Mortgage Banker Magazine June 2024

Legends

Of Lending

How a well-intentioned law has become an indefinable nightmare

TRIGGER LEADS FACE THE CHOPPING BLOCK

2024 Legends of Lending Award Winner A.W. Pickel, President, Blok Home Loans

Nomination Deadline: July 5, 2024

REGULATORY CORNER

INCORPORATING CLIMATE-RELATED RISK INTO GOVERNANCE

FHFA, the conservator and regulator of Fannie Mae and Freddie Mac, and regulator of the Federal Home Loan Banks, recognizes the emerging and increasing threat to all stakeholders in the housing system due to climate risk and the increased frequency and intensity of major natural disasters. Strong governance is foundational to managing an institution’s risk profile, particularly when the institution must address a constantly evolving landscape of risks. Accordingly, FHFA included the need to identify ways to incorporate climate change into regulated entity governance in its 2022-2026 Strategic Plan. Since 2022, FHFA has established goals for Fannie Mae and Freddie Mac to develop company-wide frameworks that incorporate climate risk into existing governance and risk management structures and decision-making, and to incorporate both short- and long-term strategies into their strategic planning processes.

FHFA established an internal Climate Change and ESG Governance Working Group to evaluate the integration of climate risk into the corporate governance, risk management, and strategic planning structures of the regulated entities, and incorporation into operational and business decision-making. The Working Group meets regularly with the Enterprises and evaluates their progress through the annual Conservatorship Scorecard process, reviewing the establishment of foundational governance structures, decision-making processes, and risk management practices around climate risk. The Working Group also reviews progress made by the FHLBs.

Developing Climate Risk Frameworks

• The Enterprises have developed initial climate risk frameworks that are incorporated in their enterprise risk management frameworks in consideration of the impact that climate change could have on the achievement of their mission, strategy, and business objectives.

• The Enterprises continue to make progress and develop their capacity to measure the effects of climate risks and integrate climaterelated risks into risk management structures:

- Freddie Mac has developed climate scenario methodologies to better quantify the impact of climate events on housing affordability, property values, and credit risk;

- Fannie Mae is working on finalizing climate scenario design and methodology for intended reporting in 2024; and

- Both Enterprises completed exploratory climate scenario analysis exercises on flood risk in 2023.

Strategic Plan Integration

• To assess and address climaterelated risks and opportunities that could affect their businesses, the

Enterprises have been incorporating climate issues into their corporate strategic plans and planning processes.

• Each Enterprise has completed ESG materiality assessments that inform their ESG and climate strategic planning processes.

• Fannie Mae’s 2023-2025 Strategic Plan includes climate risk management and supporting the housing ecosystem’s adaptation to climate change as priorities.

Board and Management-level Reporting

Fannie Mae

• The board Risk Policy and Capital Committee has primary oversight of climate-related risks.

• The board Audit Committee provides oversight of ESG-related reporting, which includes climate risk.

• The board Community Responsibility and Sustainability Committee oversees the development and implementation of Fannie Mae’s climate risk strategy.

• There is a newly established Climate Risk Committee at the management level, and Fannie Mae has designated senior executive officers to oversee climate and ESG.

Freddie Mac

• The board Risk Committee has primary oversight of climate related risks.

• The board Audit Committee provides oversight of ESG-related reporting, which includes climate risk.

• The board Mission and Housing Sustainability Committee provides oversight responsibilities for the development, planning, implementation, performance, and execution of Freddie Mac’s mission strategies and significant initiatives, including the review of sustainability initiatives with climate change implications or impacts.

• reddie Mac has also established several advisory and steering committees at the management level for ESG and climate risk reporting.

Training and Education

Over the last few years, the Enterprises have begun educating staff on the potential impacts of climate-related risks, taking into consideration the interconnectedness and multidimensional nature of climate-related topics that could reach all aspects of the organization.

STAFF

Vincent M. Valvo CEO, PUBLISHER, EDITOR-IN-CHIEF

Beverly Bolnick ASSOCIATE PUBLISHER

Ryan Kingsley EDITOR

Katie Jensen, Sarah Wolak, Erica Drzewiecki 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

Alan Nero MEDIA SPECIALIST

Melissa Pianin

MARKETING & EVENTS ASSOCIATE

Kristie Woods-Lindig ONLINE ENGAGEMENT SPECIALIST

Nicole Coughlin

ADVERTISING ASSOCIATE

Lydia Griffin

MARKETING INTERN

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, www.ambizmedia.com

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Meet the trailblazers, visionaries, and legends who are redefining excellence and transforming the mortgage industry.

Bill Dallas Chairman Dallas Capital

Looking For Change Under Every Couch?

DON’T OVERLOOK THE OBVIOUS –EMPLOYEES HAVE IDEAS FOR COST SAVINGS, TOO

BY ROB CHRISMAN , CONTRIBUTING WRITER, MORTGAGE BANKER MAGAZINE

Rob Chrisman has been in mortgage banking since 1985 and publishes a widely read daily market commentary on current mortgage events.

When conducting business reviews, lenders must take into account the huge increase in costs which the Mortgage Bankers Association (MBA) pegged at more than $12,000 per loan in the fourth quarter of 2023. These costs have been thrown into sharper focus with the MBA also reporting that the average pre-tax net production loss was 73 basis points (bps) in the fourth quarter – $2,109 on each loan originated – more than double the average net production loss of 34 bps in the third quarter.

Taking the long view, the average quarterly pre-tax production profit, from the fourth quarter of 2008 to the most recent quarter, is 43 basis points, according to the MBA.

These costs are varied and rising, and impact lenders of every size, from guarantee fees imposed by Fannie Mae and Freddie Mac to compliance, servicing, foreclosure, and buy-back reserve costs. These costs have to be covered by the current fundings and erode the margin and the spread. Some companies’ books of business shape whether they have more or less cost. For example, jumbo and other non-QM loans are not subject to the enterprises’ guarantee fees.

In 2024, lenders have flipped every office couch cushion in case there’s a nickel to be found. Now what? How can different lenders save money in this high cost, low profit environment?

To start, senior management should solicit ideas from employees. Occam’s razor: the best ideas are often the simplest. Hold an “Efficiency Meeting” that includes a round-table discussion covering ideas submitted by employees about how to make their departments more efficient. An initial meeting could be held with no managers involved. Cost savings may not spring from these meetings, but asking employees to engage in cost

considerations helps to demystify these kinds of “back-office” topics.

Loan officers and departments that want to spend money should be required to draft a proposal/ROI for evaluation by management. Custom marketing costs should be given a hard look, as well as comparing marketing pieces to how many loans that marketing produces. Review job ads that can be canceled and any “premium” accounts not being used. Office spaces can be shrunk and shared.

Bringing employees into the cost-management conversation also builds awareness about employees’ strengths and weaknesses, leading to opportunities to increase productivity, thereby increasing the cost-effectiveness of the people already on payroll.

For example, skill-set cross-training can prioritize coverage and empower team members to play to their strengths, while building other proficiencies. Are you minimizing file touches, such as the number of times income is being calculated? Using cheaper resources for parts of the file and re-allocating duties from underwriters to less expensive personnel can effectively trim costs if skill sets have been crosstrained. Without training, these cost-saving measures can increase quality and compliance risks.

Skill-set cross-training goes hand-in-hand with assessing aspects of the loan process that can be streamlined or otherwise made more cost-effective.

For example, credit-pull costs rose dramatically in 2023 and the first quarter of 2024. Processors and loan officers are encouraged to do soft credit pulls first, at a huge cost savings (although the cost of soft pulls has also risen). If one score is below a certain level, stop there. Save the money. As an added bonus, soft credit pulls don’t trigger the credit

bureau selling your lead to another mortgage provider.

Lenders are advised to analyze post-closing conditions and adjust shipping to minimize paying warehouse line fees. Reducing shipping delays helps reduce the cost of warehouse lines. Some lenders automate the conditions’ import from investors into the LOS.

Tolerance cures are another specific area of examination for some lenders when it comes to reviewing the cost of the loan process. Where are these coming from? Why did they happen? How much are they costing? Lenders can create business rules to avoid generating tolerance cures in the first place.

Vendor management is another key area to assess for potential savings, given how much money lenders

loans, if they have the appetite. High balance loan production pricing can be encouraged; negotiations with investors can yield better pricing. Warehouse lines should be scrutinized for savings, as many banks are hungry for business. Run a dual AUS with DU and LP before executing the loan sale in order to maximize options and pricing.

Cost savings can also be found as premium pricing returns to rate sheets, like lenders paying closing costs in exchange for a higher mortgage rate. For example, on a $180,000 loan, a 25-basis point increase on the mortgage rate only adds $25 to a borrower’s monthly mortgage payment. Borrowers may find that an attractive tradeoff to not have to pay upfront closing costs. Lenders can frequently recoup the

“If trained and compliant loan officers add value by educating and coaching their clients, the same is required of effective managers. Manage costs like it’s 2024.”

> ROB CHRISMAN

spend on vendors monthly. Ask your teams: Which vendors truly trim costs and make loan processing more efficient without sacrificing quality and compliance standards?

Automating various loan processes can eliminate the need for certain vendors, lowering overhead costs, especially for CRMs. Some lenders are adopting backoffice software to increase the cost effectiveness of human resource, information technology (IT), and administrative teams, as well as things like travel requests and booking.

In capital markets departments, there are renewed efforts to wring every penny out of loan sales.

Take advantage of CRA credits. The use of bid tapes is encouraged; after getting bid tapes, ask investors in 2nd or 3rd place to step up 4-6 basis points on the

cost immediately by delivering the loan into a higher coupon.

The extreme turbulence in residential mortgage lending from 2020 to 2024 has impacted every industry stakeholder. Changes in the business climate and rate cycle are never easy. If trained and compliant loan officers add value by educating and coaching their clients, the same is required of effective managers. Manage like it’s 2024. Lenders can adopt the technologies that fit the specific needs of their companies, “stepping up their game” with improved efficiency, lower costs, and redirected marketing budgets. Empower, don’t baby-sit employees, which shifts their mindset toward customer service in a purchase environment, adding value for lenders with competitive pricing.

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Servicers Brace For

MULTIPLE STORMS

NAVIGATING DEFAULT RISK

AMID CLIMATE-DRIVEN DISASTERS

BY JANE MASON SPECIAL TO MORTGAGE BANKER MAGAZINE

Jane Mason is CEO and Founder of Clarifire

The housing market has a natural ebb and flow. Occasionally, however, circumstances spin out of control causing a major market downturn. This occurred in the mid-2000s, and at some point it will undoubtedly happen again. Next time the underlying factors may be far less under control.

Natural disasters are taking a significant toll on the housing industry, and the impacts extend far beyond the number of homes and lives they destroy. Fortunately, there are practical steps servicers can take to weatherproof their operations, helping to keep as many borrowers in their homes as possible while managing the operational costs and complexities.

The first step is understanding what we’re up against.

FACING A RISING TIDE OF DISASTERS

Over the past several years, natural disasters ranging from wildfires and hurricanes to tornadoes and floods have been increasing in frequency and severity. Unlike economic shifts or downturns in the housing market, which can be somewhat anticipated, most of these catastrophes—like the COVID-19 pandemic—strike with little or no warning. Their impact is often devastating.

The U.S. experienced 28 weatherrelated disasters in 2023 that caused at least $1 billion in damage, according to the National Oceanic and Atmospheric Administration (NOAA). More than 2.5 million Americans were forced from their homes as a result of these storms, with more than one third displaced for longer than a month. Florida, Texas, California, and Louisiana were

among the hardest hit states. Each saw hundreds of thousands of residents fleeing their homes.

Each year that passes the risk from natural disasters looms larger than the last. According to Realtor.com’s recent Housing and Climate Risk Report, nearly 45% of U.S. homes will be at risk from flooding, wind events, wildfire, extreme heat, and poor air quality in 2024. For servicers, a single disaster can trigger a deluge of requests from affected homeowners seeking relief and support. However, very few servicers are prepared to allocate resources quickly and effectively, let alone prepared to handle a deluge of requests for assistance promptly and compassionately.

While the operational risks for mortgage servicers seem obvious, the spike in weather-related events is happening at a particularly precarious time.

“Very few servicers are prepared to allocate resources quickly and effectively, let alone prepared to handle a deluge of requests for assistance promptly and compassionately.”

>

JANE MASON, CEO of Clarifire

$99 Billion

Amount insurance companies paid out in claims in 2022

Over the past several months, servicers have experienced a noticeable uptick in defaults and foreclosures due in part to the ending of pandemic-related relief programs, rising interest rates, and lingering inflation. According to the Mortgage Banking Association’s (MBA) most recent National Delinquency Survey, the delinquency rate rose 26 basis points between the third and fourth quarters of 2023. The FHA delinquency rate increased by a concerning 131 basis points.

Though these rates remain relatively low, the figures suggest many first-time homebuyers are having trouble meeting their mortgage obligations while dealing with rising debt and a steady increase in the cost of living – and there’s another trend in the numbers that’s equally troubling.

DISASTROUS PAYMENT INCREASES

The growing number of fires, hurricanes, and floods aren’t just hurting homeowners who find themselves – and their homes – directly in disaster’s path. Increasing damage from disasters causes a cascading effect on all homeowners in the form of rising insurance premiums.

As a result, almost every borrower is facing significantly higher monthly mortgage payments, which is likely to push default rates even higher.

In 2022, insurance companies paid out $99 billion in claims related to natural disasters that occurred in 2022, according to a study by Policygenius, an online insurance marketplace. The study also found that insurance premiums rose by an average of 21% from between mid-2022 and mid-2023, compared to a 12% increase during the prior year. In some states, rates increased as much as 35% annually. According to some reports, homeowners have seen tax and insurance costs eclipse the principal and interest portion of their mortgage payment.

Some insurers have stopped writing new policies in states like Florida and California that have been among the hardest hit by disasters.

While those states’ regulators are taking action to keep insurance options open to homeowners, this trend signals a paradigm shift in the housing market that carries significant implications for mortgage servicers. Though, for now, climate change cannot be halted, the growing impact on homeowners and servicers can be mitigated.

For servicers, acknowledging the evolving dynamics of extreme weather includes expecting the unexpected. However, it’s equally important to adopt technologies, new processes, and new mentalities that enhance operational capacity to handle loss mitigation and workout assistance that supports borrowers through financial hardships and disaster-related disruptions.

PUTTING THE RIGHT PIECES IN PLACE

The first step is optimizing self-service and frontline loss mitigation processes. This

could begin with a thorough review of current policies, restructuring them where necessary to ensure borrowers receive relief options in a timely manner. For most servicers, the key to restructuring lies in workflow automation, rapid accessibility, and technology-powered results.

Today’s automated workflow technology enables lenders and servicers to expedite data collection, verification, and processing so they can respond to borrowers’ needs with greater speed and flexibility. These technologies arm organizations with an assortment of processes that enable them to address the unpredictable— whether a severe weather event or the need to implement ever-changing loss mitigation regulations and guidelines.

Automating routine tasks and leveraging document generation, OCR/AI advancements, case management, and mobile borrower interactions also enhances bulk processing of like

requests and the identification of complexities, which not only reduces costs but minimizes errors, shortcuts, and workarounds that arise during disasters and periods of rising defaults.

Adopting these efficiencies enables servicers to more rapidly identify borrowers affected by natural disasters, facilitating engagement with borrowers and thereby expediting workout processes, helping to manage spikes in defaults. Coupled with system- and human-generated communications that provide borrowers with education and solutions, automated workflows empower servicers to better allocate their human resources for exceptional problem solving and personalized assistance where most needed.

Restructuring creates clear benefits to borrowers, such as the ability to leverage user-

friendly online portals for submitting and tracking the status of their requests and guided processes for what “next steps” may be. Creating transparency between borrowers and servicers becomes more important as the likelihood of financial hardship for borrowers grows.

Flexibility is part-and-parcel of what a servicer’s “preparedness” requires now. Flexibility and automation are not mutually exclusive. We can do very little to interrupt the surge in extreme weather-related disasters and their direct and indirect impacts, but servicers are uniquely positioned to mitigate the financial aftershocks and the growing risk of default that follows. The resilience borrowers and lenders need hinges on servicers’ ability to adapt to the unexpected.

Brokers & Beignets

Build your business in the Big Easy

Picture this: You arrive at the historic French Quarter of New Orleans, the scent of beignets and freshly brewed coffee mingles with the soulful melodies of jazz drifting from nearby clubs. Your excitement grows as you approach your destination, the iconic Hotel Monteleone.

Nestled in the heart of the French Quarter, the Hotel Monteleone stands as a timeless symbol of elegance and Southern hospitality. Its grand facade, adorned with wrought-iron balconies and lush greenery, exudes old-world charm and allure. As you

pull up to the entrance, you are greeted by the sight of uniformed bellmen bustling about, ready to assist with luggage and offer warm smiles of welcome.

Stepping into the lobby, you’re enveloped in a sense of luxury and history. The opulent decor, with its marble floors, crystal chandeliers, and rich mahogany furnishings, harkens back to a bygone era of glamour and sophistication. Yet, amidst the grandeur, there is an unmistakable sense of warmth and intimacy, as if each guest is being welcomed into the embrace of a dear friend.

As you ascend the grand staircase, you are struck by the buzz of energy that permeates the air. The sound of lively conversation and the clinking of glasses fills the hallway, mingling with the faint strains of jazz music drifting up from the lobby below. Arriving at the conference area, you are greeted by the sight of attendees from all corners of the mortgage industry, engaged in animated discussions and networking opportunities.

The expo hall itself is a bustling hive of activity, with rows of booths showcasing the latest innovations and services in the mortgage industry. From technology solutions to compliance resources, the array of offerings is vast and impressive. The traveler eagerly immerses themselves in the exhibits, eager to glean insights and make valuable connections with fellow professionals.

Throughout the day, you attend informative workshops and panel discussions, gaining valuable knowledge and industry insights from leading experts in the field. You take diligent notes, exchanging ideas with colleagues and forging new connections that will prove invaluable in your professional endeavors.

As the day draws to a close, you reflect on the wealth of information you have acquired and the connections you have made. With a sense of fulfillment and anticipation for the days ahead, you make your way back to your room at the Hotel Monteleone, grateful for the opportunity to participate in such a dynamic and enriching event in the vibrant city of New Orleans.

The Ultimate Mortgage Expo is a two-day event for the Gulf Coast Region’s mortgage professionals. Since 2013, the Ultimate Mortgage Expo has been providing unique opportunities for brokers, originators, and support staff to build their businesses. This year, we’ve expanded the event, with even more sessions on Wednesday, July 10, plus another incredible networking party. The cherry on top is that all of this is free for attendees, thanks to supporters of the show, who you can meet in the exhibit hall on both Wednesday and Thursday. Just use our code OCNFREE on your registration.

A Watershed Moment For Trigger Leads

PENDING LEGISLATION COLLARS

CONTROVERSIAL DATA SHARING PRACTICE

BY BOB NIEMI , SPECIAL TO MORTGAGE BANKER MAGAZINE

An increasing number of mortgage originators are receiving urgent calls from their borrowers who recently applied for a mortgage. Most originators have been there before.

After courting your borrowers for weeks – sometimes months – gaining their trust and confidence to secure their application, borrowers call in a panic demanding to know why they are suddenly getting dozens, or sometimes hundreds of unsolicited phone calls.

“Did your company sell my data?” they ask. “Make the calls STOP,” they demand. Originators begin asking themselves, future referrals at risk, “Why does this happen to all my best customers?”

Welcome to the world of “trigger leads.”

PIPELINE RISK FROM TRIGGER LEADS

A trigger lead is created when a lender pulls a borrower’s credit report through a “hard” inquiry. Unlike “soft” credit pulls used for prequalification, hard inquiries create a data sales opportunity for the three major credit bureaus: TransUnion, Equifax and Experian. As a formal indication that a borrower has applied for a mortgage, the inquiry is saleable as a lead to lenders and data brokers.

The credit inquiry triggers the sale of the lead, which triggers the incessant outreach to borrowers.

Some lenders purchase data with defined qualification criteria;

they only want leads for borrowers who meet prescribed marketing and credit standards. Other lenders and/or servicers purchase triggerlead data to monitor the mortgage application activity of their current client base as a method of protecting their servicing pipeline. Data brokers aggregate and sell batches of lead data.

Because there is no limit to the number of times a trigger lead can be sold, borrowers can be inundated with calls from competitors vying for their business. Inevitably, and understandably, this leads to consumer frustration and potential pipeline risk for lenders and servicers. Not only are the incessant calls, texts, and emails intrusive, tainting borrowers’ relationships with originators and lenders, but they can overwhelm or mislead borrowers inclined to second-guess their borrowing decisions.

the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) endorse this competition as a means of potentially saving consumers money by increasing consumers’ access to more financing options.

“

“Not only are the incessant calls, texts, and emails intrusive, tainting borrowers’ relationships with originators and lenders, but they can overwhelm or mislead borrowers inclined to second-guess their borrowing decisions.”

Though trigger-lead data offers lenders a valid and valuable marketing strategy, when cold-calling borrowers, some lenders fall short of making the “firm offer of credit” to the consumer as outlined and required under the Fair Credit Reporting Act (FCRA). Many neglect to check the do-not-call registry, violating borrowers’ stated preferences. Complaints have been reported of callers misrepresenting their rates or even fraudulently posing as the original lender “just following up on their current application.”

> BOB NIEMI

TRIGGER-LEAD REGULATION UNDER CONSIDERATION

It should be noted, triggerlead sales are neither new nor unique to the mortgage industry. The sale of consumer data generated from credit report inquiries is used as a lead generation and marketing tool for credit card card and auto loan issuers, as well as insurance carriers. Since interest rates began to rise, though, the impact of trigger leads on the mortgage industry has gained attention and controversy.

No matter your stance on whether trigger leads help or harm consumers, or increase lenders’ pipeline risks, regulators have begun to take critical actions that limit how trigger-lead data can be used.

Trigger leads are, in fact, legal. For many mortgage lenders they represent basic competition and comprise a significant portion of their lead generation strategy. Both

In December 2023, the Federal Communications Commission (FCC) finalized a rule that closed the lead generator loophole. Under the new rule, lead generators must obtain the consumer’s consent for each entity that their data will be sold to. Previously, a consumer’s blanket consent allowed the lead generator to sell the trigger-lead data to as many buyers as they could. This change grants consumers more control over their data, but threatens those who rely heavily on trigger-lead data for loan leads. The FCC will also have the ability to ‘red-

flag’ certain phone numbers and require mobile carriers to block texts from flagged numbers. The new rule also clarifies that do-not-call protections apply to text messages, as well as phone calls. These changes, however, will not take effect until January 2025.

PREPARING CONSUMERS, PROTECTING LENDERS

As trigger leads currently can’t be prevented, educating borrowers early and often is imperative to heading off their harmful consequences. Warning borrowers to expect phone calls, and ensuring they understand the solicitations are not originators’ or lenders’ fault, can help prevent pipeline risk.

Should borrowers choose to take or respond to an unsolicited call, advise them to do so with caution, applying appropriate due diligence to any offers provided or requests for documentation. Lenders or originators early in the prequalification process with a borrower can educate their borrower on the protections that do exist, such as opting out of prescreen marketing at OptOutPreScreen.com or by registering at DoNotCall.gov to avoid the deluge

of trigger lead-generated phone calls. Such efforts may require repeated reminders, making it advisable to incorporate these practices early in a borrower’s prequalification process.

Lenders and originators who support triggerlead reform can take action by co-sponsoring active trigger lead legislation. House Resolution 7297 in Congress and Senate Bill 3502 in the Senate, otherwise known as the Homebuyers Privacy Protection Act, proposes to eliminate trigger lead abuses while still allowing prescreened reports within appropriate and limited circumstances.

Specifically, the bill would limit the sale of trigger leads to a third party to when:

• The consumer has specifically authorized the solicitation,

• The lead is sold to the consumer’s current mortgage servicer,

• The lead is sold to the consumer’s current bank, credit union or savings institution,

• The third-party lender originated the consumer’s current mortgage, including a mortgage broker, mortgage banker, or lender.

Empowering Women In Mortgage Welcome to the Mortgage Women Leadership Council

A warm welcome to you! I’m Kelly Hendricks, the Managing Editor of Mortgage Women Magazine and Senior Vice President of Delmar Mortgage, and it brings me great joy to extend this invitation to you. Throughout my career in the mortgage industry, I’ve been fortunate to have leaders and mentors who played pivotal roles in shaping my journey. I am thrilled to introduce a transformative initiative – the Mortgage Women Leadership Council, created by Mortgage Women Magazine.

In my role, I’ve experienced the challenges that women face in leadership within the mortgage sector. These challenges led to a profound realization — the need for a dynamic network to empower women in our industry. This realization is the driving force behind the creation of the Mortgage Women Leadership Council. I believe in the power of collective support, and I am excited about the opportunity to share and benefit from each other’s experiences.

Our mission is clear: to promote and empower women’s leadership in the mortgage sector. The council aims to create a supportive environment for professional growth, mentorship, and networking. Joining the

council comes with various benefits, including networking opportunities and access to industry-specific professional development resources. We understand the unique challenges women face in mortgage leadership and have tailored mentorship and support systems to address them.

I invite you to join this movement to empower women in the mortgage industry. The Mortgage Women Leadership Council is committed to fostering a welcoming and supportive environment. Your involvement will not only contribute to your personal and professional growth but also play a crucial role in advancing women’s leadership in our industry. To join or get involved, simply click here to apply.

Thank you for considering this invitation to join the Mortgage Women Leadership Council. For further inquiries about the council and details on how to join, please contact Beverly Bolnick at bbolnick@ambizmedia.com. Let’s work together to advance women’s leadership in the mortgage industry — because collective action brings about meaningful change.

Kelly Hendricks Managing Editor, Mortgage Women Magazine

As a valued member, enjoy these benefits:

Access to a Powerful Platform: Amplify your voice and influence through Mortgage Women Magazine, exclusive sponsored programs, email newsletters, and impactful events.

Editorial Opportunities: Showcase your expertise and insights through editorial features in Mortgage Women Magazine, gaining visibility and recognition among industry peers.

Awards and Recognition: Receive well-deserved recognition through our award programs, celebrating your achievements and contributions to the mortgage industry.

Community Support: Become part of a dedicated community committed to celebrating and driving meaningful progress in the mortgage sector. Connect with likeminded women leaders, share experiences, and foster collaborative initiatives.

Mortgage Women Magazine: Enjoy your complimentary digital subscription to Mortgage Women Magazine, the premier publication for women in mortgage. Read advice, learn about industry updates, and take in the inspiring stories of your peers.

Become a member today.

Join us and be a driving force in creating a more inclusive and thriving mortgage industry. Together, as a united community, we believe we can make real change.

Enjoy 1 year of your individual membership free! Use code MWM2024

mwlcouncil.com

Maturing With Mortgages

Homeowners want to age-in-place. Know the loans that help it happen.

BY ERICA DRZEWIECKI , STAFF WRITER FOR MORTGAGE BANKER MAGAZINE

Ever run to open the front door and miss the step down from the kitchen into the living room? Someone in their 70s or 80s could break a hip – or worse – doing that.

Decreased depth perception, muscle mass, and bone density can make normal life around the house potentially more perilous as people age. Despite the hazards, the majority of people nearing retirement age would rather grow old in their own homes than downsize or move into an assisted living facility.

Nearly 80% of baby boomers – those born between 1946 and 1964 – own their homes outright, and the bulk of boomers are still in their 60s, according to Redfin, a digital real estate brokerage. As of August 2023, boomers held approximately $18 trillion in collective home equity, or roughly half the nation’s total housing wealth. Boomers are also much less

likely to have credit card debt or car loans.

Elevated interest rates and high home prices mean this group of empty-nesters are not incentivized to sell their homes and downsize, but rather use their strong financial position to make their homes more appropriately livable as they age. Home renovations and repairs can increase safety and ease mobility, while adding value to the home. Expanding showers, installing handicapped ramps or elevators, and fixing staircases are just a few examples.

A suite of loan products, from 203(k) renovation loans backed by the Federal Housing Administration (FHA) and the U.S. Department of Agriculture’s Sec. 504 Home Repair Program, to reverse mortgages and home equity lines of credit (HELOCs), provide an opportunity for lenders to help older borrowers finance their dreams of –well, continued homeownership.

However, only a select few mortgage professionals are skilled at uniting folks in their golden years with the unique solutions they seek.

BABY BOOMER BORROWERS

Market research firm Morning Consult found that 55% of baby boomers plan to remain in their existing homes as they age, but just 24% are actually preparing those homes for aging.

Furthermore, the older population is also slated to expand; the U.S. Census Bureau indicates that the 60-plus crowd will represent 32% of the total adult population in the next 10 years.

“I think right now you have a major opportunity for renovation loans to continue to grow over the next decade,” says Jeff Onofrio, SVP of renovation and construction lending and originating branch manager of the Onofrio Mortgage Group in Marlton, New Jersey. His company specializes in FHA’s 203(k) and Fannie Mae’s HomeStyle loans, helping borrowers to modernize their homes using future equity.

“A lot of people don’t know these programs exist,” Onofrio says. “Every situation is different. If they’re buying a property and planning to make that their aging-in-place home, it makes potential sense for them to buy the home using a renovation loan.”

That way, he adds, buyers have a budget to make desired improvements before they settle into their new home. “Somebody

moving into a 55-and-older community and they want to customize it their way, that could be a great option for them.”

Typically a bank will value a home based on the present market, but with renovation loans, appraisers wear rose-colored glasses.

“One of the key benefits is that we go off of future value – what the senior is going to do with their loan,” Onofrio explains. “As people get older and they’ve been in that home for 10, 20, 30 years…it becomes in disarray. The opportunity for them to have the work they need projected off the value of the updated home can be a really good opportunity.”

The down payment can be as little as 3.5% for the FHA renovation loan and 5% with the HomeStyle program. The Federal Home Loan Banks and government-sponsored enterprises provide consultants to oversee home projects, which can be helpful for people that don’t know the first thing about knocking down walls.

“We have a HUD consultant who’s going to be the eyes and ears for the Baby Boomer,” Onofrio says. “If they’re not a contractor by trade, it’s good to have somebody there who’s going to be involved and who’s going to have their best interest in mind.”

Seniors 62 and older who qualify for reverse mortgages (in some states, it’s age 55) can make improvements to their homes with equity they’ve built up, remaining in those homes until they die with no financial obligation to anyone all the while.

It might come as a surprise, then, to learn that there are currently only about 200 Certified Reverse Mortgage Professionals

“I think right now you have a major opportunity for renovation loans to continue to grow over the next decade.”

> Jeff Onofrio

Senior Vice President Onofrio Mortgage Group

(CRMP) in the U.S.

“The way I think about it is on a regular mortgage, you put your money in through the bank window, the window closes and says, thanks. It doesn’t open back up. You can’t reach back in and get it unless you refinance somehow or maybe sell the home. But in reverse mortgages, that window stays open,” says Christina Harmes Hika, CRMP and president of Reverse Loan Solutions, a division of Amerifund Home Loans.

She hosts a reverse mortgage mastery course every Wednesday from her home base in San Diego, educating loan officers on the intricacies of reverse mortgage loans. “It’s a really complex product,” she says. “There’s no DU system you can run the numbers through and have it tell you ‘all looks good’. It takes a little extra work, a little extra know-how.”

Reverse mortgages only apply to primary residences, so potential borrowers must certify that they live in the mortgaged property for more than half the year.

“This is much more of a retirement planning tool than any other mortgage,” Harmes Hika says. “It’s not intended for people to be able to rent out a property that they’re not living in. It’s intended for seniors to be able to stay in their homes long-term.”

But, the reverse mortgage isn’t for everyone, even if they meet the minimum age and primary residence requirements. Some people don’t have enough equity to borrow against, for example.

“There are people I tell today, ‘I’m so sorry, but this is not a financiallysustainable solution. You probably need to downsize.’ And they didn’t use to do that. They used to just get

“I think in the future we’re gonna see people suing their financial planner because they didn’t bring up the reverse mortgage.”

Christina Harmes Hika

them into a reverse mortgage because they could,” Harmes Hika says. “Now we have to income- and credit-qualify. And they have to go to a third party, HUD-approved counseling session.”

If a life event caused a potential client to fall delinquent on a bill, that will show up on the now-mandatory financial assessment. Lenders must ensure the person has enough residual income to continue paying their taxes, insurance, utilities, and related costs.

If there are unpaid property taxes or insurance charges, the lender can enforce a Life Expectancy Set-Aside (LESA), withholding a pool of funds from the client’s total available reverse mortgage proceeds to pay for these throughout the estimated life

OVERCOMING MISCONCEPTIONS

Borrowers who can benefit from reverse mortgages often don’t know they exist or that they qualify. Sometimes they have been warned against predatory reverse mortgage

“People think that the bank’s going to take

“They have all this equity, so why not use that to help them stay in their house?”

Cicely Carda, LO Amerifund Home Loans

their home, or that they’re selling it somehow –they’re not,” Harmes Hika says. “It’s a mortgage just like any other mortgage, which is a lien on title. The difference is there’s no required monthly mortgage payment. So it gives you a lot of flexibility. And because the home appreciates, they will still have more equity in the future.”

Even if they live to be 120, the line of credit from the reverse mortgage cannot be frozen, she adds. “For a retired person on a fixed income, that could mean the difference between getting groceries that week or not. This is a highly misunderstood, but really amazing product when you find the situations it fits for. And it fits for a whole lot more situations than people think it does.”

mortgage, I’m gonna sue you.’ So they put a law in place saying don’t talk about it at all. That law’s been lifted because it’s a really needed thing. I think in the future we’re gonna see people suing their financial planner because they didn’t bring up the reverse mortgage.”

Perhaps the most significant change was the addition of insurance protection to FHA’s Home Equity Conversion Mortgage (HECM). This protection ensures a borrower won’t lose their house in case of unforeseen circumstances. The most widely-used type of reverse mortgage, HECMs require a full appraisal, no waivers allowed.

“If for some reason we have a 2008 market again, where everybody owes way more than their house is worth, FHA steps in.”

> Cicely Carda Loan Officer Amerifund Home Loans

Many older borrowers have misconceptions about reverse mortgages that predate consumer protections put in place over the past decade.

“Prior to 2011, financial planners were not allowed to talk about reverse mortgages,” says Harmes Hika. “It meets a lot of needs, but they weren’t paid on it, so there was no protection for the risk. ‘You said I should get a reverse

“If for some reason we have a 2008 market again, where everybody owes way more than their house is worth, FHA steps in,” explains Cicely Carda, a loan officer with Amerifund Home Loans in Denver. “If a servicing company goes out of business it automatically transfers and your loan continues on as it was. If my father passes away and for some reason his loan is a higher balance than what his home is valued at, that’s all forgiven. That’s a huge thing, that you’re not leaving your heirs with a big debt.”

Carda practiced selling a reverse mortgage on her father, a retired math teacher who didn’t think it would work for him – until the day it did, several years ago.

“About two weeks later he called me and said, ‘I’m going to do it.’ I was like, ‘What changed your mind?’ And he said, ‘Well, why would I make a payment on my house if I don’t have to?’ He wasn’t looking for additional income, but after the presentation, he wanted it.”

Hands clean of a mortgage payment and tapped into a new line of credit, Carda’s dad is now planning a trip to New Zealand.

“For a long time after we had done the loan he was still telling me how happy he was with it,” she continues. “He’s 73 now and still very happy with it.”

Traditionally, families aim to pay off their mortgage by retirement and pass the house down to the next generation. “That’s not the way the world works anymore,” Harmes Hika says. “They don’t all live on one big homestead. And the kids don’t want the physical home, they want the equity. They want the cash. And realistically, they want their parents to be taken care of.”

Her grandfather died after moving into a new apartment, falling and breaking his neck, so this is a matter close to her heart.

“A reverse would have been perfect for him,” she says. “If I can help one family not experience that because they get to stay in their own home…”

Mortgage insurance protects borrowers so that the lender can’t look to anything other than the property for repayment of the loan. The HECM can even protect a surviving spouse who is under age 62, allowing them to defer the loan until they sell or move.

“There’s also a really cool provision we call

the 95% rule, where the heirs could actually pay off 95% of the market value and get the home, and the rest is forgiven,” Harmes Hika adds.

THIS LOAN, THAT LOAN, THEN ANOTHER?

LOs in their first reverse mortgage rodeo have much studying to do before jumping in the ring.

“Loan officers don’t police themselves well enough in this space, and because there’s no extra licensing required to do a reverse they handle it really sloppy,” Harmes Hika says. “It’s much more of a financial planning tool and it needs to be taken with that gravity. You really are an advisor when you do this product and you need to be knowledgeable enough to be the advisor.”

CRMPs are accustomed to a client’s adult children, accountants, and even friends and real estate agents joining the conversation.

Harmes Hika has a YouTube channel, a Facebook group, and over 1,600 LOs participate in her weekly class. It’s how she debunks misconceptions about reverse mortgages and how she ensures more seniors like her granddad don’t get steered into bad situations.

Since doing reverse mortgages all day, every day, the first chat she has with potential clients is about setting goals.

“If they tell me they’re going to remodel their house and sell within a year or two, I say, ‘Okay, great. Why don’t you go get a HELOC?’ In that case, a HELOC is a better choice.”

Different companies offer jumbo reverse products that allow borrowers to access up to $10 million. That can subsidize the cost of athome nursing care for ailing homeowners.

“The reverse mortgage is paying for the care and their retirement portfolio is staying on

track and has the opportunity to grow,” Harmes Hika says, giving an example of one such client.

Home equity lines of credit (HELOCs) are not only suited for wealthy borrowers or limited to helping those hard up for cash. Carda has a borrower considering buying a winter home in the Southwest with their equity.

“It’s not always out of a dire need,” she says. “Sometimes it’s just, I have $400,000 in equity that’s just sitting there. Might as well use it and not create additional debt for myself.”

Sometimes it behooves a consumer to look into their future, towards other potential borrowing opportunities. A renovation loan or a HELOC today, a reverse mortgage tomorrow.

A younger boomer still building their bucket list might renovate their home now, accumulate more equity, then draw against that equity with a reverse loan in their sunset years.

“I think it’s just a matter of where we catch the customer in their journey,” Onofrio says.

When he does a renovation loan for an existing homeowner, it’s considered a refinance.

“We’re taking your existing mortgage, paying that off, and then we’re setting you up with a new loan that includes the amount that you currently owe plus the renovation budget that you’re going to be using for the modernization of the home.”

LOs who have the know-how to do any of these loans can carve out a place for themselves in the senior borrower market.

“I think becoming someone that really understands how to utilize these products makes you more valuable as a loan officer, so I think they need to try to embrace it and learn as much as they can,” Onofrio points out. “That will ultimately turn into more opportunities for additional sales and for creating better relationships with their agents.”

Property taxes have risen significantly around

the country, and retired folks bear that burden particularly hard.

“They have all this equity, so why not use that to help them stay in their house?” Carda says.

People living on a fixed income don’t need unexpected rises in their monthly bills, which is what can happen when a mortgage amortizes and the payment jumps.

“HELOCs are not inherently bad, but what’s not great is when the wrong financial tool is put into a situation that it’s not a good fit for,”

Harmes Hika says. “A 63-year-old is not in a better position to make a larger payment at age 73.”

She gets calls from LOs who did HELOCs or cash-out refinances with borrowers that left the borrower strapped for cash years later.

“A lot of loan officers don’t know about the reverse and how perfect it is for people of retirement age, so they go to the tools they know. Had they, at that point in time, instead done a reverse mortgage, the person would have qualified. They had enough equity. But because they did a HELOC or a cash-out, now there’s not enough equity. So to even put a reverse mortgage in place, they would have to bring cash to the table, cash that they don’t have.”

An LO once asked her if it was ethical to do a reverse if a client qualified for another product. “I was like, ‘it’s not only ethical, but I think it’s your responsibility to disclose they have this option.’”

Considering the ideal loan products for seniors, Carda casts her vote for reverse.

“Without creating additional debt,” she says, “I don’t see anything that would be as beneficial to seniors as the reverse mortgage is.”

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YOUR CAREER IN HIGH GEAR

Manufacturing Fair Lending

How data defines a modern theory of redlining

BY RYAN KINGSLEY , EDITOR , MORTGAGE BANKER MAGAZINE

Sometimes I’m blamed for some of this,” says Paul Hancock, a civil rights attorney who spent more than twenty years in senior roles at the Department of Justice (DOJ) developing and implementing the U.S. government’s fair lending enforcement programs. “But, I think that this has gone really pretty far away from where we started.”

As chief of the Housing and Civil Enforcement Section at the DOJ under Attorney General William Barr, Hancock helped to bring forward the government’s first redlining case in 1992, filed against Atlanta, Georgia-based Decatur Federal Savings and Loan Association. In private practice now as a partner at K&L Gates and consultant for Gate House Compliance, subsidiary of the mortgage advisory firm, Gate House Strategies, he says “there’s no question” lenders are opting not to litigate redlining lawsuits brought against them by the government, even if the government’s legal theory and factual analysis of the cases is wrong.

“Redlining is a terrible accusation,” Hancock says. “It’s a terrible thing to do. It means you’re refusing to make loans in an area based on the racial composition of the neighborhood. Nobody supports that. We abhor it. Our clients abhor it. The question is though: what’s the standard for determining whether you’re redlining or not?”

In October 2021, U.S. Attorney General Merrick Garland launched the DOJ’s Combatting Redlining Initiative, a renewed emphasis on “tackling redlining, a discriminatory practice where lenders deny or avoid providing mortgages or other credit services to neighborhoods based on the race or national origin of the residents of those neighborhoods.” Hancock began warning lenders after this launch that “new kinds” of redlining cases would stem from the new initiative.

As a matter of course, he was right.

In the past three years, regulators have initiated numerous redlining lawsuits – and even more investigations – against depository and nondepository mortgage lenders across the U.S., bringing cases forward under a modern theory of redlining that fair lending and legal experts call untenable. They call regulators’ demands for a racial balance in originations unconstitutional.

“If the government is actually demanding a racial balance in loan originations, saying all lenders in the city of Chicago should make 20% of their loans in minority neighborhoods,” Hancock posits, “that’s a demand for a racial balance that is prohibited by the Constitution. It’s prohibited by civil rights laws. I think that, if tested, it would be rejected by the courts in this context.”

Steve Simpson, director of separation of powers litigation for the Pacific Legal Foundation, a public interest legal organization that advocates

“Under the government’s theory, you can eliminate redlining by just making fewer loans in white areas. You’re not doing any more in minority areas. You’re making fewer loans in white areas and somehow that solves your legal problem. That just doesn’t make any sense.”

> Paul Hancock partner at K&L Gates

for limited government, recently defended Chicago-based Townstone Financial against a CFPB lawsuit accusing the non-bank lender of redlining. A district court dismissed the case, a decision which the CFPB appealed.

Simpson says lending disparities which regulators call “redlining” differ greatly from the literal practice from which the term originated. “Any disparity in a bank’s lending to one group or another is just held to be de facto redlining,” he says. “I just think that’s flawed.” Noting his position in the intellectual minority, he adds that “very few people” care to address the flawed premise driving the government’s approach to identifying redlining. He also predicts there is more fair lending litigation to come, given the Supreme Court’s decision last June to overturn race-based affirmative action in college admissions. “The more it seems clear that the Supreme Court is against race conscious policies,” he continues, “the more in favor of those policies regulators become.”

A MODERN THEORY OF REDLINING

The term “redlining” derives from the literal practice, employed by the federal government and lenders, of drawing red lines around neighborhoods they would not invest in based on those neighborhoods’ racial composition. The practice was enshrined in the Federal Housing Administration’s (FHA) 1938 Underwriting Manual, which prohibited “the occupancy of properties except by the race for which they are intended,” among other racist housing policies.

Redlining lawsuits against nondepository mortgage lenders are a recent phenomenon; traditionally, only depository banks were audited by federal regulators for compliance

with the 1977 Community Reinvestment Act (CRA), which outlawed redlining and established a framework for regulators to assess depositories’ progress at meeting the credit needs of their entire communities, including low- to moderate-income and majorityminority neighborhoods.

The primary argument against CRA mandates for non-depository lenders is that those institutions do not receive deposits with which they can reinvest in communities. However, non-depositories have always been subject to other non-discrimination and fair lending laws.

Natural disparities will always exist in lending, Simpson says; inferring redlining or intentional discrimination from statistics compounds the problem by propagating the fantasy of an achievable equilibrium. Accusing lenders who originate a below-average number of mortgages in CRA-eligible census tracts of redlining – without demonstrating a lender’s intent to avoid or otherwise restrict access to mortgage credit in those communities – manufactures perceptions of discriminatory lending, while pushing lenders to manufacture their fair lending compliance.

Lenders’ inability or unwillingness to litigate against the government, given the expense, inflates perceptions of rampant redlining and the effectiveness of regulators’ “combatting” efforts.

While the CRA speaks to income, not race, Hancock says, “in most of these areas there’s a great overlap between racial concentrations and low- and moderate-income concentrations. So, the government could analyze a bank’s loan distributions and see if you’re intentionally avoiding doing business in the minority communities of your assessment area. That was the theory.”

By relying on lending disparities to establish patterns of discrimination, regulators’ enforcement of that theory corrupts the original intent of the CRA statute; claiming that lower levels of originations in CRA-eligible census tracts equates

Steve Simpson Director Pacific Legal Foundation

to redlining makes fair lending enforcement – and lenders’ compliance – a data exercise.

“Under the government’s theory, you can eliminate redlining by just making fewer loans in white areas. You’re not doing any more in minority areas,” Hancock says. “You’re making fewer loans in white areas and somehow that solves your legal problem. That just doesn’t make any sense.”

The reputational harm of being accused of redlining lives with lenders, not regulators, Simpson says, compounding the ill-effects of ill-designed efforts to regulate away historical disparities. Simspon calls regulating away disparities in lending “political” – but not in the sense of Democrats versus Republicans.

“Regulators and everybody out there today in various sectors of the economy and finance being one,” he says, “are just falling all over themselves to look like they’re combating inequality.” The Illinois Community Reinvestment Act (ILCRA, see sidebar), which took effect in January 2024, uses proportional loan distributions to assess depository and non-depository mortgage lenders for fair lending compliance, mirroring a 2007 Massachusetts law for supervising non-banks.

“They care about how they’re being perceived or feeling like they’re combating a great social ill,” Simpson believes. “When they actually try to implement these policies, they make no sense, and the real experts, like the Mortgage Bankers Association, who knows what it’s doing and understands all this stuff much better than, in my view, the Illinois regulators, no one is paying attention to them.”

HEDGING FAIR LENDING COMPLIANCE RISKS

No matter whether government overreach is occurring, says Brian Montgomery, co-founder of Gate House Strategies and former deputy secretary of the Department of Housing and Urban Development (HUD), the Biden administration’s focus on redlining –however defined – makes the issue top-of-mind for mortgage lenders.

Drawing parallels to the heightened focus on cybersecurity given a recent spate of highprofile breaches, “even if there’s a change in administration,” Montgomery affirms, “there will continue to be a focus on this topic, as there should be.” But, a regulatory rat race mostly hurts consumers on account of the added complexities and expenses for businesses’ compliance.

Some states have the benefit of staying reliably “red” or “blue,” but whipsawing regulations means businesses must remain ready to pivot at all times depending on the regulatory priorities of the day. The headaches and expenses that arise can be exorbitant.

“The lenders here are facing an issue,” Hancock adds. “If there is a change of administrations, will they suddenly be tagged for doing what was demanded of them now?”

Lenders must hedge their fair lending compliance to satisfy regulators’ present demands for a racial balance while avoiding future legal liability for doing just that. Under a second Trump administration, the DOJ, the Department of Housing and Urban Development (HUD), and the CFPB would likely look very different. “There could be completely different theories espoused as to not only what the law requires, but what the law permits,” Hancock worries.

Therein lies the untenable nature of the government’s strategy for “combatting redlining.”

“The problem arises when they start inferring discrimination from statistics when they don’t have direct evidence of discrimination,” says Simpson, referencing his work with Townstone Financial. “You end up trying to compel mortgage companies or businesses to lend on the

“Even if there’s a change in administration, there will continue to be a focus on [redlining], as there should be.”

> Brian Montgomery co-founder of Gate House Strategies, former deputy secretary of HUD

basis of race and on the basis of other factors that they’re not supposed to take into consideration, which just creates an equal protection problem [through] perverse incentives and perverse effects.”

The perverse application of the law of unintended consequences means that “any community, or anybody who operates on a community level can ultimately be accused of discrimination,” he continues, “in some sense precisely because they’re operating locally and helping a given population, or they’re operating by word of mouth and just talking to their circles, their friend circles, their community circles” – i.e., referrals, which is how most of mortgage lending works.

Such disparate-impact discrimination is at the heart of regulators’ modern theory of redlining.

A DECADE OF DISPARATE IMPACT LEGISLATION

Richard Andreano, partner and Practice Leader of the Mortgage Banking Group at Ballard Spahr, a national law firm, says he “probably would not” have appealed the Townstone Financial case up to the Seventh Circuit. Andreano also leads Ballard Spahr’s Fair Lending Team.

In 2015 the Supreme Court ruled in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. that plaintiffs must meet a rigorous standard to establish a clearcut case of disparate-impact discrimination under the Fair Housing Act (FHA). The justices even noted that claims based on statistical disparities fail without showing robust causation.

On remand, the U.S. District Court for the Northern District of Texas applied that new standard and found the plaintiff (Inclusive Communities) fell short of showing robust causation. The outcome of these proceedings confirmed that disparate-impact discrimination claims were legitimate under the Fair Housing Act, but that plaintiffs proceeding under a disparate-impact theory face a significant burden of proof.

“It was clear the court was very concerned about the rules in that area,” says Andreano, “and

that if you went too far, were you actually in effect mandating the consideration of race in a way that would appear to be contrary to the Constitution.”

However, in 2013, HUD implemented its own “Discriminatory Effects Rule” to formalize disparate-impact liability. At the time, HUD noted the new rule had “broad remedial intent” and was “imperative to the success of civil rights law enforcement.” Two insurance industry trade groups sued HUD over the rule, arguing the rule exceeded HUD’s authority under the FHA.

Noting the Supreme Court would soon be taking up the issue in Inclusive Communities, a D.C. Circuit Court provisionally agreed with the insurance industry’s challenge. The Supreme Court acknowledged HUD’s 2013 Rule in the Inclusive Communities decision, but did not defer to it. The D.C. Court had to reconsider its ruling on the 2013 Rule following Inclusive Communities.

Before that could happen, a new HUD rule (the 2020 Fair Housing Act rule) was implemented , during the Trump administration, supplanting the 2013 rule. Fair housing groups challenged the 2020 Rule and won a preliminary injunction. The Biden administration then reinstated the 2013 Rule in March 2023 – without revising for Inclusive Communities.

Andreano calls this HUD’s “calculated error” –they reinstated the 2013 Rule almost verbatim.

In September 2023, a decade after the case began, the D.C. Court determined that in light of Inclusive Communities, HUD’s 2013 Rule does not conflict with the FHA when applied to insurers’ underwriting and rating practices. However, the D.C. Court noted that the 2013 Rule may exceed limits laid out in Inclusive Communities.

“By adopting a rule that was adopted two years before that Inclusive Communities decision,” says Andreano, “and then claim that the rules completely consistent with that future decision, was an error. I think you’re going to see this Supreme Court reign that conduct in, saying, ‘No, you have to actually follow our decisions.’”

That calculated error could be amplified if the Supreme Court reverses or narrows the Chevron

Illinois Regulators Ignore Industry Concerns As State-CRA Law Takes Effect

Mirroring a state-level community reinvestment law that took effect in Massachusetts in 2007, the Illinois Community Reinvestment Act (ILCRA) was passed in March 2021, but not implemented until January 2024, when regulations for its implementation were passed.

Matt Rohl, who previously served as senior vice president of CRA Development and Emerging Markets for the recently-acquired Draper and Kramer Mortgage Corporation, was installed in January 2024 on the Illinois Mortgage Bankers Association’s (MBA) Board of Directors. He claims Illinois regulators ignored industry concerns about the ILCRA, submitted during the comment period lasting from March 2021 until January’s implementing regulations took effect.

The ILCRA is modeled off the federal CRA, but expands the scope of covered financial institutions to include credit unions and entities licensed pursuant to the Residential Mortgage License Act of 1987 which lent or originated 50 or more mortgages in the previous calendar year which are not covered pursuant to federal law, like independent mortgage banks (IMBs).

Now that regulations implementing the ILCRA

have taken effect, the Illinois MBA’s concerns are being reviewed by state regulators – which is too little, too late, Rohl says.

Who Gets CRA Credit?

Asignature

issue with the ILCRA, Rohl explains, is the narrowing of who receives credit for originating mortgages in CRA-eligible census tracts. Under the federal CRA statute, buying loans underwritten for borrowers living in low- to moderate-income or majority-minority census tracts – i.e., CRA loans – grants CRA credit to buyers of those loans.

Fearing “churning” – a CRA loophole exploited by repeatedly buying and selling the same CRAeligible loans – the ILCRA says only one entity can receive CRA credit for loans underwritten for CRAeligible census tracts in Illinois.

Despite perceptions of CRA pools being riskier investments on account of weaker collateral, CRA loans are highly sought after by investor-entities subject to CRA requirements, Rohl says. Competition for CRA-eligible loans in the secondary market tightens the investor spread, improving pricing in the primary market for borrowers applying for mortgages in those areas.

Eliminating the ability for buyers of CRA loans to receive CRA credit undermines the added value of CRA loans to CRA-minded investors, making for less competitive pricing for these loans in the secondary market. “Saying only the first person can get credit for it actually makes the terms worse for the borrower,” says Rohl.

And the reverse can happen for brokered loans, he says.

Mortgage bankers who broker loans – meaning the loans are underwritten and purchased by a different funding entity – would not receive CRA credit for originating CRA-eligible loans on account of the single-buyer restriction. Only the entity that underwrote and bought the loan would receive credit. Hence, IMBs brokering loans for borrowers in CRA-eligible census tracts, though expanding access to mortgage credit in those communities, would not receive commensurate CRA credit.

“In that situation, the first person that actually dealt one-on-one with the borrower would not get credit for that CRA loan,” Rohl explains. “If I’m an independent mortgage banker and I’m letting you underwrite it, I would get no credit at all,” despite that originating entity directly helping to expand access to mortgage credit in a CRA-eligible community.

The Examination Process

Whereasbanks and credit unions with more than $10 million in assets pay an annual fee to regulators that cover expenses related to regulatory audits and examinations – and those with assets under that threshold pay no annual fee – the ILCRA will charge IMBs who originate 50 or more mortgages in Illinois in a calendar year a daily rate of $2,200 for them to be audited.

Those audits could last a day, a week, a month, or more. IMBs not headquartered in Illinois, but who originate more than 50 loans in the state

on an annual basis, will also have to foot the bill for auditors’ travel expenses. An audit that lasts a month would cost more than $60,000, due 30 days from the end of the audit, and audits are expected to happen every two years.

The expense is disproportionate for smaller IMBs, Rohl says, compared to their asset-heavy banking peers. IMBs don’t take or hold deposits. A more fundamental issue with the examination process, however, is the manner in which IMBs are assessed and judged to be either compliant or noncompliant with ILCRA.

By failing to engage with the concerns of the Illinois MBA before the implementing regulations took effect, which “activated” the law passed in 2021, regulators neglected to clarify how IMBs in the state are expected to achieve compliance with the ILCRA, besides proportional distribution.

According to Rohl, “They just put this law into place and said, ‘Well, we’ll talk about it after it’s in place.’” He asks, rhetorically: “Who’s my peer group? What are the percentages I should be doing? That, again, is subjective and wouldn’t really have any precedent until the audits start happening.” He and other fair lending experts fear regulators’ reliance on peer benchmarking can manufacture the illusion of redlining, spurring allegations of noncompliance.

Pretend, for example, an out-of-state IMB wants to open its first branch in Illinois. The IMB gets licensed, recruits a small group of loan officers, and opens an office. The branch originates 100 loans in the following year, and another 100 more loans the year after. Due to where the branch is located and due to where the loan officers live and lend, only a handful of originations each year were from CRAeligible census tracts.

From regulators’ perspective of proportional distribution, that IMB engaged in redlining. “What should the number be?,” Rohl asks. “What should

the percentage of CRA loans versus non-CRA loans be? That’s not in writing. It’s a little subjective.” In this scenario, “redlining” was manufactured by the out-of-state IMB starting to do business in Illinois in the first place.

“Under the government’s theory, you can eliminate redlining by just making fewer loans in white areas,” says Paul Hancock, a civil rights attorney who spent more than two decades at senior levels of the Department of Justice (DOJ) developing and implementing the DOJ’s fair lending enforcement program. “You’re not doing anymore in minority areas. You’re making fewer loans in white areas and somehow that solves your legal problem. That just doesn’t make any sense.”

Given lenders’ ongoing profitability crisis, the threat of unreasonable fair lending enforcement could decrease competition by making the state unattractive for doing business, says Rohl, undermining efforts to reach underserved borrowers, likely making mortgage financing costlier.

“To say that I’m not paying attention to an underserved community,” Rohl explains, “it’s just simply because I don’t have anybody in that community. But, what this law says is, I need to hire and open an office there. That’s the only way I would be able to serve that community.”

“My concern,” Hancock adds, “is that the government has kind of drifted much closer to a demand for racial balance in loan originations, rather than attacking lenders that really are refusing to do business in minority areas.” Demands for racial balance are unconstitutional, he says.

Policing Appraisal Bias

Athird area of the Illinois MBA’s concern over the ILCRA concerns appraisal bias. Rohl says the ILCRA creates regulatory confusion surrounding the federal enforcement of the Dodd-Frank Act

Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

In addition to establishing the CFPB, the DoddFrank Act was passed in the aftermath of the Great Financial Crisis to implement safeguards in mortgage lending, among other reforms. One such Dodd-Frank safeguard prohibits mortgage lenders from influencing appraisals, in any capacity. The ILCRA makes it the responsibility of IMBs and credit unions to police appraisal bias by denying loans for properties with appraisals that the lender suspects of bias.

However, asking lenders in Illinois to police an aspect of mortgage lending outside their regulatory and professional purview could do more harm than good, Rohl fears.

Differentiating less-than-blatant bias from laziness or inexperience can already be difficult for those well-trained in the discipline. Denying CRA-eligible loans suspected of appraisal bias could open up lenders to accusations of lending bias for wrongly denying applicants. Approving applications for loans they suspect of appraisal bias – but do not deny so as not to court fair lending risk – could make lenders vulnerable to lending risks like repurchase demands.

Ultimately, lenders face a conflict of interest because the ILCRA pushes lenders to write more loans in CRA-eligible census tracts, which are historical hotbeds of appraisal bias. “It’s counterintuitive to the actual federal law, in that case,” Rohl says. “They’re saying that you have to police bias on appraisals, yet you’re not supposed to influence or have anything to do with the appraisal.”

Where Rohl believes the spirit of the ILCRA represents a desire to erase racial disparities in homeownership and mortgage lending, the ILCRA will likely undermine that ambition by pushing IMBs to lend where they are not and adding operational complexities and costs.

Manufacturing Fair Lending

principle, a long-standing judicial precedent that says courts should defer to federal agencies’ expertise when interpreting and administering federal statutes and regulations. After hearing oral arguments in a separate case in mid-January, the Supreme Court seems poised to overturn the Chevron principle.

The CFPB appealed its case against Townstone Financial arguing Chevron deference.

“All the redlining claims were brought against banks who had their banking regulator twisting their arm to settle. They settled. They sued the first non-bank, and the non-bank didn’t want to settle, and that’s how we’re finally getting court review of this,” Andreano says. “It just never faced a challenge was the issue. I do think the courts, particularly if Chevron’s thrown out, only if you just modify it, I think that could significantly change how courts defer.”

EMERGING FAIR SERVICING COMPLIANCE RISKS

The same way underwriting standards are set by the government-sponsored enterprises (GSEs), so are default servicing standards. Where fair lending focuses more on the origination side of mortgage lending, fair servicing kicks in after the loan closes, entailing such actions as collection processes, fee assessments, and a waterfall of loss mitigation options.

The problem for many lenders, says

Richard Andreano Partner and Practice Leader of the Mortgage Banking Group at Ballard Spahr

at Community Loan Servicing, LLC (formerly Bayview Loan Servicing, LLC) is that fair lending and fair servicing at many mortgage companies remain disparate processes.

“It doesn’t mean that it’s not a priority,” he explains. “It doesn’t mean that it’s not resource-intensive. It’s just not as mature of a structure and mature from a thought-leadership perspective.” Hence, for mortgage lenders, fair servicing compliance can be more difficult to stay ahead of than fair lending

it and incorporating it into a mortgage operation’s day-to-day activities is not always clear.”

CrossCheck aided Townstone Financial with their data analysis in the process of their defense against the CFPB. These days, data reigns when it comes to staying out of regulators’ crosshairs, Warner says.

Regulators can assess servicing data for fair servicing compliance, looking for patterns that could signal discrimination, such as whether protected class borrowers are being foreclosed on more often

“Fair servicing,” Warner continues, “obviously is not as mature of a process of monitoring as it is on the origination side, and you don’t have a set of data like you have the [Home Mortgage Disclosure Act] data to compare results against. It’s a little more challenging that way. You really have to understand what’s happening within the

Michael Waldron

Michael Waldron, founding partner of Gate House Compliance

operation in order to conclude on anything with respect to the data.”

Problematically, much of the data available to lenders for analysis offers a rear-view perspective. They know where their own loans are written, “but the government is looking at a comparison with other lenders, and you don’t have other lenders’ data until the following year,” says Hancock. When it comes to peer benchmarking, “there’s no way of knowing.”

Use what you have though, Warner says. “You need to make sure as a company that the data is accurate, first of all, and that as an organization you understand what the data is telling you. Am I in trouble or am I not? If so, what areas do we need to focus on? Somebody internally needs to really take that in and understand what it means and how to make changes.”

Lenders’ failure to mine their own data for insights into potential fair servicing risks underscores the shortcomings of data reliance for fair lending and fair servicing compliance overall. “What you don’t want to do,” Waldron

I would contend on the servicing side it’s a multiple in terms of complexity,” Waldron says. “The interaction is condensed on the servicing side. It’s a continuum, it’s a relationship, and it can touch everything from how you waive fees or give deference to your servicing client, your outreach efforts… how hard are you trying to reach them when an event occurs in the loss

data and draw conclusions about servicing discrimination.

Ultimately, lenders have to get to their data before regulators do. When regulators are the first to identify patterns of potential discrimination in a lender’s servicing data, that lender has already failed to demonstrate an awareness of their own potential shortcomings.

The difficulty of finding a comparable situation for an assessment’s sake makes fair servicing compliance that much more difficult for lenders and regulators to assess, too. Every borrower’s situation is unique, especially when they go into default. In a similar way that regulators can assess lending data to identify redlining, regulators can assess servicing

“The government would like to find a case of discrimination and servicing,” says Hancock, “and there hasn’t yet been a major case. There might be one-off cases someplace, but there hasn’t been a case of discrimination and servicing like there has been in discrimination and origination of loans or marketing such as redlining.”

“You need to make sure as a company that the data is accurate, first of all, and that as an organization you understand what the data is telling you. Am I in trouble or am I not? If so, what areas do we need to focus on? Somebody internally needs to really take that in and understand what it means and how to make changes.”

> Liza Warner, partner with CrossCheck Compliance

Assessing The Fed’s Heavy Hand In Mortgages

How far can the Fed take quantitative tightening?

BY PREETAM PUROHIT, CONTRIBUTING WRITER, MORTGAGE BANKER MAGAZINE

The first rule of trading in capital markets: before entering a trade, have an exit strategy.

More than 15 years after the Federal Reserve began its policy of quantitative easing (QE), actively trading in mortgagebacked securities (MBS) to indirectly subsidize mortgage rates, the U.S. central bank still appears to lack an exit strategy.

“The Fed could not figure out how to get out of the MBS over the 10 years before the pandemic and it has come to the same thing now,” says Michael Fratantoni, the Mortgage Bankers Association’s (MBA) chief economist.

Which isn’t for the Fed’s lack of trying. In early 2022, the Fed’s balance sheet was just shy of $9 trillion in total assets. As part of its strategy to combat inflation, since the first quarter of 2022 the Fed has engaged in a policy of quantitative tightening (QT), reducing its holdings of U.S. Treasury bonds and agency MBS by allowing them to mature, without reinvestment, at a monthly, maximum rate of $60 billion and $35 billion,

respectively.

As historically unique as the Fed’s decision was to expand its balance sheet in reaction to the Great Financial Crisis (GFC) – particularly by becoming an active investor in the U.S. housing market – so historically unique is the Fed’s ongoing effort to shrink its balance sheet.

At a press conference on May 4, 2022, following the Fed’s announcement that it would begin QT that June, Fed Chairman Jerome Powell noted, “I would just stress how uncertain the effect is of shrinking the balance sheet.”

As a market participant, regulator, and policy creator, the Fed has an outsized influence on the mortgage industry. Whenever the Fed changes its behavior or acts, the effects of those changes reverberate through the mortgage universe more than other parts of the economy. However, it wasn’t always like this. The Fed has signaled that it would like to have less direct influence.

In an ideal world, the Fed has said it would like a Treasury-only portfolio – no MBS.

HOW DID WE GET HERE?

When the Federal Reserve was established in 1913, one of its main goals was enabling banks to maintain emergency cash reserves for providing overall stability to the system. The Fed’s mandate evolved over time to include responsibilities of shaping and implementing monetary policy.

Before the GFC, the Fed held less than $1 trillion on its balance sheet, with U.S. Treasury bonds comprising the majority of its assets and the currency in circulation representing the Fed’s main liability. During the GFC, the Fed’s decision to drop borrowing rates to near zero proved not quite strong enough to stimulate the economy. So, the Fed experimented by buying more Treasuries and, for the first time, MBS, under its newly devised, stimulative, QE program.

In the decade after the GFC, the Fed’s balance sheet swelled from less than $1 trillion in 2008 to around $4.5 trillion in 2015 (Chart 4). The question of how the Fed would implement QT –reducing its holdings of Treasuries, and

more specifically MBS – pre-dates the COVID-19 pandemic.

The Fed first announced its intention to reduce QE in the future in May 2013, leading to a “taper tantrum” in the bond markets. At mere mention of the Fed’s withdrawal, bond yields surged on the fears that markets would crumble. The Fed then embarked on another purchasing spree, adding roughly $1.5 trillion to its balance sheet through 2015.

A few years later, however, the Fed did begin engaging in QT, reducing its balance sheet from roughly $4.4 trillion in September 2017 to roughly $3.7 trillion in September 2019.

However, the COVID-19 pandemic forced the Fed to pivot toward economic stimulus once again. The central banks’ policymakers chose to engage in a similar program as was deployed during the GFC: drop the Fed funds rate to nearly zero and provide QE. This time, the Fed’s balance sheet ballooned from $4.2 trillion in total assets in February 2020 to nearly $9 trillion in March 2022.

DID QE MAKE QT IMPOSSIBLE?

As the COVID-19 pandemic unfolded in 2020 and 2021, the mortgage industry benefited greatly from the Fed’s decision to drop the Fed Funds rate to nearly zero (Chart 3)and inject huge amounts of liquidity into the market with direct payments to households and favorable borrowing programs.

However, the Fed’s dropping of the Fed Funds rate to nearly zero and assisted QE during the pandemic caused the entire mortgage market to purchase or refinance into historically low mortgage rates, creating a “lockin effect” whereby potential sellers are discouraged from selling their homes –or else pay dramatically higher financing costs. Artificially lowering rates has kept housing inventory artificially low, artificially depressed demand, and artificially raised prices.

The Fed has a dual mandate of price stability and sustainable employment.

As a direct result of the Fed’s stimulative measures and fiscal policy action, exacerbated by supply chain issues and labor shortages, inflation rose during the pandemic. To control inflation, the Fed significantly tightened monetary policy. Beginning in the first half of 2022, the Fed increased the Fed Funds rate from nearly zero at the beginning of 2022 to 5.25% by July 2023. It has since remained elevated at that level.

As a result, the majority of mortgage lenders have experienced profitability carnage over the past eight quarters. Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported average net losses of $2,109 per loan in the fourth quarter of 2023, per the MBA’s quarterly performance report (Chart 1). The Fed’s tighter monetary policy has caused a significant increase in mortgage rates due to an increase in Treasury rates and a widening of the Treasury-mortgage spread. The Fed and traditional banks have been net sellers of MBS for the past two years, meaning money market managers and real estate investment trusts (REITs) have been buying more MBS. Money managers usually need higher returns, which is reflected in the widening of the spread. Increased interest rate volatility has also resulted in widening of the Treasurymortgage spread (Chart 2).

WHERE DO WE GO FROM HERE?

Government investment in MBS markets has helped keep mortgage spreads artificially low in the decade following the GFC. So far, though, the trend has reversed with QT, leading to worse results for the mortgage industry. The Fed has reduced its balance sheet by about $1.4 trillion since it began QT in June 2022. While Treasuries holdings have shrunk by almost $1.1 trillion, MBS have only reduced by roughly $293 billion owing to a dramatic slowdown in mortgage prepayments.

“Our industry does best with stable long-term rates that are sustainably low, and we can make money all day long at 5-6% rate, if they stayed at that level for 10 years,” says the MBA’s Fratantoni. “That

CHART 3: FED FUNDS RATE (Source: Bloomberg)

would be a perfect market for us. Wild swings are not helpful because we cannot ramp up fast enough during refi booms and cutting is always miserable.”

As the Fed continues along the path of QT and signals that interest rates will remain higher for longer, one wonders if there’s a level where the Fed would be forced to stop the current cycle of quantitative tightening. In early May, the Fed announced a tapering of its QT program, from $60 billion in Treasuriesrunoff per month to $25 billion, starting in June. MBS tapering will continue at the same speed of runoff at $35 million per month. Fed Chair Powell made it clear during that press conference that the Fed is looking at the health of the financial system when making decisions

about the size of its balance sheet, rather than simply implementing monetary policy.

The Fed will be wary not to repeat the mistakes of past tapering efforts and will have to communicate policy changes effectively so as not to spook the markets. Policymakers need to balance the tapering schedule with the availability of sufficient bank reserves in the system, in addition to potential liquidity risks. Policymakers must also remember that monthly balance sheet runoff is being partially offset by the inflated face value of its inflationprotected holdings.

Slowing QT should be a net positive for bond yields as well as mortgage spreads, but Fed actions have unintended consequences for the mortgage industry. In my view, the longer run size of a Treasury-only portfolio will be driven by the rate of growth of the financial system and structural factors impacting the demand for reserves by the broader banking system.

Preetam Purohit, CFA, CQF, FRM, is currently the head of hedging and analytics at Embrace Home Loans.

CHART 2: TREASURY-MORTGAGE SPREAD (Source: Bloomberg)

French Quarter

New Orleans

We set out to find the most talented, ambitious, and legendary individuals who are achieving excellence and making a difference in the mortgage industry. We received many nominations. Each was reviewed carefully by a panel of judges, and 13 winners were selected. Please join us as we salute the 2024 class of Legends of Lending. >>

2024 LEGENDS OF LENDING

Carmine Cacciavillani

Carmine

Cacciavillani | Founder and President | Blue Sage Solutions

Carmine Cacciavillani, founder and president of Blue Sage Solutions, is a man with double vision. It has nothing to do with his eyes, though. Twice, he has had successful visions for how to improve the mortgage industry.

“Very early in my career, I envisioned creating end-to-end mortgage technology that was accessible to everyone, including borrowers. What set us apart was fulfilling that vision over two decades ago with the creation of Impact, the industry’s first end-to-end loan origination platform. By the time we sold Impact to IBM, it was being used by five of the top 10 U.S. lenders, so that definitely put us on the map,” Cacciavillani recalls.

Then, his vision focused on the cloud. “In 2018, my team and I did it again by developing the Blue Sage Digital Lending Platform, a complete, end-to-end origination technology built entirely with cloud technology. At the time, the vast majority of lenders were still using

legacy, premise-based systems built decades ago – in fact, many lenders still do. What made our platform unique was that it could be used by any lender — direct, wholesale, retail, or correspondent — and it managed and automated everything from loan pricing, underwriting, and decision-

“By the time we sold Impact to IBM, it was being used by five of the top 10 U.S. lenders ...”

making from the point-of-sale stage all the way to the closing and funding of loans. It has consumerfacing applications and sales tools that enable loan officers to increase capture rates and generate more loans. Everything is browser-based, too,” he says.

Part of his success is also a clear vision for how to run Blue Sage Solutions. “Fostering a culture of excellence and

continuous improvement involves leading by example, setting clear expectations, and encouraging innovation. As a leader, part of my job is to inspire my team to enhance their skills, which we support through extensive training opportunities and a collaborative work environment.

“I also make sure to recognize and reward excellence, emphasizing a mindset of continuous improvement and soliciting feedback for process optimization. Finally, my goal is to maintain an environment of positivity and encouragement while staying updated on industry trends so we can adapt our practices accordingly,” Cacciavillani explains.

“I believe there is always an opportunity to innovate, and I look for people with the same mindset. This collective drive for improvement has yielded significant results for our clients, with underwriters doubling their productivity and loan production efficiency skyrocketing for retail, wholesale, and correspondent lenders,” he adds.

2024 LEGENDS OF LENDING

Bill Dallas

Bill Dallas | Chairman | Dallas Capital

Building, creating and operating successful mortgage banking, banks and fintech companies for almost four decades sets Bill Dallas apart from the rest. “ I was able to differentiate my companies by hiring, building, and retaining very talented leaders and, with these leaders, competing in a very competitive industry. As their leader, I walk the walk and talk the talk and my teams trusted me … and I trusted them,” says Dallas.

The chairman of Dallas Capital knows a culture of excellence and continuous improvement is only possible if you value and love people and your team or organization trusts you. “I have always lived by building a strong P&L … not profit and loss, but people and leadership,” Dallas explains.

That’s not to say he hasn’t authored successful P&L sheets along the way. “At First Franklin, we invented the 100% purchase loan and created an

80/20 structure, first and second mortgage loan. We first partnered with Freddie Mac and then sold and securitized these loans with Wall Street firms. Our product, Direct Access, set us apart from our peers and enabled us to deliver loans to agencies and non-agency investors. At our zenith, we were funding $30 billion of this product,” Dallas recalls.

“I want to help mortgage companies provide a lasting impact on the communities and clients they serve ...”

“At Skyline Home Loans we created the intelligent mortgage platform. This point of sale platform helped us transform our retail business. Eventually, we raised over $100 million to create Cloudvirga,” he adds.

Dallas has his eyes on the future. “After over 40 years of operating my

mortgage businesses, Dallas Capital Consulting is focused on helping my clients perfect their business models and grow their businesses. I am also working with several investors to bring HEI (home equity instruments) to the mortgage industry. Equity Sharing is new and will provide my clients with a no-payment, cashout option for their clients. Another exciting project is my Home Equity Advisor Agreement for loan officers. LOs talk about creating customers for life but do little to perfect that relationship. I have created an agreement and process that can transform the way LO’s do their business. Exciting,” he exclaims.

In addition, he is working on a philanthropic project called Impact Lending. “I want to help mortgage companies provide a lasting impact on the communities and clients they serve by giving back 10% of their profits,” Dallas says.

Mat

M2024 LEGENDS OF LENDING

Mat Ishbia

Ishbia | President and CEO | United Wholesale Mortgage

at Ishbia, the president and CEO of United Wholesale Mortgage, says elite client service, speed, and technology set him apart from his peers. According to Ishbia, client experience is everything. He adds, “You could have the lowest rates in the country or the best loan products available, but if you don’t provide an amazing experience, you won’t win long term. What people remember most in any transaction is their experience and how they’re treated. Our broker clients have no obligation to bring us tomorrow’s loan, so it’s important that each one that does is handled with the utmost care and service.”

Another critical component of our success is speed, says Ishbia. “Speed solves everything. Lots of people measure 12 times and cut once, but we measure once and cut once. Mistakes happen all the time, but if you can fix mistakes fast, you’ll be able to succeed,” he explains.

Technology also has to be a top concern. “Developing and investing in technology is a must. Most other lenders partner with vendors who build technology to offer solutions for many different companies. Our technology is built entirely in-house, allowing us to fully customize our tools to meet our clients’ exact needs. We can focus on the specific needs of our business and ensure we place ourselves in the best position to succeed,” says Ishbia.

“You could have the lowest rates in the country or the best loan products available, but if you don’t provide an amazing experience, you won’t win long term.”

Also crucial to Ishbia is a company culture centered around excellence and continuous improvement.

“Leaders set the example,” he says. “If they’re not in the weeds of their business and walking the walk, others won’t follow suit. Part of this means leaders need to be accessible, present, and interested in the day-to-day responsibilities of team members. I take part in working sessions when technology is being built or products are launching. I know about the campaigns coming out of marketing and how many files our underwriters review per day. Most importantly, I know who’s involved in these initiatives.”

Goal setting is also important. “From a continuous improvement perspective, one practice we heavily rely on at UWM is goal setting,” Ishbia says. “Another way we focus on continuous improvement is through a program called Brilliant Ideas. This program helps us find new efficiencies in our business or make things easier for our team members and clients.”

2024 LEGENDS OF LENDING

Steve Jacobson

Steve

Jacobson | CEO | Fairway Independent Mortgage Corp.

Humility is a core value for Steve Jacobson, CEO of Fairway Independent Mortgage Corporation.

“In our business, we are fortunate enough to help many people achieve perhaps the biggest dream of their lives. The best way to deliver that service, whether during boom times or a down market, is with a humble servant’s heart. It’s that simple,” he says.

With humility, Jacobson also points to Fairway’s recognition for the service it provides. “We were humbled to be named #1 for customer satisfaction among mortgage origination companies in the J.D. Power 203 U.S. Mortgage Origination Satisfaction Study. We believe customer satisfaction is a natural by-product of a humble, helpful, speedy approach to our clients.”

In 2024, Fairway will maintain that focus while expanding it. Jacobson explains, “Our motto for 2024 at Fairway is ‘Mastering the Mindshift,’ which embodies our dedication to

embracing change and pushing boundaries. The past two years have been difficult for everyone, but we know if we are open to changing how we think, there are still plenty of opportunities for success.”

Another of the Core Values at Fairway is “Committed to Serve.”

We try to embody that mindset in everything we do.

Jacobson freely points to the work of others to demonstrate his legacy of success. At Fairway, they tap into a core value of fostering growth and knowledge. “We provide many opportunities for our teammates in all areas to find training, coaching, and useful information. Our Ignite coaching organization provides mentoring from more experienced teammates within Fairway. We offer deeply discounted training

sessions for originators and corporate teammates from XINNIX to arm our people with the knowledge and techniques necessary to succeed in this market.

“We provide free webinars offering tips and techniques from some of our top producers, and our nationwide ‘Elevate Event’ provides a comprehensive platform for learning, networking, and professional development, ensuring our team and industry professionals lead the way in innovation amidst today’s competitive market,” Jacobson says.

Another of the Core Values at Fairway is “Committed to Serve. “We try to embody that mindset in everything we do. Through two of our nonprofits, Fairway Cares and American Warrior Initiative, we offer assistance to families struggling with loss and stress, and we provide service dogs and other assistance to those in need from military backgrounds. Our greatest legacy would be to increase the amount of volunteer community service throughout the industry.

2024 LEGENDS OF LENDING

Bill Lowman

Bill Lowman | Chairman | American Pacific Mortgage

Transparency, authenticity, and approachability are what define a legendary mortgage professional, says Bill Lowman, the chairman of American Pacific Mortgage.

“Throughout my years in the industry and various leadership roles, I’ve always prioritized transparent communication. Whether it’s good or bad news, your loan officers, branch managers, and team members should hear it from their leadership first. This fosters an environment of trust and sets a tone for clear and direct communication at all levels within the organization.”

Being a legend doesn’t mean you have to live up to others’ expectations. “Authenticity and how you show up as a leader are also important and have been something I’ve valued over the past few years while developing my own personal brand. If you know me, you know I have a love for Air Jordans and loud socks. Once I embraced that and started dressing and showing up how I felt comfortable at company

events and meetings, it created an opportunity for me to connect better with our branch managers, loan officers, operations, and home office team members because I was more approachable.”

“Executives have to be approachable to build a strong company culture, which is something we have successfully done at APM.”

Lowman practices what he preaches when it comes to being open to all employees. “Executives have to be approachable to build a strong company culture, which is something we have successfully done at APM. I will give out my personal cell phone to anyone who wants it as a gesture that my door is always open and that if you have a problem, you can come to me.”

Lowman wants to see his APM family prosper. Beginning in March 2021, APM began converting to an Employee Stock Ownership Plan (ESOP). “This was an unprecedented move at a time when many mortgage companies and lenders were going the merger and acquisition route. We decided to go a different direction, and it’s proven to be the right choice for American Pacific Mortgage,” says Lowman.

Today, APM is 49% employee-owned through our ESOP. All full-time employees participate in this ownership plan, which has been beneficial in recruiting and retaining employees, increasing productivity and morale, providing business continuity and an opportunity for “homegrown” succession, and providing employees with a novel opportunity to build wealth. “There are only a handful of ESOPs in the mortgage business, and we are proud to be the largest,” Lowman says.

2024 LEGENDS OF LENDING

Philip Mancuso

Philip Mancuso | President and Partner | Equity Prime Mortgage

Philip Mancuso is not just a mortgage vet, leader, and brilliant capital market mind, he is a market maker known for his crystal ball. The calls and decisions he made in the years leading up to the two most significant economic events of our generation, 2008 and 2020, saw the companies he was leading survive and thrive.

Decisions to avoid the risky lending that led to the financial crisis, along with predicting the 2008 crash on national television in 2005, helped his organization become a leader in the TPO space. In 2018, Mancuso once again predicted a mortgage liquidity crisis. By selling servicing at the peak of rates in November 2018 and innovating hedging strategies in early 2020, he was able to avoid the catastrophic wave of margin calling that was pushing most other lenders to the brink of illiquidity.

In the spring of 2020, EPM became nearly a single source of liquidity for the borrowers who needed it the

most, helping volume grow 500% while most lenders were still figuring out how to survive before getting bailed out. A handful of lenders made it through these times because of the unlimited support that EPM provided, more specifically in the government lending space.

Over the past three decades, Mancuso has made legendary calls that have changed not only the organizations in which he was and is a leader but also the mortgage industry as a whole.

Over the past three decades, Mancuso has made legendary calls that have changed not only the organizations in which he was and is a leader but also the mortgage industry as a whole.

EPM has a myriad of projects that they are constantly working on to innovate and bring more resources to the broker channel. Some of those projects include CORE, BLVR, and Empower Brokers. CORE is getting better every day with easyto-use elements, pricing, and most importantly soon-to-come Broker Self-Disclose. BLVR is changing the game every day providing brokerage homes for LO’s along with the proper training needed to get their borrowers in the best homes for the best price. Empower Brokers is an initiative Mancuso and company are excited about. It provides marketing to its clients and partners as well as real-life events to film their own content and take joy in sporting events, concerts, and activities alike with the team at EPM constantly working together to sharpen everyone’s axe. Mancuso is integral in all of these initiatives.

Mancuso will be written about in all the history books to come in the mortgage industry.

Jane Mason

Jane

Mason | CEO | Clarifire

Apassion for their work, resilience, and rolling with the punches are all elements that make one a legend in lending, says Jane Mason, the CEO of Clarifire. “Personally, I’m motivated each day because I love the work I do. In our industry, in particular, there’s never a dull moment. Between compliance changes, innovations in workflow automation, and shifts in the economy, mortgage banking is in constant flux. My role is to evolve with these changes and focus on serving the daily needs of mortgage servicers. In any business, there are always going to be hurdles and setbacks. It takes strength and determination to bounce back, find new ways to move forward, and turn those setbacks into opportunities for success,” says Mason.

She also adds that honesty is really the most important quality, because it’s the foundation of building trust with others. Mason explains, “In fact, early on, it was how I was able to get

two of the industry’s largest players, Bank of America and Fannie Mae, to believe that Clarifire fulfilled a need for mortgage servicing. I never overpromised anything — I was simply honest about what we could and could not do. But I remained true to my word and my team’s capabilities. They understood what we had built and our potential, and we delivered on their expectations. To this day, I remain true to my word because it’s how I built trust with all of my clients.”

“Personally, I’m motivated each day because I love the work I do. In our industry, in particular, there’s never a dull moment.”

Mason has built a successful career by seeing trends. Prior to the 2008 housing crisis, mortgage origination

received all the attention and mortgage servicing was sort of the red headed stepchild, she says, adding, “But when the chips were down, servicers had to step up. I started Clarifire during the housing crisis, and at that time, mortgage servicing desperately needed to be digitized. Servicers were grappling with massive numbers of foreclosures and needed to process loss mitigation requests as quickly as possible. Clarifire fit the bill because we brought digital processes and automation to help servicing operations move faster.”

“The importance of efficient servicing continues to grow. Today, originations are slowing due to higher mortgage rates and rising home prices, but mortgage servicing remains a profit center and a source of borrower retention.”

2024 LEGENDS OF LENDING

A.W. Pickel

A.W.

Pickel | President | Blok Home Loans

The president of Blok Home Loans, A.W. Pickel, has a simple philosophy for success. Make the customer part of the transaction. “My strategy has always been to provide enough coaching and mentoring to ensure that every loan officer on our team understands how to work with borrowers in a way that demonstrates our commitment to them. Then, I work with them until they can follow through on that promise,” Pickel says. He adds, “Yes, the mortgage broker works as an extension of the wholesale lender that provides the loan product that meets the borrower’s needs, but unless those needs come first are you really providing a service worthy of winning repeat and referral business?

The originator’s reputation in the community is so important. Ignoring it is a mistake young brokers make that ends up pushing them out of the business.”

“Being called a legend is an honor. No one who truly deserves the title would ever claim it for themselves.”

Pickel demonstrates humility when discussing this accolade. “Being called a legend is an honor. No one who truly deserves the title would ever claim it for themselves. I’m honored to receive it, but am I a legend? I’m not sure about that. What I am is experienced. I’ve been in this business longer than many who are in this business today have been alive. I worked a long time to be able to say that. I think that’s the first requirement for anyone who could carry this title without embarrassment,” he says.

One thing his longevity provides is openness. “The more people who have had the opportunity to see you in action, the easier it will be to attract the kind of people who already want the culture of excellent and continuous improvement you’re building. And it’s always building. Some people think continuous improvement is an initiative they turn on once a year to find some incremental increases in efficiency or some other metric that, in and of itself, means nothing to the people we serve,” says Pickel.

It’s what sets independent mortgage brokers apart. “If your focus is your borrower, you measure borrower satisfaction and treat customers like family, you can make continuous improvement a core value, and everyone will want to get better with every interaction. It’s why the mortgage broker will always be a critical part of the home finance process,” he says.

2024 LEGENDS OF LENDING

Tammy Richards

Tammy

Richards | CEO, LendArch | COO, Kind Lending

Tammy Richards, the CEO of LendArch, says her firm fosters a culture of excellence and continued improvement through an uncommon tactic: an open door at the CEO’s office. It’s helped make her a legend of lending.

“Always have an open-door policy,” she says. “No question or suggestion is turned away. Be willing to be open to new ideas and embrace technology. Continue to reinvent yourself and put more tools in your tool belt. Constantly mentor and assist others. Share your knowledge so the team continues to get stronger. Reward and recognize great achievements. Share errors and use them as teaching tools for the team. Promote from within. Give your team a clear path to achieve their goals.”

Those beliefs define Richard’s view of leaving a legacy. “It’s someone who leaves the industry better than they found it,” she explains.

“A legend is someone who shares their knowledge and makes the path easier for the next generation. Being a servant leader is the best way to work with a team. A legend is someone who has superpowers, mortgage superpowers.”

“A legend is someone who shares their knowledge and makes the path easier for the next generation.”

Richards uses her mortgage superpowers to understand how things get done. “Always know how to do the tactical work your team is doing. This helps with goals, process improvement, and credibility. Become an expert in as many areas as you can. It is hard to be a leader as a generalist.”

It’s in her genes. “I have always loved

innovation. I come from an inventive family. My grandfather built the first flight simulator. My father created a seaweed farm and worked it with a submarine that he built in our yard. We have the technology to automate the mortgage industry. My team has built a digital solution to lower costs, make mortgages more transparent and accessible, with no human error. We are very excited about sharing this with the industry.”

Richards adds, “My favorite project that I am working on is automating the mortgage fulfillment process. It is so exciting to see modern technology improve every facet of the process and dramatically reduce cost. We also have in our lab an automated condo tool, compliance tool, and several conversational tech tools. The opportunities are endless, and the industry is wide open for positive change.”

2024 LEGENDS OF LENDING

Terry Schmidt

Terry Schmidt | CEO | Guild Mortgage

Terry Schmidt has seen success at Guild since first joining the company 39 years ago as a member of its audit department. She was president from August 2020 to June 2023 before becoming CEO of Guild Mortgage Co. and director, Guild Holdings Co.

In a May 2023 interview with National Mortgage Professional Magazine (Mortgage Banker’s sister publication), Schmidt said, “We’re really focused [over] the last … 15-20 years on just being a retail franchise operator. So we’ve stayed in having a local presence in branches and offices all over the United States. … There’s still so much opportunity in local markets out there, and we do really well in smaller communities … where we get really involved in giving back. We just feel like there’s a lot more opportunity with great small companies that could be available to us.”

She continued, “And when they come to Guild, it’s a win-win for both organizations. We add a lot more value related to the value and the size, and they can still continue to operate their business and grow in our platform.”

“There’s going to be winners and losers, and we plan to win.”

Guild is set up to grow, Schmidt said, because it has the capital to make acquisitions. As of Dec. 31, 2022, the company had $162.2 million in cash and cash equivalents, and $78.9 billion in unpaid principal balance (UPB) for its servicing portfolio.

“Now is a good time to be an investor, to invest in your future, and that’s what we’re doing,” she said. “A lot of companies aren’t in that

situation and don’t have the ability to do that. … We’ve been pretty disciplined about that over the years, so that when we’re in times like this, we’ve got capital available to be able to take advantage of the dislocation in the market.”

Guild’s future will be built on acquisitions. In 2023, Schmidt told a sales rally that the company plans to continue to double down on acquisitions in the market. “I said, ‘There’s going to be winners and losers, and we plan to win.’”

Schmidt is currently a member of the California Mortgage Bankers Association, a member of the board of directors of the Guild Giving Foundation, a non-profit organization, and a member of the Mortgage Bankers Association. She is a certified mortgage banker.

Max Slyusarchuk

Max Slyusarchuk | CEO | A&D Mortgage

Max Slyusarchuk, the CEO of A&D Mortgage LLC, has a simple philosophy that outlines what it takes to be a legend of lending.

“In the mortgage world, a real leader stands out by being completely honest, always looking for new ways to help clients, and making sure every client is taken care of,” he says. “I work hard to live up to these ideals every day. I make sure that everything I do and say is clear and honest. This helps clients trust me and feel comfortable asking questions.”

Slyusarchuk is always seeking new solutions for essential issues. “I’m always on the lookout for new tools and methods to make getting a mortgage easier for everyone. Whether someone is buying their first home or investing in property, I encourage our teams to find solutions that fit their unique situation,” he says.

“But what really matters to me is

treating our partners’ clients like they’re friends or family. I help them understand how mortgages work and what their choices are. This way, they can make smart decisions that are good for their future. In my job, I combine honesty, new ideas, and care for clients to make sure they’re happy and secure,” Slyusarchuk says.

“I want to leave a lasting mark in the mortgage industry that reflects a strong commitment to making home buying easier and more accessible for everyone. ”

He further explains, “Looking ahead, I want to leave a lasting mark in the mortgage industry that reflects a strong commitment to making home buying easier and more

accessible for everyone. My goal is to help people achieve their dream of owning a home, especially those who might have thought it was impossible for them.

“I plan to continue working hard to support mortgage brokers because they are key in helping us reach borrowers. By providing them with the best tools, resources, and support, we can make sure they’re able to offer the best service to their clients. This includes creating more online tools that are easy to use, offering training to help them understand all the options available, and finding new ways to make loans more affordable and accessible.

“I believe that by focusing on education and support, we can make a big difference in people’s lives. I want to inspire the next generation of professionals in the mortgage industry to keep making positive changes and to always think about how they can help others.”

2024 LEGENDS OF LENDING

Aaron VanTrojen

Aaron VanTrojen | CEO | Geneva Financial

Atruly legendary mortgage professional is distinguished by an unwavering and sincere commitment to consumer and employee well-being. They prioritize acting in the best interests of both, even when faced with tough decisions. This entails providing education, guidance, and professionalism to ensure informed decision-making. Additionally, they uphold moral and legal standards in all aspects of their work.

“In my daily endeavors, I strive to embody these qualities by prioritizing the needs of consumers and employees, making ethical decisions, and leading by example in all interactions,” says Aaron VanTrojen, CEO, Geneva Financial.

“I firmly believe in fostering a culture of excellence and continuous improvement by adhering to our core philosophy of ‘Be A Good Human.’ This philosophy emphasizes leading by example and surrounding oneself with individuals who share our values,” he says.

“I firmly believe in fostering a culture of excellence and continuous improvement by adhering to our core philosophy of ‘Be A Good Human.’

In addition, he continues, “By promoting integrity, compassion, and professionalism, we inspire our team members to strive for excellence in their roles. Through ongoing training, feedback mechanisms, and a supportive environment, we cultivate a culture where continuous improvement is not only encouraged but celebrated. I am dedicated to maintaining an accessible presence for all my employees. Embracing an open-door policy is a cornerstone of my leadership approach — a practice not commonly observed among CEOs in the mortgage industry.”

Ethical values drive VanTrojen’s plans for the future. “Currently, I am actively advocating for positive change and innovation within the mortgage industry. Through initiatives such as ethical lending practices, customercentric approaches, and industrywide collaboration, we strive to set new standards for excellence. By championing transparency, integrity, and accountability, we aim to revolutionize the mortgage landscape and ensure that consumers and industry professionals alike benefit from our efforts,” he says.

VanTrojen hopes Geneva Financial’s values can spread. “My vision for the mortgage industry is one where ethical practice, consumer advocacy, and employee empowerment are the norm rather than the exception. By prioritizing the well-being of our employees and clients, fostering a culture of excellence, and driving positive change through advocacy and action, I am committed to making a lasting impact on the lives of others and ensuring a brighter future for the mortgage industry,” he proclaims.

Joe

J2024 LEGENDS OF LENDING

Joe Welu

Welu | Founder and CEO | Total Expert

oe Welu, founder + CEO of Total Expert, is only in his late forties, but he’s well deserving of the accolade of “Legend in Lending.” Being a visionary and working tirelessly to develop innovative solutions that move the industry forward is what makes him legendary. Since he founded Total Expert from the basement of a real estate office in 2012, Welu had one goal in mind — to power customer journeys through an innovative SaaS solution that helps lenders focus their resources and attention where it matters most.

Never wavering, Welu assembled programmers who could bring his vision to life and developed the Total Expert platform — the first customer experience platform purpose-built for modern, regulated financial institutions. The Total Expert platform was groundbreaking for the mortgage industry at the time and today powers customer journeys for more than 200 financial institutions, including nine of the top 10 lenders and two of the top five banks nationally.

Even amid the challenging lending environment over the last several years, Welu was focused on bringing a new level of AI-powered insights that anticipate borrower needs and intent. He achieved this by introducing Total Expert’s Customer Intelligence platform. The platform includes realtime equity and credit improvement information on borrowers, which lenders use to spark higherquality conversations and deepen relationships centered on helping people make smart decisions.

“The Total Expert culture consistently introduces and contributes to new ideas, products, and processes.”

“Total Expert’s Customer Intelligence platform gives predictive intent insights on specific services and products a customer may want by identifying key life events such as

graduating from college, getting married, buying a home, starting a family, career changes, retirement and downsizing, and many more. Placing all of this information at lenders’ fingertips delivers the genuinely helpful, personalized financial guidance that people crave more than ever,” Welu says.

Total Expert has grown to nearly 300 employees today, and Welu has fostered a culture that is “peoplefirst” and values collaboration and innovation. The company leads with empathy internally and externally, supporting continuous learning and working to help one another reach their full potential.

“The Total Expert culture consistently introduces and contributes to new ideas, products, and processes. Challenging the status quo is the norm — encouraging continuous improvement and embracing change to meet the needs of employees and commitments every day. Greatness is the standard at Total Expert, not the exception,” Welu explains.

WHERE IDEAS GO HEAD TO HEAD