profile the new black knight · how much of a new yorker he is.¶sanzone, the new chief executive...

om Sanzone is a card-carrying, certifiable, native New

Yorker. He says his favorite team is the New York Jets—he

pauses, and then adds, “unfortunately.” (Let’s just say he’s

been disappointed.) ¶ He’s such a New Yorker, he even ad-

mits to having a “soft spot in his heart” for the New York

Giants football team. Why? “Because they beat the hated

New England Patriots twice in the Super Bowl.” ¶ That’s

how much of a New Yorker he is. ¶ Sanzone, the new chief

executive officer (CEO) of Jacksonville, Florida-based Black

Knight Financial Services LLC (BKFS), has spent the bulk of

his career at name-brand, mega-global financial services

firms. (Think Citigroup, Credit Suisse, Merrill Lynch—you

get the picture). Needless to say, the man has logged

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PROFILE

TheNew Black KnightWhen Fidelity National Financial (FNF) bought back Lender Processing Services, itwas looking for a new company name and a new CEO to fill the shoes of retiringHugh Harris. That’s where we pick up the story.

T


Black Knight Financial Services CEO Tom Sanzone

countless hours in large corporate boardrooms.He was chief administrative officer at Merrill Lynch, re-

porting to the chief executive officer as part of the seven-person management committee running the firm. He wasresponsible for global technology, operations and corporateservices, and helped steer the company through the financialcrisis. And before that stop on his résumé, he served as chief in-

formation officer (CIO) and member of the executive board atCredit Suisse. Before that, he was a CIO at Citigroup.

Sanzone started his career back in 1984, learning from theWall Street mortgage securities pros at Salomon Brothers. Hesays he was “really a babe” at the time—about 24 years old. Heworked closely with the trading desks and saw the legendssuch as Lew Ranieri growing the mortgage securities businessat a pivotal time in that market’s development. He started outas a programmer analyst, and then rose through the ranks tobecome managing director and head of global application de-velopment. So he knows big banks and big investment banks—and he knows big technology networks.As his career grew, his jobs took him all over the world. He

lived in Europe for a bit and spent a lot of time in Asia andJapan, as well as other capitals of global finance.But Jacksonville, Florida? What’s he doing there?He recently moved there for his latest job. And when

Mortgage Banking interviewed him in early April, he wasdefinitely not complaining. No more winters—and a lot more golf—came as an unofficial

relocation bonus. Plus, he adds, “This was a great opportunityto run a great company.” And the timing was right. Sanzone concedes, “As I have

gotten older, I like nice weather.” So he’s come to the rightplace—the Sunshine State. Now he’s firmly transplanted with his wife and two kids to

sunny Florida. He even looked like he might be sporting a bitof a tan when we interviewed him in Washington, D.C., onApril 1.

The new jobSanzone’s new job requires an organizational chart to fullycomprehend. Suffice it to say his new boss is William P. “Bill”Foley II, chairman of Fidelity National Financial Inc. (FNF)and of Black Knight. And Foley has done one of his regularreshufflings of the corporate components of the Fidelityfamily of companies. The purchase of Lender Processing Services (LPS) by FNF

was first announced in May 2013, and now the major man-

agement slots of the new operating subsidiaries have beenfilled. Sanzone is sitting in one of them.Sanzone’s new title is chief executive officer at Black Knight

Financial Services LLC. He runs one of two operating subsidiariesunder the new Black Knight brand that was created to identifythe new collection of LPS parts pulled back inside FNF, alongwith the ServiceLink business lines. The operating subsidiary being run by Sanzone is made up

of all the technology products formerly housed inside LPS,plus the technology offerings previously owned by FNF’s Ser-

viceLink division. In addition to thosetechnology product lines, Sanzone’sgroup also includes the former LPSdata and analytics business.The other operating subsidiary

under the Black Knight brand iscalled ServiceLink Holdings LLC. TheServiceLink subsidiary consists ofFNF’s former ServiceLink divisionand LPS’ former transaction servicesbusiness. This operating subsidiaryis run by Chris Azur, chief executiveofficer of ServiceLink. Azur has more

than 20 years of experience in the mortgage transactionservices business.Fidelity National Financial finalized the deal to pull LPS

back under the corporate roof in January of this year. It alsoissued a 35 percent interest in the two Black Knight operatingsubsidiaries to Thomas H. Lee Partners LP, Boston.

Settling inSanzone came down to Jacksonville in October 2013 and wasable to spend three months learning from outgoing LPS ChiefExecutive Officer Hugh Harris. Harris put him in the officeright next door, and the newcomer “was able to work veryclosely with him . . . before we actually did the deal,” saysSanzone.“Normally you don’t get that opportunity,” Sanzone says.

He adds that he benefited a lot from the experience. (Harrisretired from LPS with the closing of the transaction.)Black Knight is the smallest company Sanzone has ever

worked at, and it will put all his skills to the test. Plus, it’sstrictly in the mortgage technology space—a much narrowerfocus for Sanzone. And because he hasn’t worked strictly inthe mortgage space before, it will require learning somenuances of the mortgage business—in terms of all the nooksand crannies of originations, as well as servicing. And thenthere are all those regulations.On the plus side, he will be able to put the balance sheet of

publicly traded FNF to good use as he builds on a strategy towin more market share (and grow revenue) along the fullspectrum of mortgage technology products the companyoffers (especially beefing up originations technology anddata/analytics). He says, “We want to be the market leader in the entire life

cycle of the loan—from origination to servicing to default,and eventually the capital markets. That’s going to take alittle time. We’re not very embedded there at the moment.”He says he is looking to grow value for all the company’s

stakeholders (employees, customers and shareholders included).


Black Knight is the smallest company Sanzone

has ever worked at, and it will put all his skills

to the test.

FNF had a market capitalization of roughly $8.6 billion as ofMay 13, so there are lots of shareholders to keep happy. The stock price has staged a decent run-up of 6.53 percent

since the start of 2014, as of mid-May. Since the release of its first-quarter earnings, FNF stock

has climbed from roughly $32 a share on the day beforeearnings were reported (April 30) to $34.54 a share as ofmidday on May 13. The price-to-earnings ratio is a reasonable20.2. Revenue growth in 2013 was 19.7 percent, but earningsgrowth last year was a negative 36.19 percent. So, by pulling the more steady revenue from the technology

business lines inside FNF, the company should be able tosmooth out the loss in revenue from the origination slowdown. The first-quarter earnings report showed that closed title

insurance orders of 295,000 for the first quarter were down by39 percent from the first quarter of 2013. So there is noquestion that revenue from the title insurance side of thehouse will be under pressure in 2014.Sanzone emphasizes that he considers “employees”

one of the important stakeholder groups—and he deliber-ately uses the term “stakeholder” instead of “shareholder.”He concedes his large corporate strategic managementapproach might be a bit of a culture change for the BlackKnight employees under him, many of whom are long-time LPS employees.

Headwinds and tailwindsSanzone says there are marketplace headwinds and tailwindsworking both for and against the new company’s growthplans. The most obvious headwind that will dampen revenuegrowth for Black Knight’s ServiceLink operating subsidiaryparticularly is the marked contraction going on in the refimarket. This year, residential origination volume is expected to de-

cline to the lowest total volumesince 2000. The Mortgage BankersAssociation (MBA) is forecasting res-idential originations to come in at$1.065 trillion this year. That’s downsignificantly from $1.755 trillion in2013.However, the regulatory climate

can be seen as a plus for BlackKnight, especially Sanzone’s oper-ating subsidiary. His business in-cludes all the technology productswith the coveted built-in compli-ance features that will help keep lenders and servicers fromgetting in trouble with regulators. And that will help Sanzone’steam to sell its technology.One obvious example of lenders gravitating to a proven

system that’s been accepted by the regulators is the widelyused MSP® servicing system. MSP is well known amongregulators for being a time-tested and durable servicingsystem. The MSP system is used to service roughly 50percent of all U.S. mortgages, measured by dollar volume.As Sanzone says, it is installed in more than 75 clientcompanies. That fact alone starts the conversation in all those companies

to potentially sell a lot of other products—both in originations,

in loan quality gateway (quality assurance), in data andanalytics, and ultimately in capital markets, too, Sanzonesays. One can imagine the customer thinking might go something

like this: If Black Knight can build a compliant, regulator-ac-cepted servicing system, it can probably build a reasonablycompliant origination system as well. Or at least that’s what Sanzone and his team are hoping.

The strategyNot only is the current origination market soft, but the defaultand foreclosure picture is improving as well. So all revenuethat stems from new originations, foreclosures and loanworkouts will be down. And Sanzone’s group is not immuneto these market impacts.Sanzone says, “There’s a number of our technology busi-

nesses that are clearly transaction-based, and as [volumes] godown, we will take a hit on that.”But he also says that technology typically operates under a

long-term contract business model, which means its revenuestream is less vulnerable to volume slowdowns.Sanzone is eyeing new product development as a means to

further grow BKFS’ business. “We’re investing significantly inloan origination technology,” he says. That is an area wherethe company could see some significant revenue growth, hebelieves. Sanzone inherited a whole group of existing technology

products. The company offers three loan origination systems(LOS): Empower®, PCLender® and LendingSpace® (a correspon-dent lending solution). It offers the RealEC® portal for linkingup originators with providers of title, appraisals and otherorigination services. It sells the market-leading MSP servicingsystem. It also markets the LPS Desktop and Fusion (defaultservicing technology systems). Finally, Sanzone’s business

group also sells a whole variety of mortgage performancedata, real estate and property data, and mortgage industryanalytics. The new CEO believes there are real opportunities in em-

bedding analytics into the company’s product lines. He says,for example, that even though the MSP platform has a dominantshare in the servicing space, the company hasn’t sold muchdata through that channel to servicing customers. He saysthat will be a new area of emphasis.

New cultureSanzone says in the past, the different product divisionsworked much more in isolation and didn’t attempt to


Sanzone says there are marketplace headwinds

and tailwinds working both for and against the

new company’s growth plans.

cross-sell much. Also, he says, there was more of a prod-uct-development-in-isolation type of mentality in theold LPS. He refers to it as “a build it and they will come” type of ap-

proach. Sanzone says, “We did a lot of classic R&D [researchand development], and then clearly hoped that we wouldbring it to market and it would pay off. And some did andsome didn’t.”Going forward, BKFS plans to work in partnership with key

clients to develop very specific products that have application

to the whole market. He says with the backing of the muchstronger FNF balance sheet and the partnering with customersin developing new products, he expects the company’s tech-nology investments will generate “much higher [return oninvestment].”He concedes that the different approach “requires culture

change, and that’s not always easy to do—and it certainlytakes time to do it.”But he adds, “I feel we have a very strong team that’s

bought in—three months into it—and I think we’re makingmaterial progress.”Of the prior LPS leadership, both Harris and Dan Scheuble

(LPS’ chief operating officer) chose to retire after the Januaryclosing of the deal by FNF to acquire LPS.The executive team now in place and reporting to Sanzone

includes Kevin Coop (president of data and analytics), DanSogorka (president of RealEC Technologies), Joe Nackashi (pres-ident of servicing and default technologies), Jerry Halbrook(president of origination technologies), Tom Peterson (seniorvice president, chief of staff) and Tony Orefice (executive vicepresident and chief operating officer).Bill Griffin heads up the Office of the Enterprise for both

Black Knight Financial Services LLC and ServiceLink LLC, andwill oversee strategic account management for BKFS’ largestcustomers. The structure will allow BKFS to approach largecustomers with one face representing all the various productsand services.The ServiceLink operating subsidiary has its own set of

senior leaders under Azur. They include Bob Caruso (servicing),Miriam Moore (default services), Dave Steinmetz (valuations),Jill Caldwell (origination title and close) and Al Verkuylen(title and escrow strategy).

Market-leading solutionsSanzone says the upcoming compliance deadline of August2015 for a new set of upfront loan origination disclosures haslenders worried and re-evaluating their strategies for updating

their origination systems.This is one of the tailwinds that may actually drive business

toward the new Black Knight technologies group, Sanzonesays. “A lot of clients are in a position where they need to decide,

do they invest in all the upgrading of their existing platforms. . . or do they look at a company like Black Knight and whatwe have to offer,” Sanzone says. Black Knight’s CEO says lenders are hungry for solutions

that have passed muster with the regulators and that havebecome market-leading solutions. He says, “From a client perspec-

tive, in a changing regulatory envi-ronment, there’s a certain comfortin industry-standard products thatare well-known. We’re fortunate tohave a number of those.”In addition to MSP, Black Knight

has market-leading solutions withits default servicing desktop prod-ucts. Sanzone says those enjoyaround 70 percent to 80 percentmarket share.

He says the company’s RealEC portal is a “market leader aswell.” But he says loan origination systems are a “really interesting

space because there is no real dominant vendor provider, sothere’s a lot of unique implementations.”He says, “I believe that we’re emerging as a leading provider

in that space, and hopefully we’ll continue to do that overtime. I think there’s great opportunity for us there.” He sayshe believes BKFS will capture market share in originations.He singled out Empower as an industrial-strength LOS so-

lution that could emerge as a growth product line for thecompany. Another area of product development is integrating workflow

and rules engines into the various technology products tohelp improve operating efficiencies and be able to run qualityassurance automatically on the data provided in documents.

Bullish on growing revenueWe asked if one of his goals is to try and grow originationtechnology revenue and other revenue so it more equally bal-ances the massive revenue stream currently coming fromservicing-related technology.Sanzone replied, “Leveling is not quite the goal because

[servicing revenue] is a monster. But we are looking to make itless a percentage of our overall revenue.” In FNF’s first-quarter earnings, mortgage servicing technology

revenue accounted for $120 million of the $187 million intotal revenue reported by Black Knight Financial Services.On a different front, Sanzone says he has seen a big

change in perspective when it comes to the question ofwhether to buy or build mission-critical technology in-frastructure. He says the banking business has largelyturned away from building customized in-house technologyplatforms.Sanzone says that in the last five years, the banking industry

has seen all the exposure that comes from building and im-plementing a one-of-a-kind solution. He says one advantage


Black Knight’s CEO says lenders are hungry

for solutions that have passed muster with

the regulators and that have become market-

leading solutions.

of using a standard industry product is that if regulators areused to seeing a widely used solution, they know how itworks—and when they come in to do a bank examination,they’re familiar with the technology.“I think from a business head’s perspective, it’s not as

compelling any longer to be different,” he says. Black Knight is “actively talking to a number of our key

clients about not only whether we can develop a product forthem—but they [are saying they] truly desire to have thatproduct become the industry standard with other lenders,which is very interesting. And they’re cooperative in thatprocess.”Sanzone is bullish on prospects for growing revenues. “I

believe that we can grow all of our principal lines of business.So you have loan origination technology. You have data andanalytics. You have servicing. You have default. And you haveour RealEC business. I believe all of them can grow if weexecute on our strategy.”Another piece of the strategy that in the past three months

the leadership team has worked on is putting a new focus on“integrating our product lines,” he says. Sanzone says that inthe past, that wasn’t a big part of the focus. He adds that thedata and analytics group “is probably the group that canbenefit the most from that [new emphasis].”He also sees more and more effort to build bundled products

where the analytics are embedded into the technology productsand the customer can either use the capability or not. If theuser makes use of the complete product bundle, then that

usage is tracked and the user pays for it. If not, the added ca-pability is shut off and the user isn’t charged.The bottom line is that Sanzone sees opportunity from fo-

cusing much more on a cross-sell and product-integrationstrategy.

Why Black Knight?So what’s with the name—Black Knight? Is that some obscurefinancial term? It turns out Foley picked the name. It is themascot of West Point, his alma mater. So did Sanzone go to West Point, too? No, it turns out he

graduated from Hofstra University with a Bachelor of Sciencedegree in computer science. Sanzone serves on Hofstra’s board of trustees, and the

school’s mascots are a lion and lioness, known as The Pride. So perhaps another FNF operating subsidiary down the

road called The Pride Financial Services? We’re thinkingprobably not.But how did he get into this whole technology business in

the first place? Turns out he is the youngest of three boys—and younger by a lot (by 10 and 11 years). So when it cametime to go to college, he asked his brother John what heshould major in. John’s reply was technology. He said hethought it was going to be a real big field. Way to go, John. Your brother owes you a round of golf at

TPC Sawgrass. MB

Janet Reilley Hewitt is editor in chief of Mortgage Banking.


Reprinted with permission from Mortgage Banking magazine (June 2014, pages 60-65) published by the Mortgage Bankers Association (MBA).

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