19 minute read
Making Hay While the Sun is Shining
MAKING HAY WHILE THE SUN IS SHINING Many lenders are seizing the opportunity to go public. What does this mean for the market?
By Brian Honea
The last few months have seen a number of the country’s largest privately-held lenders take advantage of near record origination volumes and near record low interest rates by going public. Rocket Companies, the parent organization of THE biggest lender, Quicken Loans, began the trend in early August when it raised about $1.8 billion in its IPO; and, it didn’t take long for others to follow suit. In late September, the largest wholesale lender in the U.S., United Wholesale Mortgage, announced its intention to go public via a merger with Gores Holdings IV with a transaction value of $16.1 billion, making it the largest special purpose acquisition company transaction to date. Also in September, it was reported that LoanDepot is mulling an IPO with a valuation that could be worth up to $15 billion, after scrapping one at the last minute in 2015. Texas-based Caliber Home Loans filed for its IPO in early October that could be worth up to $2 billion. Two smaller Texas-based lenders, Guild Mortgage and AmeriHome Mortgage, have also jumped into the IPO ring in the last month or so.
What does all of this mean for the market and what does the future hold for these companies that have all gone public in the last two to three months? One of the nation’s top mortgage analysts, Rick Sharga, executive vice president at RealtyTrac, recently addressed these and other questions during a chat with The MORTGAGE BANKER Magazine.
MBM: Why are all these lenders choosing to go public at this time? Rick Sharga: The opportunity for these lenders to go public is kind of like the old saying about making hay while the sun is shining. We’re looking at a year that will probably set a record for mortgage originations because of all the refinance business that has been going on due to low interest rates and the unexpectedly strong return of purchase activity for both new homes and existing homes in spite of the pandemic. If you’re a lender participating in that business and had any inklings of doing a public offering, now is probably about the best time to get yourself into the market.
There also seems to be a healthier valuation of those types of companies by the capital markets. LoanDepot planned to go public a few years ago and then withdrew, and that was largely believed to be due to a tepid response from the capital markets in terms of valuation. It’s a combination of money being available in the capital markets, a healthier valuation for lenders, and the strength of the lending market in general.
MBM: Is there a common denominator for these lenders? Rick Sharga: I think a differentiator in the marketplace right now is that the companies that are going public all seem to be independent or non-bank lenders and they all tend to have deployed some sort of technology platform as their business models. Quicken Loans has Rocket Mortgage, LoanDepot has spent an enormous amount of money on their digital platform, mello, and United Wholesale Mortgage has technology in their system. I think those technology platforms make these lenders attractive to the people who are investing in fintech. One of the questions I’ve had people ask me is, “Why would an investor be interested in taking somebody like this to market at the peak of the market knowing that origination volume is likely to slow down at some point?” I think the technology platforms that these players all have is one of those reasons. The rationale being those are the kinds of companies that will continue to succeed as the market cools off a little bit.
MBM: Why did originations take off not long after the pandemic hit? Rick Sharga: When the pandemic hit and the Fed announced it was going to a low interest rate model for the foreseeable future, the bond markets acted in concert. So, we had an unexpected drop in mortgage rates from what were already pretty close to historic lows, which fueled a lot of refinance activity and is one of the things driving purchase activity. That’s one thing that a lot of people probably weren’t expecting when the pandemic hit.
Also, the unemployment numbers have been very heavily skewed toward a number of industries such as travel, hospitality, tourism, retail, and restaurants. Those industries tend to be made up of hourly-wage employees who don’t make a lot of money, are relatively young, and probably don’t have a ton of formal education. All of those criteria tend to be geared toward more renters than homeowners. So, the unemployment numbers that have swelled so heavily during this pandemic have been disproportionately skewed toward renters rather than homeowners. Renters are not going to do a refi loan, and refinances are accounting for about two-thirds of the origination activity right now.
There could also possibly be a number of homeowners who aren’t sure what their financial situation might look like going forward who might have tapped into their current home equity either to get a refi to lower their monthly payments as a hedge, or might have done a limited cash out
refi to give themselves a cushion in the event that things do go sideways for them.
MBM: What is the long-term effect of all these IPOs on the market? Rick Sharga: Long-term it gives these companies much better access to capital, because they think they can go back to the public markets and raise money that way. If you’re an independent mortgage banker or a non-bank mortgage lender, you’re always at a little bit of a disadvantage compared to depository institutions that can leverage those deposits when they need capital. So, it does put some of those independent bankers and non-bank lenders, especially the bigger ones, on a more even playing field, from a capital standpoint, with the larger banks. I think that’s meaningful.
Also, it probably doesn’t hurt them from a reputational and branding standpoint among consumers who might view publicly traded companies as being safer or being more credible than privately held companies, especially with what we went through in the last boom and bust cycle when so many of those lenders disappeared.
MBM: Do you see more independent mortgage bankers and non-bank lenders going public while origination volumes are still high? Rick Sharga: I wouldn’t be surprised. There are a lot of these companies that start out with the notion of either ultimately being acquired by a larger entity or going public, and the founders and shareholders have a vested interest in seeing that happen. When you get to a period where business growth and market opportunity intersect, that’s a double trigger that a lot of these organizations are going to want to take advantage of. I’d be surprised if we didn’t see more people throw their hat into the ring before this is all said and done. MBM
Brian Honea is the managing editor of The MORTGAGE BANKER Magazine.
Securing the Forbearance and Loan Modification Process Through Digitization
By Gabe Minton, Mortgage Connect
These are challenging times in America and around the world. The COVID-19 pandemic has turned the world sideways, processes have changed, people have changed, and technology has evolved to meet new demands. In the mortgage world, rates plummeting to new lows have created a high-volume originations environment with refi’s and purchase deals both running at historic high levels. The moratoriums have slowed the default, bankruptcy, and foreclosure parts of the process, but while that remains in a holding pattern, many consumers have been helped by the CARES Act by taking advantage of the forbearance provisions. Now is the time for workouts to occur, whether it is a deferral, a loan modification, paying back missed payments, or even nothing needed, the borrower kept paying their mortgage with the pandemic declaration, borrowers and lenders alike are keen on working solutions out and getting the payments back on track.
What is needed are very efficient, self-serve capable and secure digital solutions. This will enable borrowers to work out their situations remotely from the safety and comfort of their homes and get their mortgages back on track. It is no different than all of the rest of the eCommerce that is running remotely during this pandemic. It is more than an excellent portal; the user experience needs to be taken into consideration, and the more standardized integration that flows to and from the application, the better. This requires key integrations and touch points with a lender’s existing systems. Furthermore, by utilizing Single Sign On (SSO) technologies, if there is a handoff to a second system, the borrower does not know it and is still fully secured from their initial login to their bank or mortgage provider’s website.
Electronic signatures and records have come a long way, both over the last 20 years and over the last year since the pandemic, which has accelerated the need. Now eSign platforms are commonplace and accepted by the masses to be able to electronically sign basic documents. Many lenders are moving forward with hybrid eClose options where their consumers can eSign documents ahead of the closing and then wet-sign or remote online notarize (RON) documents that need notarization.
Innovative companies are implementing cascading “e” models to illustrate up front in the transaction “how e a borrower can be.” Given the subject property address and some other characteristics, can this property be eClosed? eRecorded? eNotarized? Based on the answers to those questions, lenders have the capability to accelerate new originations or loan modifications requiring notarization and recordation from weeks to days. There are further ways to accelerate the underwriting and title clearance processes to get the timelines even shorter. By using secure digital connections and storage and tamper-evident seals on documents, better security and integrity can be ensured throughout the transaction.
The good news is that a lot of these eProcesses can be used across both originations and servicing. At the end of the day, an electronically signed document is just that, it doesn’t matter to the state
or county what type of transaction it was. So being able to reuse the digital infrastructure across both business lines is key in a lender being able to utilize these new technologies while keeping costs down. By incorporating knowledge-based authentication (KBA) into the solution, it identifies the parties to the transaction securely decreasing fraud risk.
By moving more of these processes fully digital and never involving any printout or paper during the entire process, integrity can be better ensured across the transaction. Better integrity of the eFiles that are used in the transaction is better security and makes it much more difficult for fraud to occur around the documents themselves. By using SSO, KBA, and other technologies, you can better identify the parties to the transaction, helping to ensure it is secure and there is no impersonation happening.
There are also vendors and solutions that are helping with wire fraud. By implementing additional checks that can be automated through application programming interfaces (APIs), any time a wiring instruction is loaded into their system to be used in a closing, a lender can do a compliance check to confirm the integrity of the account listed and ownership, as an additional “belt and suspenders” to this critical process. These databases can also be called just prior to closing to double-check one last time. Of course, nothing beats educating your employees, borrowers, and trading partners to check and recheck any time there is an update or change to the critical wiring instructions.
This is a very exciting time in our industry, with a lot of needed growth in the digital arena. We are all lurching forward in the digital ecosystem that some of us have been working on for years. This new ecosystem will allow for borrowers to be remote to the transaction and digitally transact from the comfort of their environment, which will drive amazing efficiencies and higher levels of security.
MBM
Simplifying the Digital Imperative for Mortgage Lenders
By Brian Madocks, eOriginal
When the coronavirus pandemic hit, mortgage lenders had to act fast. They needed to quickly digitize as many activities as possible to enable a “socially distanced” mortgage process.
In response, many lenders raced to implement digitized process steps such as remote online notarization (RON). But tools such as RON are only part of the answer. And applications implemented piecemeal aren’t effective in the long term.
The answer? First, you need purpose-built, tightly integrated digital solutions. But even more important, your organization must actively pursue digital adoption that powers every step of the endto-end mortgage process.
FOUR STAGES OF MORTGAGE DIGITIZATION
Digitization of mortgage lending involves much more than a buyer attaching an electronic signature to a closing document. True digitization extends across four key stages: 1. Loan application – Customers digitally apply for a mortgage through online channels. The loan originator’s applications then score the borrower and make a judgment on approval in an automated manner. 2. Loan closing – The borrower, lender, and settlement agent digitally come together to execute the required documents. 3. Loan management – Loan assets are stored or transferred to a custodian with compliance certainty to meet all requirements as transferrable records. 4. Loan monetization – The mortgage is most often sold into the secondary market through Fannie
Mae, Freddie Mac, or Ginnie Mae.
Throughout these stages, legal and regulatory compliance are paramount. For example, when a loan is created, it must comply with governing laws such as the Uniform Electronic Transactions Act (UETA) and the E-Sign Act. It also needs to meet all safe harbor standards.
Likewise, a loan must be tamper-sealed to ensure it hasn’t been modified without authorization. And it requires an immutable and auditable digital chain of custody and evidence to show every action taken on the single, authoritative copy.
Fannie Mae, for example, demands that the originator create an authoritative copy. A digital loan isn’t static, which means you need to create a legally enforceable loan from the moment it’s signed all the way through its lifecycle. Enforceability means that if you own a loan, you can demonstrate: • The loan was created properly; • It wasn’t altered without permission; and • If there was an authorized alteration, it was properly documented and stored with a digital chain of custody and evidence.
SIMPLIFYING DIGITAL ADOPTION AND ACCELERATING LIQUIDITY
In our new COVID-19 era, mortgage lenders want to achieve digital adoption quickly. That’s an important goal, but it’s also crucial to approach your digital journey in a thoughtful way.
The key is choosing purpose-built solutions. As one example, an appellate court recently ruled that a plaintiff couldn’t show that a loan was compliant or enforceable because it failed to use a digital platform specifically designed for digital loan and asset management.
Another good example is RON. Many firms have moved fast to implement a RON solution. Digitized notarization makes a lot of sense. But what if the closing process involves a hybrid of in-person and remote steps? And which files do the lender or settlement agent need to present to the notary? All 30 documents typically involved in mortgage close or just those documents that actually need to be notarized?
Therefore, your digital mortgage solution needs to be purpose-built, and it needs to be implemented in a way that ensures the digital chain of custody and evidence from the first step. Speed matters, but compliance and certainty are forever.
THE DIGITIZED FUTURE OF MORTGAGE LENDING
Pre-COVID-19, loan originators were focused on how digitization could optimize the borrower’s experience. But contactless close is no longer just a convenience; it’s an imperative.
Digitization can ensure the safety of all parties during closing. Early in the pandemic, there were stories of closings that involved people sitting in cars while the settlement agent walked from car to car with the transaction paperwork. That might have worked in April, but it’s certainly not going to work for a Boston winter. Not to mention, it’s not a longterm solution.
Just as important, digitization can provide for the safety of back-office workers. Many employees now work from home. In a paper-based process, the paperwork must be physically shuttled from place to place. A digitized process enables employees to manage every step from their remote locations.
Ultimately, your digital strategy must enable the short-term goal of contactless closings and the long-term goal of delivering exceptional customer experiences and operational efficiencies. The key is to leverage purpose-built solutions for best-in-class functionality and regulatory compliance, and achieve end-to-end digitization that optimizes every stage of the mortgage lending process. MBM
THOUGHT THOUGHT LEADER
The Emerging Role of Technology
Solving challenges faced in the mortgage industry is a driving force for many tech firms.
Historically the entire industry has been slow to adopt the technology we are now seeing implemented in the emerging digital mortgage experience. A lot of factors are playing into that right now, be it regulatory compliance, cutting edge integrations of data exchanges, or COVID-19 and the push to a remote and touch-free process.
Advanced Data has always been an innovator when it comes to technology. Internally we make enhancements to our systems on a regular basis to improve the user experience. With our customizable, proprietary software Advanced Data is able to accomplish significant developmental advancement without the common roadblocks.
Part of our technological success has been our dedication to strong partnerships with other innovators. Collaboration is key and strong partner relationships allow us to be a part of the ongoing conversation. The end game is improving the entire mortgage experience. We’re at the table, making decisions that provide solutions to us, our clients and ultimately the consumer. Not only are we enhancing the digital mortgage experience overall but we’re a voice in shaping it. Our eVoE™ tool is on the top of that list. eVoE™, released in early 2018, proved to be a tool that both improved our internal processes and allowed us to deliver a digital verification that is 100% complete, legible, secure and reliable. Fraud prevention is at the heart of what we do. Although we cannot prevent the occasional and unfortunate misrepresentation of an individual borrower or an employer providing inaccurate or misleading financial information, our dedicated and experienced team knows how to flush that out and is trained to probe the questionable. The human factor here is why we continue to pursue further development initiatives and enhancements within our own systems, integrations and operations. eVoE™ allows us to sidestep the inconsistencies
Roisin Lakings CFO of Advanced Data
that occur when relying on a hard copy 1005 and the more conventional methods of faxing and email. Utilizing eVoE™ allows employment or income verifications to happen digitally and securely with an audit trail that accounts for every individual that ‘touches’ that document.
Advanced Data’s participation in Fannie Mae’s Day 1 Certainty® or D1C initiative is also evidence of our resolute commitment to our operations and verification processes. We have been scrutinized, combed through,
turned over, tested and quality controlled to ensure accuracy and implementation of best practices. The assiduous due diligence we participated in revealed the true quality of the products and services we return to our clients. It ultimately proves our value to the lender and the ROI is huge, not only for them but for us. In terms of efficiency we are processing verifications of employment and income in record numbers, and doing so with precision, record turn times, and maintaining the highest quality verifications driven by regulatory compliance.
Our integrations with Ellie Mae’s Encompass, Calyx Point or Lending QB, to name a few, along with our very own proprietary software for direct ordering, make us a notable vendor of choice. Couple these technology-driven partnerships with digital products such as Verification of Assets (VOA) or Payroll Data Verification, Advanced Data is again on the front line, leading us to expanded partnerships with leading nationwide payroll companies. The continued need to develop integrations that solve the ongoing challenge of human error when verifying consumer employment and income can and will be resolved
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Advanced Data is dedicated to the verification process. We are the only DU Validation Service provider that is solely focused on the verifications segment. Our partnerships with Equifax’s TWN, Finicity’s Verification of Assets (VOA), PitchPoint’s Fraud Reports and ServiceLink’s Flood Zone Determination along with our direct connection to the SSA and IRS, makes our all-inclusive suite of products truly a Single Source Solution for Verifications.
COVID-19 certainly played a role in pushing the digital mortgage experience along, forcing lenders to adopt policies, procedures and partners that enable them to continue to meet consumer demand amid this year’s record breaking mortgage and refi volume. The pandemic has pushed much of decade.
Borrowers want a digital experience, they are used to a digital experience and have come to trust the digital experience: think Amazon. Now more than ever consumers are busy juggling work, distance learning, health concerns, community initiatives, social and political issues all while finding a work-life balance that is sustainable. Advanced Data understands this, having already established the foundation of a remote corporate culture. We have a long track record of leveraging a variety of communications platforms to stay connected, organized, to cultivatecommunications and optimize team dynamics at all levels of our organization. This experience has enabled us to develop and sustainably grow the best verifications fulfillment team in the industry.
