Small-to-mid-size banks, like credit unions and community banks, comprise around half of mortgage originations in the U.S. And, in one in five counties, a community bank is the only financial institution around. But mortgage origination is a complex business with multiple parties involved and especially costly for small lenders.
What’s more, lots of consumers can’t get a mortgage because, while responsible, solvent households, they don’t quite meet the credit score requirements of most banks.
With all that in mind, John Paasonen set out to develop a platform making all the steps in loan origination more efficient and less expensive—thereby helping smaller enterprises compete. “They’re best placed to serve their communities, understand their needs and deliver access to home ownership,” says Paasonen, who co-founded his Denver-based company, Maxwell, in 2015. (He is also the source for those statistics).
Ultimately, the goal is for the company to be investors with control of the product and, as such, open up home ownership to more people.
A Horrendous Process
It all started in 2014, when Paasonen, who was working in the financial services industry, was getting his fourth mortgage—a process that took 68 days to close. He ended up missing the closing deadline and renegotiating with the seller, and he couldn’t find out what the problem was. “It was such a horrendous process,” says Passonen. “But I was told, basically, it is what it is. It’s a black box and when something comes out of the other end, we’ll let you know.”
The experience made him so angry, Paasonen ended up talking to around 100 people in the industry to get more information. As he dug in, he was also surprised by what he learned. For example, according to Paasonen, the cost to originate a home loan in the U.S. is a whopping $8,000, thanks to the various parties and sub-industries involved that are, as he says, “nibbling off the value.” Plus, he learned, there hadn’t been a particularly effective industry-wide adoption of technology to make the process more efficient.
That was his ah hah moment. How could he develop technology that could transform the process, creating more transparency and operational efficiencies for small lenders? Also at the time, in 2015, home ownership was at a low point, thanks to fallout from the 2008 financial crisis. Maybe his platform could help turn that around by helping community lenders originate more mortgages.
Hanging Out with Mortgage Professionals
So, Paasonen decided to co-found a company, moving from the Bay area to Denver. He then spent a year conferring with over 1,000 mortgage professionals, at times hanging out in their offices to see how they did what they did and how to change it. The first software the company developed helped lenders collect data—W2s, pay stubs, bank statements, payments and much more—from the consumer more efficiently and faster than the mostly paper-oriented process that was the norm.
The first customers were individual loan officers community banks, credit unions and independent mortgage banks, folks who typically were the ones who had to deal with all that paperwork. In six months, the company had 200 loan officers using the software. In 2017, the company expanded its target market to the entire enterprise, also integrating its product into the banks’ overall systems.
In 2020, with just under 1% of the mortgage market at that point, according to Paasonen, he decided it was time to increase the platform’s capability. With that, the company launched a fulfillment business, through which Maxwell would work with clients to help with processing loans. Clients could choose to adopt some parts of the platform or the whole thing. “We allow them to scratch where they itch,” he says.
A Tight Product Menu
After that, he added more components. At the end of 2021, the company launched Maxwell Capital, a loan investor through which the company buys loans from banks and pools and sells them on the secondary market, thereby providing those lenders a better price for the loans they originated. Banks can then pass on lower pricing to their own clients, according to Paasonen.
The ultimate goal is for Maxwell “to be the ones who create the product that goes into the market,” says Paasonen. That, in turn, will allow the company to open up the market to more consumers. “There’s a large underserved population of borrowers who don’t have access to mortgages because the product menu is so tight,” he says. That is, consumers generally are faced with little choice, except for, say, a 30-year, fixed mortgage conforming to Fannie Mae and Freddie Mac guidelines. And if their credit score isn’t bad, but also not quite at an acceptable level, then they can’t get access to that limited menu of choices.
But, as the investor, Maxwell can create different credit indicators, like rental payment history, that would open up the housing market to more people.
Last year, about $70 billion flowed through the platform or just under 2% of the mortgage market, according to Paasonen. He also says the company has been doubling or tripling that amount over the last four years. Almost 350 lenders are clients, many of them in Texas, California, Florida and other highly competitive markets.
Also, loan officers are closing more loans. A loan officer using Maxwell’s platform closes 15% to 20% more loans per month than the industry average, according to Paasonen.