Virus Put Mortgage Tech On Viral Fast Track

Virus Put Mortgage Tech On Viral Fast Track

All aboard! The technology train is leaving the station.

BY LEW SICHELMAN | CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL

In many respects, the Mortgage Bankers Association’s annual convention in October, virtual though it was, was just like the good old days. It made news.

Mark Calabria, director of the federal Housing Finance Agency, said his office was proposing a rule that would prevent charter creep by Fannie Mae and Freddie Mac. That was a hot button some years back when the two government sponsored entities, aka The Agencies, started moving into what traditionally was the purview of private enterprise.

Calabria also said the FHFA would move forward as planned to require Fannie and Freddie to extract a 50-basis point “adverse market” refinance fee starting Dec. 1. And the CEOs of the two GSEs, David Beckman at Freddie and Hugh Frater at Fannie, defended the move, with Frater saying that it was required by law.

“The GSEs are shouldering significant risks associated with the pandemic,” Fannie’s fearless leader said. “As the principal risktaker, we have to price that risk appropriately.” He also said the fee shouldn’t impact anyone wishing to refinance because it “can be absorbed” by their lenders.

Meanwhile, Kathy Kraninger, director of the Consumer Financial Protection Bureau, said her agency is extending the GSE patch until a new standard is in place. That means Fannie and Freddie can continue purchasing loans with loan-tovalue rations that exceed 43 percent, basically indefinitely.

“We believe that a pricing threshold is a more realistic assessment of an individual’s ability to repay,” Kraninger said.

And Ben Carson, the former Johns Hopkins surgeon who’s now the Top Dog at the Department of Housing and Urban Development, said the Federal Housing Administration is extending by two months the date under which financially struggling home owners can apply for relief. Originally, requests for forbearance had to be received by Oct. 30. Now, owners have until Dec. 31 to ask for help.

TECH TALK

These actions drew significant media coverage in both the popular and trade press. But one session that didn’t make the news, at least not anywhere I’ve seen, was the one on technology, specifically its rapid expansion as a result of the pandemic. And the gist of the discussion was that if that you’re not on board, you’d better be, because the tech train is leaving the station.

The good thing is, you don’t have to jump into artificial intelligence with both feet. “Don’t be afraid to start small,” Nima Ghamsari of Blend told the virtual audience. “It’s okay if it takes a while. It will improve over time. Perfection is the enemy of getting something going.”

Actually, it’s rather surprising that some lenders haven’t yet automated their systems, at least not to the extent possible. As Rich Gagliano of Black Knight noted, the industry has been on the digital journey “for multiple years now.” And as a result, Paul Anastos of Guaranteed Rate said, the technology available today is “so much better.”

The panelists suspected that one reason companies have shied away from going full bore on technology is the George Orwellian fear of losing control of the process to the dreaded machine. But just as the conventional “human” way of lending is based on a particular set of rules, so, too, is AI, they pointed out. And those precepts can be set to each individual lender’s criteria – or, as Joe Tyrrell of ICE Mortgage Technology said, “a particular lender’s risk appetite.”

Perhaps another reason some have been slow to adjust is the notion that adoption takes too long. But a report from consulting firm McKinsey & Co. shots holes in that theory. In a recent survey, it found that COVID19 has accelerated the adoption of digitization and enabling technologies across many disciplines by up to seven years.

FAST TRACK

The most mindblowing finding is the speed at which acceptance has occurred, according to one report.

Survey respondents anticipated it would take 454 days to implement comprehensive remote working solutions. But the average time frame was only 10.5 days. And rather than the expected 585 days that businesses projected that it would take for customers to shift to online purchasing, it took only 21.9 days.

Actually, without technology, the mortgage sector would not have been able to process the onslaught of applications for financing that is being driven by near-record low interest rates, COVID-19 and other factors. “The volume is such that we wouldn’t have been able to handle it,” said Anastos. Guaranteed Rate’s chief innovation officer.

AI allowed lenders to adjust to the pandemic, which forced them to close their offices and allow their loan officers, underwriters and others to work from their individual homes. “2020 challenged conventional wisdom,” said Tyrrell, whose firm was created with the recent sale of Ellie Mae to Intercontinental Exchange. “In less than a month, 300,000 users were all operating remotely.” Gagliano, who heads Black Knight’s Origination Technology division, agreed. “The industry adapted quickly,” he said, “and that’s not what our industry is known for.”

FULL STEAM AHEAD

Think about it: Lenders produced an “astounding” $1.140 trillion of firstlien home loans in the third quarter, according to industry newsletter Inside Mortgage Finance. Originations were up 16.9 percent from the second quarter’s estimated $975 billion, IMF reported, bringing the yeartodate primary market volume to $2.79 trillion. That already makes 2020 “the second strongest year in mortgage lending history.” And Black Knight says rate lock data, which historically is a good indicator of lending activity, suggests the business is on track to easily surpass $4 trillion in originations this year – “for the first time ever.”

Now, after years of promoting digitization, the pandemic is giving the movement the impetus it needs to move even closer to universal adoption. “With advances in video technology,” said Ghamsari of Blend, a digital platform that streamlines the lending journey from application to close, “technology is even more practical, and will further open up capacity.”

For example, using AI, lenders will be able to separate the wheat from the chaff, so to speak, earlier on in the process. “Automation takes the friction out of the process,” said Gagliano,

“and allows you to use staff for more difficult files.”

Ghamsari pointed out that with AI, applicants will know right away what their rate will be and whether they are likely to be approved or not. “That not only helps the customer,” who doesn’t have to wade through the entire process when there is little hope, he said. But it “also boosts efficiency” because lenders won’t have to go through the entire process before moving on to the next would-be borrower.

BENEFITING ALL TRACKS

Automation “is not just about that application,” Tyrrell added. “That’s just 40 minutes out of a 40-day process.” Toward that end, the heretofore antiquated Federal Housing Administration has finally come out of the dark ages with a new automated underwriting system for singlefamily forward mortgages. Hailed as a “huge milestone,” the system allows lenders to electronically enter loan application data electronically and receive automated insurance eligibility indicators back from the agency.

And during the pandemic, appraisers were forced to rely on technology to prepare their valuations – and lenders were forced to rely on them if they wanted to make loans. Digital closings boomed, too; otherwise, how else could quarantined seller and buyer wrap up their transactions? Technology is now available to help servicers manage their default portfolios. Even investor documentation has found the digital age because of the virus.

In each of these cases, the transition to technology was well underway. But COVID-19 hastened their advancement. And even as loan volumes slow, as they eventually will, the panelists agreed that automation will accelerate as the business moves into the new year. “That’s where the world outside of lending is going,” said Ghamsari, “and the mortgage business has to follow.”

But the panelists at the MBA meeting warned that the customer experience is just as important, if not more so, than operational necessity. Some borrowers still want to “have a conversation, if not at the start, then somewhere along the line,” said Tyrrell. “In the end, its about what the customer wants. He shouldn’t have to make a trade off, and it shouldn’t matter to the lender how the customer wants to engage. Your system should be able to accommodate both.”

Lew Sichelman has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country. He also has been the real estate editor at two major Washington, D.C., dailies and spent 30 years on the staff of National Mortgage News, formerly National Thrift News.