In this episode of
Lykken on Lending, David Lykken welcomes Shelley Leonard, a prominent thought leader in the mortgage technology space, for a deep dive into her journey and the innovations she's driving at Xactus. Shelley, with an impressive career that includes leading roles at Black Knight, shares her insights on the evolving mortgage industry, the challenges of scaling operations, and the integration of cutting-edge technology, including AI, to streamline workflows. The conversation touches on the future of mortgage lending, focusing on how lenders can prepare for 2025 by embracing innovations like the new FICO 10T and Vantage 4 credit models. Shelley's expertise and forward-thinking approach provide valuable guidance for industry professionals navigating this rapidly changing landscape.
[David] Folks. I'm really excited to have our special guest with us today. Shelley Leonard. I had the privilege of meeting Shelly a number of years ago. It was when she was attending I thought randomly attending the Motivity User group meeting. Little did I know that there was another thing that Tyler and his brother, Todd were scheming me in the background. They acquired the company shortly thereafter, but I just had the privilege of one lunch and we were sitting there and she was sitting down with Michelle and it was Michelle. I believe, was it not?
[Shelley] That’s right.
[David] And you were sitting there talking and I said, do you mind if I sit here and had the privilege of sitting down and listening to the two of you? And I was so impressed with the conversation that the two of you are having, the level of insights and strategic direction. It was just so much fun. And I said, I got to get to know this lady. And then I had you come on another time, and it was one of the best most listened to podcast, Shelley. I'm really excited to have you back on. This is second time for you to be a guest on the podcast and now with a new company. I'm very excited to have you here.
[Shelley] I'm excited to be here as well.
[David] Yeah, especially when we're talking about some of the changes going on. You're a thought leader. You always have been a thought leader in the industry and there's so much, but I think what'd be helpful for our audience is just, especially we have so many new people into the industry, give us a quick description of your journey through mortgage lending and how you ended it. You've had some really key roles. I should note that while you were at Black Knight, you were the Chief Product and Digital Officer. You oversaw the mortgage servicing technologies business, $800 million in revenue is huge. You also worked at M&A. I suspect you were behind the acquisition of Motivity, but just a very distinguished career and to those that are thinking, how could I walk in Shelly's footsteps? What were your footsteps?
[Shelley] That is a great question. I have spent my entire career in banking and mortgage technology. The bulk of it being with Black Knight, which is now part of ICE. That happened after I left. But again, Black Knight had many predecessor company names as well. I actually started there right out of college and learned everything that I knew about computers as well as the banking and then a little bit later in my career, I moved into mortgage and then never looked back after that. I spent many many years of Black Knight doing many different roles. A lot focused in product. Product again has historically been my passion along with mortgage and I really get excited about finding opportunities to innovate and really transform in the mortgage space using technology. So that's the thing that gets me up every morning and makes me excited to come to work. And then about three years ago, I had the opportunity to join Xactus. At the time, it was not called Xactus. It was called Universal CIS and we had been on quite a run of acquiring companies and bringing together leading companies in the verification space with the goal of transforming through innovation and technology. Which, again, was the thing that really excited me to join Team Xactus and apply all the knowledge that I'd gained with Black Knight, shift a little bit over into the origination space, though we are doing some work in the servicing space as well. Leveraging all that I learned through all the work I did with customers and the technology team there to focus on innovation in a space that historically hasn't seen a lot of innovation. I tell the joke that the last time innovation happened in the credit space specifically, it was when they went from paper to computers. It definitely is ripe for innovation and now is the time in our industry. And I'm really excited about the progress we've made at Xactus, but more so looking forward to the future that lies ahead.
[David] Knowing your track record of the thought leadership and the transformation that you brought to Black Knight, we are really looking forward to seeing some things happen and you're so right, we have not had a lot of innovation in our industry across the board, but certainly of all the spaces within our vertical market. Credit reporting is probably the least. It's good to see what's going on. Let's talk a little bit about the evolving market. I'd love to get your perspective on it. And then as you're talking about that, what's your vision for how Xactus is going to contribute to the evolution that's much needed.
[Shelley] Absolutely, obviously the last few years, you know in our space mortgage has been unprecedented I think that obviously coming off of 2020 and 2021 where we saw volumes at record high levels combined with what was going on in the broader world in the pandemic. Everyone's shifting remote, but then you know having to deal with very high volumes when the refinances were really happening during that time then shifting as the mortgage environment decreased and went, below norms, I would say it was a really challenging time in our market for our lenders for consumers and borrowers to, to be able to find homes and afford homes. It's been really challenging the last few years. Obviously, the other thing that happened in that timeframe was we did see some very aggressive price increases in our space specifically driven by some of the players in the industry that, again, in a time when lenders were very challenged from a profitability standpoint, that was just another, another bad thing, really, to hit lenders when they were trying to keep the doors open and trying to keep their team members employed and trying ultimately to help consumers into homes as the market starts to turn, I'm excited to turn the page.
[David] Let’s talk about how we're seeing the landscape shift and it's causing for lenders have to expand up and then grow down. And when we first started talking about having you come on, we were in an environment where rates are falling last few days here, weeks, we just seen the rate starting to go back up. We thought there was going to be a quarter point increase. We thought we're going to see lender start scaling up to get more business and with an optimistic future. Now we're looking at it. What do we have? So I'd love to have you talk about scaling capabilities. How do you scale? How do you help lenders scale? and I'm talking about the scaling up and the scaling down.
[Shelley] Yes that's a great point. And I think that the key there is trying to figure out what you can do to have the right combination of technology and people because at the end of the day, this is a people business. We all know that, right? We want to be here to help lenders and consumers, you know through the process and to make that process as streamlined and as simple as possible but it is complex and it is stressful and especially for first time home buyers being you know, something they've never done before It takes a lot of extra care for those consumers. And so I think that the key is adding technology where it can lead to automation. So that again, you can look towards the technology to scale instead of necessarily only looking to scale up with people. Obviously, when you have to scale up with people that takes time, it's expensive. But then it's also very impactful in a negative way when you have to scale down and no one likes making those decisions. They're very hard decisions to make because they impact humans that you care about, right? that have been a part of your team and so thinking about how you can optimize. What the humans are doing to add the most value where they can again add comfort, they can add explanation, they can help consumers through that process so that they're a little bit more calm, a little bit less stressed, a little bit more certain of the outcome and the timing of that outcome, I think is always going to be valuable in our market. But thinking about how you leverage technology so that those humans can maybe reduce some of the mundane tasks, some of the things that maybe don't require complex thinking or interactions with other humans, so that you can let the technology scale while the humans still have good touch points with your consumers. I think that's really the way of the future.
[David] You bring up a really good point, scaling involves people and the more we can use technology. That's great. But there's another reputation that you and your company has, and that has the area of optimizing workflows. How does your team approach analyzing a lender's workflow? I've done that work. It's all over the map. Shelley, how do you do? what's the secret sauce?
[Shelley] It definitely is. I would say that, obviously it's a very consultative approach because to your point, David, there is no one size that fits all. There's not even one size that fits most. It is definitely combat when it comes to that approach to make sure that again, we're not putting forth a solution that doesn't fit the lender based on their size or their footprint, or even the technology that they have enabled. I think that having a lot of subject matter expertise that can spend one on one time with lenders and looking at how to best configure their workflow to optimize that spend is really critical. We have spent a lot of time helping large lenders, small lenders, midsize lenders, of all types, whether they're brokers or credit unions, midsize regional banks, or very large independent mortgage banks to optimize their workflow, so that they can reduce waste. And when we think about waste, we typically think about it from a cost perspective, but there's multiple sides of that coin where waste also speaks to efficiency and so it's not just about reducing cost. Obviously, when rates are high and volumes are low. Everyone's focused on reducing costs, but as we shift into hopefully a lower rate environment and increasing volumes. That waste is still really important from an efficiency standpoint, because again, you want people to be focused on the right task at the right time to make sure that they're not doing unnecessary things. They're not getting unnecessary data and then having to analyze data that's not adding to the benefit of actually closing that loan and ultimately, you also want to reduce the steps that are necessary so that you can have certainty in close. But also make sure that you're getting to that from application to close as quickly as possible.
[David] And that efficiency is what we're talking about. Closing the gaps in there. And I think one of the things that contribute to that is so many different processes and how one company, even with one function, whether it be processing, underwriting, any of those related operational things. There could be such a variance in how people do it, even within one company. It's so amazing. Can you discuss about how you analyze things like credit score drifts that has led to practical changes that help lenders be more efficient and reduce costs?
[Shelley] Yeah, absolutely. First thing is understanding that lender and their needs specifically. And again, it could be different by channel. It could be different by type of loan and really what we look at is product mix. Again, there's been some new products that have been introduced that allow lenders to use something like a pre-qualification or pre approval early in the process and delay when they're ordering that hard pull tri merge closer towards the end of the underwriting process. That allows you to try to reduce some of the fallout and the upfront spend until you have more certainty later in the process. Again, it gives that flexibility to the lender so that they can do the things they need to do during underwriting, whether that's doing undisclosed debt monitoring, supplements, score optimization, all of those things can be done off of some of the newer products that have been introduced. We also look at which bureaus you're utilizing. Are you utilizing a cascade and doing one bureau to start, or maybe moving to two bureaus after that, and then ultimately going to the third bureau as it's required by the GSEs or are you pulling that tri merge up front? And again, that mixed is dependent on channel. It's dependent on each lender and their risk profile and really their kind of their underlying process internally as to when they need the data. Our goal in that consulting with lenders is to understand how do we deliver the right data at the right time so that we're not delivering too little or too much that potentially makes the lender, in a position where they have to review data that may be unnecessary from an underwriting perspective or from the ultimate securitization standpoint.
[David] That makes sense. You've got some really interesting proprietary technology, Exactus 360, that I think is really something we should touch on in this conversation. In what way does that Exactus 360 technology allow lenders to offer more consumer centric approach to lending? Talk about that.
[Shelley] Yeah, so that's a great question. Xactus 360 is our proprietary technology that we leverage in a number of ways. I think the first thing that we do to support that lender flexibility so that they can be very focused on their consumer experience is through integrations. So again, think about Xactus 360 as that platform that sits in the middle. It connects to all the different LOS and POS so that the lender, the loan officers can stay within their LOS or the consumer coming through the POS but still have access to all of the products and workflows that we've been talking about. But it gives them again the ability to stay in their operating system or in their origination system and then automatically through APIs come to Xactus 360 to order data and then retrieve that data and have it automatically uploaded through both documents as well as the actual data directly into the LOS, so that's again adding additional efficiencies and improving accuracy as well. You can also interact with Xactus 360 directly on the website so we have some lenders that take advantage of the website directly, but the majority of them do access it through integrations. Xactus 360 allows us to optimize that workflow really through configuration that is unique to each lender. And so that's the other key is that it can be very dynamic based on attributes of the loan or attributes of the consumer, or it can be something that is set and managed by the lender because they have a very specific process that they want everyone in their organization to follow so that they have consistency and auditability across the origination process.
[David] Anytime you're doing a 360 analysis and you can make it customizable to the specific lender. It's pretty exciting what that can do. The new topic on the landscape, everyone's talking about it. AI everything, whether it be a chat bot, just referencing that or a full, real heavy, healthy integration of true AI into the process. How are you incorporating and leveraging AI in your business at Xactus?
[Shelley] Yeah, that's a great question. The easiest way for me to explain it is we are incorporating AI as more than a buzzword. That's the way I like to think about it. I actually was at a conference and they had an AI futurist speak, and he was explaining how you should be thinking about AI in your business, and I'm sure just like I have, you've seen all over powered by AI, right? That's something that's seems to be all over our industry and other industries. And that's really actually not the right way to think about it. If you think about your refrigerator. What he said was you don't say powered by electricity, right? It's just embedded. It's inherent. It's expected and that's how we at Xactus are thinking about AI as well. It's not as a layer on top. It's really as an underneath and underpinning of the overall Xactus 360 so that everything that we're doing, again, rich with data, any place where you're rich with data, is a great place for you to think about how you can use AI. Again, to think about workflows that can be dynamic so that maybe your workflow when you're coming through as a consumer is very different than my workflow when I'm coming through as a consumer. Very different than maybe someone that's a first time home buyer that needs additional steps or additional validation. Everyone is unique and so we want to be able to treat each of those consumers and each of those lenders as the unique entities that they are. But without having to have a lot of manual overlays, and so that is where we think about AI of course, we're also using it for knowledge bots and chat bots. But again, think about it in our environment where we may need to scale up. Think about how you can use AI to accelerate training of new team members, that's something that's just really simple to think about where very easy for them to ask a question. How do I do this? And it can take you right into the system and show you how to do it versus the old way of going and looking up in a manual and then having to apply it yourself. It's much more interactive and creates that guided experience for our team members. But then we're also thinking about it relative to a lot of not only transactional data that we have, but then loan level data, property level data that's coming in through the origination process and how do you evaluate that data very quickly at the time the order is placed and received in order to establish what might be the next best step for that consumer specific to that lender? so instead of it following a very static workflow, you can say based on this property we know you're going to need to order a flood certification, for example. So, we want to move that flood certification as early into the process as possible because we have certainty that it's going to be needed so that you have plenty of time for the consumer to get flood insurance, for example. So, thinking about things where you can move around when products are ordered or what products are ordered is really how we're thinking AI is going to make a huge difference in the verification space.
[David] Spot on for how you're thinking about it. From my perspective, and again, you're the more of the technology expert in it, but we're talking to a lot of people about how AI is going to transform the workflow processes. And I'd love to get your perspective, especially as you start looking at what lenders should be focusing on in 2025, from your perspective, what should they be focusing on and how are you preparing for that?
[Shelley] There's still a big elephant in the room here specific to the FHFA credit initiative as they are introducing the ability to not have a tri-merge and to use a bi merge instead as well as introducing some new scores so again, everyone today uses the FICO classic score coming into 25 we will be using FICO 10T and Vantage 4 and so that's new data, new information, new models that lenders really need to take the time now to start understanding how that's going to impact their operations.
[David] That's so important. How do you see them preparing? What's the best way to start preparing? Having conversations with you, obviously.
[Shelley] Yes, that's a great first place to start.
[David] But as they start really looking at this, Shelley, this is one of those things where leadership comes into it. And I love many things about your career, but what I noticed that you were a really good leader. I see people stayed with you. They speak highly of you after they've worked with you any amount of time. Love to get your perspective in preparing for 2025. How important is the leadership component of that?
[Shelley] I think it's critically important to be honest. I know that everyone is waiting on confirmation of what is the timeframe, right? Right now, the playbook says it's going to be fourth quarter of 25. My way of looking at things is we're not waiting for fourth quarter of 25. We will of course be ready, but we want to work with lenders now. So, in fact, we're already working with a number of our lenders. for them to test FICO 10T for example. While they're still delivering FICO Classic as their normal part of their origination process, we are actually also procuring FICO 10T so that they have that data. It's not being delivered all the way through the origination process. They're not using it for pricing at this point. They're not delivering it to the GSEs. But, what we're doing is we're getting that data so that we can analyze that data and understand that data and then evaluate how is it different from FICO Classic, and then how will Vantage 4 be different as well, so that they can start to incorporate that into their underwriting guidelines and then all of the other places where they leverage that information to either make pricing related decisions, or other decisions within their operations. What I would say is, early is important, of course, one of the benefits of working with someone like Xactus is that we're going to do all the hard heavy lifting underneath the cover so all the integrations with the all the integrations with all the LOS providers, we're going to take care of that. It's a big lift. There's a lot going on there, but lenders don't need to worry about that. We got it. However, what they do need to understand is the scores and the difference of the scores. And then if they're going to adopt a buy merge, we're not.
[David] I think we're going to be talking a lot about that at the conference that's coming up next week in Denver. I'm assuming you'll be there. If so, how can people reach you? Do you have a booth? Do you have a suite? How can people?
[Shelley] Absolutely. We've got all of the above. I will definitely be in Denver along with the Xactus team. We have a booth, booth 300 in the exhibit hall. Please stop by. We're happy to talk to you about all the things that we're doing to help lenders not only prepare for 2025, but actually address problems in 2024 as well. We also have meeting rooms available where we can have a private meeting to speak to you about opportunities that you have or just questions that you have happy to provide any guidance that we can, even if you don't use Xactus as a provide as a provider today.
[David] Good. I'm really looking forward to seeing you there. I'm looking forward to learning more. Thank you so much for taking the time to be here. I want to have you back as we start looking at some of the changes that are going to be happening and this election is going to have a huge impact on our industry, on the economy, where we're going, and I think we need to have another strategy session with you, Shelley, after the election's done. Thank you so much, Shelley. I really did enjoy meeting you. That was many years ago. And I go, dang, that's what's so fun working with really big companies. There's bright people at the top and kudos to Xactus for pulling you in.
[Shelley] It's been a tough three years to come into the originations market, but I'm really looking forward to what's ahead.
[David] That's outstanding. I wish you the very best.
[Shelley] Absolutely.
Important Links
Shelley Leonard serves as President of Xactus, and a member of the Board of Directors. With over two decades of experience developing and delivering technology solutions to the country’s top mortgage lenders and servicers, Shelley is steering the company to drive the transformation of the mortgage verifications industry with its innovative credit and data solutions and digital technologies.
Prior to joining Xactus, Shelley served as an executive at Black Knight and its predecessor businesses, where she managed multiple, complex initiatives. Most recently, she was the Chief Product and Digital Officer and she led the Servicing Technologies business including the MSP loan servicing solution, a business with over $800 million of revenues. She also held multiple other senior-level positions where she managed large portfolios of end-to-end mortgage, home equity and consumer lending product offerings, envisioned and executed against strategic growth initiatives while working closely with customers and business partners throughout our industry.
By successfully leading in these roles, Shelley has gained a unique perspective and significant experience in product development, sales, operations and technology. She has consistently driven exceptional growth and performance, increased market share, launched new products, expanded into adjacent markets, embarked on new partnerships and M&A activity.
Shelley has received numerous mortgage industry recognition honors including Progress in Lending’s Most Powerful Women in Fintech; MReport’s Top 25 Leaders and Influencers; HousingWire’s Vanguard Award; and more. She holds a B.S. degree in Business Administration from the University of Tulsa and an M.B.A. from Jacksonville University.
