“Do you believe using fine print to explain one of the most important decisions of someone’s life is acceptable?” Nicole Hamilton, CEO of Tactile Finance, takes in the silent response from the Finovate audience before continuing. “I know I don’t, and the banks using PRO don’t either.” Her voice is soft, but her words are carefully chosen and her message, firm. She’s speaking from personal experience. In 2009, Hamilton was comfortably living in Westchester, New York when, in the depths of the recession, she found herself needing to refinance her house. “It was like a bad situation for me, a high stakes situation,” she later confides in me. “It was so much money, so much of my money, and it was this process where I didn’t have insight into the choices that I had.”
Most economists agree on the causes of 2008 subprime mortgage crisis. Banks were lending money to high-risk borrowers using non-traditional mortgages. Many borrowers did not fully understand the terms of these loans—or the risk involved—and were unable to pay them back after the bubble burst. While individuals across tax brackets felt the consequences, for many borrowers, foreclosure meant more than a loss of wealth—it meant the loss of their home.
After a 15-year career in analytics, Hamilton excelled at turning numbers into narratives. It seemed unacceptable to Hamilton that ever-changing loan quote qualifications and indecipherable fine print were dictating the terms of so many housing situations. “I got obsessed with it at that point because it was such a high stakes situation for me, and all the stories of people who got loans they couldn’t understand,” she explains. “It became important to show people what these loans do—they’re so complicated, it’s even hard to explain them, but if you can visualize them, manipulate them like a model in your hand.”
At the time, she was working in New York City as a managing director of the Warshaw Group, an analytics company for enterprise software. As she found herself overwhelmed and underprepared for refinancing during this difficult period, something clicked: “If I can build this incredibly complicated financial spreadsheet, and I can make these incredibly complicated data sets really simple for people, I shouldn’t be having this issue.”
Thus, the inspiration for Tactile Finance, which designs interfaces that allow borrowers to visualize, manipulate, and interpret mortgage quotes. Data visualizations are designed so that borrowers can compare quotes and see how each quote will affect several different aspects of their wealth under different scenarios. Users can drag arrows that accompany the ebb and flow of principle, interest, and equity over time, in addition to seeing how these numbers change with alternate courses of action like refinancing.
Screenshots of TacFi
Tactile Finance markets its primary product, PRO, to banks. The pitch: risk reduction through improved customer service. Banks use PRO to explain their mortgage quotes to customers and show how their quotes compare with their competitors’. The idea is that loans are made riskier when the borrower is not versed in financial jargon. If a borrower cannot pay his or her loan back because he or she did not fully understand the terms of the loan, then this ultimately hurts the bank. Therefore, it is in the banks’ best interest to make sure that borrowers fully understand the terms. At Finovate Spring, Hamilton is launching TacFi, a platform that harnesses PRO's cloud-based capabilities for direct use by mortgage shoppers.
Hamilton articulates how pre-crisis platforms for communicating important loan information lead to poor decision-making. “You get quotes in email, and you get them on the phone, and then the rates change. You might qualify for a product at some point, and then you don’t,” she says. Though APR is usually the rate that people use to compare mortgage quotations objectively, there are many different other factors, such as length of time a person intends to live in a house, that affect whether APR is the best estimate. “It’s like you’re on these shifting floors. So what we do is provide a way for people to navigate the process. Any piece of information they get throughout the process they’re able to see how it fits together.”
On the “About Us” page of Visible Equity’s website, the co-founders stand in a line that looks like it could be an homage to Weezer’s Blue Album. Above their heads is the tagline, “What Makes Us Different”— the original five co-founders have diverse backgrounds in web development, traditional banking, and real estate evaluation, a mix uniquely suited to building their loan portfolio analysis software. According to VP of Sales & Marketing, Matthew Court, their origin story is “one that would be very difficult to recreate.”
The men behind Visible Equity began developing a real estate evaluation platform in 2007. Very quickly, they identified a more lucrative business opportunity. In response to the mortgage crisis, federal examiners had begun to scrutinize banks’ risk portfolios. The co-founders recognized the need for a web-based risk management software that could help banks navigate these examinations.
Like Tactile Finance, Visible Equity preaches the sermon of risk reduction in home loans with data visualization technology. But Visible Equity is for lenders, not borrowers. They offer an automated service: web-based data storage that enables banks to easily visualize the risk in their loan portfolios as they update in real time. Changing factors, such as borrower credit scores and real estate prices, are communicated via simple illustrations. Banks can then make more strategic lending decisions with minimal effort. If it looks like many of their borrowers’ credit scores are getting lower, the bank can start issuing fewer high-risk loans to ensure the security of its portfolio.
Screenshots of Visible Equity
One of the major causes of the subprime mortgage crisis was a lack of oversight. The subprime mortgages issued were high-risk loans with low teaser rates that spiked and interest-only mortgages that assumed real estate would appreciate. In conjunction with a real estate development boom, these were highly profitable for banks in the short term. Once the bubble burst, however, the federal government set about identifying causes. The two key factors were how many subprime loans banks were issuing and how realistic it was that borrowers would be able to continue paying those loans back.
“What the financial crisis did is it facilitated examiners to take a closer look at financial institutions,” explains Visible Equity co-founder and COO David Gilbert. Examiners wanted to see data on banks’ risk portfolios. “Our software helped banks to get through that crisis, to give examiners what they needed.”
Before cloud-based platforms like Visible Equity, banks would aggregate massive amounts of data on loans into Excel. But they would usually only crunch these numbers when federal examiners asked to see their risk portfolio. After that point, the spreadsheets were immediately out of date. “What was immediately obvious post-financial crisis,” explains Gilbert, “was that the examiners wanted this data on an ongoing basis.”
It’s never a bad position for a start-up to offer a service that’s required by law. Increased scrutiny on risk portfolios just about secured Visible Equity’s success. “The compliance piece is beneficial to us,” jokes Gilbert. “Examiners really liked it because they were requiring this information, so they started recommending us.” The software facilitated banks getting through a period of increased scrutiny, but, according to Gilbert, the increased examination period led banks to actually shift their own lending behavior based on live updates in their risk portfolio.
Recent trends in technology have caused a shift away from data manipulation on individual terminals in Excel and towards cloud-based platforms that multiple devices can access at any point. Both subscribers to Visible Equity and Tactile Finance PRO pay monthly fees for the service, rather than purchasing it one time. In exchange, the platforms do the work for the bankers. The shift towards cloud computing works with data visualization to enable seamless information sharing and real-time updates. Informed banking is better banking—so let’s make it easy for bankers to stay informed.
Screenshots of Visible Equity