Top 10 Tech Companies to Watch

December 3, 2012 3:29 PM

Company: Andera

Headquarters: Providence, R.I.

Technology: Account and loan origination software.

Why it's one to watch: Andera is forging ahead with its oFlows platform that's built for iPads to help streamline and create possibilities in the ways banks open accounts and originate loans.

What started off as a web development company founded in Charlie Kroll's Brown University dorm room has matured into an account and loan origination software business meant to help banks serve their customers in more places, more efficiently.

"We spend a lot of time thinking about [encouraging innovation]," Kroll, chief executive and founder of Andera tells BTN.

Though Andera's legacy was built around the web browser - and the company currently offers online account opening services to more than 500 financial institutions and credit unions - the Providence, R.I.-based company knew it needed to expand its offerings as new mobile technologies, including tablets, became popular with consumers years after Andera first formed.

"We had to very quickly adapt products and strategies," Kroll says.

To help do that, Andera acquired oFlows, a paperless system for account opening and lending with expertise in multi-channel origination, in late 2011. With the acquisition, Andera, among other things, has been focusing on leveraging native mobile capabilities, such as the built-in camera to send in supporting documents as well as the touchscreen that lets customers sign forms with their fingers or styluses, to reduce the input burdens of opening an account or loan.

"The real promise of mobile is its native capabilities that fundamentally change the process," Kroll says.

Kroll says the oFlows platform simplifies banks' account opening and lending processes across all channels and devices because the product is delivered through one system.

"Institutions no longer need a separate system for account opening and lending, a separate process for the web and branches, separate decisioning engines, signature pads or scanners," says Kroll.

How banks choose to use Andera's oFlows platform varies. Scott Pitts, chief product officer and former CEO of oFlows, outlined three ways. At some banks, branch employees are running the software on iPads to let them have side-by-side conversations with customers. Other banks are bringing tablets to college campuses to book business. Another company is toying with the idea of testing tablets at a local library as a way to work with those individuals who are too intimidated to come into a bank.

But beyond tablets, Pitts notes that bank customers may prefer to channel-hop to take care of a task. "You're seeing a much higher rate of multi-channel interaction," Pitts says. "Ten out of 10 banks would say the future involves a unified communication process."

Consumers, Pitts explains, are expecting to be able to start a communication in one mode with a company and finish out that conversation through another mode. "The next generation of customer interaction isn't just about moving from analog to digital," Pitts tells BTN. "It's about being able to serve customers wherever and however they want."

"Many [institutions] are trapped under a set of disparate, legacy platforms and systems," says Kroll. "Andera helps to address this issue with the oFlows platform."

Looking ahead into the coming months, Andera's product development team has been tasked with working with pilot banks to co-develop features while improving the user experience. Though specific details are under wraps for now, Kroll describes his company's pilot partners as innovative, medium-sized institutions.

Also top of mind for Kroll is growing out Andera's customer base. "Over the next 12 months, it is really [about] rolling out in a scalable way a lot of features that we have pioneered," Kroll says. "There's a major shift going on with financial technology all over as mobile technologies and mobile devices become the primary channel for many transactions in financial services."

Company: Banno

Headquarters: Cedar Falls, Ia.

Technology: Transaction analytics and responsive website design.

Why it's one to watch: Merchant-funded offers and adaptable website design will be big next year. Also, Banno is on the cusp of a partnership with a large bank.

Like many of its peers on this list, Banno (formerly T8 Webware) is on the verge of a big bank partnership. The Cedar Falls, Iowa company is soon to sign a deal with a super regional that will bring it both validity and a place in the bank software industry. Also like many on this list, Banno chief executive Wade Arnold is unable to say which bank it is, yet. Still, Banno's key piece of technology is, by any measure, compelling. The company's software pairs card transactions with merchant information in order to give banks the ability to target offers to their customers on behalf of those merchants, among other uses. "We are finding that lots of online banking and mobile banking [companies] want to use that data," Arnold says. "They want to send their core system data through our system."

What Banno has done over the past year is made it possible for banks to accurately query transactions that were previously indecipherable, he says. "Analytics that are tied to that merchant," Arnold says. "People make it sound like a simple problem, a no-brainer, but it's really hard."

In the middle of the summer, the company changed its name from T8 Webware. The name came from Arnold's wife, who while attempting to track expenses during the economic downturn of the last decade, took a suggestion from his son. The child told his parents to consult his imaginary friend, "Banno," for help.

Banno is already providing responsively designed websites to banks and credit unions that scale to a user's device. That means the look and the design of that bank website changes according to the device a customer is using, such as an iPad or a desktop.

And the company's mobile app for banks, Grip, ties location, upcoming bills, historical spending and other data together to help give users a complete view of their financial position.

Banno is also working with Deluxe on a so-called SwitchAgent service that gives banks and credit unions the ability to help new customers change banks. The joint venture collects account information, schedules and sends notifications to payers and creditors, and provides schedulers to those that are switching banks to keep them updated on the process.

Company: BillFloat

Headquarters: San Francisco

Technology: Software that provides consumers with short-term credit to help them pay their bills.

Why it's one to watch: The ranks of the underbanked, unemployed and those living on the edge of their means continue to grow. This technology helps meet a basic need and several large banks are interested in white-labeling it.

Last September, Ryan Gilbert, CEO of BillFloat, testified before the finance subcommittee of the House of Representatives that, "the banks that were too big to fail are now too scared to lend." A couple of committee members then re-used that one-liner during the hearing.

"I think financial institutions do want to serve their customers, but there's a lot of fear built in," Gilbert said in a recent interview with BTN. "Part of the inhibition is the fact that existing technology platforms available to these potential lending institutions are not suitable for short-term loans to consumers" - short-term meaning less than two years. The average cost to acquire a new mortgage or long-term loan customer is $150-$250 due to manual approval processes and underwriting, according to Gilbert. "All those costs mean you have to make loans of $10,000 to $100,000, not $2,000, and do so rapidly."

Enter BillFloat, which makes software for banks and other credit providers that helps provide consumers with short term credit to pay their bills.

The origins of BillFloat emerged at Venrock, a Palo Alto venture capital firm where Gilbert and Sean O'Malley, his current business partner at BillFloat, set about identifying the "white spaces" of opportunity in the payments landscape. "We found 36 of them. Unfortunately today, in 2012, most of those 36 are still underserved," he says. "Folks in payments and technology like to run in crowds. When Jack Dorsey started Square, everybody got into mobile payments, as opposed to doing their own homework and figuring out what excites them."

The Venrock partners and associates at PayPal seized on the concept of being able to give consumers more time to pay - for their bills, for their purchases, or for their general obligations.

By giving the consumer more time to pay bills, Gilbert feels his company is providing something more valuable than credit. "We're focusing on a space we still feel is very under served," he says. "There are a lot of issuers of credit who want to get the best customers with 720 FICO scores and above, but very few of them are looking to deliver affordable, long-term, sustainable products to the near-prime and subprime space."

Products that do target the sub- and near-prime market, such as payday loans and banks' payroll advances tend to exacerbate struggling consumers' problems, Gilbert contends. "Two weeks doesn't solve the consumer's cash flow burden when problems are spread throughout the month," he says. BillFloat's products extend credit for six to twelve months.

The company is currently developing four different products on its platform. It vows to keep interest rates below 36%. The company keeps costs low, Gilbert says, by not spending a lot of money on acquiring customers, instead working with partners such as mobile phone companies. BillFloat is offered as a payment option on such companies' websites the way Visa and MasterCard are. The service is also offered through email, text messaging, standard U.S. mail, and in-store POS devices.

Its underwriting platform, Gilbert says, is "focused on data that lets us make the best decisions about any consumer's application for our lending partner in the shortest possible time, around three minutes. We don't pull credit bureau reports, we do not rely on FICO in our decisioning."

Credit bureaus capture snapshots of a consumer's financial life, Gilbert says. What BillFloat is after is a daily pulse of the person's financial health. "If you understand how a consumer lives his or her month, it tells a different picture," he says. "On the first and fifteenth you have a very strong pulse rate. It fluctuates between those core dates. One of the toughest challenges consumers have in meeting financial obligations is cash flow and timing."

BillFloat gets data from billers such as phone and utility companies, as well as bank partners. "We can see when a consumer gets paid, if they get paid consistently, how they spend their money, who they are paying, when they are paying, what they are paying for?" Gilbert says.

So far the company is offering its solution solely through banks. The BillFloat system integrates with a bank's core system using open-source techniques and third-party account aggregation services. BillFloat plans to launch a term-loan product and a line of credit backed by two federal savings banks soon. It's looking to offer leasing and rent-to-own products in the near future as well. It also plans to forge more bank partnerships and create a mobile product.

Company: BillGuard

Headquarters: New York

Technology: Analytics that detect overcharges on bank statements and bills.

Why it's one to watch: BillGuard has begun working with the CFPB on a national database of consumers' financial transactions.

BillGuard's answer to big data is simple: crowdsource it. The New York City startup, with offices in Israel, uses various different datasets, some online and some offline, in order to flag fraudulent transactions for users.

Already it is working with other digital wallet startups and pairing its knowledge with information from the federal government to create a more accurate record of good and bad transactions and charges. BillGuard's chief executive Yaron Samid the company will soon announce its first bank deal.

He also gave tidbits about the outfit's work with The Consumer Financial Protection Bureau. "At a high level, it is a bidirectional data collaboration around consumer billing disputes about charges on debit cards and credit cards this [agency] is collecting," he says. "By far the most popular is billing disputes, so we get access to that data and we are using our billing dispute algorithms."

Samid said BillGuard has been working with the CFPB for several months. And, as a part of the partnership, BillGuard is also sharing data with the CFPB, a relationship he says will expand.

To users, BillGuard's service looks like a long string of transactions listed on a smartphone or desktop screen. Transactions that BillGuard deems potentially fraudulent are highlighted. People who use the service can also attach notes to certain charges that BillGuard will store and present to others. Already, the company is making progress. Recently, BillGuard also announced a partnership with another startup, Lemon, that hosts a smartphone app that stores users' credit card and receipt information. That marriage has BillGuard providing its service to roughly 2.5 million Lemon Wallet users. And, earlier this year, BillGuard released an integration with Apple's Passbook that performs a similar function. "We are getting at this from everywhere, from the web, from banks, and now from the [government]," says Samid. "We are normalizing all that data so we can run our analytics against it, so we can find patterns."

Company: Chirpify

Headquarters: Portland, Ore.

Technology: Online payments

Why it's one to watch: The company has ambitions for providing payments across all social networks. Somebody's got to do it.

In the middle of November, Chirpify's chief executive Chris Teso was still waiting for the ink to dry on a contract that would bring his alternative payment network a puzzle piece it desperately needed: a bank partner. Not just any depository, a top-three acquiring bank. He won't yet say which, for fear of violating the agreement. For more than a year, the Portland, Ore. startup has been relying on eBay's ecommerce arm PayPal to help it move money from buyers to sellers over Twitter.

Teso began Chirpify in May 2011 after founding and later leaving web design and app development company The Good. The service launched in February. And, in early March, at SXSW music festival in Austin, Chirpify, along with Portland ad agency tenfour and PR-firm partner Waggener Edstrom, launched an app where users could tweet one another beers paid for with a PayPal account over Chirpify's payment network.

In April, Chirpify raised about $1.3 million in Series A financing led by Voyager Capital. In Chirpify's world, sellers pay either a monthly enterprise fee or a 5 percent per-transaction tax on purchases. The service's users link their Twitter accounts and send instructions, such as 'Buy,' within 140-character messages in order to authorize a transaction. The new bank marriage, Teso says, will give Chirpify the ability to link credit cards and bank accounts directly to Chirpify accounts. The bank will take on the risk. Chirpify will supply the technology. "Where we see it heading, after we have done this, is we want to port our platform to all the social networks," he says. "Anywhere we can make these distributions happen, that's what we want to do."

That means Facebook, Pinterest and any other social network that has yet to be imagined. Chirpify is well on its way. The company just expanded its network to enable commerce over Instagram. Teso hopes that the move will increase volume.

In the future, he can see his company getting involved in in-store transactions that will allow merchants to notice customers in their stores with the aid of their smartphone and peer-to-peer payments. "If we can focus here on social commerce, after that we can route into these other ones, these targeted payments," Teso says. What does he mean by "targeted payments"? "So you are in a store, you are in Home Depot and we know that because your phone tells us so. Because you are always signed into Chirpify and Twitter, we can target a deal right to you because we know where you are."

Company: Digital Reasoning

Headquarters: Franklin, Tenn.

Technology: Search and analytics of unstructured documents, combined with machine learning and artificial intelligence that "learns" how to identify connections among people and organizations within documents.

Although it can't share specifics, Digital Reasoning has been providing analytics for the military and intelligence community for 12 years, sifting through millions of documents and emails to find threats to national security.

"We've been catching bad guys .... we cut our teeth on large amounts of unstructured, human documents, finding out who's talking to who about what, focusing heavily on international communications," says CEO Tim Estes. "We have people collecting intelligence overseas, we have people who are trying to piece together, who are the people building bombs that are going to blow up our soldiers?"

At its heart, Digital Reasoning's software, which is called Synthesys, knows how to read documents. The software can read millions of documents and produce a map with icons representing people or organizations, showing where connections are taking place, with a timeline. "We have the algorithms that make sense of all that data," Estes says.

"A lot of people talk about Big Data as mostly an engineering and storage problem," Estes observes. "But it's also understanding - we have the data and we don't know what's in it. We have finite human attention to read and that's flat." To change that trajectory requires understanding structured and unstructured data, text and language.

One way Digital Reasoning's technology can be applied to financial services is by combing through all of a bank's emails to detect compliance infractions. Estes points out that compliance data is sensitive and therefore not something banks are willing to farm out to a third party. "They have to buy software that will be smart enough to read their emails, find out what people are talking about, and how that maps back to the types of patterns that match compliance rules," Estes says. Inappropriate mentions of an impending deal might be an example of a red flag.

"Right now the tools are all driven by keywords and rules; they're blind to context and semantics," Estes says. "They have an immense number of false positives. The big things that get reported in The New York Times you never know about until it's too late. False positives are what wear you down. Humans get tired when there's something uncertain."

The software can find patterns that match previous bad behavior in a more subtle way, Estes says. It's fed examples such as, this sentence in this email is sexual harassment, or someone knowing this type of fact about a transaction before a certain date is a violation.

Through a partnership with data visualization vendor Tableau, Synthesys can read news articles including hundreds of millions of entities, load that data into Tableau and display visualized trends of, say, comments on Facebook's strategy.

This year, Digital Reasoning participated in New York's FinTech lab, where it was mentored by JPMorgan, Goldman Sachs and Credit Suisse. "We learned the use cases we think are valuable and now we're executing" with some of the banks in the program, Estes says, although he declined to say which ones.

The company plans to enhance its algorithms in the coming year so that its software can learn not just from data but from user feedback. The machine answer is typically an 80% solution. "That leads people to not trust it because two out of ten [results] don't look right," Estes notes. "However, if we can create the right feedback loops with users, we think we can bring it up a lot." The company also plans to make use of in-memory computing technology to learn from documents faster.

Company: Digital Risk

Headquarters: Maitland, Fla.

Technology: Mortgage risk management.

Why It's One to Watch: Separating good borrowers from unqualified ones could help prevent another mortgage crisis.

The mortgage market's recovery is coming with a dash of "big data," or the use of a wider information net to determine if a borrower's a good bet to keep up on payments. The challenge is to separate the good borrowers who had a tough time during the crisis from the truly bad loans.

Playing in a competitive space that includes big and long-standing mortgage tech companies like CoreLogic, FICO, SAS and Wolters Kluwer, Digital Risk has generated a lot of buzz in the past year with its mix of systemic and operational risk software. It is growing fast enough to hire new staff in droves. Digital Risk has developed its Veritas tool to leverage more borrower, property and local real estate data as part of a risk information mash that not only analyzes general borrower stats, but also behavioral tendencies to predict if a borrower will prioritize mortgage payments over other bills, or walk away from a distressed property. And the goal is to allow this analysis to happen quickly on the front end.

"Prequalification is a big thing. A significant portion of the population has dented credit and the traditional credit assessment tools are not really effective. The trend is to turn to borrowers' behavior," says Peter Kassabov, CEO of Digital Risk.

Veritas uses data to classify borrowers across a range of 32 clusters. It identifies high risk targets, such as those with a high combined loan-to-value ratio and estimates the likelihood of the borrower defaulting on a loan modification. Digital Risk's database includes the different types of credit relationships a borrower has, his or her monthly payment obligations and how the borrower would likely respond if placed under duress.

"There are many factors in a person's creditworthiness, and one way to verify someone is a good borrower is to use multiple data points and make connections between those points to create a more realistic assessment," Kassabov says.

Also included in the analytics mix are factors such as the age of a property and its value across a multi-year period. The company's real estate market data includes housing price changes mapped over 6,000 zip codes, market conditions, what kinds of properties are selling and average time on the market. "You don't want to replicate a bad loan, and a one-size-fits-all lending solution doesn't work," Kassabov says.

There's some parts of the secret sauce that Digital Risk won't disclose, such as specific data sources - the company says it uses a mix of public and private sources that measure how and when people pay bills, and what bills they pay. Veritas has gone live with a couple of tier one banks, and Digital Risk's yearly earnings have grown to about $79 million from $3 million in 2008. It's also doubled its headcount in the past year and plans to double its staff again over the next year.

Given the expansion, career development and retention is also part of the company's strategy in an industry where there's a lot of churn and a shortage of people with new data and analytics-savvy mortgage underwriting skills. "We want people to feel like they don't have a job but a career," Kassabov says.

For each employee, the company creates a career path at the time of recruitment that includes training in underwriting, as well as venues to respond to and participate in the company's strategy and product development. The employees' progress toward career and skill development goals is also tracked. "People aren't cogs in a machine, but actually have a voice," Kassabov says.

Company: Intel Labs

Location: San Francisco

Technology: Reinventing the password.

Why it's one to watch: 2013 may well be the year we move past the cumbersome password, into more effective technologies for authenticating people.

Few people like having to remember and enter multiple user names and passwords. And it's a problem that's not going anywhere - the more mobile commerce gets, the more often people will have to authenticate themselves.

That's where researchers at Intel Labs come in. The unit of Intel is working on a variety of techniques to protect users and data, such as new encryption, malware protection and biometric authentication, to protect digital commerce and make it easier to access.

"Passwords are cumbersome, it's tough to have multiple passwords, and they are becoming harder to remember and more complex. And if you use the same password for multiple sites, it drives up the risk," says Paul Schmitz, senior technology strategist for Intel Labs. Through its own research, live events and programs with universities and other organizations, Intel Labs studies and develops innovation in a variety of areas, such as the cloud, context-aware computing, sustainability, security and visual computing - or the combination of HD video, interactivity, audio and computational modeling to enable real-time, life-like computing experiences. It focuses on improving experiences for smartphones, tablets and other new devices.

Some of its most recent work is around making identity verification easier. In an attempt to evolve beyond the username/password model, Intel Labs has developed mobile tech that combines software with a biometric sensor that recognizes the vein patterns on a person's palm. That allows access to banking sites, social networks and other accounts via the handset. In this model of security, the handset and the palm are responsible for identification, and not the actual retail sites. There's no need for passwords. Users wave their palms in front of a sensor on a mobile device, which can communicate that person's identity to banks and other sites.

Intel's research has found that people use their smartphones almost three-dozen times per day, and from varied locations, which makes the device more prone to session interceptions and other web crime. Intel Labs plans to work with service providers to expand the availability of biometric sensors on devices. It also plans that new versions of smartphones and laptops will include scanning and recording technology that can enable contactless palm screening.

Biometrics is part of a multi-pronged security strategy that also includes malware protection and data encryption. Schmitz says the lab is using Intel's expertise in hardware development to work with anti-virus providers and security companies to develop new protections against malware attacks. Part of the effort includes work with McAfee, the security company that Intel acquired a couple of years ago. The collaboration between Intel and McAfee thus far has included cloud security, in which McAfee provided web and data loss prevention to contribute to an Intel product called Services Gateway, which enables application integration, identify management and federated single sign-on services.

Schmitz says there is an overall concern about the safety of the rising amount of data that's part of financial transactions and other digital business transactions - particularly as these transactions become more mobile. "People are worried about their data, they want to know if it is safe from attack," Schmitz says.

Company: Lighter Capital

Headquarters: Seattle

Technology: Using an online application, Lighter Capital offers loans to entrepreneurs using a revenue-based financing model within two weeks.

Why it's one to watch: Lighter Capital is using nontraditional data sources to help underwrite loans to early-stage entrepreneurs hungering to grow. In 2013, the company is poised to more than double its lending to startups.

With banks shunning small-business customers' business, a handful of startups have been offering them financing alternatives. Lighter Capital, founded in 2010, is one of them and the Seattle-based company is honing in on a very specific customer market: high-growth, high-margin, early-stage software and software-as-a-service companies that are hankering for capital to grow out their businesses.

Rather than charging startups a set interest rate, Lighter Capital takes a cut from the company's future gross revenues. In other words, a company gets capital by "selling" an ongoing percentage of its future revenues to Lighter Capital. The fluctuating percent a customer pays Lighter Capital each month ranges from 2% to 8%, and the firm targets a one-to-five year payback term. "If the [revenue] goes down, we get less," BJ Lackland, chief executive, tells BTN. "This aligns with the goals of the entrepreneurs."

The approach, known as revenue-based financing, has been used in the past for certain industries, like film production or oil and gas sectors, but is a newer funding option for entrepreneurs who can't get capital from a bank and/or angel investors/venture capital firms.

The U.S. companies to which Lighter Capital seeks to make loans are software startup firms and other early-stage companies that have few traditional assets but pull in $200,000 or more annually and are poised to grow quickly. Customers are primarily using their loans, which run from $50,000 to $500,000, for their sales and marketing objectives.

Beyond its revenue-based financing model, key to Lighter Capital's business plan is automating elements of the underwriting process, while using nontraditional data sources to help determine creditworthiness. To get a loan, a company fills out an application online and provides traditional finance details as well as social media information to determine whether the company is credit worthy.

Looking ahead into 2013, Lighter Capital expects to more than double its lending and staff. Upon its founding, Lighter Capital raised $6 million, with about half of that sum dedicated to giving small companies loans. To date, Lighter Capital has made 25 investments in 18 companies, including Tomato Battle, with an average loan size of $110,000. "We've lent almost all of the $3 million and will be over $10 million in lending [next year]," Lackland says.

Company: Mortgage Harmony

Headquarters: Vienna, Va.

Technology: Software that lets mortgage borrowers reset their own interest rates.

Why it's one to watch: This is truly a new technology idea that helps solve a very common problem.

For Keith Kelly, the use of the word "harmony" in his company's name is a part of a strategic vision to change how the mortgage market responds to interest rates, and how originators are incentivized to produce new business. "Who would ever have thought that with the mortgage mess, there could be harmony? We are the harmony in this mess. Out of a crisis some good and innovative ideas have emerged," says Kelly, CEO of Mortgage Harmony.

Mortgage Harmony was founded in 2008, not exactly a banner year for the mortgage market, as a software engineering company that develops and distributes lending products in a software as a service (Saas) environment.

Its big move in 2012 was the completion of the software and disclosures that allow a lender to apply the company's HarmonyLoan to an existing mortgage. Implementation of the feature in the market is in the works for 2013.

The HarmonyLoan is a borrower initiated, client-branded interest rate resetting feature with a recurring compensation structure for the originator. Under certain conditions, borrowers can reset their mortgage rate, and the lender can track and execute the new rate with the signing of a single document. The HarmonyLoan is designed to mitigate strategic defaults, short sales and foreclosures by opening up lower rates to borrowers who otherwise would be shut out of the refinance market by factors such as "upside down" mortgage/property values, or second or third lien holders. To execute HarmonyLoans, borrowers who fit that profile, but otherwise have good payment records, can "reset" their mortgage rate with a click." The HarmonyLoan has been approved for use as collateral by the Atlanta, Des Moines and New York Federal Home Loan Banks, and is under consideration by other FHLBs. Also, in 2012, Mortgage Harmony became only the third company in five years to show case mortgage innovation at the Finovate show.

"Nobody was able to access the lower rates because of the crisis," Kelly says. Since the rate resets aren't true refinancings, there's no upfront originator's' fee for a new loan.

Compensation for the originator is spread out over time, rather than a larger fee upfront, which is designed to encourage a focus on the borrower's fundamentals. "Mortgage banking is fee based. The people who originate the loan get a whopping upfront fee, and the originator wants you to refinance so they can make this upfront fee all over again. It's a problem for the investor and not always good for the borrower."

Kelly says the incentive for the originator is a reliable source of income, rather than larger fees, which are less predictable and prone to changes in the market.

"If you're an originator who's earning money over time, you can feed your families when the market gets slow, and that will make for better origination decisions. As opposed to getting a deal closed quickly, originators have a paycheck coming in and will be more prone to make sure the borrower really qualifies."

The incentive for the lender or servicer is the reduction in back-office cost from avoiding having to process entire new refinance loans, and also the promise of lower churn and greater stability in portfolios, which is attractive to investors. Borrowers get lower monthly payments while retaining their amortization schedule.

While there's no appraisal, income check or asset check, the larger structure of the mortgage remains the same. The Harmony Loan is a rate-based adjustment of the existing deal rather than an entire new mortgage. "It's the same loan with a lower rate," Kelly says. "It's more like an ARM feature that the borrower controls."

There are parameters for HarmonyLoans. Borrowers can't click to reset as if they're surfing sports scores; they can only reset during certain times, based on the client's policies. They also can't have late payments over the prior 12 months. And there's also a waiting period of six months before the borrower can reset the first time.

"As long as borrowers are making their payments on time and meet other parameters, they can click on that button," Kelly says.