Baby Blue Chips: CoreLogic

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The Real Deal in Loan Software

By Mark Larson

Steve Schroeder and Kraig Clark, two unassuming guys from Lodi, have really figured out the real deal now. In early February, First American Corp., the nation’s largest mortgage services and title company, headquartered in Irvine, Calif., bought their company, CoreLogic. The price: $100 million in cash and stock that will result in the Sacramento company’s investors owning 18 percent of a new First American real-estate information services subsidiary. 
     In recent years, the two local guys quietly figured out how to transform the mortgage lending industry. Their nearly 10-year-old company offers a series of software tools that accelerate loan processing and make it nearly bullet-proof from would-be loan scammers and poor loan risks. Those tools have made the industry an increasingly willing buyer of CoreLogic’s technology and have made the company a revenue-growth machine. Last year alone, CoreLogic grew revenue by $26 million to reach the $70 million plateau and a staff of 210. And its revenue path continues to climb northward.
     A decade ago, Schroeder and Clark set up shop as C&S Marketing in a small office in midtown Sacramento (they later changed the name to CoreLogic) and had immediate success, with $450,000 in first-year revenue. A year later they moved to a 1,500-square-foot office on La Riviera Drive. By 2004 their space needs had exploded, and they moved again, to their current office on Old Placerville Road.
     In 2000, the company hit $1 million in revenue and improved to $4 million in 2001. Next stop, $17 million in 2002, then to $44 million in 2004, when the company added 60 employees. Last year, reaping the benefits of a hot housing industry, its revenue hit $70 million and another 50 employees were hired. That impressive growth spurt won it a ranking by Inc. magazine as one of the top 20 fastest-growing private companies in the U.S. for 2004 and 2005. Schroeder and Clark decline to predict this year’s revenue growth, but say they are set to take on 30 percent more business without need for more staff.

Two Guys, One Idea
Schroeder and Clark recently sat down to review the company’s progress in Schroeder’s small, cluttered office at the company’s 34,000-square-foot complex. Leaning against one wall was Schroeder’s red Cannondale road bike, one of his favorite toys.
     Schroeder, 37, and Clark, 38, both grew up in Lodi, went to Delta Junior College in Stockton and then to Sacramento State, where they were roommates. Clark studied business and accounting, while Schroeder took classes in marketing and psychology. While in school, they talked about some day starting a business together but went their separate ways after graduating. Clark worked for a Bay Area-based aerospace company doing cost accounting. Schroeder, meanwhile, after getting his MBA in marketing from Sacramento State, spent a year and a half working in the mortgage banking industry on the East Coast. He returned to Sacramento in late 1994 to work for Transamerica Intellitech, where he helped create the company’s data licensing and direct-mail marketing program.

Fixing a Flaw
Schroeder noticed that companies developing real-estate valuation software for sale to mortgage lenders were having a hard time marketing their products. “These small technology companies spent a lot of money developing products, but nothing on how to market it,” says Clark. And since Schroeder knew marketing, the two friends saw enough of an opportunity to take the plunge with their company. They figured if they failed, they could always get jobs on a corporate ladder somewhere. So they went for it.
     Early on, they noticed shortcomings in the various real-estate valuation products they pitched to mortgage lenders. Specifically, the products generated inaccurate valuations in certain market conditions. Schroeder and Clark saw a need for an analytical tool that could throw a red flag for inaccurate, often-inflated property values, typically a sign of fraud. For a lender, that can lead to potential loan defaults and a lot of lost money. Such fraud has plagued the industry to the tune of $1.1 billion a year, according to FBI estimates. “We ultimately said, ‘We’ll build this ourselves,’” says Schroeder. Such was the genesis of CoreLogic’s first real-estate valuation tool, called HistoryPro, which went to market in 2002.

Risk ID the Key
Since then, the company has built nine more software solutions for lenders. Early on, CoreLogic marketed its products to small mortgage lenders. But as it grew, it gained acceptance by some of the country’s top 10 mortgage lenders, including Credit Suisse First Boston, Washington Mutual and Wells Fargo Home Mortgage. Brad Davis, director of valuation services for Morgan Stanley in Boca Raton, Fla., has been a CoreLogic customer since 1998. “It lets us use automation to identify risk, which is huge,” says Davis.
     Before, risk assessment took a lot of dedicated staff. Now, using CoreLogic algorithms, tens of thousands of properties can be analyzed in one day. He credits the success of Schroeder and Clark to one thing: “They have the ability to listen to the client and develop what we’re looking for.” Mike Ela worked with Schroeder and Clark in the early days and now runs HomeSmart Inc., a San Juan Capistrano-based consumer service for assessing property values. Ela echoes Davis’ praise for CoreLogic’s ability to speed loan processing. And he also points out the value of its fraud detection as a lender’s hedge against potentially big losses.
     “It was not only visionary of Kraig and Steve, but their timing was extraordinary,” says Ela. “Their tools, which have become a benchmark in the mortgage lending industry, couldn’t have come available at a better time, when mortgage lending actively started to ramp up because of lower interest rates.”

450-Pound Orangutan
Schroeder estimates CoreLogic has about 30 percent market share of its niche, with the rest split out among three competitors. Asked if the company is the 800-pound gorilla of mortgage banking technology, Schroeder quips, “More like the 450-pound orangutan. I think we’re definitely in first place.”
     Morgan Stanley’s Davis has watched CoreLogic become widely known in the industry. And while some competitors are trying to catch up, he figures they are two years behind CoreLogic’s level of service. “CoreLogic,” he says, “was first to market, and they did it right.”
     Meanwhile, because about half the mortgage banking industry is a herd of “slow adopters” of new valuation tools, CoreLogic is still in the hunt for a huge untapped market. But that market segment has seen the benefits of CoreLogic’s tools and is expected to buy them. Current clients are also buying more services. That bodes well for continued CoreLogic growth and is expected to more than offset any revenue dips coming from the slumped housing market of the past year.
     Now, with First American supplying the deep pockets, this Baby Blue Chip company won’t need to worry about a housing slump anytime soon. Nor will Schroeder and Clark.

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