Small-to-medium-sized banks such as credit unions and community banks comprise about half of mortgages in the US and, in one in five counties, a community bank is the only financial institution. But mortgage origination is a complex business that involves many parties and is especially expensive for smaller lenders.
James Stewart as George Bailey points to Lionel Barrymore in a scene from It’s a Wonderful Life.
What’s more, many consumers can’t get a mortgage because, despite being responsible, solvent families, they don’t meet the credit score requirements of most banks.
With all this in mind, John Pasonen set out to develop a platform that makes all stages of loan origination more efficient and less expensive – helping small enterprises compete. “They are best positioned to serve their communities, understand their needs, and provide access to home ownership,” says Pasonan, who co-founded his Denver-based company Maxwell in 2015. (He is also the source of those figures).
Ultimately, the company aims to become an investor in control of the product and thus, open up home ownership to more people.
a terrible process
It all started in 2014, when Pasonen, working in the financial services industry, was getting his fourth mortgage – a process that took 68 days to close. He was missing the closing deadline and negotiating with the seller again, and he couldn’t figure out what the problem was. “It was such a horrible process,” Pasonan says. “But I was told, basically, this is what it is. It’s a black box and when something comes out from the other end, we’ll let you know.”
Tony Axelrod Photography
The experience infuriated him so much, Pasonan talked to nearly 100 people in the industry to find out more. He was also surprised by what he learned as he excavated. For example, according to Paasonen, the cost of generating a home loan in the US is $8,000, thanks to the various parties involved and the sub-industries involved, as they say, “reducing the value.” Furthermore, he learned, there was not a particularly effective industry-wide adoption of technology to make the process more efficient.
That was his ah ha moment. How can it develop technology that can transform the process creating greater transparency and operational efficiencies for small lenders? Also, at the time, in 2015, home ownership was at a low point, thanks to a decline from the 2008 financial crisis. Maybe their platform can help turn this around by helping community lenders generate more mortgages.
hanging out with mortgage professionals
Therefore, Paasonen decided to co-found a company, moving from the Bay Area to Denver. He then spent a year with more than 1,000 mortgage professionals, occasionally hanging out in their offices to see what they did and how to change it. The first software developed by the company helps lenders collect data – W2s, pay stubs, bank statements, payments and more – from the consumer more efficiently and faster than the paper-oriented process that was the norm.
The first customers were personal loan officers, community banks, credit unions and independent mortgage banks, which usually dealt with all the paperwork they did. In six months, the company had 200 loan officers using the software. In 2017, the company expanded its target market to the entire enterprise, as well as integrating its product into the overall systems of banks.
In 2020, with only 1% of the mortgage market at the time, according to Pasonen, they decided it was time to ramp up the platform’s potential. With this, the company launched a fulfillment business, through which Maxwell would work with customers to help with loan processing. Customers can choose to adopt 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. In late 2021, the company launched Maxwell Capital, a debt investor through which the company buys loans from banks and pools and sells them in the secondary market, giving those lenders a better price for the loans they generate. According to Paasonen, banks can then pass on lower prices to their customers.
The ultimate goal for Maxwell is “to be the person making the product that goes to market,” Pasonen says. This, in turn, will allow the company to open up the market to more consumers. “There is a large population of borrowers who do not have access to mortgages because the product menu is so tight,” he says. That is, consumers are generally faced with little choice, except for a 30-year, fixed mortgage that conforms to the Fannie Mae and Freddie Mac guidelines. And if their credit score isn’t bad, but also not quite at an acceptable level, they can’t access that limited menu of options.
But, as an investor, Maxwell could create different credit indicators, such as rental payment history, that would open up the housing market to more people.
According to Paasonen, last year, about $70 billion flowed through the platform, or only 2% of the mortgage market. He also says that the company has been doubling or tripling that amount in the last four years. There are approximately 350 lender customers, many of them in Texas, California, Florida and other highly competitive markets.
At the same time, loan officers are closing more loans. According to Paysonne, a loan officer using Maxwell’s platform closes 15% to 20% more loans per month than the industry average.