Jacksonville-based LPS handles every step of the home loan process
If you make monthly mortgage payments, there's a 50-50 chance that your payments are being processed through computer systems operated by Lender Processing Services Inc.
And if you stopped making payments, there's also a 50-50 chance that your lender is using LPS software to attempt to foreclose on your property.
And when you got your loan in the first place, there's a good chance that your lender used LPS technology to help originate the loan.
"Our system touches so many transactions," President and Chief Executive Officer Jeff Carbiener said.
Jacksonville-based LPS provides technological support to lending institutions for every step of the home mortgage process. It starts with the loan origination, where the company provides services such as appraisal and title agency functions to assist in closing the loan.
Once a loan is closed, the company provides technology for lenders to service that loan - that is, the process of collecting and administering monthly mortgage payments. LPS, which traces its roots back nearly 50 years in Jacksonville, has long been the dominant company in this field. About half of all U.S. mortgage loans are serviced through LPS' system.
The company also says that lenders are using LPS technology to process more than 50 percent of all U.S. foreclosures. Although the company was built on its mortgage servicing technology, the mortgage default technology has become the biggest part of its business because of the real estate market collapse of the last few years. Default management services accounted for 43 percent of LPS' $2.456 billion in 2010 revenue.
"We are not a default-based firm," Carbiener said, adding that market circumstances have increased the default business.
"What has happened is the market has played in our favor in the last couple of years," he said
As it became its biggest business segment, the default services business has also become a lightning rod for criticism because of the nationwide foreclosure mess and LPS' role in the default process. "To a certain extent our success has put us in the spotlight," Carbiener said in an interview with the Times-Union.
More than a year ago, the U.S. Attorney's Office for the Middle District of Florida launched an investigation into allegations that an LPS subsidiary in Georgia called DocX had falsified documents used in foreclosure proceedings. LPS says it has been cooperating with the investigation and Carbiener said the company discovered problems at DocX before the investigation began.
"We found it. We remedied it," Carbiener said. "All of that was done before any regulators asked a question about it."
LPS has also been accused in lawsuits of engaging in illegal fee-splitting arrangements with law firms that use the company's technology in foreclosure proceedings. LPS has denied those charges.
The company says its role in a foreclosure is to provide technology used by lenders and by attorneys hired by those lenders, and LPS' fees are independent of how much a lawyer charges a client.
LPS doesn't foreclose on properties. Basically, it is a large vendor that provides technology and administrative services for banks and other lenders during the life cycle of a loan. LPS is "agnostic as to what happens to the loan," Carbiener said.
"The technology is an enabler. It's not a decision-maker," he said.
Powerhouse transformation
LPS and its predecessor companies have been providing mortgage-related technology to financial institutions for almost half a century. The business was founded in 1962 as a Jacksonville company called Computing and Statistical Services, which changed its name to Computer Power Inc. in 1969.
CPI quietly grew into a powerhouse, providing mortgage processing services for about a quarter of all U.S. mortgage loans by 1991 when it was sold to Alltel Corp. The Arkansas-based telephone company was looking to expand its data processing business.
Alltel was bragging that its Jacksonville-based mortgage processing business was handling nearly half of all mortgage loans by 2003 when it agreed to sell the business to title insurer Fidelity National Financial Inc., which was looking to expand into more real estate-related services. After that deal, Fidelity decided to move its corporate headquarters from Santa Barbara, Calif., to the Riverside Avenue site in Jacksonville where CPI had settled decades earlier.
Fidelity, or FNF, was building a division that provided a range of technology services to financial institutions. But looking to boost its stock value, the company decided to spin off the technology division in 2006 as a separate public company called Fidelity National Information Services Inc., or FIS. And then in 2008, FIS decided to spin off the mortgage processing division into a separate public company. So the business that operated as CPI before Alltel bought it was once again an independent company, now known as LPS.
When it was spun off, LPS was able to offer banks technology to take them through every step of the mortgage process. FNF had acquired two companies that provided loan origination technology and appraisal, title and closing services, and those companies were included in LPS. And LPS' predecessor had begun offering default administration services in 2000, even before FNF bought the business.
Of the three independent public companies that were once under the Fidelity umbrella, and are all currently headquartered at the Riverside Avenue campus, LPS is the smallest in terms of revenue with less than $2.5 billion last year. FNF had $5.7 billion in 2010 revenue and FIS had $5.3 billion, which puts both of those companies in the Fortune 500.
But since LPS was created out of the Jacksonville-based mortgage processing business that grew at CPI, LPS is by far the biggest in terms of local employees. LPS currently has more than 2,400 workers in Jacksonville, about twice the local work force of FNF and FIS combined.
Growing annual revenue
In its annual reports, LPS records its annual revenue in four different market segments and three of them have grown modestly over the last five years. Mortgage processing revenue has grown from $324.6 million in 2006, before LPS became a separate public company, to $402.7 million last year. Carbiener said the company is paid an average fee of $13 a year for each of the millions of loans that are serviced through its system.
The company got $640.9 million last year from its loan origination functions, including the title and appraisal services. That's up from $623.1 million in 2006.
LPS also provides lenders with a wide range of mortgage data and analytical services, and that business produced $359.9 million in revenue last year, up from $222.4 million in 2006.
But it's the default revenue that has exploded in growth, going from $277.8 million in 2006 to more than $1 billion in each of the last two years. LPS says that 14 of the country's top 15 mortgage servicers use the company's platform.
"The default business is what pays the bills right now," said John Kraft, an analyst at D.A. Davidson & Co. who follows LPS.
Kraft said it will be interesting to see what happens to LPS' business mix in the next few years as the economy improves and the pace of foreclosures slows down, possibly lowering its default services revenue.
"Is the origination market going to be able to offset that in the next few years?" he said.
Kraft also said a couple of trends in the banking industry should help LPS keep its dominant position in the mortgage technology market.
One is that more and more banks are looking to outsource their technology services, and the second is that those banks want to consolidate those services with as few vendors as possible. Since LPS offers a complete range of services from beginning to end for mortgage lenders, that gives the company an edge, he said.
The country's largest provider of technology, processing, data and out-sourced services to the mortgage industry is extending its reach into other industries, Carbiener said. LPS sees great potential in providing support for auto and consumer loans, support for automating local government data bases, for example, and expanding internationally, he said.
Of course, the big question overhanging LPS is the impact of lawsuits and investigations of its activities in the foreclosure process. The company has said repeatedly that it doesn't expect any of the legal matters to have a material impact on its operations and financial analysts have echoed that sentiment. But until the matters are resolved, Wall Street continues to take a cautious view on LPS.
The inquiries about DocX, which also include an investigation by the Florida Attorney General's Office, have been going on for more than a year with no end in sight.
LPS has filed a motion seeking to dismiss a lawsuit filed in U.S. Bankruptcy Court in Mississippi saying that the company has engaged in illegal fee-splitting arrangements with attorneys that file foreclosure actions.
The suit suggests that LPS has a network of attorneys and requires its mortgage servicing clients to use those attorneys when it begins a foreclosure. That would force the clients to pay fees to those attorneys, and the attorneys would pay fees to LPS.
But Carbiener said mortgage servicing companies choose their own attorneys and if those attorneys want to use LPS technology to manage the foreclosure process, they must register with LPS to use the system. The attorneys then pay a technology fee to use the system.
Even if the legal matters don't have a direct impact on LPS' operations, Kraft said the continued negative publicity about the foreclosure mess could hurt LPS by deterring some potential clients away from the company. And as the investigations linger, they could cause more of a distraction to management.
http://jacksonville.com/business/2011-03-13/story/jacksonville-based-lps-handles-every-step-home-loan-process