Mortgage Banker December 2023

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HELP COULD BE COMING FOR NATIVE AMERICAN HOMEBUYERS TECH FIGHTS FORECLOSURES LOAN LIMITS ARE MEANINGLESS

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REGULATORY CORNER FHFA ANNOUNCES REPORT ON THE SALE OF NON-PERFORMING LOANS BY THE ENTERPRISES The Federal Housing Finance Agency (FHFA) released the latest report on the sale of nonperforming loans (NPLs) by Fannie Mae and Freddie Mac (the Enterprises). The Enterprise Non-Performing Loan Sales Report includes sales information about NPLs sold through December 31, 2022. Borrower outcomes reflect NPLs sold through June 30, 2022.

The sale of NPLs reduces the number of delinquent loans in the Enterprises’ portfolios and transfers credit risk to the private sector. FHFA and the Enterprises impose requirements on NPL buyers designed to achieve more favorable outcomes for borrowers than foreclosure.

This report reflects activity reported prior to FHFA’s decision in February 2023 to pause Enterprise NPL and RPL Sales during a review of the sales programs. The pause was lifted in June 2023. FHFA also published an updated NPL/RPL Fact Sheet in June 2023 reflecting enhancements to the NPL and RPL sales programs, including: • Loans that are under a forbearance plan, or that were under a forbearance plan within the past 90 days, are not eligible to be included in NPL or RPL sales.• RPL buyers and servicers, including subsequent servicers, are required to provide loan level reporting to the Enterprises for four years after the RPL sale.

• RPL buyers’ servicers are first required to evaluate borrowers who are able to resolve a financial hardship for loss mitigation that keeps the same monthly mortgage payment by moving past-due principal and interest to the end of the loan as a non-interestbearing balance (“payment deferral”), due and payable at maturity, sale, refinance, or payoff.

• The December 2022 NPL Sales Report shows that the Enterprises sold 163,297 NPLs with a total unpaid principal balance (UPB) of $30.0 billion from program inception in 2014 through December 31, 2022. The loans included in the NPL sales had an average delinquency of 2.8 years and an average current mark-to-market loan-tovalue (LTV) ratio of 84% (not including capitalized arrearages).

STAFF

Vincent M. Valvo CEO, PUBLISHER, EDITOR-IN-CHIEF Beverly Bolnick ASSOCIATE PUBLISHER Christine Stuart NEWS DIRECTOR Keith Griffin SENIOR EDITOR Katie Jensen, Sarah Wolak, Erica Drzewiecki, Ryan Kingsley STAFF WRITERS Alison Valvo DIRECTOR OF STRATEGIC GROWTH Julie Carmichael PROJECT MANAGER Meghan Hogan DESIGN MANAGER Christopher Wallace, Stacy Murray GRAPHIC DESIGN MANAGERS Navindra Persaud DIRECTOR OF EVENTS William Valvo UX DESIGN DIRECTOR Andrew Berman HEAD OF CUSTOMER OUTREACH AND ENGAGEMENT Matthew Mullins, Krystina Coffey MULTIMEDIA SPECIALIST Melissa Pianin MARKETING & EVENTS ASSOCIATE Kristie Woods-Lindig ONLINE ENGAGEMENT SPECIALIST Regina Morgan ADVERTISING SALES EXECUTIVE

NPL Sales Highlights • The average delinquency for pools sold ranged from 1.1 years to 6.2 years.

• Freddie Mac has sold 50,567 loans with an aggregate UPB of $9.7 billion, an average delinquency of 2.7 years, and an average LTV of 90%.

• Fannie Mae has sold 112,730 loans with an aggregate UPB of $20.3 billion, an average delinquency of 2.8 years, and an average LTV of 81%.

• NPLs in New Jersey, New York, and Florida represent 40% of the NPLs sold.

Nicole Coughlin ADVERTISING ASSOCIATE Lydia Griffin MARKETING INTERN

Borrower Outcomes Highlights • The borrower outcomes in the report are based on 152,313 NPLs that were settled by June 30, 2022, and reported as of Dec. 31, 2022.

• Compared to a benchmark of similarly delinquent Enterprise NPLs that were not sold, foreclosures avoided for sold NPLs were higher than the benchmark.

• NPLs on homes occupied by borrowers had the highest rate of foreclosure avoidance outcomes (43.8% foreclosure avoided versus 17.4% for vacant properties).

• NPLs on vacant homes had a much higher rate of foreclosure, more than double the foreclosure rate of borrower-occupied properties (75.4% foreclosure versus 28.8% for borrower occupied properties). Foreclosures on vacant homes typically improve neighborhood stability and reduce blight as the homes are sold or rented to new occupants.

• The average UPB of NPLs sold was $184,231.

FHFA will continue to provide reporting on NPL sales borrower outcomes on an ongoing basis. Additionally, FHFA is considering alternative measurements to compare borrower outcomes post-sale to similarly delinquent Enterprise NPLs that were not sold.

If you would like additional copies of Mortgage Banker Magazine call (860)719-1991 or email info@ambizmedia.com Submit your news to editors@ambizmedia.com

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© 2023 American Business Media LLC. All rights reserved. Mortgage Banker Magazine is a trademark of American Business Media LLC. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: American Business Media LLC 88 Hopmeadow St. Simsbury, CT 06089 Phone: (860) 719-1991 info@ambizmedia.com

M ARKETS

The Loan Limits Changed: So What?

STABILITY GETS ADDED TO THE HOUSING MARKET

BY ROB C H R I S M A N, C O N TRI BUTOR, MORTGAGE BANKER MAGAZINE

4 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

T

hroughout 2023, and for many years in the past, the bulk of residential loan production has been “Agency.”

Call them Freddie Mac and Fannie Mae, also known as the Government Sponsored Enterprises, the GSEs, or the Agencies, both are overseen by the Federal Housing Finance Agency and their policies and procedures ripple through the industry. This includes loan limits.

Recall that “Conventional Loans” are defined as any mortgage that isn’t insured by a government agency. “Conforming Loans” are simply a conventional loan program that conforms to criteria set forth by Fannie Mae, Freddie Mac, and the FHFA, which is their regulator. Traditionally, conventional conforming loan limits are announced right around Thanksgiving, and they recently came out. But a month earlier, in October, several lenders, investors, and private mortgage insurance companies “jumped the gun” on the official news and, calculating the change in home prices that the Agencies monitor, established their own limits.

Every year the loan limits are reviewed and adjusted according to the home values across the country. The FHFA adjusts the conforming loan limits to reflect changes in the housing market. This helps ensure the average homebuyer can still get a conventional mortgage, even as housing costs rise.

The FHFA, which oversees Freddie & Fannie, determines the loan limits with its House Price Index report which tracks the average increase in home values over the year and then adjusts the loan limit accordingly. A permanent formula was established under the Housing and Economic Recovery Act of 2008 (HERA). If you’re interested, look for Section 1124, pages 39-40.

WHO’S TO CARE? Since the creation of the conforming mortgage products in 1980 (with an original limit of $93,750) until 2006 there had never been a year without an increase in the loan limit (save for a $150 decline in 1990).

From 2006 to 2016, the limit retial loan fundings are priced, mained at $417,000. In 2008, as underwritten, and processed to a reaction to the severe decline Agency guidelines. The amount in real estate sales and values, of business done through other FHFA created the “high balance” channels, such as jumbo, FHA or “conforming jumbo” products or VA, is directly influenced for the GSEs, which have slightly

by Freddie Mac and Fannie stricter underwriting guidelines, Mae’s pricing and underwriting higher loan limits, and higher ROB CHRISMAN guidelines. costs/rates.

Loan limits determine the The official procedure didn’t stop some approval guidelines for mortgages within groups from pre-empting the FHFA’s the loan limit range.

“Conforming,” or calendar and calculations & announcement “conventional,” mortgages are funded by by coming out with their own 2024 loan lenders and sold to either Fannie Mae or limits. Lenders and investors like Guild, Pennymac, CMG, Supreme, SWBC, United Freddie Mac (the GSEs), which then pool mortgages and create MBS and sell them to investors. Lenders approve and fund conforming loans using guidelines established by either Fannie or Freddie (there are some slight variances). If a mortgage fits the guidelines and is done in a compliant manner, it can be purchased by the GSE or by an aggregator who will in turn sell it to F&F. Investors who purchase MBS from either Fannie or Freddie know that their investment meets the criteria required by the issuing GSE. Loan limits are set to ensure the GSEs are facilitating financing for families that can benefit the most from lower down payment lower interest rate mortgages.

Limits are important because a family needing a mortgage for $750,000 can obtain a conforming mortgage at, say, 7.5% instead of a high-balance ( jumbo) mortgage for 8 or above. The family needing a Wholesale (UWM), and Rocket rolled out mortgage can benefit from easier undersingle-family limits of $750,000. Private writing standards and possibly a lower rate mortgage insurance companies like Arch, from a high-balance conforming mortgage Enact, Essent, and National MI followed. instead of a “jumbo” mortgage.

Given the appreciation that we’ve seen in Higher loan limits enable families to single family homes during the pandemic, afford a higher priced home, or the samelimits have really shot up: in 2020 it was priced home with a smaller down pay$548,250, went $625,000 for 2022, and ment. This also has the effect of putting 2024 has followed. (Be careful of apparent upward pressure on home prices or at least misleading headlines claiming falling real dampening any slowdown in prices. And all estate values.) of this helps lend stability to the housing Why should the average lender care? As noted above, the lion’s share of residenmarket.

The family needing a mortgage can benefit from easier underwriting standards and possibly a lower rate from a high-balance conforming mortgage instead of a “jumbo” mortgage.

MORTGAGE BANKER MAGAZINE | DECEMBER 2023 5

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C O M M UNI T Y

Battle Cry PROPOSED LAW COULD EASE LENDING, HOME BUYING IN NATIVE AMERICAN COUNTRY

BY E RICA D RZE WIECKI , STA FF W R I T E R, MORTGAGE BANKER MAGAZINE

8 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

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o say Native Americans have been challenged by home ownership is quite an understatement.

In the 500 years since the dawn of their upheaval by European settlers, there have been mass relocations, bloodshed, and complete eradication of tribes.

The U.S. government is attempting to right the wrongs of its predecessors to this very day.

The latest effort, known as the Tribal Trust Land Homeownership Act of 2023, unanimously passed through the Senate in July and is still being considered by the House of Representatives. This legislation would establish new requirements for the U.S. Bureau of Indian Affairs, (BIA) expediting the completion of loan application approvals and eliminating delays thousands of Indigenous families face when buying or building a home on their tribe’s reservation.

A VERY LONG STRUGGLE The U.S. government took more than two-thirds of all reservation lands - over 90 million acres - from Indian tribes between 1887 and 1934, according to the National Congress of American Indians (NCAI). The Indian Reorganization Act of 1934 was the first law to halt this devastating practice, but only 8% of the land taken was reacquired in trust status since then.

“If you get down to it, technically, tribes don’t even actually own the land that their reservations are on.

It’s owned by the federal government and held in a trust relationship. And that dates back to the concerns about Natives losing their lands, which unfortunately happened over and over again in our history,” says Brett Robinson, founder and managing director of 1st Tribal Lending, a division of Click n’ Close Mortgage,

Inc., that bills itself as the nation’s largest originator and servicer of Section 184 mortgage loans.

The U.S. Department of the Interior’s Sec. 184 Indian Housing Loan Guarantee program was established by Congress in 1992 to facilitate homeownership and increase access to capital in Native American communities.

“It has been a very, very long struggle for them,” says Miki Adams, president of CBC Mortgage Agency, a firm owned by the Cedar Band of Paiute Indians of Utah, which strives to increase affordable and sustainable homeownership.

She recalls the 1996 passage of the Native American Housing Assistance and Self-Determination Act, (NAHASDA) designed to provide tribes federal assistance in a manner that recognizes their right to selfgovernance.

“That gave them more ability to

MORTGAGE BANKER MAGAZINE | DECEMBER 2023 9

design their own housing programs that really met the needs within their own communities,” Adams says. “When you think about what it takes to own or buy a home outside of the Native American community off the reservation, you simply don’t have the bureaucracy that you do being on the reservation and having to work with another agency in order to just get title clearance.”

That bureaucracy has fostered an inequitable situation for tribal communities.

Currently, 40% of on-reservation housing is considered substandard, compared to 6% of housing outside of Indian Country. Nearly onethird of homes on reservations are overcrowded; less than half are connected to public sewer systems and 16% lack indoor plumbing altogether.

“I think that federal policies have undermined the availability of adequate housing on Indian land for centuries,” Adams says. “It’s been a challenge.”

Robinson points to the cultural differences of tribal communities, rooted in the centuries-old battle they’ve fought to claim the wilderness they call home as their own.

“If you grew up in a family that owned their own home, you would grow up thinking, well, when I get older, I’m going to own my own home.

I think for Native Americans who grew up on a reservation, in the past, housing was provided by the government or the tribe. You didn’t really have that culture of home ownership.”

Establishing credit - a necessary step on the path to owning a home - takes time and money.

Also, in order to be approved for home financing on their lands, tribal authorities are required to establish statutes to govern lending. This has been another roadblock.

Robinson headed to Washington, D.C., this fall to

Miki Adams President CBC Mortgage Agency

Brett Robinson Founder and Managing Director 1st Tribal Lending

participate in a Sec. 184 lender summit on the statute’s underwriting guidelines.

“The guidelines haven’t been updated since 2014, so a lot has changed since then,” he said before the trip. “We’re hoping that we’ll see a lot of things that need to be addressed and hopefully some improvement.”

THE 2023 ACT THE TRIBAL TRUST LAND Homeownership Act would establish timelines for the BIA to complete mortgage processing and implement a realty ombudsman to facilitate communication between tribes, lenders, and the federal agency. 1st Tribal Lending provided insights that led to its writing.

10 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

“We’re continually working with the BIA to try to improve their processes,” Robinson says. “Our primary goal with this Act is to get a couple of centralized offices within the BIA to just focus on handling mortgage issues across the country.”

The gist of the problem, according to mortgagees who specialize in Sec. 184 lending, is that there are just too many regional land title recording offices (LTROs) and BIA outposts.

“All the documentation has to flow through all offices, and it’s just a very inefficient process,” Robinson explains.

“In some areas, it works great, and in a lot of other areas, it can take months or years to get things resolved. We feel that if there were specialists within the BIA and all they did was handle preparing TSRs (Title Status Reports) and recording mortgages…it would really simplify things.”

In addition to its role as the administrative arm of tribal lending, the BIA helps facilitate down payment assistance programs like CBC Mortgage’s Chenoa Fund.

“The bureau itself has become an inefficient way for Native Americans to secure home ownership opportunities within the reservation,” Adams says.

“Unfortunately, they’ve been very encumbered by their processes and by the backlog of recording title records within Indian country. We’ve heard of delays of six months, but, truthfully, the delays could be greater than that, and it’s caused some banks to not even consider lending within Indian Country.”

That’s a problem that the Tribal Trust Act seeks to solve by improving the treatment of title status reports and land title recording offices by the BIA. “The bill establishes new requirements for the processing of residential leasehold mortgages, business leasehold mortgages,

“When you think about what it takes to own or buy a home outside of the Native American community off the reservation, you simply don’t have the bureaucracy that you do being on the reservation and having to work with another agency in order to just get title clearance.” > Miki Adams, CBC Mortgage Agency

MORTGAGE BANKER MAGAZINE | DECEMBER 2023 11

land mortgages, and right-of-way documents,” Adams says. “It outlines required response times for the completion of certified title status reports, notification of delays in processing, the necessary form of notices and delivery of certain reports.

Honestly, in any organization, you can’t manage what you don’t measure.

So having deadlines, timeframes, and metrics for how you manage that process is necessary in order for it to work efficiently.”

The Act will also open up access to the Trust Asset and Accounting

where a regulation prohibited the federal government from taking land in the trust up until December 2014.

Only about 15% of 1st Tribal loans fund properties on tribal trust lands.

The majority are fee simple, which denotes the maximum ownership in land that can be legally granted.

“In order to be an approved lender in the (Sec. 184) program, you can’t just do work on fee simple properties,” Robinson says. “You have to be willing to also work on tribal trust loans. That scares away a lot of people because they just don’t have the experience or

to serve them,” Robinson explains.

When his company does a loan on tribal trust lands, it becomes a leasehold mortgage because it is based upon a lease the borrower gets from their tribe. Some staff are Natives themselves, bridging the gap to outreach.

“All the folks who work for us are solely dedicated to Native lending and Native home ownership. They’re all very experienced in all the aspects of tribal trust lending or fee-simple with Section 184 and are uniquely suited to helping borrowers through the process.

“If a Native borrower wants to buy a house, there are plenty of existing homes off tribal lands that they could buy, but if they want to live on their reservation, a lot of times the only way they can make that happen is to build a home.” > Brett Robinson, 1st Tribal Lending Management System (TAMS) to both lenders and tribal members. TAMS is the platform used by both the BIA and LTROs to track title records.

“They should be able to go in and look at the status of where things are,” Adams says. “I think this provides reassurance that there’s some accountability and that things aren’t going to go into a black hole.”

This year’s legislation was introduced with bipartisan support by South Dakota Senators John Thune and Mike Rounds, as well as Sen. Tina Smith of Minnesota and Sen. Jon Tester of Montana. The Mortgage Banker Association (MBA) also issued its stamp of approval.

THE LAND The U.S. is home to about 550 federally recognized tribes. Many are in Alaska,

know-how to work with the BIA and to understand what’s going on behind the scenes.”

Many loan officers steer clear of tribal trust lands altogether due to the involuted process of working within the parameters.

“Two of the most active states in the program are Alaska and Oklahoma, which have very little trust land,” Robinson adds. “They have territories and boundaries of their influence, but they weren’t actually set up as reservations.”

This history traces back to the Trail of Tears, when tribes, including the Cherokee and Chickasaw, were forcibly relocated to the frontier of the American West.

“There are lots of Native Americans in Oklahoma because of that, but the land status is all just fee simple type transactions, which makes it a lot easier

They’re doing home buyer training and things like that to get people credit and income ready.”

CBC Mortgage recently pivoted its focus to the U.S. Department of Agriculture (USDA) Farm Service Agency’s Indian Tribal Land Acquisition Loan Program.

“Their procedures are less challenging from a time standpoint; their technology has improved and they’re prepared to address and stay on top of the title issues,” Adams says.

“With our recent USDA approval, we are looking to expand and be able to do more lending on reservation for our tribal members.”

THE LENDERS There were 169 lenders on HUD’s list of Sec. 184 approved lenders as of Sept. 1.

Loans are delivered to CBC CONTINUED ON PAGE 14

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Mortgage by correspondent-approved lenders, so they’re actually closed loan files at that point.

“Once that loan is delivered to us, then it gets securitized into the secondary market,” Adams says. “We do actually originate loans to our tribal members ourselves so those are not delivered to us via a correspondent lender. For the most part, though, those loans have been to tribal members off reservation.”

since added a retail component and licenses in more than 40 states.

“We do about half the Section 184 business nationwide, and we have a couple-billion-dollar servicing portfolio,” Robinson says.

HUD decreased its Sec. 184 loan guarantee fees in July of this year as a result of the program’s high success and low default rate. Advocates are still working to make it more widely available.

buy, but if they want to live on their reservation, a lot of times the only way they can make that happen is to build a home,” Robinson says.

He calls this “the most challenging entry into homeownership” since the people who build custom homes are typically wealthier and more experienced than first-time homebuyers.

But none of these struggles of stratification run as deep as the lack

Robinson got started in the early 2000s when he owned his own mortgage company in Santa Fe, New Mexico. That’s where he began working with Native borrowers, through national lender Greenpoint.

“When the mortgage meltdown happened, that company shut down,” he recalls. “I had a relationship with folks that worked there, about a half a dozen people, and they were really dedicated to what they did and they wanted to keep doing it and I felt like it was a great opportunity.”

The origins of 1st Tribal Lending grew from there. The company has

“We finally got HUD to open up to more counties in Texas and they also just recently added the state of Tennessee,” Robinson says. “So it’s kind of slowly happening, but there’s still a few states, mainly on the East Coast, where Section 184 is not available.”

About half of 1st Tribal Lending’s financing on tribal lands consists of construction loans, while only about 10% of those off-reservation fund new construction and renovations.

“If a Native borrower wants to buy a house, there are plenty of existing homes off tribal lands that they could

of infrastructure and housing stock that still exists on tribal lands. Even if Native homebuyer-hopefuls can get their tribe to assign a land lease to them, that parcel may not be connected to utilities.

Like their borrowers, the lenders of Indian Country are resilient.

“It’s a challenging little niche of the mortgage business,” Robinson says.

“But it’s rewarding to help and work with probably the most underserved of borrower communities in the country.”

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S P O N S O R E D

E D I T O R I A L

Transforming the Appraisal Process with Jaro: A Blend of Quality and Efficiency

I

BY: GARETH BORCHERDS, MANAGING DIRECTOR OF ASCENT SOFTWARE GROUP

n the ever-evolving landscape of real estate, the appraisal process remains a cornerstone, determining the value and viability of property transactions.

The challenge, however, lies in managing this critical process efficiently while upholding the highest standards of quality. This is where Jaro, the modern appraisal management solution by Ascent Software Group, shines, transforming the appraisal landscape with its innovative approach.

In the low volume market, the best lenders are the ones that are challenging themselves to improve their operations and tools to be better prepared for handling volume increases. At Jaro, we are focused on making sure that while turn times are not a problem in the industry that we are doing our part to create a better future for appraisals. To allow for higher quality products that can be delivered fast and efficiently.

Lenders and banks need to take a proactive approach to how they manage their panels and the quality produced by those panels. Lenders need to be more proactive in managing buyback risk along with appraisal bias and unfair lending practice claims. There are tools and methods we can use today that can significantly reduce the risk of these items based on appraisals. We do that at Jaro through use of data and some important features in our system. Here are areas where Jaro can help your processes.

Technology as an Enabler for Reducing Waste Jaro’s approach in all things is that we give you the tools to automate much of your

process, while allowing you to identify when something should be pulled off the automation track and put in front of a person that can effectively make decisions when an appraisal or property will not meet the underwriting guidelines for the lender. We can help reduce manual processes without increasing your risk.

to the final report, Jaro's quality control mechanisms ensure accuracy, compliance with industry standards, and adherence to client-specific requirements.

The platform's innovative use of data-driven insights aids in identifying Gareth Borcherds potential issues early in Managing Director at Ascent the process, allowing for Software Group proactive management and resolution. This foresight not only saStreamlined Vendor Management ves time but also safeguards the integrity for Enhanced Performance of the appraisal, ensuring decisions are At the heart of Jaro's effectiveness is its made on the most reliable information. advanced vendor management system.

In a field where the proficiency and re- The Future of Appraisals: liability of appraisers are paramount, Jaro Fast, Accurate, Reliable ensures that only the best are on your In an industry where time is of the esteam. By leveraging a comprehensive vet- sence, Jaro stands out by delivering swift ting process, Jaro facilitates the selection yet thorough appraisals. The platform's of top-tier appraisers, ensuring that your sophisticated algorithms expedite the appraisal process is in capable hands. appraisal process without cutting corners Jaro's platform goes beyond mere seleon quality. This speed, coupled with the ction. It fosters seamless communication uncompromising accuracy of Jaro's appand coordination with vendors, ensuring raisals, makes it a game-changer in the all parties are aligned with your objectireal estate sector. ves and timelines. This approach not only enhances the efficiency of the appraisal process but also ensures that quality is ne- Conclusion: Jaro - Your Partner in Excellence ver compromised.

Jaro redefines the appraisal process, striQuality: The Non-Negotiable king an optimal balance between efficienPriority cy and quality. It empowers real estate Understanding that the foundation of professionals, lenders, and financial insa reliable appraisal lies in its quality, titutions with a tool that manages venJaro integrates stringent quality control dors effectively and upholds the highest measures. Automated yet adaptable, the- standards of appraisal quality. With Jaro, se controls scrutinize every step of the experience the future of appraisals – fasappraisal process. From initial assessment ter, more accurate, and utterly reliable.

MORTGAGE BANKER MAGAZINE | DECEMBER 2023 15

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T EC H N O LO GY

A Servant’s Heart

HELP TROUBLED BORROWERS, HELP YOURSELF

BY E R I C A D R Z E WIECKI , STA FF W RI T E R, MORTGAGE BANKER MAGAZINE

“We’re all paid up for another month” a husband tells his wife as they celebrate their 60th day as new homeowners. Fast forward six years and the bills have multiplied, along with the number of people living in the household. Consequently, their ability to pay the mortgage has dropped like a penny into a wishing well.

D

efaulting on payments is inevitable, but foreclosure and bankruptcy don’t have to be.

Luckily their loan officer intervened after that first delinquent payment and they had a frank conversation about how to get back on track. The lender never had to initiate steps to protect its investment and the family remained in their home for another 25 years.

High interest rates coupled with inflation mean lenders can expect potential financial losses now and in the years to come. Instead of preparing for an increase in foreclosures, they can consider different options available to their borrowers before the crises occur.

TECH SOLUTIONS One company lessening the burden is loss mitigation technology provider WaterfallCalc, which came up with a new tool allowing borrowers to request assistance from their mobile phone or computer.

It also allows lenders and servicers to calculate the appropriate loss mitigation option for each individual loan 18 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

case based on insurer and agency requirements.

“Borrowers, because it’s too arduous or too difficult, wait until just before their foreclosure sale to decide OK, I’ve got to try and save my house. The easier you make it for them, the less delinquent they are or the less likely they are to use up their partial claim or deferral amount in order to get assistance to bring their loan current,” says WaterfallCalc founder Donna Schmidt.

Borrowers can submit proof that they need help, such as a pay stub, by uploading a photo of it along with their application, to this program.

The company’s analysis of defaulting borrowers at the height of the covid-19 pandemic found that 53% did not actually need the big reduction in their mortgage payment.

“What they needed was to understand their other bills are their problem,” Schmidt explains.

“It turned servicers almost into counselors.”

If mortgage pros don’t take that approach now, she adds, they’re going to see heavy redefaults.

“When a borrower does fall delinquent, it’s going to be extremely important to make it as easy as possible for them to request assistance.”

She suggests lenders and servicers use monthly billing statements to communicate to borrowers that there is help available.

Photo by Alex Green

ASSISTANCE AND EDUCATION FHA’s National Servicing Center (NSC) offers a variety of loss mitigation programs to assist those it insures who are facing financial hardship. That includes forbearances, loan modifications, partial claims, deferrals and preforeclosure sales. The other GSEs have similar programs available.

“Foreclosure should almost never be an option,” says Scott Schang, partner at BuyWise Mortgage and founder of FindMyWayHome. com. “They should always look at trying to sell the home and preserve that equity, which gets eaten up by penalties and interest and attorneys’ fees the lender is allowed to tack on to the transaction. A consumer with equity could literally save $80- to $100,000 dollars, depending on what market they’re in, by just selling the home.”

One might detect that Schang isn’t in this MORTGAGE BANKER MAGAZINE | DECEMBER 2023 19

business for the fame or fortune.

“I’m the guy that spends 45 minutes to an hour on the phone with a customer that I can’t help just because I want to put him in the right situation.

And that goes against everything that every sales coach has ever taught,” he explains. “Don’t waste your time on people that you can’t make money off of. I just don’t see it that way. I see it as an opportunity to earn their trust and get referrals. And I think it’s good karma. As loan officers, we’re professional problem solvers. It’s okay if we don’t make money today. It goes into your karmic marketing bank and you can withdraw from that one, two, three, four, five years in the future.”

Schang became a mortgage loan officer 23 years ago, then a branch manager and broker-owner. Since 2007, he’s been a blogger. With around 30,000 unique visitors each month, FindMyWayHome.com simplifies complicated mortgage and real estate topics to help consumers make smarter financial decisions.

“Listen, when hardship happens, you have choices to make. And when you know what the light looks like at the other end of the tunnel, it’s easier to make those choices so that you know what you’re in store for,” he says. “This is really an opportunity to make sure that people understand all of their options. You can’t necessarily fix somebody’s financial predicament, but you can educate them on how to navigate through as gracefully as possible, and give them hope that if you do these things the right way, this is when you can become a homeowner again.”

Filing for bankruptcy doesn’t eliminate secured debt like mortgages.

It suspends collection efforts until further notice. Schang calls this approach to financial turmoil “the easy button.”

“A lot of these people through no fault of their own are all of a sudden going to be delinquent and they’re going to need assistance and the assistance is somewhat limited. It’s going to be very interesting to see what happens in the next six months.”

20 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

> Donna Schmidt Founder WaterfallCalc

“The consumer just wants a breather, and bankruptcy is the breather,” he says. “There’s a lot of misinformation about bankruptcy. Back in the day, most of those bankruptcy attorneys were ambulance chasers. They would tell people that you could save your home if you file bankruptcy. And that’s simply not the case. It suspends the payments while they’re in the process of bankruptcy, but the lender still has the right to foreclose on that home once the bankruptcy is discharged. And a lot of consumers don’t know that.”

Fannie Mae, Freddie Mac, FHA, USDA and VA loans are all treated differently, depending on what mortgage activity is taking place.

“How the home is treated, whether it’s included in bankruptcy or not, and when the foreclosure happened in relation to the bankruptcy - all of these things affect the timelines for consumers to be able to get back into homes. And that’s ultimately the goal of my advocacy,” Schang says.

A deed-in-lieu of foreclosure, for example, saves lenders the cost of hiring an attorney to evict the homeowner, while a short sale doesn’t really benefit anybody, except maybe the buyer. If there is a notice of default on a property and it is sold, the seller can potentially make another home purchase in one year. If that home were to fall into foreclosure, they would be looking at a minimum three-year wait.

“Foreclosure, bankruptcy and short sale all have similar timelines for waiting periods, except for Fannie Mae and Freddie Mac,” Schang says.

“If you just have a foreclosure without bankruptcy, it’s seven years. But if it’s a short sale or a deed-in-lieu, it’s a fouryear wait.”

In the case of deed-in-lieu, he adds, many lenders actually pay borrowers to vacate the property and rent someplace else.

“There’s an agreement that the consumer’s gonna leave the home in good condition. And that’s basically it.

The bank takes the house back, they fix it up, they send it to a real estate agent or put it in auction and they resell the property to recoup their costs.”

WHAT ARE THE STATS? The expiration of COVID-era government initiatives such as foreclosure moratoriums and loan forbearance have left many homeowners in a bad spot.

As mortgage veterans might recall, foreclosure filings started to tick upwards by more than 10% per quarter in the years leading up to the housing market crash of 2008.

However, analysts contend, today’s market is more of a sign of the times than impending doom.

“We’re expecting a 20% increase in defaults just with our current clients,” Schmidt says of the coming months.

“A lot of these people through no fault of their own are all of a sudden going to be delinquent and they’re going to need assistance and the assistance is somewhat limited. It’s going to be very interesting to see what happens in the next six months.”

Property data analyst ATTOM’s Midyear 2023 U.S. Foreclosure Market Report showed a total of 185,580 U.S. properties with foreclosure filings in the first six months of 2023. That included default notices, scheduled auctions and bank repossessions.

That figure was up 13% year over year, but a 185% increase from the same time period in 2021, when filings were at historic lows.

ATTOM’s latest foreclosure market analysis showed a significant uptick in Q3 2023, with a steep quarterly and annual rise of foreclosure rates. The report highlighted a 28% surge from

“I think if you’re the source of the education, you empower that consumer and you earn their trust.

And when you earn their trust, you have a chance to earn their business.” > Scott Schang

Partner, BuyWise Mortgage and Founder, FindMyWayHome

the previous quarter, totaling 124,539 U.S. properties with foreclosure filings.

This represents a 34% increase from the same period last year. Lenders started foreclosure on 68,961 U.S. properties in Q3 2023, up 3% YOY, nearly reaching pre-pandemic levels.

As for those who have taken advantage of less harmful options, Schmidt is counting the ways.

“We’ve been seeing an increasingly high number of partial claims as opposed to modifications or deferrals,” she reports. “For borrowers who need assistance with a lower payment, there’s a combo where you take a partial claim or deferral and add it to a modification. What we’re seeing because of the higher interest rates is that we’re using more and more of the allowable partial claim or deferral money - which is usually capped at about 30% of the UPB (unpaid principal balance). We’re using it up in one shot to just get a borrower a lower payment. It’s going to be incumbent on servicers to really work hard in trying to communicate to their borrowers you’ve got to make your mortgage your priority because this could be the only assistance you’ll get.”

EDUCATING LOs & CONSUMERS Faith Schwartz, founder, CEO and president of Housing Finance Strategies, founded the HOPE NOW alliance in 2007 to get loan servicers and struggling borrowers facing each other to table-talk solutions. During an interview with NMP Magazine at the start of the pandemic, she recalled how these events drove home the fact that there is a family behind every mortgage. The alliance claims that as of 2014, it had resolved more than two million cases. Schwartz could not be reached by the writing of this article, but the initiative is currently working

MORTGAGE BANKER MAGAZINE | DECEMBER 2023 21

with the FHFA and the enterprises on mortgage relief programs, according to its website.

“I think advocacy marketing is very, very underrated,” Schang points out. “Just build your network and build your authority and build your reputation as somebody who actually cares about people.”

Consumers get much of their information on the internet nowadays, which is where he has positioned himself as the go-to mortgage guru. “(Fintech) has completely empowered the consumer. The consumer has all of the control in the decision-making process now. People don’t call salespeople for answers anymore. They do Google searches, they watch YouTube videos, they go

on social media, they follow trending topics, and they look up hashtags.

It’s silly to me to think that we should behave in a way that doesn’t invite and accommodate how we shop for information online to make decisions.”

Schang encourages LOs to share stories of borrowers they’ve helped through unique situations. Chances are, there is someone else out there in a different ocean, on the same boat.

“I think if you’re the source of the education,” he says, “you empower that consumer and you earn their trust. And when you earn their trust, you have a chance to earn their business.”

Before he stopped originating loans, he would regularly hear from people

22 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

he had previously engaged with on the blog who were in a position to buy again.

This is turning the phrase “return on investment” into “return on engagement.”

“I think if you’re in a market where you’re seeing foreclosures increase,” Schang adds, “there’s a really good opportunity to collaborate with real estate professionals in the space and create education and awareness efforts. If you can head off a foreclosure and turn it into a listing for a real estate agent, you build and deepen the relationship with that real estate agent. And I think that just leads to business for all of us.”

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COVER STORY

Mortgages March On Modernity

As originators’ and consumers’ needs evolve, so too must licensing, industry alliance says

BY RYA N K I NG S L E Y, STAFF WRI T ER, MORTGAGE BANKER MAGAZINE

t’s the postpandemic’s not-sosilent majority: twothirds of American workers would rather be fully remote.

Nearly all workers desire some kind of hybrid schedule. Most employees enjoy having more time to exercise, raise families, see friends, and volunteer.

Citing existential threats to innovation that even these data giants have had difficulty quantifying, the likes of Amazon, Google, and Tesla have issued a spate of return-to-work mandates in recent months against employee opinion. The mortgage industry, on the other hand, is evolving against the grind of corporate America, instead embracing the progress and cost savings of a distributed workforce.

Over the past two years, 27 states have formally adopted policies that loosen locationbased mortgage licensing laws, the direct result of a collaborative effort by the Mortgage Bankers Association (MBA) and their member partners, state mortgage banking associations, the American Association of Residential Mortgage Regulators (AARMR), and the

I

26 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

Conference of State Bank Supervisors (CSBS), among other stakeholders.

In 2023 alone, Virginia, Montana, Florida, Illinois, Nebraska, and Nevada have enacted such policies, and Indiana, South Carolina, and Mississippi are expected to soon. “The need for flexibility in mortgage licensing is being driven as much by consumers as it is by an evolving workplace,” says William Kooper, vice president of state government affairs and industry relations for the MBA. “What began as a pandemicera emergency quickly evolved into a post-pandemic need to meet borrowers’ and mortgage companies’ changing expectations.”

Combined with the proliferation of loan processing technologies—from automated valuation models to digital closing portals—the acceptance of remote work policies by mortgage companies and regulators alike reflects the real-time evolution of origination in the digital age. >>

MORTGAGE BANKER MAGAZINE | DECEMBER 2023 27

AN INDUSTRY REGAINS ITS PRIVILEGES

R

William Kooper

Vice President of State Government Affairs and Industry Relations Mortgage Bankers Association

emote work became a necessity for lenders, loan officers, and fulfillment teams during the COVID-19 pandemic.

However, the push for modernizing locationbased licensing laws has been underway for years in the mortgage industry.

Advocates of remote work contend that originating loans has always revolved around outside sales. A successful originator does not sit idly in her office waiting for a borrower to walk through the door. She goes out into the world to find prospective borrowers and drum up future business. Yet, in the run-up to the Great Financial Crisis, it was mortgage companies’ failure to supervise loan originators – and originations, generally – that prompted federal and state regulators to rein in out-of-office operations.

For example, the National Mortgage Licensing System (NMLS), arose from the Secure and Fair Enforcement for Mortgage Licensing Act, or SAFE Act, passed in 2008.

Before the existence of the NMLS, “an originator could lose his license in Ohio on Monday and on Tuesday be re-licensed in Indiana,” quips Robert Niemi, chair of AARMR

“

“[Regulations should continue] the discussion of branch licensure requirements, given the advancements made in technology utilized in the mortgage industry and consumer preference to use online technology to conduct their mortgage related transactions.” > Charlie Fields

28 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

and director of government affairs at the law firm Weiner Brodsky Kider. States still write and enforce their own sovereign sets of licensing laws, but now state regulators can coordinate oversight through a national registry of licensed loan officers.

That licensable activities had to be performed from a licensed location was another leash attached to loan officers in the aftermath of the Great Financial Crisis. The standard made such “licensable activities” as discussing the application process with a borrower in a real estate agent’s office or accepting applications from a work device at home punishable through fines. Forced to adapt by the pandemic, the majority of states are now adopting permanent policies that allow licensed activities to occur away from licensed branch locations, so long as certain consumer protection, data privacy, and supervision provisions are met. The specific conditions that need to be met vary from state to state, but adequate cybersecurity protocols, written procedures for supervising out-of-office operations, and restrictions on the maintenance of physical records outside licensed locations are a few requirements shared by most states.

Niemi believes the COVID-19 pandemic

“

“Protection of sensitive information remains a priority for our members, and the pandemic necessitated the opportunity for financial institutions to successfully test the use of technology to ensure data protection and transition to remote work on a large scale. In that time, licensees have demonstrated that nearly all critical operational functions can take place through teleworking.” > Danielle Marlowe

presented the industry with an occasion to recognize the opportunities and responsibilities that come with the privilege of working in the mortgage business. These opportunities and responsibilities are facilitated by regulators who, at long last, are acknowledging the necessity for flexibility in location-based licensing laws if mortgage companies are expected to effectively serve borrowers in an evermore digital and evermore unstable origination environment.

For an industry notoriously resistant to change, the codification of remote work policies represents a reversal of restrictive, location-based licensing laws that, though well-intentioned, were backward-looking regulations, experts say, even at the time they were implemented.

FORGING AN ALLIANCE

I

n July 2020, Robert Broeksmit, president and CEO of the MBA, sent a letter to then president and CEO of the CSBS, John Ryan, outlining the short- and long-term challenges the mortgage industry faces related to “outdated and perhaps even anachronistic” branch licensing laws. Broeksmit requested that the CSBS join the MBA in a collaborative

effort to modernize these laws.

Broeksmit’s letter was exhibited at the (ironically, virtual) July 2020 edition of the NMLS Ombudsman meeting, alongside three similarly concerned letters submitted by: Niemi, then a senior advisor for financial services at Bradley Arant Boult Cummings LLP; Danielle Arlowe, senior vice president of the American Financial Services Association (AFSA); and, Charlie Fields, then senior vice president, now executive vice president of mortgage regulatory relations at PennyMac Loan Services. The semi-annual NMLS Ombudsman meeting is an open, themed gathering of assorted industry stakeholders designed to foster dialogue between users of the NMLS and state regulators​.

The theme for the July 2020 gathering was as relevant then as it is now: “What Happens Next? Remote Work and Supervision in a Post-Pandemic World.” One significant, short-term challenge Broeksmit and others identified in their letters was the unpredictable and uncoordinated shutting down and re-opening of states’ economies on account of COVID-19. “These uncoordinated public policy decisions,” Broeksmit wrote, “are creating confusion and potentially significant regulatory risk for state-regulated

“

“Given the industry’s record in recent months in providing remote delivery of consumer service, it is appropriate to move to a regulatory structure that embraces that dynamic on a permanent basis once appropriate safeguards are established and implemented.” > Robert Broeksmit President and CEO of the MBA

independent mortgage bankers (IMBs) that employ licensed mortgage loan originators (MLOs) and servicing personnel.” Nationally licensed companies and loan officers faced the added challenge of balancing individual and team-wide needs against each state’s directives.

But, for the most part, the temporary remote work guidance that states had issued months prior adequately addressed the immediate impact of the pandemic on companies’ operations.

Rather, with infection rates rising in the summer of 2020, those assembled focused on the future of mortgages. The letters, excerpted below, show various industry stakeholders highlighting the success of pandemic-required remote work policies, the viability of digital origination technology, and the urgent need for modernized licensing laws that support mortgage companies’ transition to an evermore digital and decentralized lending environment.

PROOF OF CONCEPT

I

“

t’s the same cast of characters at these meetings,” smiles Kooper, explaining a central reason why subsequent efforts to

“

These last five months have shown the benefits of the advancements in technology and adaptation to quickly empower companies to provide essential services in a new format.

Home is now the office as the old office has become problematic and perilous.” > Robert Niemi

MORTGAGE BANKER MAGAZINE | DECEMBER 2023 29

“When NMLS first happened and licensing first happened, states didn’t understand that somebody wanted to work out of their house half the week, or all week.” > Jeremy Potter

update licensing were met with quick success.

Attendance at NMLS Ombudsman meetings typically include representatives from the MBA, state mortgage banking associations, mortgage regulators affiliated with AARMR, and state banking regulators belonging to the CSBS, among other industry stakeholders.

Somewhat surprisingly, when the July 2020 meeting had ended, pandemic-triggered regulators were ready to revisit locationbased licensing laws. Unsurprisingly, when a majority of stakeholders are aligned, and some of those stakeholders wield commissionerlevel influence, the square wheels of government bureaucracy begin to roll. And yet, to achieve the success they have, lobbyists have had to address two specific challenges with regulators.

Because every state writes and enforces its own set of licensing laws, expanding remote work policies had to happen on a state-bystate basis. The first challenge was helping regulators grow familiar with their suggested frameworks. To do so, the MBA and AFSA, aided by state mortgage banking associations and member partners, drafted and distributed model bills that they hoped would serve as a blueprint for regulators. The MBA’s model bill addressed mortgage specific concerns and compliance with the NMLS, while AFSA’s could be applied to license types outside of mortgage lending.

And, it worked. Regulators proved receptive to the draft bill because “the language in our model bill is based on the kind of guidance regulators gave us back in 2020 when they were giving us temporary permission to do this as an industry,” Kooper explains. The pandemic provided what Niemi called in his July 2020 letter a “regulatory sandbox” for testing remote work policies in a real-world scenario. Modeling permanent policies after temporary frameworks that worked during the pandemic provided regulators with proof of concept, calming their concerns about consumer protection and data privacy.

States like Nebraska and Arkansas approved of modernized licensing, but chose to adopt

home-brewed bills, instead of the MBA’s language.

The second challenge for lobbysits to overcome was budgetary. While mortgage companies embrace the cost savings of a distributed workforce, regulators rely on branch licensing revenue for their budgets.

Mortgage companies will likely need to maintain fewer licensed branches with more employees working remotely. Niemi says that states have gotten creative to replace the potential loss of revenue.

Some states are increasing licensing fees for individual loan officers, a cost typically shouldered by employers, while other states are taking the opportunity to adjust and redistribute other licensing costs more equitably along the spectrum of small and large mortgage companies operating in their states. Other regulators expect loosening licensing requirements will increase sales volume, leading to an influx of loan officers in their states, thus licensing revenue, plus revenue collected through taxes.

REGULATION MEETS REALITY

F

ounded in 2018 and headquartered in Lindon, Utah, Canopy Mortgage has for a number of years been licensed in multiple states. Jeff Reeves, president and co-founder of the distributed retail shop, says since their inception, location-based licensing laws have more often been treated like guidance than actual requirements by nationally licensed lenders.

“Anyone who says otherwise is not telling the truth,” he says. Historically, loan officers would claim to be working from licensed branches, but that often never happened.

Instead, maintaining licensed branches no one visited became part of lenders’ cost equations. Reeves applauds efforts by the MBA and others “to help states kind of wake up and realize that any regulatory stuff that demanded physical space is really like, so 1980.”

The reality is, in 2023, most licensed loan officers already work remotely.

30 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

Jeremy Potter

Former Senior Director of Capital Markets Rocket Companies

Jeremy Potter, a former senior director of capital markets at Rocket Companies turned technology vendor, says branches and loan officers began pushing the envelope on licensing flexibility around 2015 when top-producing loan officers started pursuing licenses in every state they could, even though their “home” branch may have been located in the state where they had the most success.

Ten years ago, Potter had the task of explaining to regulators why it makes no difference where companies’ laptops or monitors sit. “When NMLS first happened and licensing first happened, states didn’t understand that somebody wanted to work out of their house half the week, or all week.”

Still hungover from the Great Financial Crisis, regulators wanted to know how companies would control loan officers, and Potter would tell them: “When they log into the system, that’s it.”

Instead of offering greater freedom to loan officers, modernized licensing has had a more dramatic impact on Canopy’s fulfillment teams – the processors, underwriters, closers, and funders typically tied to in-office operations. In part to build community and in part to promote productivity, Reeves championed being in-office prior to the

pandemic. With the majority of Canopy’s loan officers and fulfillment personnel now working remotely, Reeves admits that the pandemic “sort of” helped shift his thinking in that regard.

For more than a decade, he says, loan officers have interacted with clients mainly via phone and email. “Now, with the advent of the point of sale systems, the client can do a lot of the uploading with docs and nobody wants to come in.” Reeves worries about employees’ work-life balance, but his fulfillment teams feel more effective working remotely because they experience fewer distractions. “It was really a wake up call to owners of companies to realize that fulfillment teams could be scattered here, there, and everywhere, and things can still work” – so long as procedures exist for holding employees accountable and measuring productivity.

FLEXIBILITY A NECESSITY

T

he cyclical nature of the mortgage market makes lower fixed expenses on account of fewer leases especially advantageous in down markets.

Economic flexibility born of modernized licensing represents a major benefit for mortgage companies and employees whose attitudes have changed about the very nature of “the workplace.” Independent of geography, even back in 2008, Reeves, a former loan officer, remembers how he rarely saw his clients.

Developing a premium digital experience for both employees and

“

“It isn’t just tech—it’s how you deploy and maintain systems within the organization that makes the real difference.” > Jeff Reeves Jeff Reeves

President and Co-founder Canopy Mortgage

31

consumers will not only offer lenders a competitive advantage, but also enhance the efficiency of their remote teams. “To some of the most progressive lenders out there, I think that’s what’s accelerating their plans to have a really solid digital footprint,” observes Brett McCracken, a senior adviser at Stratmor Group.

Loosening location-based licensing laws offers flexibility and resilience to the industry for reasons independent of the next national shutdown, the MBA’s Kooper says. From wildfires to heat waves to hurricanes, the three largest mortgage markets in the country – California, Texas, and Florida – face direct and constant threats of extreme weather events that are only predicted to increase in frequency and intensity. The October 2021 Dixie Fire burned an area of north-central California larger than Rhode Island. Insurance crises in Florida and California have made closing loans, let alone qualifying for loans, more difficult.

Some state licensing frameworks, such as Illinois’ Residential Mortgage License Act (RMLA), did offer provisions for remote work prior to the pandemic, though. Accordingly, during the height of the pandemic, significant adjustments were not required for remote work to occur in the mortgage industry in Illinois. Per comments prepared for this story by the Illinois Department of Financial and Professional Regulation, the passage of House Bill 2325 earlier this year expanded on details regarding supervision requirements for which the RMLA already provided, “including procedures for record retention, schedules for conference call meetings with the office, protocols for consumer contact, and ongoing training and work performance evaluation.”

Other states, like New York, where the push to update licensing laws has not yet succeeded, still enforce controversial “commutable distance” requirements. These laws force licensed loan officers to live within a certain distance of a licensed branch. “Given the remote work flexibilities many states are offering now,” Kooper argues, “it seems we can move past the commutable distance requirement in some states. They’re not a reflection of the contemporary economy or consumers’ expectations.”

McCracken, for his part, has already experienced how licensing flexibility allows employers to recruit more competitively – and coast-to-coast – for both sales and fulfillment positions. He believes those lenders sticking with strict return-to-work policies will likely find it more difficult to attract loan officers.

Brett McCracken Senior Advisor Stratmor Group

Several months ago, McCracken was approached by the CEO of a high-producing mortgage company who was looking for a processor capable of handling 150 units per month. “I put them in contact and within an hour of that text she started working for him,” McCracken says. “Geography was not a barrier.”

A

THE DIGITAL VENEER

s regulations catch up to reality, Reeves still identifies cost to produce as the single-greatest challenge facing mortgage companies. Technology and remote work provide a range of solutions to that problem, but a one-size-fits-all model does not exist. Rather, building a mortgage company for the future begins with ensuring a company’s human functions and digital functions operate like two-lane highways, not busy intersections.

“It’s still a people and a systems business,” he notes, an advocate of balance. “As proud as we are of our technology, creating the systems that ensure that the right people are doing the right things at the right time is really, really critical for all of our success. It isn’t just tech – it’s how you deploy and maintain systems within the organization that makes the real difference.”

With a laggard market forcing many lenders to continue shedding staff, by loan officer count, Canopy Mortgage has grown in 2023. Reeves attributes his company’s resilience to the cohesion between remote employees and the company’s tech stack, the digital infrastructure for which predates the pandemic. As for many lenders, the pandemic forced Reeves to test his tech to the limits, to see if it could support a fully remote

32 MORTGAGE BANKER MAGAZINE | DECEMBER 2023

workforce. It could, and did.

From Zoom to Instacart to BetterHelp, the pandemic stretched many digital platforms to their limits as consumers grew familiar with digital experiences available from anywhere, at any time, not only when applying for mortgages, but also when needing to restock sourdough starters and toilet paper, schedule car maintenance, or “attend” therapy.

“The expectation that they’re going to be having a digital experience is table stakes,” says Sue Woodard, a senior advisor and McCracken’s colleague at Stratmor Group.

Since the onset of the pandemic, Woodard has helped mortgage companies align their digital strategies with consumers’ changing expectations. Not only do loan officers and borrowers expect a digital experience, but they expect it to be seamless, Woodard observes.

Yet, borrowers and loan officers do not understand the home buying process on the same terms. Borrowers see applying for a mortgage as a single process: buying a home. Potter holds the mortgage industry responsible for dividing that process into four parts: real estate, title, mortgage, and insurance. “We’ve still not truly embraced that it’s one thing to consumers,” he laments. “We keep trying to make it four things, but feel like one to them.”

McCracken echoes Potter, saying the industry used to protect the consumer “from how the sausage is made.” But, that hasn’t been the case since 2014, when Rocket Mortgage (then Quicken Loans) put the mortgage application directly into consumers’ hands. Since then, lenders buying off-the-shelf technologies or those developing in-house tech stacks are chasing what McCracken calls “the digital veneer” – a melding of technologies that creates a seemingly seamless, web-based experience that is identical for loan officers and consumers.

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F

or almost a decade, Reeves says the industry’s prevailing strategy has been, “if you give this borrower a really great experience and allow them to interact with you upfront in ways that are unique and that allow them to do some of the work, it will drive down the cost. Curiously, it hasn’t.

It’s only gotten worse.” Most lenders have not succeeded in adopting technologies that effectively integrate the consumer into the loan process. “Often, those systems are kind-of integrated, and when you’re kind-of

“The need for flexibility in mortgage licensing is being driven as much by consumers as it is by an evolving workplace. What began as a pandemic-era emergency quickly evolved into a post-pandemic need to meet borrowers’ and mortgage companies’ changing expectations.” > William Kooper integrated, you’re not integrated,” he says.

Companies run into trouble when they cobble together incompatible technologies.

Anyone who has opened a Microsoft Word attachment on a computer only equipped with Pages has experienced the frustration of fixing fonts that failed to transfer and adjusting squirrely formatting. Be it an archaic loan operating system (LOS) or a justbuilt digital closing portal, disparate systems driven by different code bases and databases just don’t communicate well.

Managing the cost to produce has always guided Reeve’s operational approach. His first foray into mortgages was co-founding

“

The expectation that they’re going to be having a digital experience is table stakes.” > Sue Woodward Senior Advisor Stratmor Group

Box Home Loans in 1998, a consumer-direct business built around a single loan product called the Countrywide Fast and Easy. The loan required no income or asset verification, and the company grew wildly in Utah, from $8 million in monthly originations at the end of 2008 to $100 million of monthly originations by June 2009.

However, the passage of the Dodd-Frank Act brought a swift end to that hayride for Reeves and other lenders who were bouncing along on easy loans. “I turned to my partner,” Reeves remembers, “and said, ‘if we don’t automate more of what we do, we’re never gonna survive on these margins because

the whole model was built on low margin, a targeted customer, easy loans.’ And so, we just began building stuff that didn’t exist at the time.” That “stuff” became Reeves’s golden ticket – called Nano, an in-house tech stack that functions as the LOS, pricing engine, POS, and compliance engine, all driven by one code base and one database.

To lenders, Nano represents the fast lane to the future of remote origination by facilitating that most delicate of relationships between loan officers and borrowers: trust.

Nano achieves this trust by erasing little inefficiencies from the process, like ensuring the fee for a transfer tax is the same when customers see it on the website as when loan officers see it in the LOS. But, perhaps most importantly, Nano facilitates trust without loan officers and borrowers ever having to sit together in a licensed location.

When the pandemic sent all of Reeves’s employees home in March 2020, employees did not have to install a bunch of extra software on their personal computers because Canopy’s whole ecosystem is web-based.

“If you don’t have a unified system driving all of that, and you have to have a bunch of people manipulate, double check, and triple check your data so it’s accurate, you’re going to lose all the efficiency that you gained by giving the borrower the ability to apply online,” he says. What’s more, those inefficiencies drive up costs and increase the likelihood of losing the borrower.

Most lenders must try to cobble together four different solutions to make it all work, says Reeves. “That has become for many a house of cards. It’s hard to maintain.”

MORTGAGE BANKER MAGAZINE | DECEMBER 2023 33

MortgageBanker MAGAZINE

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20

20

10

3 11 1 11 3 20 12 1 20 12 3 20 13 1 20 13 3 20 14 1 20 14 3 20 15 1 20 15 3 20 16 1 20 16 3 20 17 1 20 17 3 20 18 1 20 18 3 20 19 1 20 19 3 20 20 1 20 20 3 20 21 1 20 21 3 20 22 1 20 22 3 20 23 1

20

DATABANK

100%

Purchase / Refinance Mix

90%

80%

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40%

30%

20%

10%

0%

Purchase %

Refinance %

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Picture your dream home. Now look down. There’s a bright red line keeping you out. Join host Katie Jensen as we dive into redlining and the legacy of discrimination. You’ll hear first-hand accounts from those who’ve had to fight back to achieve their dreams. And we’ll challenge industry leaders on how to rewrite this legacy.

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