May 2020 Issue

HOUSINGWIRE MAGAZINE ❱ MAY 2020

WIRE FRAUD Who’s on the hook when money disapears due to wire fraud?

P. 32

TITLE SOLUTIONS Adeptive Software, Amrock, CoreLogic, DataTrace, ServiceLink, WFG HOUSINGWIRE MAGAZINE ❱ MAY 2020

P. 38

How one month nearly broke the housing ecosystem

FULL PAGE AD

Get ahead in 2020.

HousingWire’s Special Reports.

Opportunities to drive additional exposure for your brand and promote your business.

FULL PAGE AD

2020 Special Reports Featuring: eClosing Solutions Fintech Product Showcase Origination Platforms and Solutions Talent/HR Solutions View the full 2020 Special Report schedule at www.solutions.housingwire.com

View the full 2020 Special Report schedule at www.solutions.housingwire.com

HOUSINGWIRE MAY 2020

EDITOR-IN-CHIEF Sarah Wheeler NEWSROOM MORTGAGE EDITOR Ben Lane EDITOR-AT-LARGE Kathleen Howley REAL ESTATE REPORTER Julia Falcon REPORTERS Phil Hall, Angela de Gale DIGITAL PRODUCER Alcynna Lloyd COLUMNISTS Dustin Brohm, Mary Frances Coleman, Julian Hebron, Kristin Messerli, Logan Mohtashami CONTRIBUTORS David Stevens, Walter Arnold HW+ HW+ MANAGING EDITOR Brena Nath MAGAZINE EDITOR Kelsey Ramírez COLUMNIST Scott Petronis

SALES VICE PRESIDENT, SALES Jennifer Watson Laws jlaws@housinwire.com NATIONAL SALES DIRECTOR, REAL ESTATE Mark Adams, madams@housingwire.com CALIFORNIA Christi Humphries chumphries@housingwire.com CENTRAL Chris Anderson canderson@housingwire.com SOUTHEAST Tamara Wren twren@housingwire.com GREAT LAKES Lorena Leggett lleggett@housingwire.com NORTHEAST Vernesa Merdanovic vmerdanovic@housingwire.com

CONTENT SOLUTIONS ASSOCIATE CONTENT EDITOR Jessica Davis AUDIENCE DEVELOPMENT DIGITAL EDITOR Maleesa Smith DIGITAL CONTENT STRATEGIST Alyssa Stringer

BUSINESS DEVELOPMENT Lindsley Harris lharris@housingwire.com BUSINESS DEVELOPMENT, REAL ESTATE Amanda Luzsicza, aluzsicza@housingwire.com

CREATIVE MAGAZINE DESIGNER Emily Carpenter

CORPORATE PRESIDENT AND CEO Clayton Collins

MARKETING MANAGER Caren Karris

CHIEF PRODUCT OFFICER Diego Sanchez

MARKETING COORDINATORS

CONTROLLER Andrew Key

Katie Galbraith, Brooke Combs

CLIENT SUCCESS MANAGER Haley Hess clientsuccess@housingwire.com AD OPERATIONS COORDINATOR Matthew Stafford CLIENT SUCCESS COORDINATORS Talia Quigley, Layne Powers

4 HOUSINGWIRE ❱ MAY 2020

EDITOR’S NOTE

Strong together, while separate THE world is in a much different place as I write this than it

azine, but to see the strength that shone through it all, turn

was last month, last week or even yesterday. As we sat down

to page 72 to see Community Editor Brena Nath’s account of

to plan the cover story months ago, we planned to cover the

how the industry stepped up and gave back when if counted

non-QM market, and the increased prominence it was expect-

most.

ed to play in the secondary market in 2020. At the time, it was the most obvious story for an issue focused on secondary markets. But that changed quickly as one after the other, non-QM lenders dropped out of the market – temporarily or even permanently. Each day brought new, market-changing news to the housing sector. Turn to page 24 to read Mortgage Editor Ben Lane’s account of the month that almost broke housing.

But amid each devastating blow, the housing industry continues to stand strong, even helping others overcome obstacles of their own. Case in point, builders, who are required to use the same type of mask that medical professionals are in such desperate need of, have stepped up and donated these supplies to local hospitals. You will find stories of what COVID-19 did to the housing industry all throughout this mag-

Kelsey Ramírez Magazine Editor @kels_ramirez

Tweets From The Streets Me: Economic forecasting in this environment is useless.

Also me: Spends all weekend running worst-case scenario forecasts.

The dismal science indeed.

1

2

34

by @odetakushi

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. © 2020 by HW Media, LLC • All rights reserved

HOUSINGWIRE ❱ MAY 2020 5

MAY ’20 MAY

24

HOW ONE MONTH NEARLY BROKE THE HOUSING ECOSYSTEM A summary of housing during the time of coronavirus, and the rapid fall of non-QM lending.

By Ben Lane

32

38

WIRE FRAUD

TITLE SOLUTIONS

Who’s on the hook when money disapears due to wire fraud? The answer is more complicated than one would think, and who is responsible might surprise you.

We profile six companies whose services and solutions are improving pipeline management. enabling better decisioning and helping lenders work more cost-effectively.

By Jessica Davis

By HW Content Solutions

6 HOUSINGWIRE ❱ MAY 2020

CONTENTS MAY

14

20 THE LINEUP 10 PEOPLE MOVERS Sagent Lending Technologies appoints Dan Sogorka as its president and CEO. 12 SOUNDING BOARD The Federal Reserve cut the federal funds rate to 0%. This is what MLOs had to say.

13 ON THE SHELF We spend time putting out fires, but what if we could prevent them before they begin?

14 LOCAL INTEL As coronavirus spread across the U.S., these cities made their mark by stepping up.

16 STARTUP PROFILE Brace is an innovative startup looking to make some waves in the servicing industry.

VIEWPOINTS

17 TAKE 5

20 RECOVERY

Class Valuation CIO Scot Rose’s career path in an alternate universe would be ski patrol.

Former MBA president and CEO David Stevens writes about the road to economic recovery.

18 HOT OR NOT

22 ACCESSIBILITY

Remote inspections are on the rise while regulators relax data reportig requirements.

Housing veteran Walter Arnold says online accessibility for housing dives deeper than ADA.

14

HOUSINGWIRE ❱ MAY 2020 7

CONTENTS MAY

BACK DEPARTMENTS

62

46 TRADE DESK ALTA talks cybercrime while the MBA goes over the future of the GSE Patch.

50 MORTGAGE Mortgage lenders are tightening standards as coronavirus crisis worsens.

54 REAL ESTATE Homebuilders: An essential business that “backstops the economy.”

58 FINTECH Servicers struggled with “greatest nightmare ever” as coronavirus spreads.

62 POLITICS & MONEY Fed to the rescue: The central bank jumps into the MBS market with guns blazing.

66 MULTIFAMILY Freddie Mac and Fannie Mae relax their standards amid pandemic.

BACK DEPARTMENTS 70 Q&A 1 OneTrust Home Loans President Shane Erskine says It’s time to go beyond POS technology.

71 Q&A 2 Steve Butler says humans won’t be involved in majority of originations within two years.

58

72 KUDOS

72

The housing industry bands together to navigate COVID-19 as companies support the U.S.

74 PARTING SHOT

66 8 HOUSINGWIRE ❱ MAY 2020

74

FULL PAGE AD VIEWPOINTS

YOU’RE BUSY CLOSING DEALS.

#

TITLE

Summary

#

TITLE

Summary

#

TITLE

WE’RE BUSY PROTECTING THEM.

Summary

When it comes to y your mortgage ortg g business,, hedging edging y your pipeline should be k off Okl Oklahoma, h our team m of experienced traders as important as building it. At Bank contracts, helping you hedge your ur production more effectively. makes markets in TBA contrac

Bank dealer services offered through Institutional Investments, Bank of Oklahoma which operates as a separately identifiable trading department of BOKF, NA. NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

Dan Sogorka Sagent Lending Technologies

10 HOUSINGWIRE ❱ MAY 2020

CARLISLE

HALL KLOMBIES

MERIGOFF JAMESON

Mor tg ag e C adence na me d P ete Espinosa its new CEO, following former CEO Br yan Ireton’s retirement.

Espinosa is a veteran technology executive, including leading global sales initiatives at IBM, Vig nette, Retek, Guidewire Sof t ware and CSC, now DXC. HouseCanar y named Craig Ph i l l ips a sen ior adv isor. Ph illips served as the U.S. Department of the Treasury Secretary Steven Mnuchin’s top housing advisor and the Trump administration’s point person on reform of Fannie Mae and Freddie Mac before stepping down in 2019.

C I S C r e d it S olut ion s app oi nte d for me r Sp e a ke r of t he Hou s e P au l R y a n, to it s b oa rd. R y a n ser ve d i n Congress for nearly 20 years, retiring f rom t he Hou se of Repre sent at ive s la st yea r. R y a n w a s a l so t he Republican Party’s vice-presidential nominee in 2012.

Fairstead appointed Brett Meringoff as senior vice president in the firm's Bethesda, Maryland office.

WEISS

PHILLIPS LANGNER

Sagent Lending Technologies appointed Dan Sogorka as its president and CEO. Sogorka joins the company with two decades of experience. Prior to joining Sagent, Sogorka was the CEO of Cloudvirga, after being promoted from chief revenue officer.

In his new role, Meringoff will work on ground-up developments and new acquisitions for both affordable and m i xe d-i ncome proje c t s ac ro s s t he country.

Gateway First Bank promoted Jake Carlisle to regional vice president of the pacific northwest, overseeing the Washington, Oregon, Idaho and Utah of f ices. Ca rl isle ha s exper ience i n the industry as far back as 2002, before he joined the Gateway First Bank a s a n a rea ma nager i n Va ncouver, Washington in 2016.

ClosingCorp announced the return of Dan Mugge as its chief technology officer. Prior to this, Mugge was the senior vice president of lending solutions product management for Black Knight. In 2015, Mugge was the senior vice president and chief product officer of ClosingCorp.

LenderClose added Timothy Hall as its new vice president of client relations. A nearly 20-year veteran, Hall previously worked at Denim, Workiva and CareerBuilder. In this position,

Hall will hire, train and develop sales team members with a people-centric focus.

R e v e r s e V i s i o n ap p o i nte d J o e L a ng ner as it s president. La ng ner has nearly 30 years of executive experience at mortgage technology and soft ware companies. Most recently, Langner was the chief executive officer at cloud-based digital lending platform Blue Sage.

Valucentric named Tony Whaley it s re s ide nt i a l n at ion a l c h ie f ap praiser. Prior to joining Valucentric, W haley was the national appraisal d irector at Eagle Home Mor tg age and held senior positions at Amrock, CoreLogic and Bank of America.

Gu i ld Mor tg age promoted Doug Jameson to a regional manager position to manage the company’s future growth. Jameson previously held positions as branch manager, area manager and district manager with Guild Mortgage before being promoted to his current role.

Guild Mortgage also promoted Eric Weiss to a regional manager position.

Weiss will oversee all retail mortgage activities for the company’s Texas 2 region. Prev iously, Weiss worked at AmeriPro Home Loans, and has more than 20 years of mortgage lending and management experience.

Tot a l E x p er t na me d A n n a Klombies its new chief people officer.

In her new role, Klombies will focus on professional development, people operations, coaching and mentoring and improving company culture. Klombies brings more than 25 years of experience to the company.

QL® MORTGAGE SERVICES

Michael Bertolami Loan Officer Monument Mortgage Company, Inc. Lexington, MA Mike Kot QLMS Account Executive

Call (888) 762-5035 QLMortgageServices.com/StrongerTogether Equal Housing Lender. Licensed in all 50 states. NMLS #3030 HOUSINGWIRE ❱ MAY 2020 11

Where experts and pundits sound off on a key industry issue

OVERHEARD FROM MORTGAGE LOAN OFFICERS

MLO RESPONSES to FED RATE CUTS If a bank offers you a mortgage rate of 0% please let me know. I would like to refinance with them too. (Not gonna happen anytime soon.)

-Max Franks

PSA: Mortgage interest rates are not zero and will not get down to zero. You’d be asking for a mortgage industry meltdown. That is all.

Thanks. P.S. Rates are still great!

P.S.S. Spread facts no rumors.

-Andres Munar Before its March meeting, the Federal Reserve made its second emergency cut in two weeks, slashing 1% off its benchmark rate, and renewed a program to buy Treasuries and mortgage bonds in an effort to bolster the economy as the coronavirus that causes COVID-19 spreads in the U.S. The inter-meeting rate cut to near zero will make business borrowing cheaper and result in lower borrowing costs for many homeowners with variable-rate home equity loans that are indexed to the U.S. prime rate, which moves in tandem with the Fed rate. But this rate cut left confusion among consumers about its relation to mortgage rates. This is what loan officers had to say:

With a 100% down payment, you too can have a 0% rate!

-Mark Karetskiy

ALERT: FED just cut the fed funds rate to 0. PLEASE do not confuse the short-term fed funds rate with mortgage interest rates.

This is uncharted waters and mortgage rates may RISE or FALL depending on how the market interprets this bold move.

-Andrew Cady 12 HOUSINGWIRE â?ą MAY 2020

The Fed rate is not the same as mortgage rates.

-Caton Del Rosario

ON THE SHELF Upstream: The Quest to Solve Problems Before They Happen

BY DAN HEATH

HousingWire’s top stories delivered to your inbox every day.

AVID READER PRESS / SIMON & SCHUSTER

We spend a great deal of time putting out fires, but what if we could prevent those issues before they crop up? Dan Heath argues that going upstream to fix the root of the problem could help eliminate problems before they become obstacles to us further downstream. Heath explains how to target problems at their source rather than reacting in the moment, with examples of businesses and organizations that saved time, money and lives by being proactive.

Find the right fit for you.

GET ON THE LIST:

www.housingwire.com/newsletter

You’re Not Listening: What You’re Missing and Why It Matters

BY KATE MURPHY CELADON BOOKS

Technology made communication and connection more accessible, but even as we’re able to speak with anyone around the globe at any time, it’s difficult to say how much we’re actually listening to them. Inspired by her own experiences as a journalist, New York Times contributor Kate Murphy investigates the art of listening. She also digs into how that inability is affecting the culture on a larger scale. Murphy makes a case for listening and provides guidelines on how to reclaim the skill to better connect and empathize with others.

HOUSINGWIRE ❱ MAY 2020 13

LOCAL INTEL

Los Angeles and New York City As a result of the spread of COVID-19, cities started to step up across the country and offer relief to renters. Two of the cities where the virus first appeared in America, Los Angeles and New York City, were also two of the initial cities to publicly announce that they are halting evictions until further notice.

California and New York These two states were the most active in their initial response to COVID-19, completely shutting down the activity in their states. They banned all persons from leaving home unless it was for absolute necessities, or they were considered an essential workers going to their job.

This forced not just the housing industry but all Americans to flex their remote work capabilities. The states also banned foreclosures during this time.

14 HOUSINGWIRE â?ą MAY 2020

Middle Tennessee Middle Tennessee continues to band together as it works to rebuild from the devastating tornadoes that left 2,700 homes in need of disaster assistance in the region. But just two weeks after the tornados hit, the region had to pivot again, learning how to navigate the recovery all while ensuring the safety of its citizens due to the growing concern and impact of the coronavirus.

Kansas While not as affected

by COVID-19 as other states, Kansas was one of the first states to announce a ban on evictions – both single-family and multifamily. Kansas Gov. Laura Kelly signed an executive order which froze all mortgage foreclosures and rent evictions during the pandemic. “This administration will do whatever it can to assist Kansans in these challenging times, and that includes allowing Kansans to retain their homes and businesses to avoid immediate danger to their health, safety and welfare,” Kelly said in the order.

Vò, Italy

While not in the U.S., one small town in Italy deserves our respect.

In this 3,000-resident town, intensive testing and social distancing quickly rid the town of COVID-19. The town held Italy’s first death due to the disease, after which every single resident was tested. In the first round of testing, 89 tested positive. By the second round only six tested positive, and eventually it achieved a 100% recovery rate. Italy also postponed all mortgage payments as the virus spread.

HOUSINGWIRE ❱ MAY 2020 15

STARTUP PROFILE

Brace is an innovative startup looking to make waves in the servicing industry. It is building software to systematically replace outmoded, largely paper-based and legacy systems. It is building technology with frameworks that have only become available in the last few years — applying lessons from origination and drawing further expertise from beyond the traditional confines of the mortgage industry. Brace is bringing a digital experience to the servicing industry. It does this through automated decision making and AI-powered processesing of information. It is making AI and digitization a reality in the servicing industry. While keeping the necessary human interaction, Brace is bringing AI where it is needed most - into data processing.

Things To Know Attempting to Disrupt: If successful, it will be a paradigm shift for the servicing industry Launch Date: Came out of stealth and launched in early 2019 Funding: Brace closed a Series A led by Point72 Ventures in late February 2020.

Location: Based in Los Angeles and New York with services offered nationwide brace.ai

Integrates into existing servicing platform

Built-in fraud prevention tools

Major investors: Point72 Ventures and Crosslink Capital

The disruptor score, unique score and launch size were determined through interviews with and editorial research on the company.

9 10

UNIQUE SCORE:

8

LAUNCH SIZE: FUNDING: 16 HOUSINGWIRE â?ą MAY 2020

$15 Million Pre-Seed

Seed

A

B

C

HIGH

LOW

DISRUPTOR SCORE:

Scot Rose Chief Innovation Officer As a valuation industry expert, Class Valuation Chief Innovation Officer Scot Rose is focused on using technology to streamline the appraisal process for everyone involved.

With nearly two decades of industry experience, Rose has made it his mission to educate all industry stakeholders on the future of valuation modernization. Rose’s end-game is the industry game-changer 24-hour appraisals. Here are five insights Rose gives about his personal life:

1. If I had picked a different career path, I would be… On ski patrol.

2. People would be surprised to know I...

Am dyslexic and read at a fouth to fifth grade level at 21 years old.

3. My signature phrase is…

Get the orders in the right hands!

4. I would tell my younger self… Be patient. All great things come from consistent efforts over long periods of time.

5. My biggest learning opportunity was… My biggest mistakes. Failure is the only way we grow.

HOUSINGWIRE ❱ MAY 2020 17

CORONA TRENDS

Hot SIZZLE? Not FIZZLE? 1 1 WHY THE

WHY THE

REMOTE INSPECTIONS



In light of businesses closing due to coronavirus, construction loan management software company Land Gorilla introduced remote inspections to support industries impacted by the coronavirus. Land Gorilla Chief Executive Officer Sean Faries told HousingWire that remote inspections offer a safer way for his company to interact with clients while continuing with business as usual. By offering remote inspections, in-person contact is eliminated, allowing businesses to continue on with their services. stakeholders can work with an inspector through live stream video.



2



3

SERVICER LIQUIDITY





2



3

UNEMPLOYMENT The U.S. unemployment rate could soar to 30% during the second quarter as businesses shut down during the coronavirus pandemic and GDP could fall 50%, according to Federal Reserve Bank of St. Louis President James Bullard. About a quarter of the U.S. workforce is employed in industries hard-hit by stayat-home orders aimed at stemming the spread of the coronavirus that causes COVID-19. About 14% of Americans work in hospitality and other services, and about 11% work in retail, according to the Bureau of Labor Statistics.

REMOTE WORK Thousands of companies began encouraging (if not requiring) their employees to work from home to combat the spread of COVID-19. Nonbank mortgage companies like Quicken Loans are more able to move their employees to remote work than banks, given banks’ retail footprints and importance in their relative markets. Even the two biggest sources of mortgage funding took unprecedented steps to protect their employees. Both Fannie Mae and Freddie Mac say they are allowing their employees to work from home and are taking several other actions to protect the employees that are required to be in the office.

18 HOUSINGWIRE ❱ MAY 2020

Despite growing calls from the housing industry for a federally backed liquidity facility for servicers to address the increase in forbearance due to the coronavirus, Federal Housing Finance Agency Director Mark Calabria told HousingWire in April that he was against such facility. Instead, Calabria said that GSEs may transfer servicing away from companies that are struggling to deal with the advances. A recent MBA report stated that 1.69% of the loans in the GSEs’ portfolio have been placed in forbearance, a figure that Calabria agreed with.

DATA REPORTING The Consumer Financial Protection Bureau relaxedsome of its requirements for lenders. Temporarily, the CFPB announced it would not require certain lenders to report quarterly information under the Home Mortgage Disclosure Act. The CFPB said it was providing flexibility to enable financial institutions to work with consumers as they respond to COVID-19. In addition to not expecting HMDA quarterly reporting, the CFPB will also not expect the reporting of certain information under the Truth in Lending Act, Regulation Z, and Regulation E.

IBUYING Amid the COVID-19 outbreak, Zillow officially put a temporary stop to all of its iBuying practices. Zillow announced it would follow suit to others such as Opendoor, and pause iBuying in all 24 markets it operates in. In several counties and states, including California, Illinois, Louisiana, Ohio, New York and Nevada, leaders have implemented emergency orders requiring people to stay home and all non-essential business activities, including some real-estate related activities, to temporarily stop. Following these stayat-home orders across the U.S., iBuyers began temporarily closing their doors to homebuyers and sellers.

PRESENTS

THE

AGILE

MARKETER MARKETER June 11–12, 2020 LIVE EVERYWHERE Register at housingwire.com/engage

VIEWPOINTS

By David Stevens

When you least expected it – it happened The road to economic recovery

As I write this, I join all of you as we isolate ourselves from our offices, family, and friends. Literally just three weeks ago I was in Los Angeles on travel to visit my daughter. The pace of change that has impacted all Americans and people around the world is unprecedented and resulted in this complete change to our nation, our lives and our future.

The good news is that we will get through this. The bad news is that until then we will have some challenging times. It was the perfect storm really: Here the industry was at the peak of success; pipelines were chock full of loans; refinances and purchases were booming as we were headed into this spring market. Our biggest challenges were in keeping our operations teams in place and trying to control our business volumes in order to simply meet the massive demand flowing in.

Remarkable really, this was mostly the case through the first two weeks of March.

Since then this apocalyptic-like scenario left everyone with dropped jaws, anxiety and questioning the future. To put this in perspective, the pace of change over just a few weeks and the breadth and depth of its impact cannot be compared to anything this nation has ever experienced before.

And while there were lessons learned from the last Great Recession, the things 20 HOUSINGWIRE ❱ MAY 2020

we are learning from this experience will be invaluable as the extent of this crisis is unparalleled to anything this nation has ever experienced before.

So let’s take a look at where we are, interventions and the implications, and looking ahead.

WHERE WE ARE The impacts of this event are enormous in the short term. Millions of Americans are either working from home or not working at all. GDP, productivity, has dropped precipitously. Stock market volatility is risking the net worth of millions, putting Baby Boomers particularly at risk.

Concerns range from families’ ability to pay rents or mortgages and other debts to questions about survival for certain businesses. But this likely won’t last too long.

In fact, Moodys Analytics gave an outlook on March 27th that while the real GDP will take a massive blow for the second quar-

ter of 2020, it should bounce back fairly quickly.

Their view (as of this presentation) is that GDP will take an 18.2% drop followed by an 11.1% increase the following quarter with steady, semi-interrupted growth from that point forward.

But in the short run, the impacts are for-reaching for the mortgage industry.

Ginnie Mae MSRs lost enormous value based on forbearance concerns and liquidity implications, non-QM lending essentially stopped, co-issue has all but ended for now, FICO floors have risen to about 680 across the board and more. The Federal Housing Administration put out new requirements for pre-close VOE which calls for a paystub for the most recent pay period prior to close. In short, the credit market for mortgages is retrenching to its safest and most conservative posture reminiscent of the post-2008 period. And while this won’t last forever, it will cause

David Stevens is the CEO of Mountain Lake Consulting.

Prior to this role, Stevens was president and CEO of the Mortgage Bankers Association and was the former U.S. Assistant Secretary and Federal Housing Commissioner for President Barack Obama.

slowdowns in the short run.

INTERVENTIONS AND THEIR IMPLICATIONS The challenge for policy makers is that they are trying to steady a nation. While some of these moves will help, the crosswind impacts can be hard. For example, in an effort to calm consumer fears, the administration announced a forbearance plan where one could merely attest that COVID-19 impacted their ability to make their home payment and they could skip several months of payments. They said that they would freeze single-family and multifamily foreclosure as long as there were no evictions during that time.

While that may have helped to calm consumer fears, it resulted in alarm and near hysteria for some mortgage companies worried about making months of advances to investors without incoming cash flow to cover it. MSR values, especially Ginnie Mae MSR’s, immediately reacted, resulting in a rash of terrible bids on pools.

Similarly, the Federal Reserve became increasingly concerned about a significant and growing supply imbalance in MBS, both for residential and multifamily. Both agency RMBS and CMBS were increasing in market supply due to the massive refinancing and the repositioning of balance sheets by bond holders given all of the rate volatility.

Without a buyer, rates could have continued to spike well above the near 5% levels we saw in early March, impairing billions of dollars in valuations of select companies. So, the Fed stepped in and significantly increased its buying of MBS. Hooray, MBS prices modified and yields

came down as the supply balanced. But the yin and yang event happened here as well. Some lenders with overly hedged pipelines suddenly found themselves faced with potentially significant pair off risk and, even worse, margin calls.

In many cases, this resulted in huge timing mismatches that require significant liquidity.

For example, FHA forbearance won’t cost the servicer in the long run as these are guaranteed loans and either the borrower will begin to re-perform or the FHA insurance will make the servicer whole if the loan goes to foreclosure. It is primarily a short-term problem and when forbearance can last 180 days with a possible extension for another 180 days, this can result in an enormous need for liquidity.

The same happens on the margin call risk on hedged pipelines. The long term could result in marketing gains on those same pipelines but it is the time between the mark on the hedges against the downstream gains that causes stress.

But at least Congress and the Fed have both stepped in. Congress passed the largest single bailout package in the history of the nation, one that will likely have to be followed up with another as this extends into the fall. The Fed made clear that they would keep buying with no caps in place which has resulted in the MBS price rally we have seen since this began.The key point here is that drastic measures here have benefits and downsides, but are crisis decisions and industry needs to focus on how to survive the adverse side effects.

For example, pressing the Fed to establish a flexible and accessible facility for bank and nonbank lenders could significantly alleviate these concerns if done well.

LOOKING AHEAD So what happens next? As of press time, more issues continue to unfold and there are a vast number of advocates from trade associations and elsewhere working in real time for

executable solutions. For those outside the political bubble it is disconcerting. Sales teams are anxious, operators are worried about survival and whether they will be represented well in the debates over solutions, and everyone is worried about the market looking forward. While I cannot assure anyone of policy decisions to be made going forward, I can guarantee that the advocacy is aggressive and I have hope that decision makers will “get it” and put into place protections that will get the vast majority through this period.

One thing almost every economist agrees on: this event was not based on economic weakness like the last recession. The U.S. economy was very strong leading into this. Unemployment was low and credit quality was very good. Housing shortages were the challenge, and remain so, especially for entry-level housing. And when America returns to work this summer sometime, while there will be employment implications for some percentage of the workforce from this event, the GDP will have a likely quarter-over-quarter spike in improvement and the housing sector will show its extraordinary resilience. The lack of supply, the strong credit profile of the sector and the demographics have not changed.

CONCLUSION I had originally planned an entirely different subject for this piece, but corona changed everything for you, for me and for this nation. If there is one takeaway for our industry it is to realize that this is neither the Great Recession nor the Great Depression. This is a focused and isolated event brought on by a virus.

The economic fundamentals of this nation’s economy were extremely strong just prior and will help us whipsaw back.

And while it may take us through the following year or two to get back on a fully normalized course, we all need to buckle in for this roller coaster ride, realizing that when the roller coaster ride ends, it will have been relatively short, will leave us a bit dazed but we will all go back to our lives after.

HOUSINGWIRE ❱ MAY 2020 21

VIEWPOINTS

By Walter Arnold

Online accessibility for housing dives deeper than ADA How to improve your digital accessibility in this most important time

You have just learned of a lawsuit filed against your company for several violations about something you never anticipated would be an issue – the design of your website.

The suit alleges federal and state discrimination violations and seeks statutory damages, compensatory damages, punitive damages, and attorneys’ fees. It cites several laws being violated such as the Americans with Disabilities Act, the Fair Housing Act and state discrimination and tort laws. This exact situation has already 22 HOUSINGWIRE ❱ MAY 2020

happened to four rental communities this year.

And in the current environment of social distancing where many people with disabilities need digital media to obtain information and conduct transactions, this legal environment could get even more challenging. There are an increasing

number of federal and state laws and court cases that require a company’s customer-facing websites, mobile applications and other digital assets to be accessible to individuals with disabilities. Compliance in this legal environment means developing and modifying website, app elements and content in a manner that can be used and understood by individuals with visual, hearing and cognitive impairments.

While ADA lawsuits concerning digital accessibility have gained prominence over the past few years, the exponential

Walter Arnold is a 30-year veteran of the financial services technology industry. Arnold came to User1st from HTx Services, where he provided executive leadership for a $55 million IT Infrastructure and ATM service provider.

“Diversity and inclusion” have become the buzzwords of many industries.

Unfortunately, these efforts often forget persons with disabilities who transcend all demographics. increase of virtual housing searches and online rental and mortgage applications may have additional implications under the Fair Housing Act. Under the Fair Housing Act, people with disabilities may request reasonable accommodations and modifications in buying or renting a home, taking out a mortgage, seeking housing assistance or engaging in other housing-related transactions.

As you know, it is illegal for landlords, property managers, lenders and others to discriminate on the basis of someone’s disability and since the law seeks “reasonable accommodations” for home buying and renting activities, this could most certainly apply to your website and other online assets.

Adding further to this possible litigation web are state laws and regulations like California’s Unruh Civil Rights Act and the most recently proposed regulatory changes to the California Consumer Privacy Act. Businesses that are subject to the CCPA may soon be required to make

their online privacy notices and other online forms subject to the CCPA “reasonably accessible to consumers” pursuant to industry standards “such as” the Web Content Accessibility Guidelines, version 2.1. And if your website or app isn’t accessible to even get to these documents, you may have more of an issue. The proposed CCPA rules are not yet finalized and we don’t anticipate the final CCPA rules being issued for a few months.

Other states may have their own laws which could impact your business, so I encourage you to work with your legal counsel, compliance personnel or other applicable team members to be as informed as possible on potential laws and regulations concerning disability discrimination in addition to the ADA. As the housing industry has become more technologically advanced, the way people look for and purchase homes has dramatically shifted online. Looking for homes – rented or owned, applying for loans and paying mortgages demand a high level of connectivity.

In March, when interest rates fell to record lows responding to market pressures from the coronavirus crisis, mortgage applications soared 55% and refinances grew 76.5%. With many application and refinance services offered online, if your digital assets are not accessible to persons with disabilities your company may be at legal and reputational risk.

“Diversity and inclusion” have become the buzzwords of many industries.

Unfortunately, these efforts often forget persons with disabilities who transcend all demographics. According to the American Institutes for Research, there are 64 million people in the U.S. living with a disability, of which 22 million are of prime working age, 16 to 64 years old.

Millennials are of prime home-buying age and approximately 33% of them have a disability.

Digital accessibility ensures you reach the broadest, most diverse set of customers, provides those customers with the services they need, protects your organization’s reputation, improves the home

search and buying experience and reduces your risk of litigation.

So, what can your organization do and where should you start to improve your digital accessibility?

• Add an accessibility statement to your website which communicates your company’s commitment to an accessible customer experience.

• Develop a compliance program to ensure that all future digital assets are developed for accessibility.

• Work with a third party to determine the current state of accessibility for your digital assets.

• Finally, work with your internal development teams and your vendor to ensure your future digital assets are accessible.

Of note, there is an internationally recognized standard for creating digitally accessible content – the Web Content Accessibility Guidelines published by the World Wide Web Consortium. This frame-

Millennials are of prime home-buying age and approximately 33% of them have a disability. work offers companies a strong foundation for delivering digital accessibility.

Technology has revolutionized the way we look for and purchase housing today.

Unfortunately, it may be leaving some customers behind and excluding a community who needs easy access for finding a home.

Caring for customers through digital accessibility demonstrates an organization’s willingness to go beyond compliance and truly serve all your customers and communities.

HOUSINGWIRE ❱ MAY 2020 23

24 HOUSINGWIRE ❱ MAY 2020

How one month nearly brok the housing ecosystem Housing in the time of the coronavirus —

By Ben Lane

One month.

Just 31 days. That’s all it took to change everything.

March 2020 will long be remembered as the month that the coronavirus nearly broke the U.S. housing finance system.

It’s pretty crazy how much things can change in just a few weeks.

HOUSINGWIRE ❱ MAY 2020 25

The

original thinking about 2020 was that this year was going to be a down one for the mortgage business. The expectation was that interest rates would rise throughout 2020, rebounding from the unexpected fall that buoyed the mortgage business throughout the latter half of 2019.

Last year’s decline in interest rates led to a surge in refinances, but it wasn’t expected to last.

The original projection from the Mortgage Bankers Association, for example, said that refinance activity was expected to fall dramatically in 2020, retreating by nearly 25% from 2019. Overall lending was also expected to fall.

But that wasn’t the case for all segments of mortgage lending. In fact, lending to borrowers outside the Qualified Mortgage box was expected to continue growing throughout 2020 as investors’ appetites for riskier loans and the yields that came with them was increasing.

But the coronavirus changed everything.

In just over a month, the virus spread from China to the rest of the world. In that short window of time, the virus upended the mortgage business, U.S. financial markets and the world’s economy in ways that haven’t been seen in at least 10 years, and maybe ever.

And by the time COVID-19, the disease caused by coronavirus, was rampaging across the U.S., any expectations for what would happen in 2020 were completely thrown out the window.

In a single month, the mortgage business saw mortgage rates hit an all-time low, an unprecedented and short-lived spike in refis, an economic meltdown and record unemployment, the Federal Reserve breaking out its financial crisis playbook to try to stem the tide, the government taking extraordinary steps to try to keep the economy (and the mortgage business) from completely exploding, and numerous lenders

either shutting down their lending for a time or shutting down entirely.

And all that happened in March.

C CORONAVIRUS TAKES HOLD

In that short window of time, the virus upended the mortgage business, U.S. financial markets and the world’s economy in ways that haven’t been seen in at least 10 years, and maybe ever.

By the time the dust began to clear, mortgage lending, servicing and the secondary market in the U.S. had all substantially changed. And beyond that, an entire lending segment was seemingly wiped from the map overnight.

To put it frankly, all hell broke loose. And it didn’t ever seem to stop breaking.

Things really began changing quickly in early February, when it appeared that the virus’ spread was escalating in China.

At that time, investors were already beginning to get nervous about the impact of the virus on the world’s economy. Given that China’s economy accounts for more than 15% of the world’s gross domestic product, the concern was understandable.

Investors, for the most part, seek stability.

They want a nice, steady rate of return on their investments. That goes for mortgage bond investors, government bond investors, and pretty much every other investor there is.

But the uncertainty surrounding China’s economy was making investors uneasy.

And what typically happens in times of global economic turmoil is that investors seek out U.S. bonds, which tend to be thought of as much safer than other financial instruments.

That leads to increased competition for those bonds, which drives down yields. And that increased competition for bonds, including mortgage-backed securities, means that investors have to accept lower returns, which leads to lower mortgage rates.

coronavirus timeline Mortgage lenders begin instructing staff to work from home

Housing conferences cancel across the U.S. 26 HOUSINGWIRE ❱ MAY 2020

And that’s exactly what happened this time, too. Investors stampeded towards U.S. Treasury bonds, sending the yield on the benchmark 10year Treasury note to lows never seen before.

The 10-year Treasury tends to act as a loose benchmark for mortgage rates, and its decline to record lows led observers to suggest that interest rates could soon hit all-time lows as well.

That’s what happened in early March, when rates fell to 3.29%. The previous all-time low was 3.31% in November 2012.

Rates falling that low led to an unprecedented spike in refis. Unprecedented really is the right word. In fact, numerous lenders told HousingWire at the time that they’d never seen a lending environment like the one that happened in early March.

In fact, as rates fell to an all-time low, mortgage applications skyrocketed, jumping 55% in just one week. Much of the surge came from refinances, as demand for refis rose to an almost 11-year high.

That explosion of mortgage activity, which took place in just a few days, led the MBA to double its refi forecast for 2020, projecting that there will be $1.232 trillion in refis this year. That’s twice as many as the group originally expected.

Overall, the MBA said it expects there to be $2.609 trillion in total mortgage originations in 2020, which would be a 20.1% increase from last year. And it’s not as though 2019 was any slouch, by the way. Thanks to the unexpectedly low interest rates of the second half of the year, 2019 saw a 12-year high in mortgage originations.

But that surge in activity didn’t come without consequences.

Lenders across the country, including the biggest ones, were breaking records daily for application and lock volume. But many lenders were unprepared to deal with volume at that level.

That led to the record lows in interest rates being

Calabria delays GSE capital rules

In fact, as rates fell to a n all-time low, mortgage a ppl i c a t i o n s sk y rocketed, jumping 55% i n ju s t o ne week. Much of the surge came from refinances, as demand for refis rose to an almost 11year high.

a short-lived phenomenon. Lenders’ inability to deal with the demand coupled with bond investors’ unease with the volume of prepayments led to a rise in mortgage rates.

As the mini refi boom was happening HousingWire spoke with numerous lenders, mortgage brokers and other mortgage professionals, and several said that some lenders were keeping their rates higher than they could be because they were not fully equipped to deal with the surge of demand.

The term that several used for this phenomenon is “throttling,” with lenders keeping rates above where they could be to ensure they can fulfill all the business they are getting.

The issue was capacity. Put simply, there is only so much volume that mortgage companies can handle. Some can handle more than others, depending on their size and technological capabilities. But others were already being stretched thin by the surging demand.

Beyond that, mortgage bond investors began growing wary of an impending prepayment explosion that would wipe out many of their investments.

When investors buy a mortgage bond, they expect that bond to pay out over time. Typically, it’s over 30 years, the term of the loans themselves. But with prepayments (borrowers paying off their mortgages early via refinancing, selling their house, or other means), investors take a loss as the prepayment amount is less than the investor would have received over the life of the loan.

Combine the issues on the front end and the issues on the back end, and the market saw the gap between the 10-year Treasury and mortgage rates expanding further, with rates moving higher and bond prices moving lower.

That stemmed the refi surge to a certain degree, but then everything changed again as the spread of the virus accelerated.

Treasury moves tax filing deadline to July 15

Fannie Mae, Freddie Mac, HUD suspending all foreclosures and evictions

HOUSINGWIRE ❱ MAY 2020 27

Seemingly overnight, much of the country went into a virtual shutdown, and mortgage lending whiplashed from one extreme to another.

Where just a week earlier the industry was being crushed by demand, the impact of the virus quickly crippled the economy, leading to record spikes in unemployment as large segments of the country shut down.

That led the mortgage business to shift from talking about what a great year it was going to be, to “How do we keep the housing ecosystem from absolutely imploding for the second time in the last 12 years.”

I IT’S DIFFERENT THIS TIME The words “widespread forbearance” and “payment deferrals” started being thrown around in earnest for the first time since the housing crisis.

But this was different than the housing crisis, which unfolded over the course of many months.

This time, the mortgage industry went from thinking about how to deal with all the refis to how to keep people in their homes and keep the housing finance system from falling apart seemingly over the course of two weeks.

Meanwhile the federal government, state governments, the GSEs and many banks moved quickly to help borrowers by suspending foreclosures and evictions, offering months of forbearance and taking other steps to aid borrowers and renters.

But the issue of widespread, potentially longterm forbearance led to an immediate crisis at mortgage servicers, especially the nonbank servicers.

When a borrower fails to make their month-

Seemingly ove r n i g h t , much of the country went into a virtual shutdow n, a nd mortgage l e n d i n g whiplashed from one extreme to another.

ly mortgage payment, the mortgage servicer is still required to pay the principal and interest to investors, as well as pay the real estate taxes, homeowners’ insurance, and mortgage insurance on their behalf.

Servicers typically retain some reserves to cover such shortages, but they don’t have enough money to cover the mortgage payments if a widespread forbearance program is put in place.

Here’s how the mortgage industry, incuding the Mortgage Bankers Association the American Bankers Association and many other groups, laid out that problem in a letter sent to federal decision-makers: “To give one a sense of scale, if 25% of the nation receives forbearance for only three months, servicers will have to cover payments of roughly $36 billion. If they received it for nine months, then the cost would exceed $100 billion.”

In their letter, the groups said that it was “critical” for the government to “create a vehicle to provide lenders and servicers with access to the liquidity” they would need to fund such a program.

“Non-bank mortgage lenders could experience meaningful strains on their liquidity given the consumer mortgage forbearance programs being proposed by the U.S. government in response to the coronavirus pandemic,” Fitch Ratings noted in a report. “The pressure on the non-bank mortgage sector is particularly acute at present, given more limited funding profiles compared to banks, and could be exacerbated further as an unintended consequence of the government’s mortgage forbearance program.”

Luckily, the government, via Ginnie Mae, stepped up in late March to roll out a program that would advance the P&I payments to investors on servicers’ behalf, thereby alleviating the cash crunch that many servicers were facing.

Here’s how Ginnie Mae Principal Executive

Fed announces unlimited purchases of MBS and Treasuries

Fannie, Freddie relax appraisal, VOE standards 28 HOUSINGWIRE ❱ MAY 2020

Vice President Seth Appleton described the program when announcing it in late March: Ginnie Mae fully anticipates implementing within the next two weeks, via an All Participants Memorandum (APM), a Pass-Through Assistance Program (PTAP) through which issuers with a P&I shortfall may request that Ginnie Mae advance the difference between available funds and the scheduled payment to investors. This PTAP will be effective immediately upon publication of the APM for Single Family program issuers, with corresponding changes made to Ginnie Mae’s MBS Guide in due course. We anticipate publishing PTAP terms for HMBS (reverse mortgage) and Multifamily issuers shortly thereafter.

Under current policy, the advancing of funds by Ginnie Mae to an issuer as a result of a Major Disaster declared by the President of the United States would be a considered an event of default under our program. But, because the current National Emergency is not limited in geographic scope in the way a natural disaster is, a P&I advance by Ginnie Mae through the PTAP will not be considered an event of default, though all other program requirements will continue to apply. In return for any payments advanced under the PTAP, issuers will be required to sign an agreement with Ginnie Mae and must repay the advance within a specified time period.

The agreement with Ginnie Mae will provide for extension requests and specify the rate of interest that will apply to the borrowed advances.

To be perfectly clear, borrowing under the PTAP should be a “last resort” financing option to alleviate a liquidity shortage faced by any Ginnie Mae issuers. PTAP’s purpose will be to support the forbearance and loss mitigation programs of our insur-

ing agency partners (FHA, VA and USDA) by minimizing potential disruption in the mortgage servicing market so that those federal mortgage insurance and guarantee programs can be administered efficiently and with maximum help to borrowers.

Ginnie Mae will choose to make these advances only where doing so will further the program mission and the American taxpayers who stand behind it.

The goal was to calm the mor tgage market and ensure the continued flow of f unds, but the program led to big problems at many companies that deal in the seconda r y mortgage market.

P PAIN POINTS ACROSS THE INDUSTRY Servicers weren’t the only ones facing difficulties as the virus crisis worsened.

Lenders and investors were hurting too.

As part of the government’s response to the economic strife, the Federal Reserve began buying mortgage bonds in bulk, a staple of its response to the housing crisis. The goal was to calm the mortgage market and ensure the continued flow of funds, but the program led to big problems at many companies that deal in the secondary mortgage market.

According to MBS Highway’s Barry Habib, the issue with the Fed buying bonds by the ton is that it sent the secondary market into total turmoil.

Here’s how Habib described the problem: The Fed’s desire to bring mortgage rates down isn’t just damaging servicing portfolios because of prepayments, it’s also wreaking chaos in lenders’ ability to hedge their risk. Let’s look at what happens when a borrower locks in their mortgage rate with a mortgage lender. Mortgage rates are based on the trading of Mortgage Backed Securities. As Mortgage Backed Securities rise in price, interest rates improve and move

P r e s ident D ona ld Trump signs stimulus package

Fannie, Freddie allow borrowers to defer on mortgage payments HOUSINGWIRE ❱ MAY 2020 29

lower. A locked rate on a mortgage is nothing more than a lender promising to hold an interest rate, for a period of time, or until the transaction closes. The lender is at risk for any MBS price changes in the marketplace between the time they agreed to grant the lock and the time that the loan closes.

If rates were to rise because MBS prices declined, the lender would be obligated to buy down the borrower’s mortgage rate to the level they were promised. And since the lender doesn’t want to be in a position of gambling, they hedge their locked loans by shorting Mortgage Backed Securities.

Therefore, should MBS drop in price, causing rates to rise, the lender’s cost to buy down the borrower’s rate is offset by the lender’s gains of their short positions in MBS. Now think about what happens when MBS prices rise or improve, causing mortgage rates to decline. On paper, the lender should be able to close the mortgage loan at a better price than promised to the borrower, giving the lender additional profits. However, the lender’s losses on their short position negate any additional profits from the improvement in MBS pricing. This hedging system works well to deliver the borrower what was promised, while removing market risk from the lender.

But in an effort to reduce mortgage rates, the Fed has been purchasing an incredible amount of Mortgage Backed Securities, causing their price to rise dramatically and swiftly. This, in turn, causes the lenders’ hedged short positions of MBS to show huge losses. These losses appear to be offset, on paper, by the potential market gains on the loans that the lender hopes to close in the future. But the broker dealer will not wait on the possibility of future loans closing and demands an immediate margin call. The re-

The pa nic, like the virus, spread seemingly uninhibited.

And it nearly destroyed everything.

All in just one month.

cent amount that these lenders are paying in margin calls is staggering. They run in the tens of millions of dollars. All this on top of the aforementioned stresses that lenders are having to endure. So, while the Fed believes they are stimulating lending, their actions are resulting in the exact opposite.

That led to the market for loans that weren’t backed by Fannie Mae and Freddie Mac slowing down to a near stop. Government loans (those backed by the Federal Housing Administration, Department of Veterans Affairs and Department of Agriculture) and jumbo loans both slowed down considerably.

T THE DEATH OF NON-QM Meanwhile, non-QM loans, which were expected to exponentially grow this year, ground to a halt.

Many, if not all, of non-QM lenders shuttered their lending businesses for a period of weeks.

Some shuttered their businesses entirely.

The reason? With the Fed sucking up much of the available mortgage bonds, investors were much less eager to take on riskier loans, especially the economy collapsing.

Non-QM borrowers have credit characteristics outside of the norm, which could make them more likely to default under severe economic stress.

Beyond that, a report from S&P Global Ratings noted that the bulk of non-QM originations in the last few years came from areas that were among the most impacted by the virus: specifically, New York and California.

With both of those states engaged in unprecidented, near-total shutdowns, the non-QM lending environment disappeared.But the im-

CFPB releases lenders from quarterly HMDA reporting

Ginnie Mae offers relief in servicing liquidity

iBuyers begin terminating closing contracts 30 HOUSINGWIRE ❱ MAY 2020

pact wasn’t limited to the coasts. Everyone felt the impact.

“Even if the damage to the job market proves temporary, lower earnings and layoffs are already straining consumer finances, a dynamic that will worsen unless significantly mitigated by government or servicer actions,” analysts from Moody’s Investors Service wrote in a report. “ “Several types of consumer borrowers are more likely to be experiencing reduced income even without suffering job losses,” Moody’s analysts continued. “They include the self-employed, such as those who own small businesses or are reliant on contract work. They also include employees who are paid by the hour or with tips, such as factory workers or waitstaff at restaurants. Workers with significant shares of their income tied to commissions or bonuses also could be more at risk.”

Put simply, borrowers that are a “sure thing” are the only ones that lenders wanted to lend

to as the crisis worsened. Realistically, borrowers who were a “sure thing” were the only ones lenders really could lend to because investor interest and ability had all but dried up.

The bottom line: Investors don’t like uncertainty. And there was far too much uncertainty in the mortgage market for anything that wasn’t backed by the GSEs. By the end of the month, a path for the future began to become clear as the government and the Fed set up mechanisms to allow mortgage lending and investing to continue without even more disruption.

Eventually, the panic subsided and things started to return to some semblance of normal.

But not before the entire business, from investors to lenders to servicers to borrowers and everyone else in between was shaken to their very core.

The panic, like the virus, spread seemingly uninhibited. And it nearly destroyed everything. All in just one month.

U.S. could see record-setting expansion

COVID-19 could cause a record-setting recession HOUSINGWIRE ❱ MAY 2020 31

Who’s on the hook when money disappears due to wire fraud? ( You might be surprised )

By Jessica Davis

Wire fraud is a source of significant harm to financial institutions, with an estimated $1.77 billion stolen in 2019, according to the FBI. For mortgage companies, the vulnerabilities surrounding the closing table constitute an especially big risk. Excited and anxious about closing, borrowers are vulnerable to email scams from criminals posing as lenders or title companies, resulting in a financial disaster if they direct their banks to wire money to the wrong place.

32 HOUSINGWIRE â?ą MAY 2020

HOUSINGWIRE ❱ MAY 2020 33

S

o what happens after t hat dev a st at i ng event? Is the borrower just out the money, or does the lender or title company bear some of the responsibility for the loss? It’s an important question that is still being worked out in the legal system, but several experts say financial companies and other parties in closing have more liability than they might imagine.

WHO’S LIABLE? Thomas Cronkright is CEO of Sun Title Agency in Grand Rapids, Michigan. He’s also the cofounder and CEO of CertifID, a real-time solution that verifies identities and documents in financial transactions, which he started with Lawrence Duthler in 2017 after they became victims of wire fraud.

Besides being a plaintiff in that case, working with Certif ID clients gives Cronkright a front-row seat to the ways financial institutions and title companies are being defrauded — and how companies are dealing with the aftermath.

Cronkright said the most frequent party named in a suit after money has been stolen is the title and settlement provider that was responsible for sharing the wiring information. The second most frequent is the financial institution the buyer is using to wire the money, and the third is the financial institution which allowed the receipt of the money.

However, Cronkright said you don’t have to handle the money to be on the hook if something goes wrong. The title companies and banks are the ones actually physically moving the money, but attorneys, real estate agents and even developers have some liability in the case of wire fraud.

“What we’re seeing more of now, are title and settlement providers, attorneys, but frankly, any transaction participant 34 HOUSINGWIRE ❱ MAY 2020

Cronkright identified four legal theories that are often used in arguments when litigating wire fraud liability: negligence, breach of contract, breach of fiduciary duty and breach of consumer protection.

being on the other end of that when a consumer loses their money,” Cronkright said.

“We started to look at what was an evolving standard of care that was being developed in the courts almost decision by decision,” he said. “One thing to know about civil litigation, especially when you have insurance companies that may be providing coverage under an E&O or a cyber event, is that a lot of these will not go to trial. You won’t get a decision.”

That means that there isn’t a framework to look at well-established case precedent.

One of the obstacles to establishing more precedent in determining liability is that these claims are going to be determined in state-level courts, according to Steven Snyder, an attorney at Bradley who specializes in cybersecurity and privacy as well as financial services litigation. “Even if it was in federal court, they would be applying state law, so you’re not going to really have a broad precedent.”

The number of parties involved and the way fraudsters insert themselves into the process make it difficult to assess liability, Snyder said.

“There’s real ambiguity as to how did this third party find out about the transaction? Where did they get information?

It’s not clear,” he said. “They’ve hacked into one or the other’s email accounts and so all those different factual issues make it really difficult to understand exactly who’s at fault. Even if it’s clearly coming from one party, there’s still a potential argument that there’s contributory liability on the other party, typically as well.”

And ultimately, the cost of litigation in these cases is so expensive that it tends to be more cost-effective to settle, rather than take parties to court.

“It’s such an intensive factual question as to if there was negligence and who it was – that costs a lot of money to even figure out that question, and there’s a lot of uncertainty as to how it will be resolved,” Snyder said. “So whenever you have ex-

pensive litigation that is really difficult to predict, you get a lot less of it because it’s more cost-effective for the entities involved to settle,” Snyder said.

Cases of real estate wire fraud will require technical analysis from experts to understand what took place, and even that analysis is not always exact or certain, Snyder said. To have that analysis done and present expert testimony in court would be expensive.

“If there’s an insurance aspect to the type of business email compromise, that’s more likely to be litigated just because you might have an insurance company with more resources and more incentive, but when you’re talking about private parties, the likelihood of litigating is really low,” Snyder said. “It almost takes somebody behaving irrationally, because they’re going to spend more money than they’re going to get back, probably.”

A STANDARD, IF NOT A PRECEDENT Despite the difficulties of litigating liability in cases of wire fraud, there are a few cases that are considered important.

One such case is Bain v Platinum Realty, LLC, which was filed in a Kansas Federal District Court in May 2016, with plaintiffs Jerry and Jennifer Bain versus defendants Kathryn Sylvia Cole, a Realtor, and her realty agency Platinum Realty.

The Bains were buying a home and Cole represented the seller. According to the filing, the Bains lost the home purchase price of $196,622.67 by following fake wiring instructions that were supposedly sent to them by Cole.

Instead, an unknown criminal had inserted himself into the transaction, including using accounts that spoofed the names of accounts used by other participants in the transaction. The Bains alleged that Cole had emailed those instructions to the fraudster, misrepresenting that those instructions were correct.

In April 2018, Bain was granted judgement against the defendants, “jointly and severally, on his claim for negligent misrepresentation in the amount of $167,129.27,” which equals 85% of the Bains’ losses. Because the judgment was joint and several, both of the defendants remain liable for the full amount of the

protection.

“The most common by far is your simple claim of negligence,” he said. In layman’s terms, he described it as, “We might not have a contract written out, but you do have a duty to me in some fashion.

You breached that duty, and because you breached that duty, it led to a loss – and I

“What we’re seeing more of now, are title and settlement providers, attorneys, but frankly, any transaction participant being on the other end of that when a consumer loses their money.” judgement until it’s satisfied.

The significance of the Bain case, Cronkright said, is that while the title company and the bank settled out, the agent and the broker chose not to. The case also highlighted the “duty to educate,” he said.

“One of the issues that seemed apparent in that case was that the information [about wire fraud] was simply not disseminated to the buyers, and if it was, it could have resulted in them not wiring funds and being more aware and [having] more acuity around this threat,” Cronkright said.

Even in instances where there is no official court case or decision, Cronkright and his team will examine pleadings in wire fraud cases. They work to find the common denominators of how the plaintiff’s counsel was positioning their arguments against the transaction participants; cases where, had they done certain things, they could have seen different results.

Cronkright identified four legal theories that are often used in arguments when litigating wire fraud liability: negligence, breach of contract, breach of fiduciary duty and breach of consumer

can point to what that loss is.”

Breach of contract can encompass express contracts, where there is a document that can be referenced, or an implied contract, which isn’t in writing but could involve applying the industry standard for a service to determine whether that standard was met.

Breach of fiduciary duties involves the standards that come into play when someone is entrusted to hold money that belongs to someone else. “[Fiduciary duties] typically apply to companies or professionals that are in a unique situation because of the responsibility that they’re taking on and the impact it could have to third parties,” Cronkright said. “Very similar to negligence, but a heightened sense of negligence for professionals.”

Breach of consumer protection would apply under the consumer protection laws that states have in place.

“The way we’ve seen these expressed in pleadings is that a plaintiff’s lawyer will look at a website, will look at marketing material, will look at social media, and they’ll look at these claims,” Cronkright said. “So what they did in Bain, they said, ‘Wait you hold yourself out to be HOUSINGWIRE ❱ MAY 2020 35

best-practice compliant. You hold yourself out to have a safe and secure closing experience. You’re holding yourself out to the general public as this type of company or this type of professional. And that’s misleading, and because it’s misleading it could cause harm to others and therefore it’s a breach of consumer protection.’”

“That’s super broad,” he continued.

“And that’s why this whole area is so challenging, is that by their nature, the way these are structured, the theories, or the statutes they’re relying on are broader rather than narrower in nature from a legal perspective.”

The irony of trying to assign blame for wire fraud is that both consumers and financial institutions are victims, Cronkright said. “The escrow officer, the agent, the attorney — they didn’t take the money. You can point to criminal intent or gross negligence or something like that, but the fact is: someone got tricked.

Yes, they used some type of a cyber-related entry point, either a hacked email or somebody got phished or whatever it is, but ultimately, somebody simply got tricked.”

“And here’s the kicker of it: Typically the company that would be sued, or named in the litigation isn’t even aware that the fraud’s taking place when it’s taking place,” he continued. “Let’s say I had money in a vault, and I saw somebody that was, you know, torching it, stealing money out of the vault. I might be able to prevent them from leaving the parking lot, for example, or I could call the police and say, ‘Wait a second. I think they just took money out of the vault.’ I can physically see this. But wire fraud doesn’t materialize until after the money’s gone. And that’s the hard part of it.”

It remains to be seen whether more precedent-setting cases will go to court and provide guidance for future litigation. Cronkright pointed out that real estate wire fraud is a specific subcategory of diverted payment fraud, and there are cases taking place in industries like the services sector or manufacturing that could inform wire fraud.

36 HOUSINGWIRE ❱ MAY 2020

“We’re seeing an acceleration of them being filed, but I think it’s going to take years” to see more instances of landmark cases, Cronkright said.

In the meantime, Cronkright stressed the importance of insurance protection.

“If you’re a transaction participant — a professional that’s helping in any facet of the real estate transaction, make sure that you check in with your insurance company, and that you ask specific questions around social engineering and wire fraud and what may or may not be covered,” he said. “While we want to do everything to mitigate the risk, make sure that your insurance carrier understands your process so that, God forbid that that something does happen, you have the ability to have insurance coverage to allocate that risk through.”

MOVING FORWARD Of course, the ultimate goal is to avoid cases of wire fraud altogether, but several market realities complicate that goal.

For one thing, the lack of housing inventory in many markets means borrowers feel a sense of desperation as they get

“There’s risk mitigation, and then there’s risk allocation.” close to closing on a house, especially if this is the first time they’ve been through the mortgage process.

“The fatigue that most first-time homebuyers are feeling by the time they’re under contract is intense. They do not want to lose that contract,” Cronkright said. “So, it’s this even heightened sense of, ‘I’ll do whatever it takes to get to the table at this point. You tell me to wire the money — here it is.’”

“And again, it’s all those dynamics that lead to the social engineering that’s so successful because they’ve learned this, unfortunately,” he continued.

“[Fraudsters] threaten consumers that they’re going to lose the deal. They’ll threaten or do whatever they need to get this person to hit send.”

And with many people working remotely during the coronavirus pandemic, cybercrime will likely increase during this period. Not only are workers using less secure home networks, they are spending more time online.

And there’s the stress of being in lockdown during a pandemic — a very human element that cyber criminals know how to exploit.

Wire fraud and regulatory compliance violations rose by an additional 62% within just 10 business days of the pandemic during the rise of work-fromhome policies, according to data from FundingShield. This increase included wire instruction errors; transaction data mismatches such as property, bank, borrower, lender and closing/title agent; perpetuated fraud attempts; incorrect/ altered wire instructions; phishing attempts; and requests to fund unauthorized/unrelated third party accounts.

While many in the industry have taken significant steps to mitigate wire fraud, Snyder sees a lot of room for growth.

“If you find an entity with really solid procedures, wire fraud really shouldn’t happen. I work with private equity funds that have to move millions of dollars within 24 hours, and so they’ve figured out ways to make sure that that they’re not having somebody interject fraudulent instructions. It always involves voice communication and confirming orally — not relying on anything that is received electronically, particularly when it comes to changing information that you haven’t used before, or that you have used before, to something new.”

And Cronkright offers a very practical incentive. “I’ll speak for title and settlement: Most companies couldn’t withstand a loss with just the average size wire transfer — that could be a quarter-million dollar loss. That’s just not how you want your life’s work to go down, in a wire that ends up in some bad person’s hand.”

An ounce of

prevention

We

asked Sun Title Agency CEO Thomas Cronkright about some of the precautions financial institutions can take to prevent wire fraud. He emphasized that education on the issue has to start at the very beginning of the relationship with the borrower, whether that’s between lender and borrower, attorney and client or real estate professional and either buyer or seller.

“Everyone needs to do their part to educate the borrower from the minute those relationships are formed.

And then everyone else needs to say, ‘Okay we’re going to participate in backfilling or updating and reminding them that this is how it’s going to work. Here’s how you get wiring information. It’s not going to change. I’m not going to call you with new account information. I’m not going to send you to some email address.’ However your process works, clearly articulate it and you just can’t change. And then remind them of that.

“I think the other thing that needs to happen is that if you’re asking somebody to wire funds to you, you have to confirm you know who they are and confirm acknowledgement that they’ve received the correct wiring information and that they’ve agreed to follow that.

“I say that because we’ve seen instances where the buyer’s email was compromised. The title and settlement company thinks that they’ve received the wiring information, but the fraudster redirected that and then inserted wrong information.

So, electronically they received it.

But they never saw it. And then they follow the wrong instructions that they thought were coming from the provider in that way. That’s kind of the inbound side. If you’re wiring funds out, you have to have a mechanism to confirm identity and validate bank credentials before money gets dispersed. This includes title and settlement, and now includes lenders that are doing cash-out refinances.

“The No. 1 thing companies can do — at the very least — is to start early and give clear communication around the risk of wire fraud.

Everyone has a duty to notify borrowers early in the process that the risk is there. A lot of companies make the mistake, or the assumption, that once they get final numbers and the lender signs off, then they’ll let borrowers know how to send the money and then they’ll alert them to wire fraud. But borrowers may have wired the money two weeks ago because the fraudster impersonated you and you didn’t get to them first.”

HOUSINGWIRE ❱ MAY 2020 37

Title Solutions Special Reports Sponsored Content

Lenders and title companies are always looking for ways to streamline workflow and communications in order to make processes more efficient.

In addition, they also need to ensure that the documents they work with are hosted and transmitted securely. In our Title Solutions, we’re focusing on six companies whose services and solutions are improving pipeline management, enabling better decisioning and helping lenders work more cost-effectively.

38 HOUSINGWIRE â?ą MAY 2020

- SPECIAL REPORT -

Adeptive Software............40 Amrock...............................41 CoreLogic...........................42 DataTrace...........................43 Service Link........................44 WFG Enterprise Solutions..45

HOUSINGWIRE ❱ MAY 2020 39

- SPECIAL REPORT -

Sponsored Content

ADEPTIVE SOFTWARE adeptive.com

THE EXECUTIVES:

BRYAN BUUS, PRESIDENT AND CTO Bryan Buus and his team determine what customers really need, build it, and support it with outstanding customer service.

GORKEM KUTERDEM, SENIOR VICE PRESIDENT, STRATEGY Gorkem Kuterdem is responsible for the strategy and long-term sustainability of the company’s signature title and escrow platform, ResWare.

TERRI HANSON, VICE PRESIDENT, ACCOUNT SERVICES Terri Hanson loves the customer-facing side of the business and will do what is needed to ensure customers are using Resware to its fullest.

40 HOUSINGWIRE ❱ MAY 2020

Adeptive Software’s ResWare enables users to connect to providers and clients in a secure environment

B

e efficient, save money, protect data, deliver electronically but attended by a personal experience; these are the asks for today’s digital real estate transactions.

In 2003, when Adeptive Software started developing its title and escrow production platform ResWare, the goal was to automate repeatable tasks and create customizable workflows for a national real estate services company. Fast-forward 17 years and Adeptive continues its customer-first focus to provide the platform of choice for automation, innovation and efficiency.

ResWare enables customers to seamlessly connect to their providers and clients in a central environment to securely share the data and documents necessary to close transactions.

The power of ResWare enables customers, whether iBuyers or traditional title companies, to configure it based on their business needs, and then optimize and scale conditions. Today, more than one in four U.S. real estate transactions pass through ResWare, accounting for $500+ billion in value in 2018.

Users can automate all aspects of their business, create vendor profiles, rank and score vendors, and enable dynamic actions to kick off other tasks without manual intervention or prompting.

They can connect and transact with banks and service providers, accept orders directly into the platform, initiate electronic document signing, facilitate remote online notarization and much more.

“Having a well-designed workflow to keep the whole process consistent and moving along makes teams and service providers more productive. They appreciate the time savings and the efficiencies gained,” Adeptive Software president Bryan Buus said. “You can also monitor workflows, statuses, outcomes and

audit trails, thus managing your business in real-time.”

In a third-party customer experience survey, respondents recorded an average of 72% uplift in productivity due to the available automation and process centralization in ResWare.

ResWare’s functionality and service provider integrations reduce human error, eliminate duplicate and manual data entry, and remove email and phone tag delays. Productivity ultimately increases, and thus minimizes the need to re-disclose or delay closings.

“Customers can serve their clients the way they want, do business the way they want, and route transactions and services the way they want thanks to the flexibility and power of ResWare,” said Terri Hanson, Adeptive’s vice president of account services.

With ResWare, title agencies can connect with customers throughout the real estate transaction, whether through the ResWare web portal or asking questions, such as file status, via text or web chat whenever they want.

ResWare enables customers to choose from multiple touchpoints for their clients to connect and stay informed about their transactions.

“As a leader in the automation of the title and escrow production process, we are working on understanding and automating based on semi-structured and unstructured data, especially those received digitally from other sources,” said Gorkem Kuterdem, senior vice president of strategy at Adeptive. “We look to provide greater value to our customers through our APIs and machine learning aided implementation of document routing, processing, and data extraction use cases.”

As industry collaboration accelerates for digital closings to be the norm, market leaders rely on ResWare as their tech foundation for innovation.

- SPECIAL REPORT -

Sponsored Content

Amrock provides clients with personalized, hands-on service backed by nationwide coverage and tech solutions

A

mrock was founded in 1997 with the network equipped with its proprietary techgoal of delivering a smarter title insur- nology, such as mobile applications that allow users to accept and update order details on the ance process.

More than 20 years later, the company is a go.

“We value the importance of our client relaleading national provider of title insurance, tionships and aim to partner with each one of property valuations and settlement services.

Today, Amrock’s goal is to streamline the real them as individuals,” said Brian Hughes, CEO estate experience, making it simpler and more of Amrock.

“Each client we work with is offered technoloefficient for everyone involved.

Amrock is an authorized agent for the largest gy solutions tailored to their needs and nationwide coverage and highest-ratthat includes a ed title insurers robust partner in the industry.

“We value the importance of our client net work w it h In 2019, 96% of relationships and aim to partner with local expertise.” all digital closeach one of them as individuals...”

C l ie nt s a nd ings in the counpartners appretry were Amrock ciate the perclosings, according to the company’s volume as registered with sonalized experience provided by Amrock’s the Mortgage Electronic Registration Systems passionate team members, more than half of whom have been with the company for longer (MERS) eRegistry.

Amrock operates as a trusted partner for its than five years.

“At the end of the day, we’re a tech company clients, providing solutions that use its proprietary technology, seamless data integrations developing proprietary technology to support and full web portal. The company is a tech-for- the real estate experience,” said Sherry Dukic, ward provider aiming to create innovative solu- COO of Amrock.

“Technology is essential, but our biggest tions to transform the closing experience for differentiator is our people. Their passion enall parties.

Working with Amrock includes benefits such sures our tech is cutting-edge and our clients as real-time access into order details and trans- are successful.”

Amrock is flexible in the face of a constantly action documentation. The company offers dedicated teams, easy and reliable communi- changing industry.

The company is dedicated to adapting and cation, dependable signing agents across the country and the freedom to close anywhere at scaling to meet the needs of its clients regardless of the current climate and remains focused any time.

Amrock’s team provides clients with person- on making the real estate experience faster and alized, hands-on service backed by nationwide easier for everyone. coverage, which includes an extensive partner

AMROCK www.amrock.com

THE EXECUTIVES:

BRIAN HUGHES, CEO Brian Hughes is CEO of Amrock and one of the company’s longest-serving team members. Hughes is known for his natural curiosity, passion for client service and obsession with process improvement. He loves challenging the norms of the title industry, learning from his team members and asking the simple question, “How could this be better?”

SHERRY DUKIC, COO Sherry Dukic is COO of Amrock, with more than 20 years of experience at the company. She holds Six Sigma green belt and black belt certifications and is an active member of the Property Records Industry Association (PRIA), A m e r i c an L a n d T i tle Association (ALTA) and the Michigan Land Title Association (MLTA).

HOUSINGWIRE ❱ MAY 2020 41

- SPECIAL REPORT -

Sponsored Content

CORELOGIC CoreLogic.com

THE EXECUTIVES:

VICKI CHENAULT, EXECUTIVE OF COLLATERAL VALUATION SERVICES Vicki Chenault transitioned into her current role at CoreLogic after leading enterprise-wide strategy and transformation initiatives.

SAGE NICHOLS, EXECUTIVE OF CLIENT AND BUSINESS DEVELOPMENT Sage Nichols is responsible for generating organic revenue growth through leadership of the collateral platform technology sales team at CoreLogic.

MICHAEL MARINO, PRINCIPAL, INDUSTRY SOLUTIONS Michael Marino joined FNC in 2013.

Since its acquisition by CoreLogic in 2016, he guides the CoreLogic expansion within the title and closing space.

42 HOUSINGWIRE ❱ MAY 2020

CoreLogic’s Title and Closing Solution moves title professionals into a systemized process flow for increased efficiency

T

he title industry currently faces frustrating communication challenges. Agents often have to receive and communicate orders from lender partners through a combination of emails, phone calls, faxes and even traditional mail. It’s difficult to transmit documents securely, and vendors want a standard, systematic way to receive orders from lenders.

The CoreLogic Title and Closing Solution eases these pain points for lenders and settlement providers by syncing order acceptance and management while securing vendor communication and document transfer. The encompassing solution supports retail origination, home equity and default servicing lending channels. These benefits culminate in an improved borrower experience and peace of mind during the home ownership experience, regardless of the lending channel.

The Title and Closing Solution replaces the outdated and unorganized methods of receiving and communicating on title and closing orders by moving title professionals into a systemized process flow.

As a result, the Solution establishes a convenient connection with their lender partners and facilitates secure communication and document transmission, helping to keep orders moving forward more effectively. And because these features are incorporated within the application, the potential risk of wire fraud is reduced over traditional practices.

Automating and standardizing communication and secure document transmission means both parties can gain efficiencies in their workflow. More organized workflows allow for the automation of many tasks in the underwriting process and free up resources to focus attention on more important tasks that require human

interaction. The Title and Closing Solution also removes delays that existed in prior delivery channels, giving lenders more time to perform a full review for accuracy and increasing the likelihood of closing time guarantees.

In addition, by removing all the channels that are unmanageable in terms of data security, the Solution allows for controls to be put in place to protect the borrower’s non-public personal information (NPPI) data.

Through the Title and Closing Solution, lenders can automate vendor selection and allocation, and may also consolidate vendor onboarding and management within a single application. The Solution provides all tools necessary for title and settlement agents to accept and manage title orders, improve communication and more easily adopt information security practices.

The expanding settlement agent network at CoreLogic encompasses the most prominent names in the industry, allowing lenders to assign orders – at a local, regional and national level – directly to title companies, escrow agents, attorneys and settlement providers. Users of the CoreLogic Title and Closing Solution appreciate that it allows them to handle their orders and transactions in a consistent, systematic way, even across multiple lenders.

CoreLogic is committed to pioneering tech-focused advancements in the mortgage and underwriting process, and its Title and Closing Solution is part of its efforts to build an end-toend workflow process within the industry. The Solution is also a critical piece of the AutomatIQ Collateral vision of bringing all necessary collateral solutions used by lenders into a more fluid, automated workflow.

- SPECIAL REPORT -

Sponsored Content

DataTrace’s TitleIQ solutions suite leverages the industry’s largest, most advanced network of real estate title plants

D

ataTrace is modernizing the title in- customer’s own title production system for dustry with advanced title automation final examination.

For expedited production of transactions, solutions built by title production inTitleIQ Streamline by DataTrace provides a dustry experts.

The DataTrace suite of TitleIQ solutions specialized solution specifically for refinance creates unmatched efficiency and produc- orders. With the ability to lookback from the tivity with the leading, all-purpose TitleIQ current refinance to the original purchase Search Automation system as well as TitleIQ and analyze all transactional events, TitleIQ Streamline system, optimized for multiple Streamline enables routing of refinance orders to the customer’s most efficient production types of transactions.

Both solutions leverage the industry’s larg- workflow.

“TitleIQ is the single most powerful title auest, most advanced network of real estate title plants including property data, tax data and tomation solution suite, built on the industry’s most comprehensive foundation of data assets, publicly recorded document images.

DataTrace TitleIQ Search Automation – customizable business rules and industry unavailable for multiple property types, geog- derwriting guidelines. TitleIQ enables our customers to raphies and embrace techtitle report “TitleIQ is the single most powerful title nology to fuel products automation solution suite, built on the intheir business – retrieves dustry’s most comprehensive foundation growth,” said the property of data assets, customizable business Jim Portner, and general rules and industry underwriting guidelines. vice president name indexTitleIQ enables our customers to embrace of product and es, analyzes technology to fuel their business growth…” st rateg y for t he c h a i n DataTrace. of title, tags The DataTrace suite of TitleIQ automation the appropriate images and returns a complete search package based on each customer’s solutions reduces common errors, standardizes workflows, enhances adherence to underwritunique business rules.

TitleIQ Search Automation also leverages ing guidelines and mitigates risk by allowing county tax collector and assessor websites, examiners to focus on more complex underassessor maps, bankruptcy records and the writing activities.

Title and settlement service companies DataTrace Starter Xchange prior title policy rely on DataTrace automation solutions to imconsortium.

TitleIQ Search Automation’s proprietary prove their service delivery, reduce labor conoptical character recognition (OCR) and ex- straints, lower production costs and improve traction engine provides a seamless, fully turn times. integrated movement of all data and documents, property coded and matched to the

DATATRACE INFORMATION SERVICES LLC DataTraceTitle.com

THE EXECUTIVES:

ROBERT KARRAA, PRESIDENT Robert Karraa is a strategic executive with over 30 years of experience in the financial and information services industries.

JIM PORTNER, VICE PRESIDENT OF PRODUCT AND STRATEGY Jim Portner provides a deep understanding of the dynamic mortgage and analytics technology marketplace.

KIM ARMSTRONG, VP OF OPERATIONS FOR TITLE PRODUCTION SERVICES Kim Armstrong is a 34-year veteran of the title insurance industry. Armstrong drives DataTrace National title production teams.

HOUSINGWIRE ❱ MAY 2020 43

- SPECIAL REPORT -

Sponsored Content

SERVICELINK svclnk.com

THE EXECUTIVES:

DAVE STEINMETZ, DIVISION PRESIDENT, ORIGINATION SERVICES Dave Steinmetz is the division president of origination services for ServiceLink. In this role, he is responsible for the overall management, performance, and financial responsibility for all of ServiceLink’s origination-focused businesses, including title and close, valuations, joint ventures, and flood.

DAVE HOWARD, EXECUTIVE VICE PRESIDENT, SALES Dave Howard is the executive vice president of sales for ServiceLink. In this role, he is responsible for the development and execution of strategies to help the company capture material market share growth opportunities.

Howard also oversees sales efforts related to EXOS Technologies.

44 HOUSINGWIRE ❱ MAY 2020

ServiceLink provides a full range of title services for purchase, refi and home equity loans through its EXOS Title solution

L

enders understand that title can significantly benefit from an infusion of new technology to help reduce the time and uncertainty involved in the process – like obtaining a title complexity decision in mere seconds and the vast majority of title commitments in minutes.

ServiceLink provides a full range of title solutions for purchase, refi and home equity loans through its EXOS Title solution. Powered by artificial intelligence, EXOS Title performs an immediate title clearance on land records data, delivering a complete clear-to-close commitment in seconds.

Users of EXOS Title receive custom complexity responses to determine the clear-to-close status. These responses include the following: • Expedite: Title information has no material defects and is clear-to-close. Expect to receive the title commitment within minutes and the clear-to-close certification within one day.

• Accelerate: Title information has no material defects and is also considered clear-to-close, but due to third-party involvement (i.e., an attorney) for commitment, expect a clear-to-close certificate within three days.

• Standard: Multiple items identified on the title, requiring a traditional title and curative process. Expect a clear-to-close certificate within 7-10 days.

Those who use ServiceLink’s title services benefit from: • Reduced cycle times and accelerated title reporting through Fidelity National Financial’s title plant and repository data and other electronic delivery methods.

• Reduced operating costs through centralized title production, serving all 50 states and the District of Columbia and providing a consistent process regardless of title product.

• Risk mitigation through more accurate

TRID and GSE quotes, as well as experienced internal examination and QC review of title abstracts.

• Commitment to compliance through dedicated teams focused solely on new and pending regulations, employee compliance education, vendor onboarding, background checks and E&O verification.

For properties in most parts of the country, ServiceLink’s Title Services can instantly tell lenders whether a property will have a fast, average or longer than average timeline in terms of clear-to-close status. With ServiceLink technology, originators can confidently provide clients a more precise window in which their loan will close.

On average, ServiceLink lenders who use EXOS Title are able to deliver turn times eight days faster compared to those who do not use EXOS Title. Those who use both EXOS Title and the consumer scheduling tool, EXOS Close, were able to get to the closing table 10 days sooner compared to lenders who use traditional processes.

Depending on the property and its location, lenders using ServiceLink’s Title Solution and EXOS technology platform can confidently tell a client that the timeframe from application to closing may be as short as 15 or 20 days, or even sooner if no appraisal is needed.

Originators can then assign less experienced processors to more straightforward loans and give more complex transactions to more experienced staff.

“ServiceLink has a tradition of using technology to develop products that solve our clients’ unique needs,” said Dave Steinmetz, division president for ServiceLink originations services. “Our EXOS product suite is one example of delivering critical third-party services via preferred tech-enabled means. Combining leading-edge technology and industry-leading expertise with a focus on partnership and service is what our clients value most.”

- SPECIAL REPORT -

Sponsored Content

DecisionPoint from WFG Enterprise Solutions enhances lenders’ pipeline management to increase efficiency and conversion rates

A

n estimated 50% of transactions don’t close, which means time spent by lenders on those transactions could be better spent elsewhere. DecisionPoint, an automated title decisioning tool from WFG Lender Services, aims to improve that conversion rate.

DecisionPoint analyzes property encumbrances and applicant circumstances to immediately project a reliable title clearance timeframe and a detailed pre-title report summarizing the findings. The tool enables lenders to focus their origination efforts on the loans with clear title, immediately dig into loans that require some form of remediation and avoid spending valuable time on transactions that won’t close.

The most valuable feature of DecisionPoint is its ability to enhance pipeline management for lenders, allowing them to spend their time more effectively. Using DecisionPoint, lenders can proactively and immediately identity obstacles that could slow down the origination process, increasing conversion rates and ultimately resulting in improved borrower satisfaction.

DecisionPoint takes the guesswork out of title in that lenders no longer need to wonder how long it will take to get a title cleared. When a successful result is obtained, the tool quickly delivers a pre-title report.

The faster title is cleared, the more quickly a loan can be cleared to close, but not all title transactions are simple.

DecisionPoint identifies title defects at the collateral level and provides those potential title faults immediately, up front. This allows lenders to assign poorly graded transactions

to their more skilled processors, freeing them to move “clear” loans through their workflow in a more efficient manner. This system helps lenders work cost-effectively and reduce dropout rates without compromising value.

With the ability to provide immediate decisioning for the vast majority of U.S. properties and immediate title clearance for about 30% of processed transactions, DecisionPoint improves lender capacity and enhances efficiency by allowing them to assign the right employee to the right transaction at the right time.

Because DecisionPoint identifies early whether a file needs work to clear title, lenders can obtain critical information from borrowers during their initial engagement, generate a loan estimate and obtain borrower consent, reducing loan application dropout rates.

And thanks to lenders’ ability to move loans through the origination process faster, borrowers are able to take advantage of the best interest rate and close their loan within a matter of days, not months.

Borrowers are often concerned that refinancing their mortgage takes too long. Lenders who use DecisionPoint are able to accelerate the title process so that it shouldn’t take two months for them to close that loan within all regulatory guidelines, for submission to the GSEs or any other secondary market participant.

“Faster closings help you capture more business and enhance operational efficiency,” said WFG Lender Services and Enterprise Solutions Senior Vice President Dan Bailey. “If DecisionPoint is successful in increasing loan conversions by a margin of 10-15%, that’s a huge win for the industry and the homeowner.”

WFG ENTERPRISE SOLUTIONS wfgls.com/products-and-services/ decisionpoint

THE EXECUTIVES:

DAN BAILEY, SVP, WFG LENDER SERVICES & WFG ENTERPRISE SOLUTIONS Dan Bailey runs operations for WFG’s Lender Services organization and leads the national sales team for the company’s Enterprise Solutions group.

STEVE OZONIAN PRESIDENT AND CEO, WILLISTON FINANCIAL GROUP Prior to WFG, Steve Ozonian built the world’s most successful real estate research portal as CEO of Realtor.com.

He serves on multiple boards.

PATRICK F. STONE EXECUTIVE CHAIRMAN AND FOUNDER, WILLISTON FINANCIAL GROUP A 2019 HW Vanguard Award recipient, Patrick F. Stone founded WFG in 2010.

HOUSINGWIRE ❱ MAY 2020 45

TRADE DESK

Letters from the

Industry

46 HOUSINGWIRE ❱ MAY 2020

CEO American Land Title Association

American Land Title Association

Diane Tomb

ALTA members, Real estate wire fraud, wire transfer fraud, mortgage closing scams: What we call this cybercrime doesn’t matter. What matters is the prevalence of wire fraud is getting worse. To prevent potential homebuyers from becoming victims, the entire real estate industry must join together to create solutions.

In February, the Federal Bureau of Investigation’s Internet Crime Complaint Center released its 2019 Internet Crime Report. The report noted that in 2019 more than 11,600 Americans fell victim to real estate wire fraud with losses totaling $221 million. This is nearly a 50% increase compared with 2018. Just as frightening, the FBI estimates only 12% to 15% of wire fraud is reported.

Last summer, the American Land Title Association founded the Coalition to Stop

MBA members, The future of the GSE Patch for the Qualified Mortgage standard has become a hot topic lately among policymakers, lenders, and stakeholders in the housing finance system.

And rightfully so, given the Patch’s pending expiration in January 2021.

The Patch allows loans eligible for sale to the GSEs to achieve QM status without requiring separate overlays related to the borrower’s debt-to-income ratio or source of income.

Since its inception, the Patch has played a critical role in ensuring continued access to credit throughout the country.

The Patch has allowed creditworthy borrowers with DTI ratios above 43% or non-W2 sources of income (such as the self-employed) to obtain affordable mortgages and achieve the dream of homeownership.

The impact of the Patch has been significant – of the roughly 6 million closed-end, first-lien residential mortgages originated in 2018, nearly one-sixth (957,000 loans representing

Real Estate Wire Fraud, which is focused on awareness, education and prevention.

While the Coalition saw successes in 2019—22 million impressions in digital ad campaigns aimed at potential homebuyers in nine markets—it’s not enough.

U.S. legislators are paying attention. In 2019, Sen. Doug Jones, D-Ala., applauded the launch of the Coalition while a bipartisan group of 33 senators, led by Sens. Jerry Moran, R-Kans., and Chris Van Hollen, D-Md., wrote a public letter about payee matching on wire payments. Earlier this year, Rep. Brad Sherman, D-Calif., spoke out about preventing wire fraud. Still, it’s not enough.

On average, consumers only experience a real estate transaction every 13 years. What we need now is for all real estate professionals to unify and discover solutions to protect homebuyers from cyberthieves.

$260 billion in volume) benefited from the Patch. Without the Patch, many creditworthy borrowers would not have had access to other loan options or even to mortgage credit at all.

MBA supports keeping the Patch in place until the Consumer Financial Protection Bureau has enacted other reforms to the QM standard that will help support creditworthy borrowers.

The debate about the future replacement of the GSE Patch is sure to continue. As it does, we should remember that the goal of QM should always be to create a safe, strong, and sustainable lending environment for the largest number of creditworthy borrowers – a goal MBA fully supports.

Mortgage Bankers Association

Robert Broeksmit President and CEO Mortgage Bankers Association

HOUSINGWIRE ❱ MAY 2020 47

Anthony Casa

Chairman Association of Independent Mortgage Experts

Independent Mortgage Experts

TRADE DESK AIME members, No one could have predicted exactly how the mortgage industry was going to be affected by the COVID-19 virus. With the large market sell-off, there was a flight to safety that caused Treasury rates to move lower. Mortgage-backed securities followed, albeit on a much lesser scale.

The floodgates opened for refinance opportunities, but continued volatility made it difficult for lenders to manage.

Unfortunately, a surge of applications can cause a moderate rate increase, even if the stock market continues to decline.

So what happens in the secondary market that causes rates to rise? Once a loan is closed, its value is derived from two parts – the part that is securitized and the implied servicing value. Lenders confirm the revenue on loans at the time they are locked. Once locked, lenders place a hedge on the locks to protect against rate movement. When rates rally,

NAHB members, The cost and availability of labor is the most significant challenge home builders will face in 2020, according to a recent survey. The chronic labor shortage has combined with higher land costs and increased regulatory burdens to exacerbate the nation’s housing affordability crisis.

As chairman of the National Association of Home Builders, it is my goal to be part of the solution. By partnering with educators, state and local home building associations, industry stakeholders, policy makers and others, NAHB aims to fill the labor gap by developing the next generation of skilled trades workers and connect more people to opportunities in home building trades.

Workforce development staff at NAHB have been brainstorming with government officials, company executives and other associations on ideas that will help bring vocational and career and technical education programs back to middle and high schools. They are also working to create pathways for more women and minorities to join the skilled

trades and technical fields like engineering construction and manufacturing.

Every year, NAHB’s National Housing Endowment awards more than $200,000 in scholarships to deserving students studying residential construction.

And NAHB’s nonprofit workforce development arm, the Home Builders Institute, leads career-building training and job placement programs for youth, transitioning military members and veterans.

Labor shortages slow the home building industry and push prices beyond the means of many buyers. Working together we can raise awareness about job opportunities in the trades and fill the labor gap, helping to make the American dream of home ownership a reality for more families.

National Association of Home Builders 48 HOUSINGWIRE ❱ MAY 2020

those hedges become negatively valued and broker dealers have to place margin calls on those lenders to cover those moves. Since we all know fallout occurs when rates move down with velocity, this doubles the impact for lenders. The revenue confirmed at lock must be reversed and the cost of the hedge must be eaten by the lender. When this happens on a large scale, lenders are faced with large fluctuations on the fair value of their pipelines along with cash outlay for the margin calls, ultimately resulting in a rise in rates.

AIME is dedicated to encouraging best practices on all sides to maintain the lowest possible rates for borrowers.

Originators can do their part by making sure they are only moving locked loans when they absolutely need to and expanding their lender partners to provide more optionality when rates are changing so consistently.

Dean Mon

Chairman National Association of Home Builders

What does it take to recruit and retain top talent?

Access HousingWire’s first-ever engage.talent summit on demand housingwire.com/engage

Become an HW+ member: housingwire.com/membership

50 HOUSINGWIRE ❱ MAY 2020

Mortgage

Mortgage lenders are tightening standards as coronavirus crisis worsens ORIGINATION OVERLAYS BECOME THE NEW NORM FOR MORTGAGE LENDERS

BY KELSEY RAMÍREZ

AS market volatility increased due to the coronavirus pandem- UWM IMPLEMENTS SAME-DAY VERIFICATION OF EMPLOYMENT ic, mortgage lenders began to increasingly tighten their lending Because of this, United Wholesale Mortgage added an extra verstandards to add in increased protections against potential bor- ification of employment check on the day of closing. And other lenders have stepped up to add what UWM CEO Mat Ishbia called, rower default.

Specifically, many lenders are adding overlays to their origina- “prudent lending standards that might become the new norm.”

“We’re doing them again right before closing to make sure that tion process. Overlays are new lending policies that dictate new standards for certain mortgages, such as raising the minimum people still have jobs, because people are losing jobs at such an FICO credit score to quality for a Federal Housing Administration alarming rate right now,” UWM CEO Mat Ishbia told HousingWire.

“And so we put an extra process in place, which most people acloan.

These changes come as it becomes more difficult for lenders tually appreciate and recognize, but some people probably don’t to check the borrower’s ability to repay their loan as unemploy- love it.”

Under regulatory guidelines, it is acceptable to verify employment surges and data is updating and changing daily due to ment up to 10 days before closing, but UWM is operating out of COVID-19.

A total of 6.65 million people filed jobless claims in the week an abundance of caution.

“It’s a little bit less business because we put a couple overlays ended March 28, the Labor Department said. That’s up from the prior record of 3.31 million for the previous week, which was re- in place to protect in this unprecedented time,” he said. “I think all lenders are doing that. I want to do more loans. But I’m not vised upward.

HOUSINGWIRE ❱ MAY 2020 51

going to do more loans if they’re unemployed; we’re just doing within two months (60 days). If an asset account is reported on a quarterly basis, the most recently issued quarterly statement prudent underwriting.”

Ishbia said that after UWM implemented these standards, must be obtained.

Verbal VOE: All verbal VOEs must be completed and be done other lenders quickly followed suit. In fact, he said he expects that over the next 90 days, every lender will be following these within three business days of the note date, validate the borrower is currently employed and not on leave or furlough, confirm that standards. the borrower’s hours and pay According to the company, have not been impacted in the adding this extra step has not last 30 days and be completslowed down their process ed by an HR representative, or time to close. Ishbia said owner or digital vendor. that currently about 7% of For those that are self-emits staff, or 400 of his 5,800 “I want to do more loans. But I’m ployed, the borrower must employees, are focused solenot going to do more loans if they’re provide a written statement ly on VOE. that the business is open “It’s not slowing down the unemployed; we’re just doing prudent and operational and that process at all, we’re closing underwriting.” the COVID-19 effects will not loans on average about 15 have a material impact on the days or less,” he said. financial statement provided And as lenders are already at time of approval. If bank beginning to adopt tighter statements are unable to be protocols, Ishbia said this unobtained, then the qualifyderwriting standard is likely ing income must be reduced by 25% and be deemed acceptable to become widespread.

“I think the key here is UWM is the first one out with prudent un- to move forward.

Rental income: Rental income may only be used if the borrowderwriting standards that might become the new norm,” he said. er’s FICO is greater than 700 and the borrower can document six months of reserves for each financed property in which rental OTHER LENDERS ADD OVERLAYS income is being used to qualify. If the FICO and reserve requireCaliber Home Loans Due to the ongoing impact of COVID-19 causing volatility in the ments are not met, then the borrower must qualify with the full markets and difficulties in underwriting credit risk, Caliber re- PITIA for the subject and other REO properties owned. leased several overlays for its conventional, jumbo and governArc Home ment products, including: Age of documentation: Effective with submission dates on Arc Home also announced new overlays due to the ramifications or after April 3, 2020, the age of documentation requirements is from COVID-19, which it noted in a letter to brokers.

VOE: A verification of employment within 10 days of closing being reduced. Income and asset documentation must be dated

52 HOUSINGWIRE ❱ MAY 2020

Mortgage

in the form of verbal confirmation, an e-mail directly from the employer’s work e-mail address that identifies they are someone who is authorized to provide the Borrower’s employment status (Human Resources or Immediate Supervisor) as well as the borrower’s name and current employment status; year-to-date paystub from the pay period that immediately precedes the Note Date; or an asset account statement, meeting Fannie Mae and Freddie Mac documentation guidelines, evidencing the payroll deposit from the pay period that immediately precedes the Note Date.

Self-employment: For self-employed borrowers, verification that the Borrower’s business is operational should be obtained within 15 days of the Note Date.

Parkside Lending Parkside Lending announced that, in light of businesses closing and others working remote, it is implementing several updates to its validation staff when verifying employment.

VOE: If no one answers and their voicemail states they are close due to coronavirus, the lender will reach out to the broker and see if it can get a business email address for a person who can help verify. It will also ask brokers for assistance with a phone number (landline or mobile) to reach the appropriate staff for validation.

U.S. Bank Effective April 3, 2020, U.S. Bank added several overlays for government loans including FHA, VA and USDA. Minimum FICO: U.S. Bank increased its minimum FICO requirement to 680.

Debt-to-income: The bank implemented a maximum DTI of 50%.

Underwriting: Manual underwriting is only allowed on FHA streamline refinances and on VA IRRRL transactions.

Transaction type: FHA streamline refinance and VA IRRRL transactions is only available if U.S. Bank is the current servicer.

Funds for Closing: Borrowers must have a minimum FICO

score of 700 with a maximum DTI of 43% when any funds used for closing costs or down payment are not borrower’s own funds or gift funds.

First Community Mortgage Human Mortgage by First Community Mortgage continues to take measures, including additional overlays, to adapt to the market disruption brought about by the spread of the COVID-19 virus.

VOE: FCM is requiring a verification of employment to be completed within three business days on all loan programs. Due diligence should be used in obtaining the most recent income documentation to reverify the borrowers repayment ability prior to closing. When originators are unable to obtain a verbal verification of employment within three business days of loan closing due to a temporary closure of the borrower’s employment, alternatives should be explored. For example, email correspondence with the borrower’s employer is an acceptable alternative to a VVOE. If unable to obtain a VVOE or acceptable alternative, the requirement will be waived when the borrower has a minimum of two months cash reserves.

Union Home Mortgage To accommodate the current disruption in the market, Union Home Mortgage modified its re-verification process and other overlays.

Age of documents: The age of document requirements have been reduced from four months to two months for most income and asset documentation.

Verbal re-verification of employment: When UHM is not able to obtain a standard verbal verification of employment, the lender can accept an email sent from the employer’s work address, yearto-date pay stubs from the pay period that immediately precedes the note date or an asset account statement evidencing the payroll deposit from the pay period that immediately precedes the note date.

54 HOUSINGWIRE ❱ MAY 2020

Real Estate

Homebuilders: An essential business that “backstops the economy” ESSENTIAL WORKERS KEEP HOUSING MARKET ROLLING

BY KELSEY RAMÍREZ

AS the housing industry adapts to navigate COVID-19, there is reasons, don’t have this opportunity and remain working on site.

“Because of the nature of our business, it’s very easy to comply one sector that is mostly carrying on with business as usual. Even as states are locking down and ordering residents to stay at home, with the safety standards,” Howard said. “It’s easy to have fewer homebuilders are continuing to work. That’s because so far most than 10 people on a job site. It’s easy to keep those people who states have declared homebuilders essential workers, according are onsite six-feet apart.”

“You’re outside, so you’re not breathing the same air,” he said. to the National Association of Home Builders CEO Jerry Howard.

According to Howard, homebuilders are going to propel the “Builders right now really want to stay engaged, both to keep their economy forward after the coronavirus recession. “If you keep our families taken care of, but also because we recognize the role that demands moving forward, you will keep other sectors engaged, we have to play in recovering from this.”

Justin Webb, Dallas Builders Association president and presand hopefully help get them through this downtime,” Howard ident of Altura Homes explained further. “Shelter is one of the explained.

But that isn’t the only reason why homebuilders need to keep basic needs, and if we are already supposed to be sheltering in place and sheltering at home, we have to have a home to live in,” working.

Webb said. “There are more people than there are homes right now, and we’ve got to provide housing and shelter, a basic need, HOMEBUILDERS ARE ESSENTIAL WORKERS Unlike other members of the housing industry that have flexed and I think that’s why most governments are considering us an their remote capabilities in the past weeks, builders, for obvious essential service.”

HOUSINGWIRE ❱ MAY 2020 55

The homebuilding industry not only helps spur other industries, Howard agreed, explaining that NAHB continues to lobby for homebuilders as an essential business in states that have yet to but it also helps a sector of Americans that earn hourly wages make their own declarations. “You’re talking about basic shel- – not salary. “So many of the people that are employed in the ter,” he said. “And you’re talking about the notion that in rental homebuilding sector are hourly wage earners that live paycheck units, you have to have the management and the maintenance up to paycheck,” Howard said. “And if we can keep those people and running. You have to have people there to keep the housing employed, then you’re going to stop a lot of, or at least reduce, the decent. In single-family units, if you have houses that are under need of the government to help subsidize them.” contract and people are waiting to move in, you’ve got to make DEMAND SURGES FORWARD sure that these people have homes.”

Despite the decrease in traffic and demand on the real estate front, builders are still going strong. Lennar, one of the largest PULLING THE ECONOMY OUT OF A CRISIS Homebuilders are uniquely positioned to help jumpstart the econ- homebuilders in the U.S., reported an increase in new orders for omy when everyone goes back to work. “The construction sector the first quarter ending in February. While this was before the can help provide a backstop for other segments of the economy,” coronavirus was widespread, the homebuilder also reported that Howard said. “The construction sector is the customer of the en- orders were up 16% in the first two weeks of March.

Other builders are experiencing similar numbers. “We’ve seen ergy sector. The more we’re working, the more we’re going to keep demand actually increase and I talked to about 14 other builders the energy sector working.”

“Likewise, we are huge customers of the manufacturing sector and developers today – we had a phone call for a virtual executive – the more we’re working, the more manufacturing we’re going meeting for the Dallas Builders Association,” Webb explained. “It to need,” he added. “I think it’s wise on the part of governments was almost universal that demand has actually increased.”

Webb showed that sales at Altura Homes were up about 31% to recognize our importance at this time and keep us moving through 2020 year-to-date compared to the same time last year. forward.”

56 HOUSINGWIRE ❱ MAY 2020

Real Estate

to work. We estimate that “The other thing I’ve heard approximately 40% of GDP is that fewer people are is on pause or partial pause putting their houses on the “We’ve seen demand actually increase (keep in mind that about market on the resale side,” one-third of the economy Webb said. “There’s sort of a and I talked to about 14 other builders is housing and healthcare supply-side problem, where and developers today – we had a phone alone), however, this share there are not enough houses call for a virtual executive meeting for has been growing as compafor people to buy right now.” nies pause operations.”

In fact, Webb explained the Dallas Builders Association,” Webb that with more people stayexplained. “It was almost universal that NAVIGATING CHALLENGES ing in, this has actually demand has actually increased.”

However, homebuilding streamlined the process, isn’t immune to some of the as only serious buyers are challenges in today’s fluid touring homes right now. environment. For example, “The traffic is down, but the getting inspections done quality of the traffic is way up,” he said. “If someone is willing to go look at a house, they’re could become difficult in some areas. For new builds, inspections must be performed all throughout the project in order to move on pretty serious about buying a house.”

The true test of demand will be determined by how long the to the next building phase.

“With county governments closing, the notion of getting your pandemic lasts.

“The question is really how long is this dramatic catastrophe inspections done, the notion of even getting the real estate land going to suppress the demand,” Howard said. “And we don’t know closing done becomes very challenging,” Howard said. “We the answer to that. If it’s what our economists are predicting, and applaud the federal government, and we applaud the financial construction remains open right now as it appears to be, then I institutions for modifying their practices to allow for things like think we’ll be able to meet the demand. We’ll be able to really help virtual inspections and electronic signatures rather than requiring what they call a web signature, things like that are helping get the economy up and running again.”

NAHB economists predict demand will be back up and at its us move forward.”

Land Gorilla is just one example of a company quickly adaptnormal levels once again by the third or fourth quarter this year.

“We are assuming an approximate eight-week mitigation period, ing to the current challenges in the market, launching a remote followed by a decline in the growth rate of virus cases,” NAHB inspections product to fit the changing way consumers and busiChief Economist Robert Dietz wrote in his weekly forecast. “This nesses now need to interact. These types of products will help will enable portions of the U.S. economy to return to at least par- streamline the process as builders continue to push new homes tial activity, slowing job losses and bringing some workers back to the market.

HOUSINGWIRE ❱ MAY 2020 57

Fintech

58 HOUSINGWIRE ❱ MAY 2020

Fintech

Servicers struggled with “greatest nightmare ever” as coronavirus spreads SERVICERS TAKE HITS ON ALL FRONTS

BY KELSEY RAMÍREZ

THERE is no question that mortgage originators faced difficulties EARLY PAYOFFS THREATEN PROFITS as the coronavirus spread when it cames to moving to remote The surge in refinance and origination volume drastically inwork, handling the high levels of applications and requests for creased the number of early payoffs for servicers.

“It was the greatest nightmare, ever,” Logan Mohtashami, a refinances and much more. But these issues also carried over to columnist for HousingWire and a senior loan manager at AMC mortgage servicers.

No one could have predicted what would happen to the mort- Lending Group, said when describing the week after the Fed made gage industry after COVID-19 began to spread. The mortgage ap- its first emergency cut.

Mohtashami explained that interest rates were actually held plication volume increased a full 55% in one week, and was up higher than they should be because servicers were keeping them 479% from the year before as rates tumbled.

The Federal Reserve cut rates, and then cut rates again before elevated due to early payoffs.

“I understand the capacity constraints that the lenders are even making it to the Federal Open Markets Committee’s March meeting. These rare inter-meeting cuts came after the worst stock talking about, but this was all an early payout issue,” he said. market retreats since 2008, with the 10-year Treasury yield drop- “There are going to be too many losses taken, which is why you saw a unilateral increase in rates.” ping to 0%.

“Monday morning there was red tape on everything in terms But for servicers, the situation was much more dire as they faced problems on multiple fronts caused by the virus, along with the of how much pay off risk – it got painful,” Mohtashami said, referring to the Monday after the Fed’s second rate cut. “And then increase in demand.

HOUSINGWIRE ❱ MAY 2020 59

Fintech Comparatively, the industry rates just kept on going higher only sees an increase in mortand higher faster.” gage delinquencies once every Servicers have the potential “There’s going to be an increase 10 to 15 years. And now, the to mitigate some of this risk if in borrowers reaching out to their industry is seeing both, at the they have an origination arm same time. that can recapture the refiservicers for help for consideration Exactly how many delinnance business within its portas they experience short term disquencies should we expect? folio, or if subservicers funnel ruptions of income,” Slump said. “I According to Vafai, there could leads back to them. But not all be quite a few. servicers have these options think that’s probably something “We should be prepared for available. that’s happening today as we speak.

2008 delinquency levels,” he “There is usually very little There’s been more of an influx of said. that servicers can do to deal The U.S. is already bracwith these types of situacalls coming into the servicers.” ing for the impact as Fannie tions,” Fitch Ratings Managing Mae, Freddie Mac and the U.S. Director Roelof Slump said.

Department of Housing and “Certainly cases where the servicer has an origination arm they are naturally hedged because Urban Development announced a suspension of foreclosures they have origination and new servicing coming in with current and evictions for at least the next 60 days.

Federal regulations state that servicers need to send payoff coupons that are much lower than the existing books.”

“That ultimately helps significantly to maintain servicing port- quotes out within seven business days of receiving the request, folios,” Slump said. “And if the servicer’s origination arm is able driving servicers to ramp up operations.

“We’ve had to reallocate our team just to keep up with those to recapture or keep the existing customers, that’s even better.”

But before the full force of the refinance surge hit, Black Knight turn times,” Vafai said.

He explained that while TMS’ system is highly automated, the data shows that in the fourth quarter of 2019, only one in five company also informs its subservicers when it receives payoff borrowers remained with their servicer after they refinanced. requests so they know when the consumer is out shopping for mortgages.

A SHIFT IN DELINQUENCY LEVELS But the coronavirus is making this step more difficult than it Even if lenders and servicers are able to protect against portfolio runoff, that’s not the only challenge they’re facing. Mortgage would normally be since the majority of workers are remote right default rates are expected to increase for the first time in more now.

Servicing is making major advancements in the technology than a decade.

The latest data from Black Knight shows mortgage delinquen- field through use of artificial intelligence and machine learning, cies are at all-time lows. For the first time since 2005, the be- however, progress is slow, and many servicers are missing the ginning of this year started with less than 2 million non-current technology they need for their workforce to function remotely.

“Servicers need, from a staffing perspective, to have the capaloans, which is anything 30 days or more past due, including bilities to manage more delinquencies,” Vafai said. “And pair that those in active foreclosure.

This 15-year low isn’t going to last through the year though up with the coronavirus where you have to now potentially work since, for the first time in several years, servicers expect mortgage remote. If you lose half or 25% of your workforce because they can’t work remote, and you had to go double your staff – you can default rates to increase.

“There’s going to be an increase in borrowers reaching out to do the math. That’s a big problem for most servicers, but fortutheir servicers for help for consideration as they experience short nately not for us.” term disruptions of income,” Slump said. “I think that’s proba- Servicers now also have to prepare for the potential of higher bly something that’s happening today as we speak. There’s been operating costs.

“Servicers may not be able to balance their higher cost of opermore of an influx of calls coming into the servicers.”

One expert explained that the refinance boom, while stron- ation as delinquencies increase,” Slump said. “And it may just be ger than normal, will not be the greatest obstacle servicers face. a temporary spike right now, but borrowers will likely be calling The Money Source President Ali Vafai explained that the mort- and asking for guidance. And as more borrowers call in and ask gage industry sees a refinance boom about every three years. for help, you need more staff.”

60 HOUSINGWIRE ❱ MAY 2020

Fintech

“It could be a double-edged sword where, in addition to faster prepays of the existing book you have higher costs, and that can lead a servicer, especially an independent servicer, to need or want to consider strategic alternatives,” he said.

Learning from current events to better prepare for the future, there are several clear factors that, if they had been utilized, could have created faster turn times and higher profit margins during a tumultuous period.

One example, mentioned above, is that servicers should have the capability to work remotely in order to continue operations through a vast array of scenarios. But there are other technology areas that could significantly help servicers during times of crisis in the future.

“Servicers have dealt with technology limitations by building ancillary systems and build around to deal with the limitations in order to meet regulatory requirements and to meet program guidelines that the institutions offer,” Slump said. “I think they’ve

been able to do that reasonably well, and it hasn’t contributed to significant problems for them other than it is all costly. So legacy systems, to the extent they’re not able to adequately deal with 2020-type expectations and requirements, need to be modified and to be enhanced.”

But for now, servicers are preparing for a hit to their liquidity as their ability to borrow diminishes due to lower rates and early payoffs.

“As the value of servicers mortgage servicing rights drop, whether just because they’re marked to market and when the interest rates go down, the prepayment expectations go up, and therefore the asset value drops, or they’re real, meaning the loan actually paid off, of course, the mortgage servicing rate goes to zero when the loan has paid off,” Mortgage Bankers Association President and CEO Bob Broeksmit said in a podcast with HousingWire CEO Clayton Collins. “That limits their ability to borrow against the value of those mortgage servicing rights. So that’s a liquidity hit.”

HOUSINGWIRE ❱ MAY 2020 61

62 HOUSINGWIRE ❱ MAY 2020

Fed to the rescue CENTRAL BANK JUMPS INTO THE MBS MARKET WITH GUNS BLAZING

BY KATHLEEN HOWLEY

THE biggest influencer in the mortgage markets this spring is the Federal Reserve.

The central bank pledged at the end of March to buy unlimited amounts of Treasuries and agency mortgage bonds, including multifamily, to grease the wheels of the credit markets after the economy ground to a halt amid the spread of COVID-19.

The orders are being carried out by a group of market specialists who work at the Federal Reserve Bank of New York in lower Manhattan, the same team that enacted a similar quantitative easing program, known as QE, during the financial crisis more than a decade ago.

The move into the bond markets is intended “to support the flow of credit to households and businesses by addressing strains in the markets for Treasury securities and agency mortgage-backed securities,” the Fed said. “The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning.”

The bond-buying is aimed at providing liquidity and pushing rates lower, which would bolster the economy. The first QE program, announced at the end of 2008, drove mortgage rates below 5% for the first time ever.

“The Fed will likely do what they did after the financial crisis: Keep liquidity as high as possible and that will keep mortgage

rates low,” said Joel Naroff, president of Naroff Economics. “The Fed has once again, as it did in the financial crisis, in essence, become the lender of last resort.”

The goal of the central bank – then and now – isn’t to push down mortgage rates, Naroff said. Lower rates are the likely consequence of throwing billions of dollars mortgage-backed securities.

“Obviously the explosion of liquidity is going to drive rates down,” Naroff said. “The Fed will likely do what it did after the financial crisis – keep liquidity as high as possible, and that will keep rates low.”

How low could they go?

A 30-year fixed rate of 2.75% is possible, Naroff said, basing his estimate on bond yields, which act as a benchmark for mortgage investors.

Market disruptions caused some lenders to add a risk premium to mortgage pricing after cases of COVID-19 began surging in the second half of March, causing interest rates to rise amid all the market disruptions caused by the pandemic.

When things began settling down, rates were bound to follow, CoreLogic Chief Economist Frank Nothaft said.

“I think longer term, as we look to the spring, yes, I think we could see rates moving down to new lows and possibly below 3%,” Nothaft said. “It’s certainly possible.”

HOUSINGWIRE ❱ MAY 2020 63

“We can step in and make that happen. That’s a very positive thing and appropriate thing in this highly unusual situation we’re in,” Powell said in the March 26 interview on NBC.

As it addressed the COVID-19 pandemic, the Fed resurrected many of the measures it used during the 2008 financial crisis.

On March 15th, it cut interest rates to near zero, relaunched QE bond-buying and opened emergency lending windows to support commercial paper issuers and money market funds.

Originally, it planned on buying $700 billion of bonds: $500 billion in Treasury bills and $200 billion of agency-backed mortgage securities. It blew through half that amount in five days as it tried to keep credit markets from drying up. A week later, it announced the bond-buying would be unlimited.

It has also added new tactics – such as buying agency-backed commercial mortgages, which typically are used to build apart64 HOUSINGWIRE ❱ MAY 2020

ment buildings. Its prior versions of QE programs were limited know as quantitative easing, he preferred the term “credit easing” because it better described the effect: Making credit more availto residential mortgage bonds only.

The Fed also said it would set up programs to ensure credit flows able to households and businesses.

The idea, for the housing market, is: If the demand for mortgage to corporations and state and local governments.

That includes buying municipal debt, which will provide cash bonds is strong, it will be easier to get mortgages. With the Fed to the communities who are on the front lines of the COVID-19 buying billions of dollars in MBS every week, lenders are more likely to lend. pandemic.

Bernanke, now a fellow at the Brookings Institution, spoke “The Depression was about the Fed moving too slowly,” Neil Dutta, head of economics at Renaissance Macro Research, told about the QE when he gave a speech on Jan. 4th at the American Bloomberg News. “We are seeing a lot of things, but a slow-mov- Economic Association’s annual meeting in San Diego, shortly after China reported to the World Health Association the ing Fed hasn’t been one of them. That’s encouraging.”

In a rare television interview, Fed Chairman Jerome Powell told emergence of a novel coronavirus that would later be named Today show co-anchor Savannah Guthrie the Fed was aiming its COVID-19.

“The initial rounds firepower at “places of QE were particularwhere credit is not ly effective because being offered where they were introduced, it should be offered.” and provided critical “We can step in and liquidity, in a period make that happen. of exceptional dysThat’s a very positive “We’re trying to create a bridge from a very strong function in financial t h ing a nd appro economy to another place of economic strength,” markets,” Bernanke priate thing in this Powell said. “That’s what our lending does.” said in the speech. highly unusual situaThe first QE protion we’re in,” Powell grams, like the cursaid in the March 26 rent one, involved interview on NBC. t he purchases of The turndown in Treasuries and agenthe economy wasn’t cy bonds, meaning likely to last, and the mortgage securities back by Fannie Mae, Freddie Mac and Ginnie rebound likely would be sharp, he said.

“This is a unique situation,” said Powell. “This is not a typical Mae, meaning home loans guaranteed by the Federal Housing downturn” because it’s not due to an underlying weakness in the Administration and the Veterans Administration.

Between 2008 and 2010, the Fed added about $1 trillion of economy or instability in the banking system, he said.

“We’re trying to create a bridge from a very strong economy to mortgage bonds to its balance sheets.

Subsequent rounds of QE pushed its MBS portfolio up to about another place of economic strength,” Powell said. “That’s what $1.7 trillion by 2014. our lending does.”

Prior to the 2020 economic crisis caused by the COVID-19 panThe Fed’s rescue operations will be ongoing, he said.

“When it comes to this lending, we’re not going to run out of demic, the Fed had been letting matured mortgage bonds run off ammunition, that doesn’t happen,” Powell said. “We still have its balance sheets.

After announcing two emergency rate cuts in March that put policy room in other dimensions to support the economy.”

Quantitative easing was invented during the financial crisis its benchmark rate near zero, it said it would begin reinvesting more than a decade ago as a way to create demand for assets matured MBS. “These actions will lower mortgage rates, helping homeowners that nervous investors were leery of purchasing. Critics claimed save money through refinancing, and thereby providing a boost it would spark inflation – which didn’t happen.

At the time, the central bank was led by Ben Bernanke, who to the broader economy,” Mike Fratantoni, chief economist for Forbes called “The brains behind QE.” It was based on a program the Mortgage Bankers Association, said after the Federal Reserve used by Japan to prop up its economy after a financial crash in announced the revival of QE in response to the economic distress that was caused as the COVID-19 pandemic swept across the 1990s.

While Bernanke will be forever linked to the monetary tool we America.

HOUSINGWIRE ❱ MAY 2020 65

66 HOUSINGWIRE ❱ MAY 2020

Multifamily

Freddie, Fannie relax standards amid pandemic ISSUE EXCEPTIONS FOR PROPERTY OWNERS, APPRAISERS, LENDERS AND MORE

BY BEN LANE FANNIE Mae and Freddie Mac suspended foreclosures and evic- to delay their mortgage payments if their property is negatively tions on single-family homes as the coronavirus continued to affected by the coronavirus national emergency.

According to the GSEs, property owners can delay their mortspread, but that policy would only help those living in a house, gage payments for up to 90 days by showing hardship as a conseleaving many renters vulnerable to being evicted. quence of COVID-19 and by gaining lender approval.

Not anymore.

The condition the GSEs included — that property owners can’t The Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac were moving to protect renters from being use the forbearance option unless they agree to suspend evictions evicted if they were unable to pay their rent due to the impact of — should have made sizable impact on the market, considering how much of the multifamily market Fannie Mae and Freddie the coronavirus.

Specifically, Fannie Mae and Freddie Mac began offering mort- Mac support.

According to the most recent data from the Mortgage Bankers gage forbearance to multifamily property owners on the condition that they suspend all evictions for renters who couldn’t pay their Association, Fannie Mae and Freddie Mac hold or back approximately 48.6% of the entire outstanding multifamily mortgage rent because of the coronavirus.

Because Fannie Mae and Freddie Mac back the mortgages on debt.

In an announcement, Freddie Mac said that it anticipated that multifamily properties, but have no contact with individual renters, the only way for the GSEs to provide relief to renters is by the program can provide relief for up to 4.2 million U.S. renters providing relief to the property owners themselves. Missed rent across more than 27,000 properties.

“Renters should not have to worry about being evicted from their payments mean that multifamily property owners wouldn’t be able to make their mortgage payments and the entire property home, and property owners should not have to worry about losing their building, due to the coronavirus,” Federal Housing Finance would go into foreclosure.

As a result of the GSEs’ action, property owners had the ability Agency Director Mark Calabria said in a statement.

HOUSINGWIRE ❱ MAY 2020 67

“The multifamily forbearance and eviction suspension offered inspect the interior of a home for eligible mortgages.” The issue by the Enterprises should bring peace of mind to millions of fam- of appraisers needing to inspect homes as part of the mortgage ilies during this uncertain and difficult time,” Calabria added. process was a mounting concern as the virus continued to spread “The Enterprises are working with mortgage servicers to ensure throughout the nation.

Considering that new research shows that the virus can live for that these programs are implemented immediately so that property owners and renters experiencing hardship because of the “several hours to days in aerosols and on surfaces,” appraisers entering homes to inspect may have led to increased spread of the coronavirus can get the assistance they need.”

According to the FHFA, the eviction suspensions are in place virus. Beyond that, cities and even entire states went into lockfor the entire duration of time that a property owner remains in downs, thereby prohibiting appraisers from traveling to houses to inspect them. forbearance.

As a result, the FHFA directed the GSEs to begin using both “This program is historic in its size, and it has the potential to provide relief to millions of families in multifamily rental homes drive-by appraisals and desktop appraisals in certain circumfinanced through a Freddie Mac loan,” said Debby Jenkins, execu- stances to ensure that the mortgage process is not held up due to appraisal issues. tive vice president and head “Effective immediately, of Freddie Mac multifamwe are allowing temporary ily. “Countless Americans “This program is historic in its size, and flexibilities to our appraisal are facing unimaginable inspection and reporting hardships, and Freddie it has the potential to provide relief to requirements,” Fannie Mae Mac is doing what we can millions of families in multifamily rental said in an announcement to provide relief as our nahomes financed through a Freddie Mac sent to lenders. tion addresses this global “We will accept an alterpandemic.” loan,” said Debby Jenkins, executive native to the traditional Fannie Mae agreed. vice president and head of Freddie Mac appraisal required under “We are looking to provide multifamily. “Countless Americans are Selling Guide Chapter B4-1, relief to millions of families Appraisal Requirements, and communities who are facing unimaginable hardships, and when an interior inspecaffected by the devastating Freddie Mac is doing what we can to protion is not feasible because impact of COVID-19,” said vide relief as our nation addresses this of COVID-19 concerns,” Jeffery Hayward, Fannie Fannie Mae continued. “We Mae executive vice presiglobal pandemic.” will allow either a desktop dent of multifamily. “We appraisal or an exterior-onare well-positioned to react ly inspection appraisal in quickly in this situation thanks to the strength of our delegated model, the Delegated lieu of the interior and exterior inspection appraisal (i.e., tradiUnderwriting and Servicing program. We want multifamily prop- tional appraisal).”

It should be noted that the change to the GSEs’ appraisal polierty owners and renters to know that we are here to help.” cies mostly affects purchase mortgages.

According to the bulletin, the preferred appraisal method is still GSES RELAX APPRAISAL, EMPLOYMENT VERIFICATION STANthe traditional appraisal.

DARDS IN WAKE OF CORONAVIRUS If that was not available, the GSEs prefer a desktop appraisal, Meanwhile, citing the extraordinary circumstances that the country faced with the ongoing spread of the coronavirus, the FHFA where the appraiser doesn’t inspect the property or comparable announced that it would also direct Fannie Mae and Freddie Mac sales. Instead, the appraiser relies on public records, multiple to ease their standards for both property appraisals and verifica- listing service information and other third-party data sources to identify the property characteristics. tion of employment.

If a traditional or desktop appraisal was unable to be performed, The moves were part of a growing effort to “facilitate liquidity in the mortgage market during the coronavirus national emergency,” an exterior-only inspection is allowed in certain circumstances.

In all cases, the use of appraisal alternatives is available only on the FHFA said in an announcement.

According to the FHFA, Fannie Mae and Freddie Mac would certain loans. See the graphic below for details on what loans are use “appraisal alternatives to reduce the need for appraisers to eligible for an appraisal alternative.

68 HOUSINGWIRE ❱ MAY 2020

Multifamily

Beyond that, the FHFA notes that employment verification became increasingly more difficult as many businesses have either shut down entirely or are running with skeleton crews as a result of the virus. To that end, the GSEs accepted alternative forms of employment verification, including a recent paystub, to ensure lending can continue.

Specifically, the FHFA states that “in the event lenders cannot obtain verbal verification of the borrower’s employment before loan closing, the Enterprises will allow lenders to obtain verification via an e-mail from the employer, a recent year-to-date paystub from the borrower, or a bank statement showing a recent payroll deposit.”

And here, from Fannie Mae’s bulletin, is more detail on how each of those forms of verification of employment worked: Written VOE: The Selling Guide permits the lender to obtain a written VOE confirming the borrower’s current employment status within the same timeframe as the verbal VOE requirements.

An email directly from the employer’s work email address that identifies the name and title of the verifier and the borrower’s name and current employment status may be used in lieu of a verbal VOE. In addition, the lender may obtain the VOE after loan closing, up to the time of loan delivery (though we strongly encourage getting the verbal VOE before the note date).

Paystub: The lender may obtain a year-to-date paystub from the pay period that immediately precedes the note date.

Bank statements: The lender can provide bank statements (or other alternative documentation as permitted by Selling Guide B3-4.2-01) evidencing the payroll deposit from the pay period that immediately precedes the note date.

The FHFA notes that lenders should “continue to utilize sound underwriting judgment to ensure these alternatives are appropriate to the borrower’s circumstances.”

Both the adjusted appraisal and employment verification standards are in effect through May 17, 2020, according to the FHFA.

HOUSINGWIRE ❱ MAY 2020 69

Q&A Shane Erskine OneTrust Home Loans President

It’s time to go beyond POS technology How to remain profitable in a tight market Technology has come a long way in the mortgage industry over the past few years, but one expert says it’s time for lenders to move beyond tech that is front-facing.

Shane Erskine, OneTrust Home Loans president and 2019 HousingWire Rising Star, explained that it will take more than point of sale technology for lenders to remain profitable in a tight market. The mortgage process is getting faster, less burdensome and more digital – but only up to a point.

To date most of the innovation and investment has been focused on the front-end of the origination process: the steps necessary to collect the information and documents to qualify and make a credit decision.

Once that milestone has been reached, much of the rest of the consumer experience remains decidedly analogy and manual.

The valuation and closing processes, for example, are still done primarily by phone, text or email. And after the loan closes, the interaction between customer and servicer often is, for the most part, limited to monthly snail mail statements.

The next phase of building out that process is and must be rounding out the digital mortgage by creating technology on the back end that will streamline the mortgage process, create efficiencies, save lenders money and create a better experience.

And this is not just for the borrower, but also for mortgage loan officers and everyone else involved in the mortgage lending process.

Building out this technology will become critical when the flow of applications diminishes and profits are harder to come by for mortgage lenders. This step will determine who will stick it out through tough times and who will fail.

As a Rising Star, Erskine became a leader at a very young age.

His accomplishments continue to drive the housing industry forward.

The secret to becoming a Rising Star?

“Work hard and be humble,” Erskine said. “Take constructive criticism and use this to improve yourself and your company.

Promote teamwork.”

Erskine sat down with HousingWire to discuss how lenders 70 HOUSINGWIRE ❱ MAY 2020

can make sure they come out on top as the market tightens and profits dip.

HW: As someone who went through the housing crisis before, what is your advice for the best approach lenders should take in an increased consolidation market?

Shane Erskine: Stay focused on your business plan, there will be a lot of distractions and noise that can consume you if you let it. If you are successful, have a tight grip on your financials and stay focused on your plan you will weather the storm.

HW: How can lenders remain profitable even as the refi boom dies down?

SE: Profitability is always important, make sure that you understand every line item in your P&L, this will allow you to make proper business decisions to keep your company profitable. Know what is making you money and what is costing you money. Cross-train your staff and leverage technology to produce cost-effective results.

HW: How big of a role do you think technology plays in determining who will come out on top?

SE: Technology in the mortgage space has come a long way and is very important for the industry. A lot of companies are focused on the technology that focuses more on the front end of the origination process, point of sale. This software is great and creates a positive experience for borrowers, but there is a lot out there for the production side as well to assist with compliance, processing, closing and post-closing. This software, from what we have seen, saves costs and can improve quality.

Q&A Steve Butler AI Foundry Founder and President

Humans won’t be involved in majority of mortgage originations within 2 years AI increasingly improves customer experience Artificial intelligence and machine learning continue to revolutionize the world we live in today – through our smartphones and all kinds of new developments. Now, it’s about to take over mortgage lending.

HousingWire sat down to talk to AI Foundry Founder and President Steve Butler about what changes AI is making, and will continue to make, to the mortgage lending process.

One of Butler’s boldest predictions? Butler explained that within just two years, the majority of mortgage originations won’t need a human to touch them.

He explained that, in his opinion, due to advancements in AI and machine learning, within the next two years, we will see the majority of mortgage loans get manufactured and sold off to Fannie Mae and Freddie Mac with very little human involvement.

It will be a much more automated, mechanized process, driven

by AI. In fact, Keith Polaski, Radius Financial Group co-founder and chief operating officer, said recently that his company’s goal is to deliver all of its loans without a human touch to secondary mortgage market buyers like Fannie Mae or Freddie Mac. Butler explained that we will soon see the adoption of vertical-specific intelligent robots that have the level of industry expertise required for mortgage processing. These intelligent robots will play a key role in the process, and more companies will turn to mortgage-specific robots with embedded industry knowledge.

The mortgage process is very paper-based and analog.

However, robots need digital data – solutions that can turn analog processes into digital ones will help the mortgage industry make new advances in digital transformation, replacing many of the old analog processes that have been used for decades.

HOUSINGWIRE: What’s the state of AI in the lending industry today?

SB: AI is playing a key role in streamlining the credit approval process. This includes collecting documents, like bank state-

ments or income and assets and analyzing them much faster and more accurately using AI. This provides a faster and more accurate path to giving credit. There is tremendous interest in integrating AI into back-office systems, but we are still in the early days of this integration.

HW: What’s the No. 1 trend shaping AI in lending this year?

SB: Costs are going up because the credit process is more labor intensive, so as a result there is a lot of investment in fintech to streamline lending and find faster ways to do credit and different types of loans with limited data. As a result, turnaround time is really important, meaning that you can move more quickly in providing some level of credit approval. This can change the landscape of loans.

HW: What’s the No. 1 challenge to AI adoption in lending?

SB: I think that the top challenge is trusting the handoff to the AI system. You need to trust that it will read the document correctly, execute the process etc. Basically, trusting that AI will do what it is supposed to do, and do it right.

HW: What’s the No. 1 benefit AI brings to lending?

SB: The top benefit that AI brings to lending is improving the overall customer experience, including better turnaround time, high accuracy, transparency in the process, no surprises, etc.

HW: What’s the future of AI in lending?

SB: Within the next two years, we will see the majority of loans go through the entire process without any human involvement.

It will be a much more mechanized process.

HOUSINGWIRE ❱ MAY 2020 71

Kudos Housing industry bands together to navigate COVID-19 COMPANIES FIND WAYS TO SUPPORT TEAM MEMBERS AND CUSTOMERS THE HOUSING INDUSTRY IS A COMMUNITY-DRIVEN INDUSTRY. AS ONE OF THE LARGEST SECTORS IN THE COUNTRY, IT’S MADE UP OF FRIENDS, FAMILY MEMBERS AND NEIGHBORS, ALONG WITH MANY OTHER PEOPLE IN THE COMMUNITY AROUND YOU, WHO ARE ALL WORKING TOGETHER TO FUEL THE AMERICAN DREAM OF HOMEOWNERSHIP.

WHETHER it’s your loan officer who is also your sibling’s best friend or your title agent who happens to attend the same gym as you, these industry workers are part of your local tribe and care about the betterment of your hometown as much as you do.

This is why the housing industry sprang into action to help its workers, customers and borrowers when the COVID-19 pandemic hit. While there are still a lot of unknowns about the coronavirus and its long-term impact on housing and homeowners, the housing industry quickly united together to help people inside and outside of the space navigate the rapidly developing challenges.

The outpouring of support from the industry to assist impacted borrowers, struggling renters, discouraged employees and dedicated front-line workers continues to offer some hope during a very tumultuous period. The following is only a handful of the ongoing efforts from many companies in the industry that are stepping up to solve the growing challenges born out of the virus.

DALLAS BUILDERS ASSOCIATION The construction industry sits in a unique position since it shares some supplies with the medical industry, most notably its use of N95 respirator masks. N95 respirator masks are extremely important since they are designed to achieve a very close facial fit and block at least 95% of very small test particles. This means that they not only help block concrete dust for construction workers but they also help protect against the coronavirus.

Following an announcement from Vice President Mike Pence asking construction companies to donate their stocks of N95 respirator masks to local hospitals and stop ordering more for the time being, the Dallas Builders Association announced it partnered with the Greater Fort Worth Builders Association and TEXO, along with the local North Texas County Medical Societies, to host an ongoing industry drive. The association claimed that since this drive 72 HOUSINGWIRE ❱ MAY 2020

involves the collection of necessary supplies and delivery to others, it is exempted from the Dallas County “Stay Home, Stay Safe” order.

The Dallas Builders Association urged the construction industry to come together to join in the fight against COVID-19 by donating their respirator equipment, masks and protective wear to help medical professionals on the front lines.

FAIRWAY INDEPENDENT MORTGAGE CORP To help employees remain active as the nation is called to stay in place, Fairway Independent Mortgage Corp. said it would provide Cybex workout equipment for employees to use in their homes.

The move is part of the company’s commitment to making wellness and cardiovascular health a priority in 2020, and isn’t the first wellness initiative by the company, with other initiatives including body scans and corporate gym facilities with personal training. This initiative, however, is unique since it’s happening as the company’s nearly 7,500 employees have shifted to working remotely due to COVID-19.

“As part of Fairway’s wellness program, we know how important working out is for people’s health, especially cardiovascular workouts,” Fairway Founder and CEO Steve Jacobson, said. “As a part of our new normal, we are going to offer this [new wellness benefit].”

HOUSTON REALTORS Stepping up to help small businesses financially impacted from the virus, Houston-based Realtor Nicole Lopez Cummins found a way to support people impacted by the Houston Livestock Show & Rodeo cancelation.

The rodeo and show was established to promote agriculture by providing a family-friendly live entertainment experience

Kudos

that educates the public, supports Texas youth, and showcases Western heritage.

The annual 20-day event also directly creates 3,694 jobs and supports a total of 5,133 jobs in Greater Houston, creating $227 million in total economic impact.

When the event was cancelled, Cummins started a Facebook group titled Houston Rodeo Vendors 2020 to support the businesses impacted.

The page offered a virtual rodeo mall for all the vendors, and within 24 hours, the group had 90,000 members, with items quickly getting purchased. The group was later renamed “Texas Festival Vendors” to support the Austin Rodeo and the Round Top Antiques Fair which have also been cancelled.

QUICKEN LOANS Quicken Loans has long been dedicated to rebuilding its home city – Detroit. The rapid spread of COVID-19 once again spurred the top mortgage company to action to help the community, arming local medical teams with the tools they need to test for the virus.

To help fight back against the virus, a dedicated group of Quicken Loan’s technology team came together to plan the logistics and infrastructure of a drive-through COVID-19 testing facility for Detroit. Quicken Loans also announced it would coordinate and support the logistics of the drive-through testing facility through a call center operation, along with providing tents from the Rocket Mortgage Classic golf tournament.

“We cannot think of a better way to expend our resources and energy than participating in the testing process,” Quicken Loans CEO Jay Farner said in the release. “This is a time for the public and private sectors to come together for a common goal.”

Beyond helping conduct testing, the Quicken Loans Community Fund and Gilbert Family Foundation also announced a combined $1.2 million donation to address the ongoing impact of coronavirus in Detroit.

“Our actions today will impact the trajectory of the coronavirus tomorrow, which is why it is so critical that

we, as a philanthropic community, immediately support Detroit residents through direct investments in families and those nonprofits that provide crucial services,” Jennifer Gilbert, co-founder of the Gilbert Family Foundation, said.

TRUIST FINANCIAL CORP. Charlotte, North Carolina-based Truist Financial Corporation pledged $25 million in philanthropic COVID-19 relief efforts, aiding in the support of basic needs, medical supplies and financial hardship across the nation.

The financial services company laid out the various initiatives it was dedicating the money to, with the most urgent one being the immediate help for critical healthcare organizations. From the $25 million, Truist stated it would donate $1 million each to the CDC Foundation and Johns Hopkins medicine through the Truist Charitable Fund.

Additionally, the company announced it would dedicate a portion of the money to helping those who help others, donating $3 million to local United Way organizations to fund communitybased programs and support services that provide basic needs to people.

“Truist cares, and we understand our communities, clients and teammates all need immediate help in this growing crisis,” Truist Chairman and CEO Kelly King said. “We’re also looking forward to the recovery stages of this pandemic to ensure the nonprofit organizations our communities count on have the funding they need to help our neighbors get back on solid footing.”

BANK OF AMERICA Bank of America inspired the entire industry to find ways to offer relief to borrowers, as the first mega bank to announce it would allow borrowers to pause their mortgage payments.

The announcement stated that the bank would extend “additional support for consumer and small business clients experiencing hardship from the impact of the coronavirus.”

This included the ability for Bank of America mortgage and home equity customers to request to defer their payments while the virus crisis rages. The payments would then be added to the end of their loan.

According to the bank, the payment deferral will be available on a case-by-case basis and can be extended on a month-to-month term.

“We’re going to continue to provide convenient access to the important services they count on, and the additional assistance and support they need during this difficult period,” said Dean Athanasia, Bank of America president of consumer and small business. “Our priorities are taking care of our team and each other, and continuing to fulfill our fundamental role serving our clients.”

HOUSINGWIRE ❱ MAY 2020 73

PARTING SHOT

As COVID-19 spread across the U.S., many cities went on full lockdown in order to stop the spread.

The real estate purchase market all but closed down as open houses and showings were canceled and homebuyers stayed home in order to stop the spread of the virus. Retailers and other nonessential businesses were closed, making online shopping all the more popular.

74 HOUSINGWIRE â?ą MAY 2020

Photo by Emily Carpenter

â?ą THE U.S. PRESSES PAUSE

Find out the why behind the daily news cycle.

HW+ members get exclusive access to: Premium Digital Content Deeper dives into the why behind the housing industry’s most impactful stories

rs h

ip

HW Magazine ire .c om

/m em be

10 issues per year of our industrydefining magazine

us

in

gw

HW+ Slack Channel

Jo

in

to d

ay :

w

w

w .h o

A direct line to HW Editors in an exclusive member-only experience