenue per day. This year we’ve seen D+H’s downtime, while very infrequent, tarnish its image somewhat. (An example.)

Smith says, “We’ve always been impressed with their (Marlborough Stirling’s) reliability record. (Given events over) this past year, in particular, the industry is going to be attracted to that.”

Marlborough Stirling claims that it has gone eight years without any downtime (we couldn’t verify this). To be fair, however, Marlborough has never had to deal with volumes as big as D+H’s, and the technology strain that goes along with that.

To this, Brown says that his company has “scale tested” to ensure it can handle “100% of the market at any time.” He also adds that Marlborough has full backup and auto-recovery, whereas D+H’s backup systems have been called into question.

“This creates competition in the industry,” says Smith. “For the past several years, even though Marlborough Stirling has been involved in the industry, it’s been debatable whether it was in a meaningful way…I think what they’re doing now will probably [trigger] heightened competition.”

Smith adds, “…The bank likes to have multiple sources for supply. It’s just a good thing from a risk standpoint…”

All in all, competition certainly benefits everyone in our business (except perhaps D+H). It spurs innovation, lowers costs and encourages better customer service.

“Hopefully this will add to the sustainability of the broker channel,” says Mackenzie. “Anything we can do to reduce costs in the channel will help the whole industry.”


Rob McLister, CMT