May 2018 Issue by HousingWire

HOUSINGWIRE MAGAZINE ❱ MAY 2018

PRIVATE LABEL MBS Unresolved issues complicate the revival of the private label market.

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SFR SCALES UP With homeownership out of reach for many, SFR continues to boom. HOUSINGWIRE MAGAZINE ❱ MAY 2018

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LARGER THAN

LIFE CASEY CRAWFORD’S VISION FOR MOVEMENT MORTGAGE IS BIGGER THAN JUST MAKING MONEY P. 32

HOUSINGWIRE MAY 2018 EDITORIAL EDITOR-IN-CHIEF Jacob Gaffney MANAGING EDITOR Sarah Wheeler ONLINE EDITOR Caroline Basile SENIOR FINANCIAL REPORTER Ben Lane REPORTER Kelsey Ramírez CONTRIBUTORS Casey Cunningham, Brent Nyitray, Diane Tomb and Mark Wai

CREATIVE AND CONTENT SOLUTIONS CREATIVE ASSOCIATE Chantae Arrington CONTENT WRITER Alyssa Stringer

SALES AND MARKETING NATIONAL SALES DIRECTOR Jennifer Watson Laws jlaws@HousingWire.com MARKETING DIRECTOR C. Scott Smith DIGITAL MARKETING SPECIALIST Caren Karris SALES DIRECTORS Christi Lingard clingard@HousingWire.com Tyson Bennett tbennett@HousingWire.com Mark Adams madams@HousingWire.com Joe Priolo jpriolo@HousingWire.com

THE MOVEMENT MOVEMENT THIS ISSUE of HousingWire features a very different personality in the mortgage finance space. Casey Crawford is the CEO of Movement Mortgage and he’s out to change the world. He isn’t one of the greed-driven MBS brokers or subprime shills of the pre-crisis. His quest, like HousingWire’s, is to make America a nation of responsible homeowners. The cover story focuses on the man himself, take from it what you will, but there is another part of the Movement Mortgage that needs a quick mention as it asks the following questions: How can we help more families break the cycle of poverty? And how can we do it in a sustainable, accessible and scalable way? Thus Crawford started the Movement School as a groundbreaking cooperative between the Movement Foundation, Sugar Creek Charter School and the state of North Carolina. Thanks to the Movement School, this year 300 students received tuition-free private school education. The education is funded by Crawford’s Movement Foundation to the tune of $12 million; its educational program is state-sanctioned. The mortgage finance industry is still one that can be divided into two types of people, generally (excuse my cynicism if you disagree): Those who give and those who take. Crawford is in the former category and it’s my honor to present his profile. Last year, the National Rental Home Council announced that Diane Tomb was appointed executive director. The group is dedicated to fairness in single-family rentals and continues to add new member companies. As one of the HousingWire Women of Influence, Tomb is a great choice to lead this organiation. Tomb penned her first feature for us in this issue, which we hope is just the first of many. Enjoy!

AD OPERATIONS MANAGER Jessica Fly SALES AND CLIENT SUCCESS COORDINATOR Haley Knighton

CORPORATE

Jacob Gaffney Editor-in-Chief

PRESIDENT AND CEO

@jacobgaffney

Clayton Collins CONTROLLER Michelle Monroe Subscriptions are available for $149.00 for one year. A subscription includes the print magazine and online access to the digital magazine. Canada and foreign are only eligible to purchase the “Digital Only” subscription plan at $149 for one year. For subscription orders, call 1-800869-6882 or email HW@kmpsgroup.com. Postmaster: Send change of address to HW Media, P.O. Box 47627, Plymouth, MN 55447. Subscribers: Please send last magazine label along with change of address requests. The information contained within should not be construed as a recommendation for any course of action regarding legal, financial or accounting matters. All written materials are disseminated with the understanding that the publisher is not engaged in rendering legal advice or other professional services. HW Media does not guarantee the accuracy of information provided, and is not liable for any damages, losses or other detriment that may result from the use of these materials.

Tweets From The Street This issue is a persistent pet peeve of mine when cities point to the end of the redevelopment as the cause of the state’s housing problems. Just because the money doesn’t come in a box marked “housing” any more doesn’t mean you can’t spend that money on housing if you want! 2

by Liam Dillon @dillonliam

HOUSINGWIRE ❱ MAY 2018 5

MAY 2018 40 PRIVATE LABEL MBS MARKET Why the return of the private label mortgage backed securities market is critical to the mortgage industry. By Brent Nyitray

LARGER THAN LIFE Casey Crawford isn’t your typical CEO. By Jacob Gaffney

46 SFR SCALES UP With homeownership out of reach for many following the financial crisis, single-family rentals have become the fastest-growing segment of the real estate market. By Diane Tomb

HOUSINGWIRE ❱ MAY 2018 7

CONTENTS 12 THE LINEUP 12 PEOPLE MOVERS Min Alexander joins Auction. com as chief operating officer as Javid Jaberi retires.

14 EVENT CALENDER The MBA National Secondary Market Conference & Expo takes center stage in NYC.

16 HOT SEAT

14 VIEWPOINTS 28 UNDERPERFORMERS

How managers can elevate underperforming LOs into successful originators.

30 DIGITAL FUTURE Customer expectations are behind the mortgage industry’s push for automation.

Spending a year in Walmart parking lots with homeless vets, the author found 2 things: They’re not crazy, and they all work. They just can’t afford housing.

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18 DISPATCH 1 DEVAL focuses on lending to the underserved Hispanic community.

20 DISPATCH 2 Genworth MI outlines tips to get first-pass approval with minimal fuss.

22 DISPATCH 3 LoanLogics discusses the divide in the digital mortgage process.

24 DISPATCH 4 United Wholesale Mortgage encourages brokers to carefully choose the right lenders.

Tweets From The Street

Kim Hoffman at Sutherland Mortgage discusses the benefits of third-party service providers.

by Thomas E. Ricks @tomricks1

26 HOT OR NOT HUD and the VA commit $43 million to help homeless veterans find stable housing. HOUSINGWIRE ❱ MAY 2018 9

CONTENTS

BACK DEPARTMENTS 52 INSIDE BASEBALL loanDepot, Angel Oak, SoFi and HomeUnion test the waters with new securitizations.

56 KUDOS Simplifile’s philanthropic program gives back to local Habitat for Humanity chapters.

58 GSE REPORT Find out the 10 things GSEs did in 2017 to improve access to credit.

62 CFPB WATCH Acting Director Mick Mulvaney pushes Congress to increase oversight of the CFPB.

66 KNOWLEDGE CENTER

FICO analyzes the risks and opportunities in expanding mortgage credit availability.

68 KNOWLEDGE CENTER Veros focuses on the use of automation and AVMs in the loan lifecycle.

70 KNOWLDEGE CENTER The Money Source says it’s time for the servicing industry to catch up on tech innovation.

72 KNOWLDEGE CENTER

Informative Research helps lenders stay compliant while keeping costs in check.

74 Q&A

Arch MI CEO David Gansberg discusses the new DTI ratios.

76 COMPANIES/ PEOPLE INDEX 77 AD INDEX 78 PARTING SHOT HOUSINGWIRE ❱ MAY 2018 11

Min Alexander Auction.com

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DOUGHTY

GOODWIN YEEND

BRUMMER MORGAN

HE Barrent Group named Art Yeend to serve as the company’s business development d irector. Prior to joining The Barrent Group, Yeend served as the managing director, heading both sales and marketing at MountainView Financial Solutions. He also held positions with Kidder Peabody and Link Securities (now Guggenheim Capital Markets). Planet Home Lending added Bill Ervin as vice president of business development. Ervin previously served as the senior business development manager at CrossCountry Mortgage and Citibank. While at Citibank, he launched a partnership channel that drove more than $1 billion in annual builder and Realtor mortgage referral volume. Promontory MortgagePath hired three new senior executives, including a former top lawyer at the Consumer Financial Protection Bureau, Colgate Selden. Selden will serve as chief compliance officer and joins the company from Alston & Bird, where he was a consumer finance regulatory partner.

SELDEN

ALVARADO MEYERS

Auction.com selected Min Alexander to assume the role of COO, replacing Javid Jaberi, who is retiring. Alexander most recently served as senior vice president of real estate services for Altisource Portfolio Solutions.

A l s o joi n i ng t he comp a ny a re Scott Doughty and Craig Wildrick. Both Doughty and Wildrick joined PromonTech, the company’s mortgage technology unit. Doughty will serve as PromonTech’s chief operating officer, while Wildrick will serve as chief product officer. Dought y joins PromonTech from Finastra, a company formed last year when Vista Equity Partners merged D+H with Misys, a global software provider. Doughty was formerly the head of client services for D+H’s retail business unit. Wildrick joins PromonTech from Zions Bancorporation, where he was the executive vice president of enterprise mortgage lending. Wildrick has also served as the COO of Aurora Bank, and previously held executive positions at Wells Fargo. Marcos Alvarado joined iStar as the firm’s chief investment officer. He previously served as head of acquisitions and business operations for Cadre and a managing director at Starwood Capital. Previously, Alvarado served as vice president in Lehman Brothers' Global Real

Estate Group and he began his career in Morgan Stanley's CMBS group. Radian Group welcomed Eric Ray into the role of senior executive vice president, technology and transaction services. The company also promoted Derek Brummer to senior EVP of mortgage insurance and risk services. Move, which operates Realtor.com for the National Association of Realtors, announced recently that it appointed Michelle Meyers to the newly created role of vice president of customer success. In this role, Meyers is tasked with boosting the company’s relationships with real estate agents, Realtors, and brokers. Grand Home Loans named Chris Goodwin to the role of managing director. Goodwin comes to Grand Home Loans from Eagle Home Mortgage, where he served as a division manager for nearly six years. At other points in his career, Goodwin worked for Universal American Mortgage, Nationstar Mortgage, First Continental Mortgage, Wells Fargo and Countrywide. Placester named Omar Hussain president and CEO, replacing co-founder Matt Barba, who will assume the role of chief technology officer. Hussain joins Placester after 14 years serving as president and CEO of Imprivata. LenderLive promoted Ian Morgan to chief information security officer. Morgan has held positions of increasing responsibility within LenderLive, most recently serving as technology solutions vice president. Previously, Morgan held IT management positions with Alameda Mortgage, Assurity Financial Services, Information Management Research and Optimus Corp.

EVENT CALENDAR

MBA NATIONAL SECONDARY MARKET CONFERENCE & EXPO MAY 20-23, 2018 Host: Mortgage Bankers Association Location: New York Marriott Marquis Cost: $1,050 - $3,375 On the agenda: The MBA is bringing together regulators, experts and key industry officials to inform and educate attendees on the latest happenings in the ever-changing secondary market industry. This year’s three-day conference includes topics such as managing the challenges of MSR liquidity, the single security, government lending and an interactive discussion with senior leaders of the GSEs. Speakers include David Stevens, president and chief executive officer of MBA; Renee Schultz, senior vice president at Fannie Mae; Joanne Lipman, award-winning author of That’s What She Said: What Men Need to Know (and Women Need to Tell Them) About Working Together; and Tian Liu, chief economist at Genworth Mortgage Insurance.

NEW YORK CITY New Yorkers experienced a brutal winter this year, but the Big Apple should be beautiful for visitors in May. Indulge yourself with opportunities to enjoy that weather, including a three-course dinner tour that hits NYC’s famed landmarks. Enjoy the views from an all-glass boat with the Bateuax New York Dinner cruise, which sails from 7 p.m. to 10 p.m. Make reservations at www.bateauxnewyork.com. Don’t have that much time? Get a unique perspective right in the heart of the city by riding a horse through Central Park. This sightseeing tour is easy to fit in around the conference schedule, but make reservations in advance — it’s a popular attraction. Rides are available for one to two hours from 10 a.m. to 4 p.m. https://centralparksightseeing.com/ 14 HOUSINGWIRE ❱ MAY 2018

ON THE SHELF Behemoth: A History of the Factory and the Making of the Modern World JOSHUA B. FREEMAN W.W. NORTON & COMPANY

Historian Joshua Freeman explores the rich history of factories and how industrialization has transformed our human lives socially and environmentally. Freeman explores both the innovation and devastation that accompanies factories, from textile mills in England that powered the industrial revolution to todayâ&#x20AC;&#x2122;s behemoths making sneakers, toys and cellphones in China and Vietnam. Freeman also touches on the inspiration factories have curated in the work of artists and writers such as Charles Sheeler, Margaret Bourke-White, Charlie Chaplin, Diego Rivera and Edward Burtynsky.

The Common Good ROBERT B. REICH ALFRED A. KNOPF

The best-selling author of Saving Capitalism and The Work of the Nations, Robert Reich, discusses a general understanding of the American project, focusing on the moral obligations of an individual's duty as a citizen. Focusing on the past 50 years, Reich analyzes Americaâ&#x20AC;&#x2122;s need to weigh what truly matters as a country in terms of honor, shame, patriotism, truth and leadership.

HOTSEAT

SPONSORED CONTENT

Kim Hoffman

Global Mortgage Operations and Service Delivery Executive

Sutherland

anaging the complexities of the mortgage loan process puts intense pressure on mortgage companies. We sat down with Kim Hoffman, CMB, AMP, global mortgage operations and service delivery executive at Sutherland, to find out how partnering with third-party service providers eases that pressure. HOUSINGWIRE: How can mortgage companies stay ahead of increased competition for consumer business? KIM HOFFMAN: When mortgage companies partner with service and solutions providers together, they make the hard work feel easy. With increased competition for consumer business, operations costs and erosion of profits, now is the time to rely on process transformation partners to do the heavy lifting of non-core operations so that mortgage companies can deliver on the ever-evolving consumer experience expectations. Gone are the days of going it alone and attempting to manage all growth and performance enablers. There has never been a more defined need for lenders to partner with providers who can handle all facets and complexities of the mortgage process with ease. Margins are razor-thin, consumer experience expectations have never been greater and speed has never been more important.

Q&A

HW: With pressure to reduce cycle time, how can mortgage operations executives improve the customer experience? KH: Today’s mortgage executives must focus on the customer experience; in fact, it should be at the forefront of every decision they make. It’s critical to remember that customers have a choice in lenders and more are entering the space every day. Customers should be defined as anyone consuming your services: the consumer, loan officers, brokers and Realtors, as they are examples of those requiring a solid delivery. Rates aside, consumers are going to choose lenders 16 HOUSINGWIRE ❱ MAY 2018

who make the process feel elegant. We are one of the few industries that shares the details of our work and process with one another and end customers. In order to rise above the competition, mortgage companies must rely on industry experts to seamlessly improve the consumer experience. To do this, lenders should consider leveraging advanced capabilities outside traditional processes such as robotic process automation (RPA) to expedite manual tasks, data analytics to personalize the experience and uncover business opportunities internally and externally, and design thinking to improve steps during origination and ongoing servicing of loans.Let’s create more possibilities by understanding why consumers withdraw in mid process, why loan officers leave for the competition or why Realtors don’t refer to you. HW: How is Sutherland uniquely qualified to help mortgage companies improve their customer experience? KH: First and foremost, Sutherland is a team of mortgage bankers, serving mortgage bankers. Our leadership team has served in executive leadership roles with the leading mortgage banks in the industry. Not only do we understand the challenges, but we are eager to solve them through strategic consultation and innovative solutions, not just staff augmentation or process engineering, but real cutting-edge opportunities to redefine how consumers experience their mortgage providers. Above and beyond loan processing, underwriting, and component servicing, our suite of digital solutions such as RPA, data analytics, artificial intelligence and mobile apps improve the scale and efficiency of our clients’ operations. And with Sutherland’s acquisition of data analytics industry leader Nuevora, we provide mortgage companies with actionable intelligence to empower executives to learn more about their business and make influential business decisions. Sutherland regularly conducts customer journey mapping and design thinking sessions at our innovation labs in San Francisco and London to drive significant process transformation for some of the world’s leading mortgage lenders. Now is the time to partner with a provider who makes the hard work feel easy.

DEVAL | SPONSORED CONTENT

Origination channel sets focus on Hispanic borrowers Traditionally a servicer, DEVAL expands offering with origination channel

EVAL, a Hispanic-focused servicer, has expanded its services to include mortgage loan origination, focusing on lending to the underserved Hispanic community. The company launched its new platform, Your Home Now Mortgage, in October. Your Home Now Mortgage features a Spanish language counterpart, Su Casa Ahora Mortgage, that was designed specifically for the Spanish-speaking market. Su Casa Ahora Mortgage provides a wide range of communications and documents in Spanish to effectively communicate with borrowers about the needs of their loan. For the past 15 years, DEVAL has serviced and monitored more than 700,000 loans and been a steadfast advocate for housing counseling and increasing homeownership to Hispanic communities. DEVAL’s Founder and President Debbie Garcia-Gratacos said the biggest opportunity is in providing language-specific information for lending and servicing to the ever-increasing diverse population in the U.S. In 2016, the homeownership rate among Hispanics increased to 46% in 2016, up from 45.6% in 2015, according to a report from the National Association of Hispanic Real Estate Professionals. Data from the U.S. Census Bureau shows the overall homeownership rate dropped from 63.7% in 2015 to 63.4% in 2016. The rate of homeownership among African-Americans dipped from 43% to 42.2% and the Asian-American rate dropped from 56.5% to 55.5% for the same time period. Hispanics were the only ethnic demographic with an increase in their homeownership rate. In 2016, they led the nation in household formations with an increase of 330,000 households. This growing population of homeowners shows the opportunities that serving the Hispanic market can provide the housing and mortgage industries. “Hispanics are an essential market for the mortgage lending industry,” Garcia-Gratacos said. “With all signs showing a rebound in the housing market, now is the time to ensure that the customer communication is strengthened, positioning the mortgage finance market to prosper by serving the Hispanic community and providing Hispanic families the opportunity to build long-term wealth. Having a bilingual origination team is very important,” she said. DEVAL believes that a Spanish-speaking local presence with expertise in originations and homeownership programs is invaluable. Garcia-Gratacos, an attorney with a background in real estate and finance, including originations and underwriting, founded DEVAL in 2003, after the downturn of the financial market. Today, the company is licensed to conduct loan servicing activities na18 HOUSINGWIRE ❱ MAY 2018

tionwide, including in Puerto Rico. Because DEVAL understands its clients, Your Home Now Mortgage’s application experience is simple and stress-free. The company understands the local market and the intricacies of the communities it serves and are able to get borrowers the best loan possible. Whether the homebuyer is ready to purchase or a homeowner is ready to refinance their existing mortgage, Your Home Now Mortgage and Su Casa Ahora Mortgage offer a variety of solutions including standard conventional, FHA, VA, USDA and Jumbo loans, as well as a variety of specialty products. “We are forward thinking; we understand that the U.S. is made up of diverse people with diverse backgrounds and languages. As such, the industry must adapt to this group of future homeowners,” Garcia-Gratacos said.

GENWORTH MORTGAGE INSURANCE | SPONSORED CONTENT

Get first-pass approval with best-in-class underwriting What can you do to get first-pass approval?

our borrower found the perfect home. You’ve collected and prepared their paperwork. Now it’s time to secure that mortgage! You both want a smooth process, so what can you do to ensure a quick and easy submission for underwriting, and one that is more likely to achieve a first-pass approval, meaning all the documentation is submitted and accurate on your first try? Below are just a few tips and tricks to ensure you can get that first-pass approval with minimal fuss.

THINGS TO REMEMBER: • Document your thought process and show your work. As you well know, every loan is unique. Demonstrating your thinking will make your underwriter’s job easier and faster, resulting in a quicker decision. • Follow prudent underwriting standards and all applicable guidelines — GSE, lender, investor and mortgage insurance (MI). Your underwriter knows these standards and guidelines. Any deviations from them will be noticed and potentially prevent that first-pass approval. • Provide consistent information throughout the file. Inconsistencies will be noticed and will require further review. The quickest path to a first-pass approval is ensuring there are no questions that the underwriter will have to take more time to address. • Ask for additional information from your underwriter when needed. Guidelines only show minimum requirements and may lead to questions. With Genworth, you can contact our ActionCenter at 800-444-5664 or new.mi.genworth.com. • Document red flag concerns. If you don’t, your underwriter will. Documenting those concerns upfront will speed up your underwriter’s review.

BE AWARE OF COMMON ERROR TRENDS, SUCH AS:  Income concerns, including: • Year-to-date earnings missing from paystubs • Verbal verification of employment missing from the file • Previous year’s income missing from the file  Asset concerns, including: • Primary residence conversion reserves not met • Insufficient funds for closing • Minimum borrower contribution not met • Large deposits without sources  Program related concerns, including: • Verification of taxes and insurance missing on other borrower’s other owned property • AUS submissions not updated with correct, current data • Seller contributions which are excessive or exceed actual closing costs 20 HOUSINGWIRE ❱ MAY 2018

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When asked what makes Genworth best in class, most respondents pointed to turn time/ speed and ease of submission or use."  Documentation concerns, including: • Incomplete or expired income, credit or asset documentation  Appraisal concerns, including: • An “as is” appraisal with comments within the appraisal suggesting needed repairs • Comps used are outside of the subject property’s market, despite available comps within the market Beyond the first-pass approval, what is it that truly comprises a best-in-class underwriting experience? To answer this question, Genworth conducted a blind survey in 2016 and again in 2017, polling over 400 underwriters, loan processors and loan officers. The primary research objective was to determine how important underwriting is when deciding on an MI partner. Genworth’s surveys provided several important insights into what defines a best-in-class underwriting experience from the perspective of a customer. First, customers place a high regard on speed and underwriter competence. Also, good customer service, including responsiveness to questions, was weighted more heavily than other MI decision factors and was determined to yield better referral rates than price alone. The surveys also sought to identify, among MI providers, who offers that best-in-class service and experience. Two years in a row, respondents who are customers of both Genworth and other MI providers tended to recognize Genworth as best-in-class more often. And when asked what makes Genworth best-in-class, most respondents pointed to turn time/speed and ease of submission or use. So, whether providing underwriting resources, best-in-class services, or simply answering questions, Genworth Mortgage Insurance is proud to play a part in making it “go time” for that ready borrower.

LOANLOGICS | SPONSORED CONTENT

Mortgage regtech disrupts the digital divide Verify and validate every data element used in every decision

digital divide is defined as the chasm between those who have ready access to computers and the internet, and those who do not. This definition fits quite well with the divide in the digital mortgage process. The application phase and the closing process have been the focus of digitization by fintech technologies, focusing on those significant moments of borrower engagement and improving the experience. The gap that is left is the digitization of the actual loan manufacturing process. The question is: why has this part of the process been left to legacy technology and manual practices? One answer is that it’s far too complicated to fully digitize. Tools exist, and certainly Fannie Mae and Freddie Mac have been leading that charge, but these tools are primarily focused on verification of eligibility. There is so much more to the process of underwriting and quality control where inconsistencies can cause manufacturing defects and therefore lead to increased risk for mortgage lenders. Let’s face it, the mortgage manufacturing process is still dominated by people power. What everyone in the industry should be asking is: “How long is that really sustainable?” I believe the next wave of significant disruption in the mortgage industry will come from regtech innovation. From Investopedia, “regtech consists of a group of companies that use technology to help businesses comply with regulations efficiently and inexpensively.” Where fintech began with the advent of smartdocs, edocs and data from the source, regtech must follow to verify and validate the consistency of all this information throughout the loan manufacturing process while ensuring compliance with regulatory and investor specifications and guidelines. But, there are challenges. Varying degrees of integration and limitations of various API lifelines to legacy technologies create potential points of failure. Paper documentation is still being generated as part of the loan file and must be processed, verified and validated. Interaction of multiple participants in the process can introduce data contamination. And, complexities and dependencies susceptible to the smallest changes in a date or data point can act like dominoes to get even quality-conscience lenders in trouble. Today’s reality is the existence of “single sources of truth.” Regtech advances in loan quality management are making “finding the truth” a more efficient and automated process. Audit rules automation can look at a subset of data that was used to make certain decisions, verify and validate that information, and enable auditors to perform tasks and calculations in a consistent, structured workflow. With this degree of automation, lenders can scale quality control, driving confidence and continuous process improvement. 22 HOUSINGWIRE ❱ MAY 2018

Regtech needs to push the envelope even further. Quality should not operate as a separate, parallel workflow, but instead should be real-time and embedded in the workflow, much like “spellcheck” in a word processor enables you to catch your errors before you turn in a finished product. Ultimately, every data element used for every decision should be verified and validated. Through artificial intelligence (AI), machine learning and other advanced rules technology, there should be 100% alignment with investor and regulatory guidelines for 100% of loans. This will minimize the subjective aspects of underwriting and leverage big data for sound mortgage decisioning. Decisions and the data, rules and calculations used will be fully accessible, auditable and fully transparent. No more will decisions be based on varying levels of subjective interpretation, non-validated data and calculations and policy interpretation that have been figured outside of the technology in someone’s head or on an HP calculator. The end game of a perfected mortgage loan asset that market participants can have 100% confidence in will be driven by regtech. This will include verified data, real-time change management, digital decisioning and in-line quality assurance captured in a tamper-proof blockchain. Make no mistake about it, while not easy, it will be accomplished. Now is the time to focus on regtech, eliminate the digital divide and make digital mortgage a reality.

UNITED WHOLESALE MORTGAGE | SPONSORED CONTENT

Mortgage brokers should focus on protecting their business as they partner with wholesaler lenders Finding the right wholesale partners is key to their success

ortgage brokers throughout the country are implementing new technologies and processes, but brokers should make a concerted effort to protect their business by choosing the right lenders to work with and make sure they are partnering with wholesale lenders that truly have their backs. Brokers should find lenders that not only provide the fast turn times, pricing and technology that theyâ&#x20AC;&#x2122;re looking for, but also

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have their back and treat them as true partners. Like always, our team at United Wholesale Mortgage will continue to put every bit of our effort into strengthening the broker channel through marketing initiatives, innovative technology, new product offerings and great client service. Growing the business through new clients is only a piece of the puzzle. Brokers also need a plan in place to stay in touch with past

UNITED WHOLESALE MORTGAGE | SPONSORED CONTENT

“

It's encouraging that brokers now have enough of a collective voice to stand together and make themselves heard."

clients to drive repeat and referral business in the future. Even though it should be the responsibility of every good wholesale lender to behave as true partners in these initiatives, it is ultimately up to brokers to take accountability and do everything they can to keep the clients they worked so hard to win over in the first place. The BRAWL (Brokers Rallying against Whole-tail Lending) movement has been making waves throughout the wholesale industry as it shines a light on the importance of partnerships. It has shown that several wholesale lenders are solely in business to benefit themselves, not to act in the best interests of the broker. They are retail lenders that use wholesale channels as little more than a creative lead-generation tactic. There have been rumblings of customer-stealing for years, so

it was exciting to see a movement like this come about. It’s encouraging that brokers now have enough of a collective voice to stand together and make themselves heard. But it’s easy to get excited about something in the short term, only to get complacent over time. The recent launch of BRAWL has brokers motivated to hop off the bandwagons of various “whole-tail” lenders now, but they also need to take action to protect their business over the long term. From our perspective at UWM, our business has been built on supporting growth initiatives of brokers and that will continue to be our top priority. We buy loans, not customers. One thing that separates us from our competitors is the effort we put in to delivering the best partnership tools in the industry, so that our brokers can keep their clients: • UConnect: After a borrower closes their loan, UWM monitors their future mortgage credit pulls for mortgage brokers. If the borrower is in the market for a purchase or refinance, UWM connects the borrower back to the original mortgage broker who closed the loan. There is no time limit on the leads we provide and we never call on these leads. • Unite: UWM sends quarterly personalized home mortgage value emails to borrowers, on the mortgage broker’s behalf, that are loaded with valuable information about their home, their loan and what’s happening in the market. This information is white labeled for the broker, with no reference to UWM. • Client Loyalty Manager: A customizable dashboard featuring all of the mortgage brokers' past clients where they will get notified and prompted to send personalized emails to their borrowers for their birthday, loan anniversary and, most importantly, when rates change in their favor. It also notifies brokers when a client is getting close to 20%. • One-Stop-Shop Website: The brand new UWM.com serves as an all-inclusive hub of information and resources that is relevant to everyone in the mortgage industry. The site provides easy access to essential tools designed to make their jobs more efficient, such as market trends, interest rate comparisons, industry news, and a new interactive home value estimator — all at no cost. Those are just a few examples of exclusives that we offer to brokers. There are a lot of good resources and lenders throughout the country for brokers to partner with. Brokers just need to make sure they’re consistently utilizing the right partnerships to protect the business they’ve worked so hard to earn. HOUSINGWIRE ❱ MAY 2018 25

Hot SIZZLE? Not FIZZLE? 1 1 WHY THE

WHY THE

THE CFPB’S WRATH



When the CFPB levied a $100 million fine against Wells Fargo after the fake-accounts scandal in 2016, it was the bureau’s biggest penalty ever. But Reuters reported in April that the CFPB was looking to fine Wells Fargo again — this time up to $1 billion. The article doesn't identify which specific auto insurance or mortgage lending abuses would be the basis of the fine, but last year Wells Fargo said that it planned to refund more than 100,000 borrowers who were improperly charged for rate lock extensions from Sept. 16, 2013, through Feb. 28, 2017.

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SUPPORTING HOMELESS VETS HUD and the VA continued their effort to end homelessness among military veterans in April by committing $43 million to find permanent homes for them. The agencies will provide the money to 325 local public housing agencies across the country to help more than 5,200 veterans. The money will be provided via the HUD-Veterans Affairs Supportive Housing Program, which combines rental assistance from HUD with case management and clinical services provided by the VA.

LOWER DOWN PAYMENTS When MGIC Investment Corp.’s principal subsidiary, Mortgage Guaranty Insurance Corp., announced in April that it was reducing its borrower-paid mortgage insurance premium rates, MI stocks fell on the news. But lenders rejoiced. The reduction will bring mortgage insurance premium rates on the most popular premium plans down by an average 11%, enabling lenders to fund sustainable low down payment lending solutions. MGIC said the reduction was a result of the lower corporate tax rate signed into law in 2017 through the Tax Cuts and Jobs Act.

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BIPARTISAN COOPERATION

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The feud between CFPB Interim Director Mick Mulvaney and Democrats in Congress continues to fester. In April, Mulvaney responded to a 17-page letter from Sen. Elizabeth Warren by sympathizing with her frustration but putting the blame on the structure of the bureau itself. Just a few days earlier, Mulvaney issued his first semi-annual report to Congress and used that opportunity to ask Congress to enact four major reforms that would considerably cut the CFPB’s independence. (See page 62 for more information.)

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AFFORDABLE HOUSING IN NYC After years of neglect, New York’s public housing system is finally getting attention from politicians, but it remains to be seen whether their actions will actually help the situation. In April, New York Gov. Andrew Cuomo declared a state of emergency at the New York City Housing Authority, saying that some units are barely fit for habitation for the 400,000 tenants who call those units home. But Cuomo’s action was also seen as a shot against his fellow Democrat, New York City Mayor Bill de Blasio.

AFFORDABLE PROPERTY TAXES Anyone who owns a home knows that rising property values equal higher property taxes. In 2017, property taxes increased across the U.S. by an average 6%, according to ATTOM Data Solutions. The states with the highest effective property tax rates were New Jersey with 2.28%, Illinois with 2.22%, Vermont with 2.19%, Texas with 2.15% and New Hampshire with 2.06%. Dallas saw the fastest increase in 2017 as it rose 11%. Another Texas metro, Houston, also saw a significant increase at 10%, followed by Los Angeles with 7%, San Francisco with 6% and Seattle with 6%.

VIEWPOINTS

By Casey Cunningham

Elevate your underperformers With training and accountability, they can turn around their performance

As I have spoken with CEOs around the country, I’ve found that one of the most challenging problems leaders are facing in the industry today is uncertainty about what to do with underperforming loan officers. These are the LOs who are not generating significant business or contributing to the greater success of the company. Managers need to quickly develop these underperformers into successful originators, but many are not sure where to begin. Here’s the good news: underperformers are not a lost cause. They are simply in need of someone who will invest in them and help facilitate their development. In fact, by implementing the steps outlined here, managers can empower their loan officers to experience significant growth and become strong producers. 28 HOUSINGWIRE ❱ MAY 2018

DETERMINE THE REASON FOR UNDERPERFORMANCE Underperformers fall into two categories: they either lack the will or the skill to succeed. Those who lack the will are simply unwilling to do what it takes to increase their production. However, other loan officers lack the skill, meaning they want to

improve but do not know how. These are the people who have not been trained, pushed, or held accountable. The industry assumes that if someone has been working for five years, they should have the experience they need to be successful. However, five years of bad practices are not going to improve anyone’s business. Instead, they have just built bad habits that keep them from reaching their full potential. If a manager is going to grow their team’s production, they need to identify the people who are eager to improve but have not been given the proper tools to do so. When leaders talk with their underperformers, they can start with a question: “Are you pleased with where you are?” If loan officers say they are not, the leader

Casey Cunningham is the CEO and Founder of XINNIX, the top mortgage academy in the nation. Based in Alpharetta, Georgia, XINNIX provides nationally recognized sales and leadership performance programs.

PLAN FOR SUCCESS In my 30+ years of mortgage industry experience, I have found that almost nothing is more vital to a loan officer’s success than having a defined business plan. When I am talking to an underperformer and say, “Let me see your plan,” most do not have one. Nobody has taught them the importance of mapping out how they will reach their business goals. LOs have to know where they want to go, but they also have to know how to get there. Managers can work with their underperformers to make sure they are implementing a plan that is strategically detailed. If they want to go after referral sources to build their business, which ones are they specifically targeting? Are they looking at real estate agents, builders, financial partners, CPAs, stock brokers or insurance agents? How will they go after these potential partners? How often will they contact them? What time of day? When will they call or email and when will they go see them in person? What value proposition can they present? When a loan officer has answers to these questions, they are prepared to grow. can pivot the conversation to their future, finding out what kind of business they would like to be doing. If their reply is something along the lines of, “I’m currently at two units and would like to be doing four,” managers should learn why this goal is important. LOs need to identify their “why,” determining the reason that improvement is necessary for them both professionally and personally. When they are open to this conversation and can say, “I’m not at my best, I need to get better, and this is the reason why,” leaders can assume that this is a person who lacks the skill, not the will. They are ready and willing to change. Now, the manager can begin the process of developing them into the producer they aspire to be.

HOLD THEM ACCOUNTABLE Once leaders have helped their loan officers put a plan together, what is their plan for involvement as the manager? Are they checking in daily? Do they encourage their team members when they fail and celebrate alongside them when they win? Good leaders understand that they have ownership for their team’s performance. By ensuring their underperformers have a strategy in place and holding them accountable for following this strategy, they are truly setting them up to elevate their business. When people are held accountable to take action on the strategies and daily disciplines they’ve outlined in their business

plan, their chance of success skyrockets. There are three options for how to implement this accountability: self-accountability, manager accountability or third-party accountability. Self-accountability works for loan officers who are motivated enough to hold themselves to a high standard and put the disciplines into practice they need to succeed. However, many LOs are much more likely to get distracted when someone else is not helping to keep them responsible. Most mortgage professionals need someone else to check in daily or weekly and make sure they are spending their time on the right priorities. Managers can fill this role, though this can also be a challenge when they are still producing their own business. The third option is outsourcing accountability to a third party who will hold LOs accountable while training them in best practices to grow production. No matter how it is delivered, accountability is vital for underperformers to reach the next level of success. When leaders make an investment in the development of their loan officers, incredible things can happen. Originators who know that their manager cares about them enough to set expectations for performance and empower them to reach those expectations are going to be much more motivated than those who are made to feel like a failure. By determining the reason their LOs are not living up to their full potential, helping them map out that plan, and keeping them accountable to that plan, managers can transform someone who is ready to leave the industry into a powerful mortgage professional. Underperformers are not hopeless. With the right person investing in them, there is no limit on what a loan officer’s future can hold. HOUSINGWIRE ❱ MAY 2018 29

VIEWPOINTS

By Mark Wai

The mortgage industry’s digital future It’s a great time to ask questions and rethink the way things have been done for generations

Digital technology has disrupted businesses and industries from publishing to public transportation, so can the mortgage industry be far behind? Actually, anyone who’s applied for a mortgage recently will have recognized that things are already changing fast. That’s because the combination of digital technology, predictive analytics, machine learning, complex repetitive tasks and oceans of data make the mortgage industry a fertile environment for automation and a complete make-over. But what’s really driving change are customer expecta30 HOUSINGWIRE ❱ MAY 2018

tions. As Millennials rise in the workforce and move from their parents’ basements into homes of their own, they are demanding that mortgages be as easy to buy online as concert tickets, anytime anywhere they want, and at the best possible prices. Meeting that high expectation will re-

quire more innovation, disruption and technology than has been deployed to date. But more technology comes with its own challenges. Understanding new customers’ expectations, realizing those opportunities, recognizing the concerns and creating the right solutions are the keys to a bright digital future in the mortgage industry. THE CURRENT LANDSCAPE Until recently, the mortgage process has seen little change from the process 20 or 30 years ago – slow, inefficient, complicated,

Mark Wai is Chief Technology Officer at Radian Group Inc. He is the recipient of an Informatica Innovation Award, in recognition for delivering an innovative Customer 360 analytics application in nine months.

a mountain of paperwork and requiring manual intervention at every step from application and processing, to underwriting and closing. Plus, it’s been a daunting experience — especially for first-time buyers. The amount of personal information required feels invasive and repetitive. And with so many moving parts and parties involved, not to mention a ticking clock, the mortgage process is not something consumers have looked forward to. Add to that an industry culture that is still emerging from a historic downturn so lengthy that many professionals have never experienced a normal mortgage market. After a decade in which most new lenders in the industry performed refinancings almost exclusively, today these crisis-era mortgage professionals are seeing a rising tide of purchase originations for the first time. Moreover, the customers now include an abundance of first-time buyers. This combination of new business and new customers is creating an opportunity to ask questions and rethink the way things have been done for generations. First, cost. Right now the average cost to originate a mortgage is close to $9,000 per loan, according to the Mortgage Bankers Association. Many disparate systems and manual labor are the key reasons for such high cost. Just by automating many of those manual tasks, the cost would drop significantly. Second, why does it take so long to process a mortgage? Usually a customer has to plan on weeks, if not months, for the processing of a mortgage — an anxious time for homebuyers. Digital processing should be able to reduce the turnaround time from origination to completion dramatically – from months to days, and eventually hours. And third, why can’t consumers get the process started any time they want? The desire for a mortgage does not limit itself to business hours. Consumers want what they want when they want it. That means 24/7 access to service, with or without human intervention, and on any medium,

with as little data input as possible. This suggests an entirely new customer-engagement model. Mortgage originators also have reasons to be dissatisfied with the status quo. Technology promises to optimize processes so that operations at every point in the mortgage lifecycle are faster, more accurate, less bureaucratic and less costly for everyone involved. WHERE WE’RE HEADED Of course, there are companies already offering applications online. You can apply for a mortgage on your desktop computer or phone, and that’s the first step in the right direction in terms of convenience. But for the most part, the back-end operations are the same as if you walked into a physical office. Your application information may have been entered online and captured digitally but the rest of the process is analog and largely sequential. One key next step beyond making applications available online is to take advantage of the vast amount of digital data available, including property information, borrower assets, income and credit information and other publicly available data leveraging technology to automatically process and analyze that mortgage application, and carry it through the entire mortgage lifecycle and eco-system. This will drastically reduce the amount of information an applicant needs to submit, as well as the need to enter the same information during the different stages of a mortgage application. From the lender side, data analytics can distill insights necessary to make good underwriting decisions. Right now there are plenty of fintech firms working on developing sophisticated algorithms that will automate more and more mortgage processes. Business rule engines can flag applicant entries that don’t make sense, such as an impossible birth date or an erroneous area code. Pricing engines are being developed that use artificial intelligence, machine learning and fuzzy logic to weight all the data, make the most accurate underwriting

decision and calculate the best price. AIbased technology can automate home valuations more cost effectively and provide real-time instant feedback. And the more data the technology has to work with, the better it gets at spotting and reducing the possibility of fraud. That raises an important caveat about rapid automation. With more data captured, crunched and stored in one place, the opportunities for data theft and fraud increase. Automation triggers a host of security, privacy and liability issues. For example, if there is an automated appraisal on a property and there is a dispute over the value, who is liable for the discrepancy? Part of the technology revolution will have to involve resolving these issues, establishing governance, creating new mechanisms to resolve disputes and standing guard against criminal activity. A BRIGHT FUTURE Beyond mortgage origination, the industry is quickly developing technologies that connect the entire mortgage ecosystem and value chain. Innovations like eClosing, automated valuation, AI-based appraisal and “straight through settlement” are all just around the corner. Disruptive technologies like blockchain have the potential to transform and replace decentralized and expensive process such as title search and title transfer. It is not unthinkable that one day in the near future the entire mortgage process will be seamlessly enabled by technology without a single human touch point. But anyone who has ever tried to talk to a customer service representative when they’ve had a problem with Google, Facebook or their bank knows that humanity is in short supply on the digital frontier. Yes, customers want speed, price and convenience, but they also want a person to talk to when things go wrong, or if they want personal advice. An automated mortgage process that takes minutes, plus a friendly voice to help answer any questions may just be the best balance of old and new to make the digital future of mortgages an inviting place to do business. HOUSINGWIRE ❱ MAY 2018 31

32 HOUSINGWIRE ❱ MAY 2018

Larger than Life

Casey Crawford’s vision for Movement Mortgage is bigger than just making money BY JACOB GAFFNEY

t doesn’t take long into a conversation with Casey Crawford to realize any applicable labels aren’t really going to work: Chief Executive Officer, NFL Athlete, Super Family Guy. Those are all accurate statements, but they don’t capture the totality of who Crawford is.

True: He is a CEO, and a damn good one, for Movement Mortgage; a nonbank lender he started

10 years ago, which is now a top-10 HMDA lender. True: He played in a Super Bowl. Yes, he played in a Super Bowl. No, really, seriously, the guy PLAYED IN A SUPER BOWL. True: He writes LinkedIn posts about how awesome his wife is and what an inspiration she is to him and how he’s the perfect dad with the perfect family – a story that all checks out.

HOUSINGWIRE ❱ MAY 2018 33

Still. He wears t-shirts to his televised interviews; not very CEO. He played sports at a high level, but rarely brings it up and when he does he talks about it as a mere chapter in his life. Honestly, who plays a Super Bowl and doesn’t describe it as the defining moment in their personal journey? Casey Crawford, that’s who. His family is a big part of his life of course, but he talks about his even larger family — his coworkers — in terms that are just as glowing. On an early morning in March, Crawford is sitting at his desk at Movement Mortgage headquarters in Fort Mills, South Carolina. His office walls are polished concrete with exposed metal fixtures. The desk itself a big slab of wood cut from a tree that was cleared from the lot he’s sitting on, in order to make room to build the Movement Mortgage building. Writing utensils are all standing at attention on the desk top in a little leather cube; there are no drawers to speak of, and no cabinets — everything is out in plain view, nothing is tucked away.

“We want to see people thrive professionally and personally. Our industry is really good at promoting people who thrive professionally. I think we’ve fallen woefully short of seeing people thrive personally,” Crawford said. “Our industry, because there is so much wealth that can be awarded, brings with it a culture of toxicity. It comes at the expense of health and families and their communities. “We’re still seeing it with Wells Fargo; when sales goals so direct decision-making it leads to things we should never do, we would never do. That’s indicative of the environment they work in, it’s not a comment to say they are bad people. “But can we create a community where we strive professionally to be our best selves and personally make sure we take care of the relationships that are important to our lives?” You can, as it turns out, and Movement has.

“We want to see people thrive professionally and personally. Our industry is really good at promoting people who thrive professionally. I think we’ve fallen woefully short of seeing people thrive personally.” The opposite wall is a mural of inspirational quotes and profile pics of those Crawford looks up to and the shelf below contains a smattering of awards and photos of his family. Some could describe the office as minimal and cold, yet the simpatico presence of Crawford helps warm the space. His persona, while affable now, will be magnified in a few hours. That’s when he is due to take the stage in front of his 800 or so employees here for a rousing speech. There, he will still be in his t-shirt and jeans, but behind him will be a bright explosion of red, cosmic dust, a background emblazoned with the words, “Love has a name.” “We’ve started using the word love a lot,” Crawford tells me, in an explanation of his motivations. Is he building some sort of cult of personality? Not at all. But he is trying to tap into a cultural angle and he thinks “love” is his in, and here’s why. “Friends of mine said working for Bank of America and Wachovia simply drained them of life,” Crawford said. “They just described it at best as ambivalent about the institutions they worked for, but more typically they had animosity for the place that was giving them a paycheck every week.” It’s part of a larger, cultural problem he wants no part of. 34 HOUSINGWIRE ❱ MAY 2018

Case in point is the way in which Crawford organized his people to get behind a cause that didn’t involve sales goals at all, but made a huge impact on their personal lives. With 350 people in Tempe, Arizona, and 600 in Norfolk, Movement employs more than 1,500 staffers. Crawford challenged his employees to shrink their personal consumer debt over a three-month period, rallying his employees to the goal. “Last year we launched a lose-a-million (dollars) challenge. We got everyone Dave Ramsey’s book, financial tees… and we shed a collective $2.8 million in consumer debt and saved an additional $1.4 million in savings. In 90 days, we transformed the collective, personal balance sheet of everyone in this company, to the tune of $4.2 million.” But what was even more important than that? The incredible stories Casey heard from his people along the way, expressing the gratitude they had for their employer helping them get a better hold of their personal finances. “A community, not a company, pulls you in the direction you want to go in life,” Crawford explained. Less debt was a common goal that everyone in the company could get behind, and help each other achieve. In the end, some Movement staffers paid off a credit card for the first time ever. Others paid off student loans.

“I personally love to see people pay off the mortgage we sell them. Being debt-free serves Americans well in their long-term best interest.” But none of them used their homes as a piggy bank and reworked their debt via a refi. That’s a no-no to Crawford and something he doesn’t want to see his customers do either. Movement does mortgage volume in the $25 billion range, making them a top 10 lender. They’re No. 6 in purchase, according to HMDA numbers, but that number is lower when it comes to refis. In fact, Movement could probably enter a period of rapid growth, maybe even rub shoulders with the loanDepots and the Quickens, were it to look at its current book of business to refi. But again, Crawford doesn’t like that approach for either his staff or his clients. “We don’t look to buy refinance leads. If it makes sense for people, we will do a refinance, if we can save them money. We try not to let people use their houses like piggy banks. I personally love to see people pay off the mortgage we sell them. Being debt-free serves Americans well in their long-term best interest,” he said. 36 HOUSINGWIRE ❱ MAY 2018

THE BACK STORY Crawford came out to Charlotte to play for the Carolina Panthers, and fell in love with the city. After two seasons, the Panthers decided he was the fourth least valuable guy on the team and fired him, so he signed with the Bucs. Crawford went on to play with Coach Jon Gruden in the SuperBowl: “It was an incredible experience; something any kid who dreams of playing football dreams about.” “But, I realized I was a backup for when the good players got hurt. So I wanted to invest in my own life in a more significant way other than being just an entertainer — that’s all you are when you play professional sports.” So the Crawford family moved back to the Carolinas from Tampa and Casey moved into the real estate business, doing hard-money loans and a little bit of real estate development. Crawford soon entered into a joint venture with Nation City Bank with partner Toby Harris. Then in 2007 and 2008 the Charlotte area became significantly impacted by the subprime housing crisis, serving as headquarters to both Wachovia and Bank of America.

During this time, Wachovia wiped out and BofA teetered on the brink of collapse while struggling to buy Countrywide. That’s when it happened. “I listened to a Bill Dallas CD [Skyline] who said ‘the greatest opportunity in mortgage banking history is just right on the other side of this crisis.’ That made a lot of sense to me, as foundationally this nation is underpinned by its belief in the holding of property rights. In recent times, you see the federal government leveraging the mortgage industry to subsidize credit and spur the economy back on. “And the largest providers of mortgages, many of them, were just eliminated. Americans still want to own homes and the federal government will still insure them. So who’s going to lend to them? So many banks were in disarray.” During this time the too-big-to-fails and many private banks became obsessed with refinancing their current book of business, except for Wells Fargo, which was pushing FHA-backed mortgage as the replacement to private capital. Who was going to look after the purchase market? Crawford asked himself. Again, this was in 2008, and Crawford sat down at his desk. As the CEO of Movement Mortgage he now had five years of business under his belt.

Then it takes six hours to underwrite, seven days to process, one day to close. The formula is easy for borrowers to follow and efficient for real estate agents and loan officers. “That became our competitive advantage. We spread the word out to Realtors and loan brokers on how we positioned ourselves to look different from our competition and to show how we loved our customers through the entire mortgage process,” Crawford said. It worked. Now Crawford spreads his message of success through ever-growing channels, from regular CNBC appearances to writing native posts for LinkedIn. In one such post he extolls the virtues of working out with your significant other to help build a better you. And how that same theory also works in business. On Aug. 3, 2017, he published a piece titled: What CrossFit - and my wife! - have taught me about business. In that article he writes: “Whether you’re at your gym or your job, teamwork is critical. At the office, you must work closely with your teammates in order to meet deadlines and achieve goals. The Navy Seals, for example, place incredible emphasis on teamwork, which is why they assign each person a ‘swim buddy’ to hold the other accountable in the field.

“My Catholic priest, Father Ed, back in high school used to say: ‘To love someone is to act in the long-term best interest of another.’ So, what would it look like if we loved our customers?” But being ultra-competitive, he wanted more. He Googled: “How to start a mortgage bank.” The results, and the rest, is history. Being a mortgage bank ticked all the boxes for the CEO/NFL Athlete/Super Family Guy. He had a plan for his bank and he now had a dream for his people: To love the American Dream. “My Catholic priest, Father Ed, back in high school used to say: ‘To love someone is to act in the long-term best interest of another.’ So, what would it look like if we loved our customers?” That dream began to lead a lot of decisions. A huge driver is this: Treat your customer like they are your family. Crawford instructs his people to tell them: “Give me all the documents upfront, let’s let the underwriter look over it and we can see how much house you can afford, before you even begin looking. Fully underwritten loans before you even go shopping. That’s the right thing to do for the American people.” 38 HOUSINGWIRE ❱ MAY 2018

“This accountability helps drive you beyond yourself as you refuse to let your teammate down. Teammates can also encourage one another. They can have different and complimentary gifts. In a partner workout, you may be good at running, while your teammate is strong at pull-ups. Together, the two of you can help each other navigate obstacles.” But the last whistle is far from being blown for Crawford, and Movement is where he’ll stay. More and more, he’s taking his message to new audiences. “We spend a lot of time in Washington, talking to the CFPB, to the GSEs, asking how can we do more to support homeownership. We all know that owning a home is one of the greatest builders of wealth in this country and the greatest stability for families. Both of these, we are currently in dire need of.” He won’t quit and he will win. After all, it’s in his very nature. “God created me incredibly competitive,” he said.

How can we REVIVE the private label MBS market? Unresolved issues defy easy answers By Brent Nyitray

40 HOUSINGWIRE â?ą MAY 2018

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NE OF THE THINGS THAT HAS BEDEVILED MORTGAGE FINANCING post-crisis has been the absence of the private label mortgage backed securities market. The private label MBS market includes loans that are not guaranteed by the government or the agencies, and is a shadow of its former self. During the peak years, private label MBS issuance topped $1 trillion. In 2017, only $70 billion of private label RMBS were issued, although that is a big increase from 2016.

Policy makers are particularly keen to bring back the private label market in order to increase access to credit and shrink the government’s footprint in the mortgage market. What is holding things back? The issue seems to be spread out between MBS investors, who want added protections, lenders, who have been content to stick to agency and government loans, and borrowers, who are reluctant to set foot in the mortgage market, particularly the first-time homebuyer. Here’s a little history on how we got here, and some of the concerns of investors.

THE REAL ESTATE BUBBLE The real estate bubble and bust taught some important lessons to borrowers, lenders and investors. Bubbles are a psychological phenomenon where everyone involved — borrowers, lenders and investors — need to believe that an asset is “special” and will never go down in price, at least not for an extended period of time. After the real estate bubble burst, borrowers and lenders learned that real estate prices can actually decrease and investors learned that geographic diversification won’t necessarily bail them out when they do. But, the most important lesson for investors in MBS was that liquidity can dry up in an instant, and that when you need to sell, you might not be able to find a buyer. This point is critical in understanding the reticence on the part of investors. As is typical during bubbles, the use of leverage (borrowed money) enhanced returns to the upside, but also 42 HOUSINGWIRE ❱ MAY 2018

amplified the losses on the downside. Funds that invested in mortgage backed securities and leveraged them 5:1 were able to generate decent returns while the real estate market was rising. Home price appreciation papered over a slew of underwriting errors, and since the value of the collateral was always rising, delinquencies were not much of a problem. After the real estate market peaked, however, we began to see a wave of strategic defaults, which were largely investors who chose to toss the keys to the bank when home prices stopped rising. As the inventory of underwater homes began to pile up, price depreciation accelerated and the market for MBS froze up. Funds that use leverage have a problem when they start taking mark-to-market losses. The lender will demand the borrower put up more collateral against the loan. In normal markets, they would raise margin by selling the depreciating securities. However, they couldn’t in this case – there were no buyers. Ultimately the lenders to these funds sold the collateral for whatever they could get, which drove prices down to distressed levels. Distressed MBS buyers were willing to pay 70 cents on the dollar of the underlying collateral value, not face. So, a security backed by a $130,000 mortgage on a $100,000 house was worth $70,000. The MBS investor ended up taking about a 50% haircut, assuming they had paid over par for the bonds. The investors that made it out alive had no appetite for these securities any longer. In retrospect, many of these securities ended up being “money good.” In fact, Annaly plans an issue with loans from an old

2005 securitization that never happened. Fitch has rated the senior tranches AAA. Quantitative easing also impacted the demand for private label securities as well. The big mortgage REITs knew the Fed was going to be in the market buying agency and government mortgage backed securities. It made sense for them to piggyback along with that trade, especially since funding costs were being driven down to the floor. Plus, the big mortgage REITs had been picking up plenty of decent paper trading in the 60s. Why bother buying new issues at par? So, in the years following the financial crisis, many investors were more interested in buying and leveraging agency paper and had little appetite for anything more exotic. Agency and Ginnie MBS were considered “safe” and they were, at least on the credit side. But the interest rate risk turned out to be much higher.

UNRESOLVED ISSUES Some of the governance issues from the bubble years remain unresolved. Once the causes and effects of the crisis were examined, investors realized that there was no one tasked with looking out for their interests. In other words, there was no entity which was responsible for examining and dealing with reps and warrants violations, ensuring that the servicer was maximizing the value of the trust and not the value of the servicing (which the issuer usually kept), managing the conflict of interest if the issuer held a second lien, and finally ensuring that the issuer wasn’t soliciting the borrower for a refinancing. Many investors simply won’t re-enter the marketplace for private label securities until there is a standardized framework to address these issues. Finally, from the investor’s standpoint, legacy non-agency paper was priced so much better on a risk/ reward basis than new issues that there simply wasn’t that big of an appetite for new paper. Legacy MBS have been bid up enough that the easy money has been made. However, there still seems to be a bit of a bid/ask spread between what issuers want to get and what investors are willing to pay. New non-agency loans (especially non-QM) don’t have any sort of prepayment history, which makes them tough to value. The risk (from an investor’s standpoint) is that using conventional prepay speeds to value the MBS will overvalue them. Non-QM paper probably will exhibit higher prepay speeds than conventional loans simply because borrowers will refinance into a conforming loan once they are

able to. It may turn out that a lack of investment opportunities will force the buy-side to start buying new issues, but we aren’t there yet. From the lender’s point of view, the immediate post-bubble years were a heyday of refinance activity. As the Fed drove down interest rates, the entire mortgage universe became refinanceable. Originators had their hands full doing the easy stuff – rate/term refinancings on conforming and government loans. The government introduced streamline refinancing products which were easy to do, and often required no appraisal. Warehouse banks also were reluctant to lend against anything that wasn’t easily saleable. The risk-aversion of warehouse banks is an overlooked but critical factor in this. If a lender can’t get a warehouse bank to accept non-agency loans as collateral, it doesn’t matter how attractive the business may be. Anyone without the ability to hold a loan long term can’t do them. Another issue for lenders is that the servicing value for jumbo and non-QM loans is much lower than it is for conforming and government. This means the loan is simply not as profitable for an originator as a plain-vanilla conforming or government loan. Not only that, the risk for a lender is higher because there is invariably only one outlet for the loan. A secondary marketing officer knows that there are dozens of outlets for plain-vanilla conforming and government loans. If one correspondent turns down the loan, it can HOUSINGWIRE ❱ MAY 2018 43

Mortgage Credit Availability Index (NSA, 3/2012=100) Expanded Historical Series

1000

Dots=Measurement Intervals | Between = Interpolation between intervals

900

Index, NSA, 3/2012=100

800 700 600 500 400 300 Feb-18 180.7

200 100

n16 b07 Oc t-0 7 Ju n08 Fe b09 Oc t-0 9 Ju n10 Fe b11 Oc t-1 1 Ju n12 Fe b13 Oc t-1 3 Ju n14 Fe b15 Oc t-1 5 Ju n16 Fe b17 Oc t-1 7 Fe

t-0 5

Source: Mortgage Bankers Association

probably be sold to someone else without too much of a problem. But, if the loan is non-agency, there is usually only one buyer, and if that buyer backs away, the lender is looking at selling it in the scratch-and-dent market, which guarantees a sizeable loss on the loan. So, from the lender’s standpoint, why bother with loans that are riskier, harder and less profitable, when you can do streamline refinancings all day? It was a no-brainer. Plus, many of the larger banks were willing to be loss-leaders in jumbo loans as a way to bring in other ancillary services, particularly the lucrative asset management business, where the bank earns a return on someone else’s money. Many independent mortgage bankers had trouble competing with the big banks on price anyway. Banks have largely solved their capital problems and now need to put money to work. Many nonQM and jumbo loans are staying on their lender’s balance sheet, as the economics of holding them are better than securitizing them.

THE ROAD AHEAD After the real estate market bottomed out, we began to see some interest in non-QM mortgages, however issuance was 44 HOUSINGWIRE ❱ MAY 2018

tiny. Most of the non-QM stuff has been centered on two areas: jumbo loans that have extremely low loan-to-value ratios and stated-income loans, where the borrower is self-employed and lacks W2 income. Neither of these loans resemble the subprime loans of the bubble years, which were meant to be refinanced, not repaid. FHA is the new subprime and most lenders won’t delve too deep into the lower FICO FHAs, particularly when the borrower is only putting down 3.5%. Affordable housing advocates are eager to see a return of the private label market, believing that there are many underserved borrowers who need access to credit and are being shut out of the market. The bigger question is whether this is an education issue. FHA loans are designed precisely to target the underserved and the first-time homebuyer. Prior to the financial crisis, FHA loans were a bit of a backwater of the mortgage market. Once the subprime market fell apart, they picked up the slack. USDA loans are another program designed to target this market. Ultimately, for whatever reason, the loan demand simply has not been there. Perhaps borrowers are unaware that they don’t need

perfect credit or 20% down to buy a home. Perhaps borrowers with shaky financial foundations are reluctant to take on the risk of owning a home and prefer the flexibility of renting. Many of the alt-A/ subprime products targeted the first-time homebuyer, and this borrower has been missing in action during this housing recovery. In February, the first-time homebuyer accounted for 29% of home sales. Historically, that number has been closer to 40%. In their latest Profile of Home Buyers and Sellers, the National Association of Realtors had this observation about the state of the first-time homebuyer: “The dreams of many aspiring first-time buyers were unfortunately dimmed over the past year by persistent inventory shortages, which undercut their ability to become homeowners,” said Lawrence Yun, NAR chief economist. “With the lower end of the market seeing the worst of the supply crunch, house hunters faced mounting odds in finding their first home. Multiple offers were a common occurrence, investors paying in cash had the upper hand, and prices kept climbing, which yanked homeownership out of reach for countless would-be buyers.” Professional investors, who piled into the “REO-torental” trade post-recession have been scooping up properties at the low end of the market, and they have been cash buyers. Since cash buyers don’t need mortgages in the first place, this has been another reason for the low borrower demand. Despite the lower loan demand, mortgage credit availability is still severely depressed compared to the pre-crisis period, which you can see from the Mortgage Bankers Association Mortgage Credit Availability Index (chart opposite). It is about 20% of what it was during the peak. Finally, the Millennial first-time homebuyer has preferred to rent in urban areas and has not (at least as of yet) chosen to leave for the suburbs. As the Millennials begin to have kids, that will probably change. Excessive student loan debt is also an issue for this generation, and soaring home prices have affected affordability. But the punch line remains: low demand from the Millennial generation is a reason why the borrower demand for these loans has been low. The government is also eager to bring back private capital into the mortgage market, as the taxpayer is bearing the credit risk of the lion’s share of all new origination. Unfortunately, as Redwood Trust put it in their Guide to Reviving the Private Label Securities Market, getting the critical mass needed to revive the market has proved to be difficult: “The most difficult challenge facing the PLS market is a bit of a Catch-22. Investors and issuers are much

The risk-aversion of warehouse banks is an overlooked but critical factor in this. If a lender can’t get a warehouse bank to accept non-agency loans as collateral, it doesn’t matter how attractive the business may be. Anyone without the ability to hold a loan long term can’t do them. more inclined to participate in a PLS market that is active and liquid, with ample investment opportunities and tight bid-ask spreads, but the current market has none of these characteristics. The Catch-22 is that we can’t get to a healthy and liquid state while both investors and issuers remain on the sidelines, waiting until the market is healthy and liquid.” Policy analysts point to a couple of reforms that are probably necessary to bring back the private label market. The first is a “deal agent” which deal would be charged with “protecting the interests of the RMBS trust, maximizing the net present value of its assets and making certain strategic decisions in the limited circumstances that doing so becomes necessary,” according to a recent Urban Institute piece by Laurie Goodman. Ultimately, the question of a deal agent will come down to how much one costs, and whether it positively affects the rating/pricing of the deal. The return of the private label market is critical to addressing some of the people who have been shut out of the mortgage market since the crisis. While FHA and conforming loans have picked up much of the slack left over from the death of the private label market, it isn’t really an ideal solution, since the taxpayer is bearing the majority of the credit risk in the mortgage market. Many borrowers who don’t fit in the conforming/government credit box have been frozen out. In order to bring back private capital, MBS issuers and regulatory agencies need to continue the progress they have been making on fixing the issues that were identified in the financial crisis. Brent Nyitray has more than seven years of experience in mortgage capital markets and was most recently the director of capital markets at iServe Residential Lending. HOUSINGWIRE ❱ MAY 2018 45

SSCALES FR UP With homeownership out of reach for many, single-family rentals continue to boom BY DIANE TOMB

46 HOUSINGWIRE â?ą MAY 2018

HOUSINGWIRE ❱ MAY 2018 47

INGLE-FAMILY RENTAL HOMES HAVE LONG BEEN AN IMPORTANT PIECE OF THE HOUSING ECONOMY and in recent years have taken on new importance. Following

the housing crisis, more Americans and their families are choosing to rent and have decided that a single-family home is the best option to fit their needs. In fact, according to the Urban Institute, the 2015 American Housing Survey reports that the majority of renters — 57% — have chosen to live in single-family units (single-unit, single-family homes and two-to-four unit homes). This total outweighs the percent of renters living in apartments (43%) and reflects larger social and economic forces at play. Demographic shifts have been a major factor in this resurgence in single-family rental housing. Baby Boomers are attracted to the flexibility and low maintenance responsibility of renting a single-family home. Millennials, who are delaying milestones like marriage and home buying, are beginning to form families

NEW TECHNOLOGY THAT HAS EMERGED ALONGSIDE THE PROFESSIONALIZATION OF THE INDUSTRY HAS LED TO NEW AMENITIES AND SERVICES THAT MAKE THE LEASING AND RENTAL EXPERIENCEBETTER. 48 HOUSINGWIRE ❱ MAY 2018

of their own and look for housing options with more room to grow. With these shifts, the single-family rental industry has become the fastest-growing segment of the real estate market, in large part due to the features these homes offer. Residents enjoy more space at a lower cost per square foot, backyards for children and pets to play and the option of living in safe neighborhoods and good school districts that might otherwise be out of reach.

PROFESSIONALIZATION OF THE MARKET Another shift following the financial crisis has been the professionalization of the single-family rental industry. While these professional owner/operators are still a small slice – now about 2% – of the 16-million-home single-family rental market, it is an important shift in the industry. The emergence of these operators has offered residents a new housing option in a lot of markets. Additionally, the institutionalization of this asset class has presented an opportunity to scale a business model that was historically dominated by part-time landlords who did not benefit from a regional or national platform or industry-level expertise. The professionalization of the market has some real advantages for residents. New technology that has emerged alongside the professionalization of the industry has led to new amenities and services that make the leasing and rental experience better. For example, self-showing lockboxes allow prospective residents to view homes without a property manager on site, and leases can be

submitted electronically, sometimes through smartphones. Like most apartments, service requests can be submitted online 24/7. When devastating hurricanes hit Florida, Texas and Puerto Rico last year, institutional owners’ scale and use of cutting-edge technology platforms proved to be a real advantage that allowed them to mobilize resources and respond quickly. Many NRHC member companies were able to bring staff and equipment necessary for their hurricane response efforts in from other parts of the country and had reliable networks of inhouse and third-party maintenance and construction professionals to immediately begin servicing damaged homes. Additionally, their wide geographic footprints allowed them to quickly rehome families. It is also important to note that the professionalization of the market is no different than the transition the multifamily housing industry made towards investor owned and operated properties in the 1990s. This has a number of benefits, but chief among them is making the property management process more efficient and resident-friendly by allowing owner-operators to leverage scale to adopt technology-powered solutions for issues ranging from online payments to keyless entry.

THE ROLE OF THE GSES Fannie Mae and Freddie Mac play an important role in the housing industry at large and have long supported investors in the multifamily industry. While their presence has existed in both the single-family and multifamily space for some time, the Invitation Homes transaction announced in 2016 was the first of its kind for a large-scale, professionalized owner/operator and signaled the GSEs’ willingness to support this growing piece of the industry. It’s important to note that this transaction is completely in line with the GSEs’ goal of establishing financing for American families. As the number of renters in the U.S. grows, and as more of those renters are choosing single-family homes, it makes sense for the GSEs to support this important piece of the housing market as well. Other industry experts agree.

“WE HAVE NO DOUBT THAT IT MAKES SENSE FOR THE GSES TO FINANCE SFR PROPERTIES.” —LAURIE GOODMAN, URBAN INSTITUTE Laurie Goodman at the Urban Institute said in February 2017: “We have no doubt that it makes sense for the GSEs to finance SFR properties. Access to stable, long-term and non-fleeting financing — which allows institutional landlords (both for-profit and nonprofit) to purchase, hold, and stabilize the properties, and run the stabilized properties as a business, rather than flipping them —will be crucial in preserving their long-term commitment to this space. And Fannie Mae’s pilot with IH seems to be a good first step in that direction.” GSE support of the single-family rental industry is not the only solution to current strains on the U.S. housing market. As home prices have rebounded following the Great Recession, more buyers are finding themselves priced out of their desired markets. The reason? An overall shortage of available housing and a lack of new homes being built, which drives up the market price for what is currently available. As basic economics would dictate, it’s important for local, state and federal policymakers to tackle these dual problems of housing shortage and affordability by fostering policies that encourage growth and housing construction. HOUSINGWIRE ❱ MAY 2018 49

RENTERS DESERVE THE SAME COMMITMENTFROM POLICYMAKERS THATHOMEOWNERS ARE AFFORDED: IMPROVED ACCESS AND CHOICE. 50 HOUSINGWIRE ❱ MAY 2018

We see this issue manifest directly in the current debate in California over the CostaHawkins Rental Housing Act. Since 1995, Costa-Hawkins has effectively allowed cities to put in place rental policies that best meet their regional needs by giving local governments the flexibility to maintain rental control laws in their respective jurisdictions, while at the same time, granting owners in rent control communities the ability to establish initial rental rates when there has been a change in occupancy. While some municipalities in California have allowed rent control under Costa-Hawkins, history has shown that rent control ultimately does more harm than good. For example, San Francisco and Los Angeles have strict rent control policies in place, and they have experienced a growing housing shortage in recent years. What California needs are forward-thinking policies that support housing production and alleviate the current housing shortage. Housing advocates who support the repeal of the Costa-Hawkins Act do not understand the unintended consequences this law will have. Developers and builders alike would be hesitant to invest in new housing construction in areas that are rent controlled because the properties would likely yield smaller investment returns. In fact, the Legislative Analysts of the California Legislature found that, “rent control will do nothing to increase our supply of affordable housing and, in fact, likely would discourage new construction.” Given the significant housing shortage in California, diminished construction would only exacerbate an existing statewide problem. The National Rental Home Council (NRHC) agrees that renters deserve support and attention from policymakers, but rent control legislation, in the long run, will not alleviate the strain on housing affordability. Instead, policymakers should consider ways to encourage more building and loosen zoning regulations that artificially restrict housing supply and keep prices high for renters. NRHC member American Homes 4 Rent is looking to remedy the lack of available homes

by building new ones specifically to lease in their built-for-rental program. This type of innovation is good for the housing industry as a whole as it seeks to alleviate the housing shortage by increasing inventory and gives families more housing options. The NRHC also supports public policies to help those who desire to become homeowners reach that goal. In fact, single-family rental homes are part of the continuum to homeownership for many renters. But, homeownership is not necessarily the best choice for every person at every stage of their life. Renters deserve the same commitment from policymakers that homeowners are afforded: improved access and choice, and the opportunity to reside in a high-quality home. Our members strive to provide those who are preparing for homeownership — and those who are not — with high-quality housing options, no matter where they are on the rent-or-own housing spectrum. Diane Tomb is executive director of the National Rental Home Council.

GENERATION GAP As rent prices continue to rise, a new study shows Millennials are paying about 45% of their total income toward rent, and pay out close to $100,000 toward rent before they turn 30. Analyzing U.S. Census Bureau data going back as far as 1974, a new study from RentCafé found that those ages 22 to 30 earn more in income compared to previous generations, but they also have to spend

TOTAL EARNED FROM FROM AGES 22-30

$195,700

BABYBOOMERS

$202,100

GEN Xers

$206,600

MILLENNIALS

more on rent.

% OF INCOME SPENT ON RENT

36%

BABY BOOMERS

TOTAL RENT PAID FROM AGES 22-30

$71,000

BABYBOOMERS

$82,200

GEN Xers

$92,600

MILLENNIALS

GEN Xers

41% 45% SOURCE: RENTCAFE

MILLENNIALS

IF THIS TREND CONTINUES, GENERATION Z IS EXPECTED TO HAVE TO PAY AROUND $102,000 IN RENT DURING THEIR 20S. HOUSINGWIRE ❱ MAY 2018 51

Inside Baseball

52 HOUSINGWIRE ❱ MAY 2018

Inside Baseball

MBS strategies COMPANIES TEST THE WATERS WITH NEW SECURITIZATIONS BY BEN LANE

LOANDEPOT MAKES BIG MOVE INTO MORTGAGE SECURITIZATION loanDepot is no stranger to mortgage securitization, with its loans taking their place alongside other originators’ loans as pieces of many non-agency securitizations over the last few years. But now, loanDepot is making a big move into the secondary mortgage market and launching its first mortgage-backed security, which is backed only by loanDepot loans. Moody’s Investor Service is out with a presale report on loanDepot’s mortgage-backed securitization, which is called Mello Mortgage Capital Acceptance 2018-MTG1. It takes the “Mello” name from the mello lending platform that loanDepot introduced last year. loanDepot later introduced mello Home, which connects pre-approved homebuyers with verified real estate agents in their local market. Mello 2018-MTG1 is a securitization of 453 primarily 30-year, first-lien, fixed-rate prime residential mortgages. The loans in the securitizations carry a total unpaid balance of just under $300 million. The collateral pool consists of 226 prime jumbo and 227 conforming high balance loans, all of which were originated by loanDepot. In its presale, Moody’s notes the large size of the loans in the portfolio. The portfolio’s average loan size is $661,866, and the largest 20 loans in the portfolio make up approximately 10.1% of the total balance. Despite the size of the some of the loans in the portfolio, the underlying borrowers display strong credit characteristics and have a “demonstrated ability to save and to manage credit,” Moody’s said.

According to Moody’s, the borrowers in this transaction have high FICO scores and sizeable equity in their properties. The weighted-average primary-borrower FICO score is 772 and the weighted average original combined loan-to-value ratio is 72.4%. Additionally, all 453 loans are designated as qualified mortgages either under the QM safe harbor or the GSE temporary exemption under the Ability-to-Repay rules. The WA debt-to-income ratio for the pool is 33.3%, which includes 14 loans out of 453 loans with a DTI greater than 43%. The greatest DTI was 44.8% for a borrower with the most recent FICO of 743 and a CLTV of 56%, Moody’s said. Due to the high quality of the underlying pool and other factors, Moody’s awarded more than $250 million in AAA ratings to the deal. According to Moody’s report, approximately 78.2% of the properties backing the underlying mortgages are located in five states: California, Massachusetts, Washington, Colorado and New Jersey, with 49.8% of the properties located in California. The top five MSAs by loan balance are Los Angeles (18.5%), San Francisco (12.7%), Boston (9.0%), Seattle (7.2%) and New York City (7%). One other point of caution, Moody’s notes, is the number of borrowers in the pool that are carrying multiple mortgages. According to Moody’s report, borrowers with two or more mortgages make up 30.3% of the pool. “Borrowers with more than one mortgaged property could be more likely to default than borrowers with one property especially in a distressed housing market,” Moody’s said. “However, high income borrowers with stable employment may support debt payments on vacation properties.” HOUSINGWIRE ❱ MAY 2018 53

Inside Baseball ANGEL OAK SECURITIZES $90 MILLION IN FIX-AND-FLIP LOANS In a deal the company claims is a first of its kind, Angel Oak Capital Advisors recently completed a $90 million securitization backed by fix-and-flip loans. The underlying loans were originated by Angel Oak Prime Bridge, Angel Oak Capital’s affiliated direct investment property lender. The securitization’s structure is unique in that the terms of the underlying loans expire before the securitization does. As such, new loans will replace the paid-off loans in the securitization. The underlying loans, which were issued by Prime Bridge to residential real estate investors, carry original loan terms of between six and 12 months. The securitization, on the other hand, carries an 18-month revolving period in which the paid collateral is replaced with new collateral. The average loan balance of the underlying loans is $199,052. Angel Oak co-CEO and Chief Investment Officer Sreeni Prabhu said that the appetite exists among investors for these types of unique offerings. “Investors are attracted by this product and its unique structure. The short-term nature of the collateral paired with an attractive yield makes for a rare opportunity in today’s investing climate,” Prabhu said. “But most importantly, investors understand the Angel Oak story by now. Our affiliated mortgage companies’ expertise in quality origination gives investors confidence that our securitizations are backed by loans underwritten to specific guidelines,” Prabhu added. “We believe we have one of the most diverse securitization platforms in the industry.” This latest securitization is Angel Oak’s sixth since 2015, bringing the total to more than $900 million. Prime Bridge Senior Vice President Robert Mulcahy said that the deal will allow the lender to grow its lending platform. 54 HOUSINGWIRE ❱ MAY 2018

“The securitization will allow Prime Bridge to expand its reach and provide capital to more real estate investors,” Mulcahy said. “This, in turn, will lead to the improvement of housing stock in many areas and the betterment of many communities.”

SOFI HIRES FORMER GOLDMAN SACHS HEAD OF MORTGAGE SECURITIZATION AS NEW CFO Over the last few years, SoFi has become a fairly regular issuer of loan securitizations, whether they are backed by mortgages, personal loans, or student loans. In fact, the online lender said in the middle of April that it just completed its largest-ever quarter for loan securitizations, completing $2.6 billion in loan securitizations in the first quarter of 2018 – an increase of 35% over the first quarter of 2017. Now, it looks like SoFi may be making a bigger move into securitizations by hiring the former head of mortgage securitization at Goldman Sachs as its new chief financial officer. SoFi announced on April 9 that it named Michelle Gill as the company’s new CFO. Gill comes to SoFi from TPG Sixth Street Partners, a credit firm. Gill joined TPG last year after a lengthy term at Goldman Sachs. Gill spent 14 years at Goldman Sachs, eventually serving as a partner and co-heading the firm’s structured finance business. According to the Wall Street Journal, Gill “rose through the ranks of Goldman’s mortgage-bond unit before the financial crisis, and after it, helped develop the firm’s consumer-finance business, which trades loans backed by auto, student and unsecured personal debt.” And now, Gill is moving to SoFi. This isn’t the first time in recent memory that SoFi dipped into the Goldman Sachs pool for a high-ranking hire. Earlier this year, SoFi hired Twitter Chief Operating Officer Anthony Noto as its new CEO to replace Mike Cagney, who abruptly resigned as CEO back in September with

the company embroiled in controversy. Noto came to Twitter in July 2014 to serve as chief financial officer, before being promoted to COO in 2016. Before joining Twitter, Noto served for nearly four years as co-head of global TMT investment banking at Goldman Sachs. “We’re thrilled to have Michelle join the SoFi team. She has deep financial expertise, a passion for our mission, and knows our business in and out having been our lead banker for several years,” Noto said of Gill. “Michelle is also an exceptional leader who has a passion for building a great culture. I look forward to partnering with her as we continue to build the next great consumer financial services company.” Gill replaces interim CFO Steven Freiberg, who took that role in May 2017. Freiberg also serves as the vice chairman of SoFi’s board of directors and will remain in that role after Gill officially takes over as CFO on April 30. “I am excited to be joining Anthony and the team at SoFi in building an innovative and inclusive culture that will radically change the way people approach their finances,” Gill said. “The company’s impressive financial strength paired with its talented team gives SoFi the opportunity to expand the breadth of its offerings and ultimately help more members achieve success.”

HOMEUNION LAUNCHES CROWD-FUNDING PLATFORM SO INDIVIDUAL INVESTORS CAN BUY INTO FIX-AND-FLIP FUND HomeUnion, an online residential real estate investment firm, is increasing its presence in the single-family rental market. Back in 2015, HomeUnion began lending to single-family rental investors. Now, HomeUnion is launching a new program that will make the company itself an investor in single-family rentals, but the company isn’t using its own money. Rather, HomeUnion is launching a crowdfunding platform that will allow

Inside Baseball

individual investors to buy into a fund that will seek to create a return by identifying s i ng le - f a m i l y r e nt a l i n v e s t m e nt opportunities, improving the properties, increasing the rents and potentially selling the properties to other investors. Starting with a minimum investment of $10,000, retail investors now have the ability to acquire interest in HomeUnion’s Fix-and-Flip Fund. The fund allows investors to invest in single-family rental properties acquired for fix-and-flip purposes in seven HomeUnion markets: Atlanta, Austin, Charlotte, Chicago, Dallas, Raleigh and Tampa. This is how the firm explains the fund, via its website: Using proprietary algorithms and local market expertise, the fund identifies prop-

erties in active HomeUnion markets that present opportunities to increase values and command higher rents through renovation. The fund purchases, renovates, and places renters in these properties. The properties are then sold as tenanted assets on HomeUnion’s online investment marketplace – a leading destination for single-family real estate (SFR) investments, where more than $150 million in transactions have closed to date. “Consumers can now choose how they invest in real estate with us,” Don Ganguly, CEO of HomeUnion, said. “With the launch of this new platform, we are empowering buyers to invest in rental assets directly, or invest in a fund that meets their individual preferenc-

es and goals,” Ganguly added. “Unlike other websites, which source third-party projects and act as middlemen or brokers, HomeUnion is the investment manager on the newly launched fund. In other words, we curate, renovate and manage the assets using big data and our local real estate experts.” According to the company’s website, HomeUnion is looking to raise $2 million for its Fix-and-Flip Fund. Previously, in addition to lending to single-family rental investors, HomeUnion allowed investors to buy both single-family and multifamily real estate through its platform. Now, investors can buy just a piece of a single-family rental via the firm’s new fund.

Kudos MILESTONES

GIVING BACK

• ANGEL OAK announced in April that it closed its largest securitization to date, a $328.78 million offering comprised largely of non-QM mortgages. The deal is comprised of 905 loans that carry an average loan amount of $363,287. Approximately 81% of the underlying loans are non-QM loans. The senior tranche of AOMT 2018-1 received an AAA rating from both FITCH RATINGS and DBRS. Angel Oak’s mortgage securitizations total approximately $1.3 billion. All seven securitizations have been backed by mortgages originated through Angel Oak’s affiliated lenders, the company said. PEERSTREET is adding more names to its investor roster, as the company announced in April that it raised $29.5 million in its Series B round of funding. The funding was led by WORLD INNOVATION LAB, a “multi-stage venture capital firm” that invests in consumer and enterprise technology companies. ANDREESSEN HOROWITZ, which previously invested in FACEBOOK, AIRBNB, FOURSQUARE, SKYPE and TWITTER, led PeerStreet’s $15 million Series A funding round back in 2016. Andreessen Horowitz participated in this round of funding as well, along with other previous investors including THOMVEST, COLCHIS CAPITAL,and FELICIS VENTURES. New investors SOLON MACK and NAVITAS CAPITAL also took part in the capital raise.

• Simplifile’s philanthropic

56 HOUSINGWIRE ❱ MAY 2018

program, Simplifile Cares, was founded in 2015 to give back to local Habitat for Humanity chapters at industry events across the nation. In 2017, the program supported 23 chapters throughout the U.S. through this initiative and Simplifile employees volunteered 117 hours of their time. In addition, Simplifile raised $35,000 in charitable donations for Habitat for Humanity, Hurricane Harvey relief, Hurricane Irma relief and Thomas Fire relief for the December wildfires in California.

INTEGRATIONS AND PARTNERSHIPS • FORMFREE’s AccountChek automated asset verification service is now part of BESMARTEE’s mortgage point-of-sale platform. BeSmartee’s integration with FormFree allows lenders to customize where they bring AccountChek into origination workflow. JPMORGAN CHASE will be using BLACK KNIGHT to power its home equity loan originations. Black Knight announced in April that JPMorgan Chase will be using its LoanSphere Empower loan origination system as the backbone of the bank’s home equity originations business. According to Black Knight, Chase already uses a “wide range” of Black Knight offerings throughout the loan lifecycle, but will now be using LoanSphere Empower for its home equity originations. RANIERI SOLUTIONS announced a partnership with

blockchain and smart contract company SYMBIONT to explore opportunities to use Symbiont’s platform to “systemically improve all aspects of the mortgage industry.” Ranieri Solutions, a financial services technology investment firm, was founded by Lewis Ranieri, better known as the “father of the securitized mortgage market.” The firm invests, develops and applies technology solutions focused primarily on the real estate and mortgage markets. MATIC’s digital homeowners insurance platform is now available within MORTGAGEHIPPO’s digital mortgage experience, allowing lenders to make Matic homeowners insurance available to their borrowers with a one-click “get quote” button within the platform itself. Matic uses loan and property data furnished by MortgageHippo to determine precisely how

much coverage is needed, then scans the market to compare policies from multiple top-rated carriers. The companies said that the integration enables lenders to compress what is usually a two-day process into one that takes two minutes. In April, MORTGAGE GUARANTY INSURANCE CORPORATION announced a new partnership with DOWN PAYMENT RESOURCE. Through the partnership, customers of MGIC will have access to discounted Down Payment Resource services that make it easier for lenders to research down payment assistance programs and match borrowers to programs for which they may be eligible. The two companies will also work together to enhance consumer understanding of the availability and benefits of down payment assistance.

Kudos

LAUNCHES • HousingWire launched its first-ever weekly newscast in April. The podcast features HousingWire editors and reporters talking about trends in mortgage lending, servicing, investing and real estate with industry leaders. The podcast is available on HousingWire.com . A new company, EAVE, launched its lending business in Colorado in April, offering jumbo mortgages to homebuyers in the state. Eave was founded by three tech-and-finance veterans: former CAPITAL ONE executive Saro Vasudevan, Jack McCambridge, a former executive at HAILO, and Anoop Ranganath, a former manager at FOURSQUARE. Eave says that it has re-envisioned the mortgage experience and can provide a full and complete underwriting and close a borrower’s loan within 21 days. CARRINGTON MORTGAGE SERVICES is launching a nonprime loan program aimed at the approximately 100 million U.S. consumers who have less than perfect credit. Carrington’s loan program allows credit scores as low as 500 and can be used for loans up to $1.5 million and cashout refinances up to $500,000. Additionally, Carrington said that for self-employed borrowers, bank statements are acceptable to verify income instead of IRS tax documents. FREDDIE MAC launched its program, Targeted Affordable Housing Express, a new offering designed to provide faster, simpler and cheaper financing for the preservation of smaller,

M&A affordable rental properties. Late last year, Freddie Mac launched a pilot program of Targeted Affordable Housing Express and it is now ready to expand. TAH Express financing is now available in all markets, and is an extension of Freddie Mac Multifamily’s Targeted Affordable Housing platform, which generally finances properties that have units with rent restrictions. Through TAH Express, borrowers can use a condensed prescreen process, simplified non-negotiable legal documents and a standardized underwriting process, resulting in lower transaction costs. The program is available for properties with a loan amount of $10 million or less. They must be stabilized and treated as entirely uncapped by the FEDERAL HOUSING FINANCE AGENCY. Back in 2015, HARBORONE BANK, a Massachusetts-based bank, boosted its mortgage business by acquiring MERRIMACK MORTGAGE COMPANY, a privately held mortgage originator based in New Hampshire. Since that acquisition, HarborOne operated its own mortgage business and Merrimack Mortgage operated as a wholly owned subsidiary. But now, HarborOne is combining its internal mortgage business with Merrimack Mortgage and establishing a new mortgage business, which will be called HARBORONE MORTGAGE.

HarborOne Mortgage will operate as a wholly owned subsidiary of HarborOne Bank and the existing senior leadership team at Merrimack will run HarborOne Mortgage. HOMEUNION is launching a new program that will make the company itself an investor in single-family rentals, but the company isn’t using its own money. Rather, HomeUnion is launching a crowdfunding platform that will allow individual investors to buy into a fund that will identify SFR investment opportunities, improve the properties, increase the rents and potentially sell the properties to other investors. Starting with a minimum investment of $10,000, retail investors now have the ability to acquire interest in HomeUnion’s “Fix-and-Flip Fund” in seven HomeUnion markets: Atlanta, Austin, Charlotte, Chicago, Dallas, Raleigh and Tampa. MERSCORP and eORIGINAL launched a new solution both companies say will enable originators to accelerate digital mortgage adoption. The new offering, called MERS eNote Solutions, is part of the company’s eSuite. The solution will enable the creation, execution, registration and management of the electronic promissory note, or eNote.. MERSCORP owns and operates the MERS eRegistry, a national mortgage registry and legal system of record for identifying the controller, or holder, and location, or custodian, of the authoritative copy of registered eNotes.

• STONE POINT CAPITAL, a private equity firm that also owns a piece of TEN-X, is buying a majority stake in AMERICAN MORTGAGE CONSULTANTS, a provider of outsourced services to participants in the residential and consumer loan mortgage market. Technically, funds managed by Stone Point acquired the majority stake in AMC, which provides due diligence, quality control, securitization review, mortgage servicing rights review, advance assessment, servicing oversight, technology and consulting services. Back in early 2017, AMC acquired a business unit from STEWART LENDER SERVICES that focuses on credit, compliance, origination and servicing quality control reviews. It also focuses on due diligence and quality control-related technologies.

AWARDS

• NEW AMERICAN FUNDING’s President and CEO, Patty Arvielo, was honored by Great Place to Work as one of the Top Women Leaders from companies on the Fortune 100 Best Companies to Work For and Best Workplaces for Women list.. HOUSINGWIRE ❱ MAY 208 57

GSE Report

58 HOUSINGWIRE ❱ MAY 2018

GSE Report

things the GSEs did to improve access to credit in 2017 ANNUAL SCORECARD ON FANNIE AND FREDDIE BY KELSEY RAMIREZ

WHEN the Federal Housing Finance Agency released its annual progress report on the GSEs in March, it emphasized the ways that Fannie Mae and Freddie Mac improved access to credit. The GSEs have three requirements they have to meet each year as part of their conservatorship: 1. Maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced mortgages to foster liquid, efficient, competitive and resilient national housing finance markets. 2. Reduce taxpayer risk through increasing the role of private capital in the mortgage market. 3. Build a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other participants in the secondary market in the future. “This is the fifth annual report detailing the significant steps taken by FHFA, in collaboration with Fannie Mae, Freddie Mac and Common Securitization Solutions, to meet our conservatorship objectives,” FHFA Director Melvin Watt said. “It also underscores our continuing commitment to transparency and to meeting these objectives in a safe and sound manner.” Objectives in the 2017 scorecard required the enterprises to continue to assess opportunities to address credit access and develop recommendations for improvement, improve the effectiveness of pre-purchase counseling and homeownership education through technology, data analysis and other opportunities and conclude assessment of updated credit score models for underwriting, pricing and investor disclosures, and plan for implementation.

Here are the 10 areas where the GSEs worked to achieve their goals:

STUDENT DEBT

The GSEs pointed out student debt has remained a major hindrance as it makes it difficult for borrowers to meet certain underwriting requirements related to assessing their ability to repay the mortgage. To combat this, both companies revised their student-debt-related calculations concerning potential payment shocks, debt paid by others and treatment of student loans as a contingent liability. The revised calculations were published in Fannie Mae’s Selling Guide and Freddie Mac’s Seller/Servicer Guide. HOUSINGWIRE ❱ MAY 2018 59

GSE Report THE CREDIT-INVISIBLE POPULATION

LANGUAGE BARRIERS

Back in May, Freddie Mac updated its automated underwriting system to process applications from borrowers who don’t have credit scores — the credit invisible. The change improves access to credit for mortgage applicants who do not have sufficient credit history to compute a credit score, while still requiring sufficient compensation factors to obtain an approval recommendation. Fannie Mae also made several changes in September, allowing both enterprises to accept delivery of eligible loans for credit-invisible borrowers.

The 2017 Scorecard also required the enterprises to identify major obstacles for borrowers with limited English proficiency in accessing mortgage credit, analyze potential solutions and develop a multi-year plan to support improved access. As a result, the GSEs put forth a request for input on improving language access in mortgage lending and servicing in May. It received more than 200 responses. After going through its review process, the FHFA announced it would include a question on the revised uniform residential loan application to find out an applicant’s preferred language. The new question will standardize lender collection of language preference data. On Nov. 20, 2017, the Consumer Financial Protection Bureau granted its approval of the redesigned URLA under the Equal Credit Opportunity Act.

LOW-INCOME BORROWERS

Fannie Mae also worked to develop a series of tailored pilot programs to increase its purchase or securitization of loans made to low income and other underserved borrowers. The company increased its maximum allowable loan to value ratio to 95% on adjustable rate mortgages. And both Fannie Mae and Freddie Mac identified circumstances where they will permit certain debts paid by others to be excluded from the debt-to-income calculation.

MORTGAGE EDUCATION Early in 2017, Fannie developed a strategy to build awareness of its affordable housing programs among real estate agents and lenders and to educate future borrowers of its low down payment mortgage options and down payment assistance programs offered by third parties. The strategy included outreach at conferences and events in high opportunity markets as well as a marketing campaign to direct potential borrowers to more detailed information online. Later in the year, Freddie Mac began planning its own marketing campaign to increase awareness of borrower training and other resources available through its CreditSmart financial education curriculum and borrower help centers. Its borrower help centers are national nonprofit intermediaries that offer pre-purchase homebuyer education and foreclosure prevention counseling to borrowers with Freddie Mac-owned mortgages. 60 HOUSINGWIRE ❱ MAY 2018

HOUSING COUNSELING Both companies continue to try to improve their pre-purchase and early delinquency counseling with outreach to housing counselors, tracking results of housing counseling and homeownership education efforts through technology. In November, Freddie launched its Loan Product Advisor for housing counselors, enabling agencies to access its automated underwriting system through their own case management systems. This allows counselors to assess a client’s readiness for homeownership before referring them to lenders. Fannie is collaborating with housing counseling agencies to develop a new client case management system that will connect with its underwriting products, Desktop Originator and Desktop Underwriter to assess a client’s mortgage readiness. The company expects the new system to be available by the end of 2018.

GSE Report

CREDIT SCORE MODELS The FHFA began working with the GSEs to assess their current credit score requirements. They looked at credit scores produced by three models including Classic FICO, FICO 9 and VantageScore 3.0. The FHFA says it desires to update from the Classic FICO model, but it has yet to decide which new model to use as a replacement. In December, the FHFA issued a Credit Score Request for Input to gather feedback on the options under consideration. The RFI presents four credit score options under consideration. Each option presents implementation, operational and competition considerations, which are reflected in the questions included in the RFI. The FHFA expects to make a decision on which new model to use at some point in 2018.

MINORITY BORROWERS

the default risk of such loans – a risk the enterprises already own. In order to qualify for the new high-LTV offering, a borrower must have a mortgage originated on or after Oct. 1, 2017, not have missed any mortgage payments in the previous six months and not have missed more than one payment in the previous 12 months. In addition, they must have an LTV for the new mortgage that exceeds the maximum allowable LTV ratio for a limited cash-out refinance and receive a benefit from the refinance such as a reduction in their monthly mortgage payment.

In an effort to support credit access for minority borrowers, Fannie Mae engaged in community outreach and provided training to three large minority trade associations at town hall events. It also launched a marketing campaign with the National Association of Real Estate Brokers to support the “Black Homeownership Matters” campaign. Freddie continued the use of its pilot programs to support expansion of access to credit to minority borrowers. The company engaged in extensive outreach to minority real estate professional organizations, including the National Association MULTIFAMILY of Hispanic Real Estate Professionals, to The 2017 Scorecard put loan production caps on each raise awareness of mortgage loan products with low of the GSEs’ multifamily business to further the goal of down-payment requirements. maintaining multifamily activities while not impeding on the participation of private capital. The cap set for both companies in 2017 was $36.5 billion. HIGH LTV REFINANCES However, the FHFA designed exclusions from the cap The GSEs announced in August a new refinancing program aimed at borrowers with high-LTV loans. The new to support affordable and underserved multifamily segoffering will give borrowers with high-LTV loans who ments of the multifamily market, saying these segments are not being adequately served by the private sector. are current on their mortgage an opporExclusions include financing for subsidized affordable tunity to refinance. The GSEs explained housing, manufactured housing communities and small that these borrowers are typically unmultifamily properties between five and 50 units. able to refinance when their LTV ratio is Additional exclusions include financing for affordable higher than the limits on other existing properties in rural areas, energy efficiency improvements refinance products. in Enterprise-financed properties, and market-rate units However, by giving underwater and that are affordable to very-low-income, low-income and highly leveraged borrowers the opmoderate-income tenants in standard, high-cost and portunity to refinance, not only will it very-high-cost rental markets. benefit the borrower, but also lowers

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Knowledge

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Knowledge Center

W H I T E PA PE R: FICO | SP ONSOR E D CON T E N T

Updated credit scoring and the mortgage market RISKS AND OPPORTUNITIES IN EXPANDING MORTGAGE CREDIT AVAILABILITY THROUGH NEW CREDIT SCORES

EXECUTIVE SUMMARY Economic recovery following the 2008 credit crisis has stabilized consumer credit markets and led to a rebound of credit availability for consumers. Underwriting standards have returned to a more normal range. Nonetheless, questions arise concerning whether some consumers are being left behind and locked out of homeownership due to their lack of access to traditional credit or having lost access to credit during the economic downturn. This question has caught the attention of both regulators and Congress. The Federal Housing Finance Administration (FHFA) is in the process of evaluating the costs and benefits of using updated FICO Scores as well as considering VantageScore, owned by the three credit bureaus (Equifax, Experian and TransUnion, known as the CRAs), for GSE purchased mortgages. Analysis of these two approaches resulted in three primary findings: Credit Access: VantageScore’s approach of lower scoring standards (by scoring very thin and very stale credit files as described below) falls short of the promise of increasing access to homeownership for millions of Americans. We estimate less than 50,000 new purchase mortgages would result from VantageScore’s expansion of the credit universe. Even if that estimate is off by a factor of two, it is still a very small fraction of

the millions of new consumers that VantageScore touts. We also must not lose sight of the fact that every one of these consumers is newly scored simply because VantageScore implemented very loose guidelines that deteriorated the explanatory power of their model. We cannot be confident that these consumers will perform similarly to more established consumers with similar scores. Consequences of Lower Standards: VantageScore’s approach to lower scoring standards increases the risk exposure of anyone lending based on the scores, meaning a 620 VantageScore does not equal a 620 FICO Score. FICO requires at least one credit trade line open for six months or more and at least one trade line updated within the last six months. VantageScore eliminates these requirements entirely, thus adding very thin and very stale credit files to their scored population. When a lender receives a VantageScore for a particular consumer, they cannot tell if the consumer had a very thin or very old credit record without actually looking into the full credit bureau file. Loosening information requirements increases the risk exposure of anyone lending based on these scores because the model has a looser fit.

To read the entire white paper, visit the Knowledge Center at knowledge.housingwire.com. HOUSINGWIRE ❱ MAY 2018 67

Knowledge

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W H I T E PA PE R: Veros | SP ONSOR E D CON T E N T

Knowledge Center

Maximizing AVM utility in heloc ONE OF THE HOTTEST TOPICS IN THE REAL ESTATE INDUSTRY, THE WAVE OF AUTOMATION

BACKGROUND The mortgage finance industry is adopting automation for every part of the loan lifecycle, from the borrower’s application to the sale of the loan on the secondary market. This evolution is designed to increase efficiency, improve accuracy and meet borrower demand for a smoother, better mortgage experience. And amid this wave of automation, one of the hottest topics in the real estate industry is the use of automated valuation models (AVMs) for property valuation. Mortgage and capital market participants are increasingly incorporating AVMs into their risk management underwriting workflow, from reevaluating credit risk decisions, mark-to-market portfolio assessment, refinancing, quality checks and assurance, to full valuation auditing for fraud. The exciting trend is that AVM usage is growing fast. These proven tools with highperformance track records are becoming a large part of the real estate landscape, and knowing how to maximize AVM utility will open the door to valuation, as well as overall underwriting efficiency and loan performance.

HOME EQUITY SOLUTION Fast-rising home values combined with record low home sale listings and rising mortgage rates have more and more homeowners choosing to stay in their current homes. In fact, a February 2017 LightStream Home Improvement survey found that more than half (59%) of homeowners plan to increase spending on renovations

during this year. The survey also shows many homeowners will tap into varying strategies to pay for these renovations and of those strategies, 9% are expecting to use a Home Equity Line of Credit (HELOC) to pay for their home improvements. One of the largest origination costs for lenders is the appraisal product. Many lenders have determined that the “cost” of the valuation is not commensurate with the “value” of the information in the underwriting process given the low credit risk in many if not most circumstances. This is why AVMs are returning to dominance in the valuation space for home equity lending.

NOT ALL HELOCS ARE CREATED EQUAL It’s important to recognize that not all HELOCs are created equal. Each borrower has different credit standings which produce different requirements for the lender. Therefore, each lender will deploy varying valuation risk management policies. A riskier applicant may require additional valuation diligence, while a great credit standing applicant may be given a wider aperture in terms of property value. Today, lenders require absolute control over their valuation workflow and credit policies.

To read the entire white paper, visit the Knowledge Center at knowledge.housingwire.com. HOUSINGWIRE ❱ MAY 2018 69

Knowledge

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W H I T E PA PE R: TM S | SP ONSOR E D CON T E N T

Knowledge Center

Are you prepared for a surge in mortgage delinquencies? HOMEOWNERS NEED TRANSPARENCY, SPEED AND TECH INNOVATION MORE THAN EVER BEFORE

OVERVIEW It’s time for the servicing industry to step outside of its antiquated and outdated processes and into the high-tech revolution that the rest of the housing finance industry is experiencing. Between the impact from the devastating destruction caused by the natural disasters last year to a disproportionate focus on the origination market versus the servicing market, homeowners need transparency, speed and tech innovation more than ever before. While modernizing the origination process cut the time to close a loan to mere weeks, no one is focusing on the 30 years that the borrower is paying back the loan. The servicing sector can’t sit back as the rest of the industry outpaces it in borrower and lender satisfaction. Instead, the industry can and will step up to provide lenders the service and tools they need to fix the long-term relationship with borrowers.

A REALITY CHECK While there has always been a stigma around the servicing industry’s archaic process, few have had any incentive to fix it. The recent hurricanes this past year, however, gave lenders no choice but to assess how well their subservicers could handle an influx of borrowers needing support on making their payments. Unfortunately, once the initial market impact reports started to come in, it exposed serious weaknesses in the industry, as

borrowers in Florida and Texas were both at risk of spikes in mortgage delinquencies. Beyond the fact that hurricane season happens every year, along with other unforeseen natural disasters, the industry is constantly dealing with the typical challenges that impact a borrower’s ability to pay. One notable area that impacts borrowers is when the Federal Reserve decides to raise interest rates. As the Fed elects to raise interest rates, which they have slowly been doing, the cost of consumer debt increases, such as credit cards and auto loans. This tends to result in borrowers and homeowners having less discretionary income, meaning they are more likely to start defaulting on their mortgage. Lenders are left to trust that their subservicer is properly mitigating delinquency risks on all front and properly communicating with borrowers throughout the entire process. For example, in the situation that a borrower might have less discretionary income and start defaulting on their mortgage, subservicers need to be watching for different payment habits forming. If a borrower cancels their autopay or if they change their payment date to be further back in the month, it could also be an indication they are struggling with their ability to pay.

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W H I T E PA PE R: Infor m ati v e R ese a rch | SP ONSOR E D CON T E N T

Knowledge Center

How to stay compliant and save money in spite of rising costs and security risks IT’S ALL ABOUT THE NUMBERS

INTRODUCTION

decrease could result in lower average loan amounts as borrowers try to stay within budget. Still, with pent-up housing demand and a strong economic outlook for 2018, lenders have ample opportunities to grow their business, with one expert estimating $1.1 to $1.2 trillion in purchase originations over the next couple of years — the highest levels since 2006 and 2007. So how can lenders position themselves to capitalize on the opportunity while keeping costs in check? One solution is to drive costs down by bundling origination services with one provider. Bundling makes compliance easier and can improve the borrower’s closing experience while saving money in the process. And that cost saving can be significant.

Success in mortgage loan origination is all about the numbers. One critical metric is the cost to originate a loan, which saw a record high in the first quarter of 2017 when total loan production expenses reached $8,887 per loan. That cost moderated in the second quarter but rose again in the third to $8,060 per loan, according to the Mortgage Bankers Association. Another important factor is mortgage loan volume, which has been negatively affected by the shortage of available housing inventory across the country, shutting out many potential borrowers. “For the third year in a row, the nationwide inventory shortage is likely to continue to hinder sales and increase prices,” Nela Richardson, chief economist at Redfin, wrote in December 2017. “We expect small increases in inventory at the high end of the market by yearend. Starter-home inventory has not increased THE RISKS OF CHOOSING THE WRONG VENDOR meaningfully since 2011, and we don’t expect it to increase at The rising cost to originate loans is largely a result of increased all next year.” regulations as lenders shore up back-office processes for verifiRising interest rates are also a concern for lenders, with experts cation and quality assurance. predicting four rate hikes in 2018 and two more in 2019. The effect of those interest rates on borrower’s buying power can be dramatic, with every 1% increase in the interest rate decreases To read the entire white paper, a borrower’s purchasing power by as much as 9 to 11%. That visit the Knowledge Center at knowledge.housingwire.com. HOUSINGWIRE ❱ MAY 2018 73

CFPB Watch

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CFPB Watch

Mulvaney asks Congress to dramatically reduce the CFPB’s independence WANTS AGENCY FUNDED THROUGH CONGRESS BY BEN LANE

MICK MULVANEY continued his push to substantially alter the operations of a federal agency that he once called a “sick, sad joke” by asking Congress on April 2 to significantly increase its oversight of the Consumer Financial Protection Bureau. April 2 is also when the CFPB issued its first semi-annual report to Congress since Mulvaney took over as acting director of the agency last year. In Mulvaney’s report, he asked Congress to enact four major reforms that would considerably cut the CFPB’s independence. “The Bureau is far too powerful, with precious little oversight of its activities,” Mulvaney said in a statement. “The power wielded by the director of the bureau could all too easily be used to harm consumers, destroy businesses, or arbitrarily remake American financial markets,” he continued. “I’m requesting that Congress make four changes to the law to establish meaningful accountability for the bureau. I look forward to discussing these changes with congressional members.”

The CFPB, as created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, operates independently of much federal oversight. The agency gets its funding directly from the Federal Reserve, rather than through the congressional appropriations process, a condition that has long drawn the ire of Republicans. The agency also operates independently in that it is able to set new rules for the financial markets without Congress’ involvement, outside of the Congressional Review Act, which allows Congress to overturn certain regulatory rules issued by federal agencies within 60 days of the rules being announced.Last year, Congress used the Congressional Review Act to overturn the CFPB’s highly contested arbitration rule, for example. But if Mulvaney gets his way, both of these tenets of the CFPB’s operation will be done away with. In the report, Mulvaney asks Congress to make four changes to the law to “establish meaningful accountability” for the CFPB. HOUSINGWIRE ❱ MAY 2018 63

CFPB Watch

Mulvaney’s first requested change would alter the rules surrounding the funding of the CFPB to bring the bureau’s budget into the Congressional appropriations process. If enacted, that would mean that Congress would control the CFPB’s budget, rather than the bureau asking for and receiving money directly from the Federal Reserve. Second, Mulvaney asked Congress to require legislative approval for “major” CFPB rules. The report does not specifically identify which types of rules qualify as “major,” but the report does tag its now-overturned arbitration rule and the controversial payday lending rule with the label “significant rules.” And those aren’t the only changes that Mulvaney calls for. Mulvaney also asked Congress to “ensure that the director answers to the president in the exercise of executive authority.” 64 HOUSINGWIRE ❱ MAY 2018

Mulvaney also wants Congress to create an independent inspector general that would oversee the CFPB’s operations. In his letter, Mulvaney noted how much power he currently wields as the bureau’s acting director, power that was celebrated by Democrats and loathed by Republicans when Democrat Richard Cordray served as the bureau’s director. Now, as Mulvaney puts it, the shoe is on the other foot, with Democrats bemoaning the actions he’s permitted to take as the bureau’s director, thanks to the way that the Dodd-Frank Act was written. “As has been evident since the enactment of the Dodd-Frank Act, the bureau is far too powerful, and with precious little oversight of its activities. Per the statute, in the normal course the bureau’s director simultaneously serves in three roles: as a one-man legislature empowered to write rules to bind parties

CFPB Watch

in new ways; as an executive officer subject to limited control by the president; and as an appellate judge presiding over the bureau’s in-house court-like adjudications,” Mulvaney wrote in his letter to Congress. Mulvaney then goes on to quote James Madison’s writing in the Federalist Papers: “In Federalist No. 47, James Madison famously wrote that ‘[t]he accumulation of all powers, legislative, executive, and judiciary, in the same hands … may justly be pronounced the very definition of tyranny,’” Mulvaney wrote. “Constitutional separation of powers and related checks and balances protect us from government overreach. And while Congress may not have transgressed any constraints established by the Supreme Court, the structure and powers of this agency are not something the Founders and Framers would recognize. “By structuring the bureau the way it has, Congress established an agency primed to ignore due process and abandon the rule of law in favor of bureaucratic fiat and administrative absolutism,” Mulvaney continues. Mulvaney then gets downright philosophical about the need for the CFPB to have its independence taken away. “The best that any bureau director can do on his own is to fulfill his responsibilities with humility and prudence, and to temper his decisions with the knowledge that the power he wields could all too easily be used to harm consumers, destroy businesses, or arbitrarily remake American financial markets,” Mulvaney wrote. “But all human beings are imperfect, and history shows that the temptation of power is strong, Our laws should be written to restrain that human weakness, not empower it.” As Mulvaney puts it, the cycle of Democrats not liking what a Republican CFPB director does and Republicans not liking what a Democrat CFPB director does will continue into perpetuity without change. “I have no doubt that many members of Congress disagree with my actions as the acting director of the bureau, just as many members disagreed with the actions of my predecessor,” Mulvaney wrote. “Such continued frustration with the bureau’s lack of accountability to any representative branch of government should be a warning sign that a lapse in democratic structure and republican principles has occurred. “This cycle will repeat ad infinitum unless Congress acts to make it accountable to the American people.” Therefore, Mulvaney is asking Congress to make the following changes: • Fund the bureau through congressional appropriations • Require legislative approval of major bureau rules • Ensure that the director answers to the president in the exercise of executive authority • Create an independent inspector general for the bureau

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All human beings are imperfect, and history shows that the temptation of power is strong. Our laws should be written to restrain that human weakness, not empower it. “

SMALLER INDEPENDENT MORTGAGE BANKERS REQUEST FREEDOM FROM CFPB EXAMS In April the Community Home Lenders Association submitted a letter to the CFPB requesting that smaller independent mortgage bankers be exempt from the bureau’s exams and audits. This letter was sent in response to the CFPB’s request for comment on its own enforcement process, which it issued back in February. This request was the third in a series that now totals nine requests for information, with more to come. Mulvaney explained he is calling for evidence to ensure the bureau is “fulfilling its proper and appropriate functions to best protect consumers.” The CHLA, a national association that exclusively represents IMBs, included two recommendations in the letter: 1. The CFPB should adopt a formal policy or rule that exempts smaller IMBs from being subject to CFPB exams or audits. 2. The CFPB should adopt a formal policy or rule under which it will not take enforcement action against smaller IMBs unless the IMB’s primary regulator (i.e. any state in which they do business) or a federal regulator provides a referral for the CFPB to investigate and take action. The letter pulled several examples to support its recommendation, including a recent quote from Mulvaney saying the CFPB is exploring allowing prudential regulators to take the lead on more supervisory matters to reduce duplication and ease the burden of exams. The CHLA pointed out that last June, the U.S. Department of the Treasury’s report on regulation showed the burdens of dual regulation by both the CFPB and primary state regulators. The Treasury recommended that, “supervision of nonbanks should be returned to state regulators who have proven experience in this field and an existing process for interstate regulatory cooperation.” Finally, the association said 99% of banks are completely exempt from CFPB exams and enforcement, but all IMBs are still subject to the exams in addition to supervision from the states in which they do business. HOUSINGWIRE ❱ MAY 2018 65