April 2022 Issue by HousingWire

April 2022

HOUSINGWIRE MAGAZINE ❱ April 2022

PATTI COOK Reflects on 45 years in the industry

October 3-5, 2022 Fairmont Princess Scottsdale, AZ

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APRIL 2022

LETTER FROM THE EDITOR

The growth of an industry FROM THE COVER FEATURE on Finance of

rience at Freddie Mac as it went into conservator-

America’s Patti Cook to the commentaries and

ship and some of her biggest accomplishments

solutions that focus on the title space, our April

during her career. “I feel very fortunate to be

issue highlights just how much the housing and

able to look back on a long career that has been

real estate industries have grown and changed

filled with such rewarding experiences,” Cook

— and changed for the better as innovation and

said in her interview.

technology drive the space forward. Starting on page 24, you can read about

Title also is top of mind throughout this issue, as the intersection of title and technology

Cook’s retirement announcement at the start

not only leads to better a borrower experience

of this year, as she steps away from her role

but also offers a way to address the talent gap in

as CEO. The feature reflects on her successful

the space.

career in finance that spanned 45 years, looking back at her time at Salomon Brothers, her expe-

Tweets From The Streets You go your whole professional life being the youngest in every meeting. Then one day you’re not. 31

111

1,132

by @ joepohlen

APRIL 2022

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. © 2022 by HW Media, LLC • All rights reserved

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April 2022

People Movers

12 Freddie Mac appointed Heidi Mason as executive vice president and general counsel.

Unique Solutions

13 The team at Qualia brings connectivity to the historically siloed settlement ecosystem.

Take 5

14 A HousingWire Woman of Influence, Westcor’s Mary O’Donnell shares her favorite workout playlist.

Proptech Profile

15 Canadian construction tech startup RenoRun rethinks the supply chain for building materials.

Event Calendar

16 Presented by Qualia, the Future of Real Estate Summit features George Foreman as its keynote.

Inside Agent

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17 Paul Grover got his real estate license his final year in college. Here’s where his career stands today.

Local Intel

18 After a fire nearly destroyed the area, here’s how the housing market in Paradise, California currently stands.

Appraisal & Valuations

56 Desktop appraisals are here to stay, as industry stakeholders take waitand-see approach.

Trade Desk

40 MISMO, the MBA’s standards organization, launches an e-Eligibility Exchange.

Mortgage

44 LOs are finding potential clients with creative advertising and doing old fashioned cold calling.

Politics & Money

48 In the wake of a scandal, LOs give continuing education programs a failing grade.

Secondary Market

52 Home-equity investment pioneer Unison closed a $443M offering and plans three more deals for 2022.

APRIL 2022

Non-QM

60 Excelerate Capital is accelerating its growth in the non-QM market, as it plans a hiring spree.

Homebuilders

64 Builder confidence remains high even as builders question if they can keep up with demand.

Kudos

68 Total Expert partners with New Orleans Area Habitat for Humanity to rebuild a home.

Parting Shot

70 Here’s what Wells Fargo, Guaranteed Rate, UWM and Rocket Mortgage all have in common.

features

Patti Cook reflects on 45 years in the industry Finance of America CEO Patti Cook recently announced her retirement after a successful career in finance that spanned 45 years. HousingWire sat down with this Woman of Influence winner to find out some of the important lessons she learned along the way.

Inside Redfin’s unique, brave and vulnerable business model

The brokerage has declared a covenant with its real estate agents, making them employees. Can this model last?

Title Solutions

The two companies featured in this section offer solutions to reduce application-to-close times and friction as well as increase transparency in the title process.

Is the title industry on verge of the “Great Redeployment”?

How can we bridge the talent gap in title and escrow?

By Jimmy Lewis and Sridhar Loganathan

By Patrick Stone

pg 20

pg 22 APRIL 2022

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PEOPLE MOVERS

Heidi Mason

| Freddie Mac | General Counsel

Freddie Mac appointed Heidi Mason as executive vice president and general counsel. Bringing 25 years of experience in mortgage lending, financial services, consumer protection and securities law to Freddie Mac, Mason assumed general counsel responsibilities from Executive Vice President and Chief Administrative Officer Jerry Weiss. Previously, Mason served as a partner at ElevateNext Law, a majority-woman-owned law firm.

Marvin Chang |

MortgageHippo | Chief Commercial Officer

MortgageHippo has hired Marvin Chang as chief commercial officer, where he will lead its go-to-market and customer initiatives. With a record of driving innovation across mortgage finance, Chang has held leadership roles at Caliber Home Loans and Fiserv. While at Caliber Home Loans, Chang led digital transformation programs that enabled a 10x growth in loan production through digital channels over 2020. He also drove product innovation that includes bringing to market some of the first loans originated on blockchain.

Leslie Garner |

InstaMortgage | SVP, Sales

InstaMortgage announced it has named industry sales leader Leslie Garner as senior vice president of sales. She joins the company with a solid history of sales, training and development accolades from roles she has held at some of the largest mortgage companies in the country, including leadership roles and training roles with Cornerstone Home Lending, National Residential, Fifth Third Bank and Bank of America. Most recently, Garner was with Stearns Lending where she was responsible for sales performance.

Brooke Anderson |

New American Funding | SVP, Business Development and

National Recruiting

New American Funding hired Brooke Anderson as senior vice president, business development and national recruiting, bringing 12 years of recruiting experience in the mortgage industry. In her new position, she is tasked with overseeing national retail growth along with pursuing, attracting and maintaining the company’s mortgage talent that includes the company's vast network of retail and call center loan officers.

Jessica Mackenzie |

Standard Communities | Senior Director, Capital Markets

Standard Communities, an affordable housing investor and developer, has promoted Jessica Mackenzie to senior director of capital markets, where she is responsible for the structuring and closing of Standard Communities’ transaction financing. First joining the company in 2019, Mackenzie has arranged the financing for more than 30 transactions with a total capitalization of over $1.5 billion. Mackenzie previously served as a director in the community development finance group at Union Bank.

Samuel Bjelac |

Sprout Mortgage | EVP, National Sales

Non-QM originator Sprout Mortgage promoted Samuel Bjelac to executive vice president to lead Sprout’s national TPO sales channel. In his new role, he takes on an expanded leadership role as he continues to grow the business among wholesale mortgage brokers and correspondent lenders. With over 20 years of experience in the residential mortgage and financial services industries, Bjelac previously served as senior vice president of the non-QM wholesale and correspondent business channels.

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Amanda Niswonger |

Button Finance | Senior Account Manager

Button Finance hired Amanda Niswonger as senior account manager. She brings over 15 years of sales experience in the mortgage industry to the role. In her new position, she will focus on developing and nurturing institutional mortgage broker relationships and is responsible for new revenue generation by expanding Button Finance’s existing mortgage broker network. Niswonger previously worked at AIG and other leading mortgage insurers, where she generated over half a billion dollars in sales in 2020.

APRIL 2022

UNIQUE SOLUTIONS SPONSORED CONTENT

Qualia brings connectivity to the historically siloed settlement ecosystem

NATE BAKER

The team at Qualia recognized that the siloed nature of the transaction was a big part of what was leading to these issues. They identified title and escrow as the central party in the transQualia CEO and Co-Founder action that could provide a connective glue. They believed that with rapid advancements to title and escrow infrastructure they could help truly transform the home-buying and refinance journey into a simple, secure and enjoyable experience. Once title and escrow operations get powered by a modern technology infrastructure, all other parties in the real estate ecosystem such as mortgage lenders and real estate brokerages could connect to accelerate their own innovation as well. “We saw the core problem with real estate and mortgage as the actual transaction infrastructure,” said Nate Baker, CEO and co-founder of Qualia. “No one had tried to truly fix that from the center. We believed that by empowering title and escrow operations, the central nodes of the transaction, we could connect workflows for lenders and real estate agents as well." To tackle the closing challenge from an infrastructural level, Qualia first built a platform that is the core system of record for its title and "We believed that by escrow customers. Instead of deempowering title and escrow livering a singular point solution to solve one element of a real estate operations, the central transaction, Qualia’s philosophy is to nodes of the transaction, we create a comprehensive platform to simplify the complex, highly regioncould connect workflows alized workflows involved in orchesfor lenders and real estate trating real estate and mortgage transactions across multiple parties. agents as well." - Nate Baker, This way, other industry participants CEO and co-founder of Qualia and point solutions can plug in. That started with Qualia Core, a cloud-based workflow, accounting and reporting product that leading title and escrow companies around the country now use for automating their title production, as well as managing closings all the way through signing. While it may be just one product in Qualia’s comprehensive platform, it is mission critical software for its customers. They

APRIL 2022

are the only participant in a position to fully orchestrate the transaction since they are the only parties that work with each participant, and they use Core to do so. Core includes everything title and escrow teams need in their workflow to manage orders, work with title insurers, issue title and ensure a successful closing through signing. Teams operating on Qualia use the 1,000-plus template library of continuously updated title and closing documents for every state as a way to streamline their document generation and signing process. The platform also includes out-of-the-box accounting, powerful reporting capabilities, reconciliations, fraud protection and smart balancing to ensure a smooth, accurate and on-time closing process. Qualia Connect is another part of the Qualia product suite. Connect is the client and partner communications system of engagement that currently enables thousands of mortgage lenders, real estate agents and consumers to plug directly in to the settlement ecosystem to get an efficient, consistent and transparent closing experience. Lenders, for instance, can leverage an edition of Connect directly through their own LOS to manage title and escrow in a consistent way across multiple vendors without needing to change their own existing workflows. Many transaction point solutions are also able to plug into the settlement ecosystem through Marketplace, Qualia’s vendor management product. Marketplace includes discovery and automated ordering of closing services, including title search, notaries (remote and in-person), release tracking and more. It complements the existing native integrations already built into Core, which include a wide range of title insurance underwriter, eRecording, property data, shipping and other vendors. Qualia will be hosting its annual “Future of Real Estate Summit"' at FORES22 in Austin, Texas, from April 4-6. FORES22 will be focused on the theme of connectivity and will bring together the entire mortgage and real estate ecosystem for actionable conversations and educational tracks about the future of how real estate is transacted.

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Over the last 20 years, finding a home and applying for a mortgage have become highly digitized. However, the actual home-buying transaction experience all the way through closing has been essentially untouched even though consumers cite it as one of the most stressful and confusing parts of the home-buying journey.

TAKE 5

Mary O’Donnell CEO, President at Westcor Land Title Insurance Company With over 15 years of experience under her belt as CEO of Westcor Land Title Insurance Company, Mary O'Donnell has been a driving force in the industry. With a background in law, she took charge at Westcor and grew the company from a small regional underwriter to the national entity that it is known as today. Serving as the 5th female president in the American Land Title Association’s entire history, O’Donnell has solidified a position at the top of her field and earned her spot as a HousingWire Woman of Influence. Below, O’Donnell answers five questions that give an inside look at her life:

1. If I had picked a different career path, I would be an... interior decorator. Every time I move a random piece of furniture, I wind up redecorating the entire house. It’s a gift. 2. My morning routine looks like... a bike ride on the beach with my husband, followed by a post-pedal cup of tea, high five and clean up to conquer yet another day. 3. My biggest learning opportunity was... when I became the CEO of Westcor, which at the time was a company with two people and a few title licenses. We had absolutely nothing, so there was nowhere to go but up! 4. My last vacation was... a trip to my 200-year-old cottage in Ireland, which sadly I had not seen for over two years due to COVID-19. Luckily, the squatters have yet to find a little piece of paradise.

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5. My workout playlist includes... Adele, Queen, Pavarotti

APRIL 2022

PROPTECH PROFILE

Designed as an e‑commerce platform, Canadian construction tech startup RenoRun works with manufacturers, distributors and brands to supply thousands of building materials to construction, contracting and renovation professionals. Co‑founded in 2017 by Eamonn O’Rourke and Joelle Chartrand, RenoRun was born from the insight that contractors and their employees spend too much time away from their jobsites procuring materials. The company’s proprietary tech can be utilized across multiple jobsites, reducing the need to manage multiple vendors and customize deliveries with walk-in services, drop-off instructions and even free coffee. As the year continues, RenoRun also plans to expand services for new and existing customers, including a ‘buy now, pay later’ option, avoiding unwanted costs from potential delays.

Things to know

— Eamonn O’Rourke, CEO and Co-founder, RenoRun APRIL 2022

Founders: Eamonn O'Rourke, Joelle Chartrand Established: 2017 Headquarters: Montreal, Quebec Funding to date: $173 million Main/Lead investors: Tiger Global Management, Sozo Ventures, Inovia Capital, Obvious Ventures, Real Ventures, ScaleUP Ventures

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What are the synergies that RenoRun is creating between the construction industry and e-commerce capabilities? What are its effects on current supply chain woes? “We’re a company that relies on e-commerce to ensure we’re doing everything we can for our customers, largely contractors to drive efficiency to construction sites. The fact that RenoRun is on track to hire 50 engineers and developers is a reflection of our commitment that technology and e-commerce are crucial to our success in serving our customers, wherever and whenever they need us. “While we’re also feeling the effects of ongoing supply chain issues, we’re able to use our innovative technology, along with our hardworking team, to source supplies. Helping to alleviate the stress that comes with securing materials for our contractors, it allows them to remain on-site and focused on getting the job done.”

EVENT CALENDAR

FORES22

LISTEN NOW

April 4-6, 2022 Cost to attend: $825 Presented by Qualia

Nick Thomas on digital mortgage and fintech innovation

LOCATION: AUSTIN, TEXAS The Future of Real Estate Summit, FORES, is designed to connect title and escrow, mortgage, proptech and more. In the three-day summit, attendees will come together to collaborate with industry peers, hear from notable visionaries and get access to hands-on training. George Foreman, former Olympian, two-time world heavyweight champion and globally recognized entrepreneur, joins the event as keynote, with other sessions including Steve Adler, mayor of Austin, Diane Tomb, American Land Title Association CEO, and Nate Baker, Qualia co-founder and CEO. Throughout the event, you can explore the technology, processes and business models that are bringing a fragmented ecosystem together to orchestrate a new breed of client experiences.

NALHFA 2022 Annual Conference April 24-27, 2022 Cost to attend: Member: $675 l Non-member: $895 Presented by the National Association of Local Housing Finance Agencies LOCATION: NEW YORK Focusing on NALHFA’s mission to provide leadership in the field of affordable housing finance and to deliver quality services to our members, the association’s annual conference offers the unique convergence of industry expertise, professional networking and the latest industry trends and hot topics. Created for local governmental affordable housing and community and economic development professionals, the event is designed to be a place to learn firsthand insights and case studies of effective housing and development practices. This event allows attendees to join in on the leading-edge conversation emerging in both affordable single family and multifamily lending programs on the local level.

HousingWire CEO Clayton Collins is joined by Nick Thomas, the co-founder and president of Finicity and executive vice president at the Office of Engagement at Mastercard. The pair discuss how the digital mortgage process and fintech innovation can help consumers manage and navigate the home-buying process. Thomas also gives an inside look at Finicity’s acquisition journey with Mastercard and some words of advice for fellow entrepreneurs. Here is a small preview of the interview with Thomas. Clayton Collins: Where do you think we are in that evolution of digital-enabled as a differentiator to digitally enabled as a requirement? Nick Thomas: I think one of the things that we will continue to see is the 10-by-10 mortgage. The idea of a 10-minute application and a 10-day close. I think we're going to continue to see that go one factor lower — 10-second application and a 10-minute close. In order for that to happen, you have to have really refined processes, you have to have the interchange between different players in that mortgage ecosystem come together and it has to all interoperate in a way that makes that possible. But I think the idea of a 10-second application and a 10-minute close is absolutely the future. For lenders that are not rapidly moving to digital today, you can imagine the cost savings that comes with that kind of a reduction in time. Early on, we did a study that showed that it was like $127 a day. If it takes you 65 days to close, the cost to close is a function of time. If you can reduce the time by making it fully digital, you're cutting out all kinds of costs. It's a competitive threat to any mortgage lender who is not digital. Scan the code to listen now!

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Event TIP "We've definitely become more adept at attending virtual events, but we've also developed some bad habits. Like multitasking out of the view of the camera. When transitioning back to "in-person" meetings, remember that your body language in person is harder to hide than at your desk on camera." — Nathan Knottingham, COO at Vetted VA

APRIL 2022

INSIDE AGENT

Paul Grover

Robert Paul Properties at Berkshire Hathaway HomeServices pgrover@robertpaul.com 835 Sea View Ave. Barnstable, MA 02655 $30,000,000 7 bed, 11.5 bath

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DURING HIS SENIOR YEAR IN COLLEGE, Paul Grover got his real estate license. The plan was to sell homes for a summer and save up money for law school. Grover didn’t sell a single home that summer, but despite that, “I got hooked on real estate,” he said. “Something clicked.” “Real estate gave me ability to live and work on Cape Cod, and there’s not a lot of professional opportunities to work in such a beautiful area,” Grover said of the famous Massachusetts peninsula that edges out into the Atlantic Ocean. Four decades after he started in real estate, Grover is embarking on the sale of a lifetime — a sprawling oceanside mansion with the jaw-dropping listing price of $30 million. “The highest price that we have had is $20 million,” Grover said, referring to the history of Cape Cod real estate. Grover figures that the land itself is worth $15 million, and that 15,000 square feet is worth about a $1,000 a square foot for a luxury abode constructed one year ago. For a home that size, Grover calls the property “cozy” with multiple guest houses, a nod to people “summering” at the Cape. Where is the agent going to find someone with $30 million? Grover claims that Boston’s health care and technology economy has created a coterie of people who could afford the abode. He is also marketing the property in nearby Fairfield County, Connecticut, and Westchester County, New York.

APRIL 2022

LOCAL INTEL

By Brooklee Han

Conway, Arkansas

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Rochester, New York

Paradise,

Some might call Conway, Arkansas, a bedroom community of Little Rock — the state’s capital. But, local RE/MAX Elite agent, Laura Davis, says that the city of roughly 67,000 people is so much more. “It’s a standalone city,” the Arkansas native said. “It has been a great city to work in because it is incredibly safe, and there is a steady stream of people that want to live here because the surrounding communities have great schools and some good colleges and there is a decent amount of job growth.” While the median listing price in Conway is still below the national average, in December it was up 7.7% year-over-year to $210,000, according to Realtor.com. “The prices of homes here are steadily increasing, and it is very hard for first-time homebuyers. Starter homes are virtually non-existent, and there are a lot of investors purchasing homes at the lower price points,” Davis said. Due to this, Davis said that homebuyers have to come to the table with more money than they used to and need to be prepared to deal with bidding wars. With inventory remaining tight and demand still strong, Davis only sees this trend increasing as we get further into spring.

After experiencing a housing market that agents said left them “breathless” in 2021, Rochester real estate professionals are preparing to tackle the spring housing surge yet again. Like elsewhere in the country, Rochester is experiencing a record low level of inventory combined with a heightened demand for housing. “People are staying in their existing homes longer so less inventory is hitting the market, and there just aren’t enough starter homes being built, so we are struggling with that too” Mark Siwiec, a local Keller Williams agent, said. While record low mortgage rates have been driving more first-time homebuyers to the housing market in Rochester, the city is also seeing a lot of so-called boomerang buyers who grew up in Rochester but moved away. “We are seeing a decent amount of boomerang buyers, who, due to job changes or just being able to work remotely, are able to return home,” Mandy Friend Gigliotti, another local Keller Williams agent said. “Truthfully, Rochester is just a beautiful place and a great place to raise a family. There are so many amenities, there is not a lot of traffic and the culture is really strong here.”

APRIL 2022

Burlington, Vermont

Stunning lake views, the vibrancy of a college town and easy to access world-class ski resorts, it is simple to see why Burlington has long been a sought-after destination for homebuyers. “Burlington has seen an influx of people even prior to COVID–19,” Claire Kavanagh, a local eXp Realty agent said. “COVID-19 kind of ramped things up even more. It has been very competitive for two plus years now.” This, of course, has resulted in rising home prices. While the median home sale price in December 2021 was lower than in 2020, in November, sales prices hit a five-year high of $482,500, according to Redfin. Local agents say these rising prices are not stopping buyers from Colorado, Florida, New York, New Jersey and California from flocking to the northern New England city. Kavanagh said that many of their out-of-state clients are looking to escape challenging environmental conditions exacerbated by climate change. “A lot of my buyers are moving from California, and for a lot of these folks, fires are a big reason they are coming this way,” she explained.

California

Like Rochester, Columbus has seen an influx of boomerang buyers thanks to the increase in remote and work-fromhome flexibility brought on by the COVID-19 pandemic. Local agents say the city’s small-town feel combined with big-city amenities like an NHL team, a vibrant arts district and a Big Ten university football team are exactly why these homebuyers are returning. The metro area’s relatively affordable median home sale price of $235,000, according to Redfin, doesn’t hurt either. Realtor.com named Columbus its number five housing market positioned for growth in 2022, and iBuyer Offerpad launched its services there last fall. “There are many factors that make Columbus an exciting real estate market for Offerpad, including the area’s population growth spurred by its job market history and outlook,” Todd Bird, the general manager of Offerpad’s Columbus market, said in an email. “The Columbus metro attracts tech manufacturers, retail headquarters, medical research facilities and other job creators; Intel recently announced business plans that will bring thousands of new jobs to the area. This feeds into the organic real estate movement in the area and reinforces key points that made Columbus attractive to Offerpad even before our start in the area.”

APRIL 2022

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Columbus, Ohio

In November 2018, Paradise — a 144-year-old town that sits in the Sierra Foothills above the northeastern Sacramento Valley — was nearly destroyed by the Camp Fire, the deadliest fire in the history of the state. “Every home, every little business, there were a few that made it along the main streets, but other than that, at least 95–98% of the residential housing in the area was gone,” local eXp Realty agent, Mike Stearns, said. Prior to the fire, the town’s population was nearly 27,000; yet, by the end of 2019, just 4,608 people called the town home. However, by early 2021 the town’s population was already on the rise with roughly 6,000 people residing in Paradise. While the threat of fire still looms over Paradise, for some prospective homebuyers the median home sales price of $469,000 in December is too good to pass up. “I think that [the threat of fire] is the biggest hurdle in getting people to go back or getting new people to the area,” Shane Collins, a RE/MAX agent, in the neighboring city of Chico, said. “The people who do end up buying here, it is slightly more affordable and that kind of pushes them into deciding to buy here.”

COMMENTARY

s the title industry on verge of the “Great Redeployment”? By automating mundane functions, title agents will likely improve margins, reduce error rates and possibly even improve turn times and productivity By Sridhar Loganathan and Jimmy Lewis

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The title insurance industry is built on service. So, what happens when it becomes much more difficult for title agents to find, recruit and hire the skilled labor so necessary to their core functions? We will soon find out. A unique convergence of “The Great Resignation” and increased retirement and attrition — at the same time that the largest segment of the American workforce ages, running headlong into what’s expected to be a competitive purchase market — will require title agencies to put more focus on their service levels. A significant portion of the American labor pool are reaching retirement age, leading to a naturally increased attrition rate in available labor. In combination with the pandemic-driven “Great Resignation,” the pivot to a purchase market that will demand more, not less, service creates an equation unfavorable to title agents and business owners across the industry. That development could present serious challenges. As attrition collides with business needs, we’re likely to see the title industry put much more emphasis on hiring, retention, engagement and even new workflow models that rely far less on labor for basic tasks.

RETENTION OVER RECRUITMENT In most real estate-related industries, it has long been the convention to simply add more front-line workers when order volume or service needs demand it. When that need abates, such as with a change of market cycle or order volume, the same businesses have traditionally ramped down their staffing levels to cut expenses. However, this model assumes an ample and available skilled labor market. If the conditions sparking “The Great Resignation” continue, the pool of available skilled labor will remain low. We’re also witnessing a change of employee expectations, which is leading to a historically unusual existence of more available jobs than people willing to fill them. All of this adds up to a disheartening response rate when title employers seek to add employees. Accordingly, retention will soon become a major strategic priority for title employers seeking to maintain a qualified staff at adequate levels. ENGAGEMENT AND SATISFACTION It’s a well-established human resources principle that, when it comes to keeping employees from seeking greener pastures, financial compensation isn’t the only factor involved. Instead, we’re increasingly finding that empowerment and engagement can be just as important as compensation to an employee wanting to come to work. When we look to other industries, benefits like flexible workfrom-home options, adequate paid time off, flexible benefits and

A unique convergence of “The Great Resignation” and increased retirement and attrition — at the same time that the largest segment of the American workforce ages, running headlong into what’s expected to be a competitive purchase market — will require title agencies to put more focus on their service levels.

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the option for additional education and career training are all becoming more prominent in employee compensation packages. But it goes beyond benefits. Numerous studies suggest that employees in almost any industry want to be heard. They want to feel as though they are part of something important and that they have the empowerment to help make that happen. That’s not something that can simply be delegated to the human resources department. Instead, it requires the active and consistent involvement of the leadership team. THE TOOLS OF ENGAGEMENT For the title agent (or business owner) to construct a proactive retention effort, it starts with attitude and buy in. If it’s done reluctantly or comes across as disingenuous, employees simply won’t buy-in. Increasingly, title decision makers should make engagement and retention part of their overall strategy, then see to the consistent execution of that strategy. A commitment to regular, meaningful and genuine two-way communication practices is a great start. Part of that strategy should also include a thorough review of the workflow process. Many title agencies, even firms using the latest and greatest production technology, aren’t always getting the maximum benefit from their tools. As a result, we still see skilled employees tasked with simple, manual processes. When it comes to both retention and cost-effectiveness, this is not the pathway to success. Many title businesses are starting to awaken to this reality, implementing and relying more heavily upon new technologies such as Robotic Process Automation (RPA) or artificial intelligence solutions to relieve skilled labor of mundane, repetitive undertakings. For example, simple title searches, basic data entry or “stare

Sridhar Loganathan serves as the chief operating officer and co-founder of TrueFocus Automation.

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Jimmy Lewis is the CEO and co-founder of TrueFocus Automation, a Dallas-based provider of custom software and bot development and Automation as a Service solutions to the title and mortgage industry.

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and compare” processes can all be automated. In so doing, these businesses are freeing skilled employees from routine, boring tasks and redeploying them to more complex, challenging responsibilities. But it’s not just technology that can help title businesses with their employee retention. More small- to mid-sized title businesses are also making human resources more than a parttime function for a manager with other, unrelated duties. For decades, Whether they’re outsourcing recruitment and it or dedicating an employee retention in the with legitimate decision-making title industry powers, many C-level executives leaned much are acknowledging that they simply more toward don’t have the time or, in some a recruitment cases, the expertise to wear the HR strategy than hat in addition to the many others they’re required to wear. retention For decades, recruitment and strategy. retention in the title industry leaned much more toward a recruitment strategy than retention strategy. Conditions are about to mandate that title business owners rethink that approach. But there are benefits beyond having superior service levels to making retention a priority. By automating mundane functions, title agents will likely improve margins, reduce error rates and possibly even improve turn times and productivity — all while making more employees available to assist with the more complex tasks required of the business. By committing to dedicated HR-related resources, they take important steps toward consistency and even continual improvement in what is becoming a critical part of any title business’ overall strategy.

COMMENTARY

ow can we bridge the talent gap in title and escrow? The solution lies in harnessing the power of technology By Patrick Stone

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Much has been written about the decline in the numbers of active real estate appraisers creating a chokepoint in the mortgage process. But another talent crunch has been brewing at the same time in the title industry. It’s a similar story that we’ve seen play out with appraisers — the title and escrow industry is aging out and attracting new talent has been a challenge. As we move into 2022, this challenge will not see an immediate solution, but the problem will get solved, in time, and here’s how. First, we have to start simple. How do we solve the problem of attracting new entrants? The solution lies in embracing technology to address this growing gap in title and escrow hires. If you look around the title insurance industry, there’s a decade gap in the ages of the industry’s talent pool. In other words, you have people like myself who have been in the industry for multiple decades, and then you have up-andcomers — the oldest group of up-and-comers right now is in their early fifties. The challenge of relying on an older workforce is that it presents the unpredictability of retirement within this age group. According to a report by the U.S. Bureau of Labor, the participation rate for workers aged 65 to 74 will grow to 30.2% in 2026 — compared with 17.5% in 1996. For workers 75 and older, the participation

As we move into 2022, this challenge will not see an immediate solution, but the problem will get solved, in time.

rate in 2026 is projected to be 10.8%, compared with 4.7% in 1996. The other side of this problem is that most people aren’t intuitively familiar with title and escrow, so creating a buzz for this industry for a younger generation becomes all the more difficult. Nobody actually ever hears about the title industry until they buy a home. So we have a situation, and this has always been the case, where we rely on people essentially stumbling into title and escrow because it’s simply not on the radar for most as a career choice. It’s key to remember, however, that the industry has always struggled to attract new talent for the reasons I mention above. This isn’t a new problem, but the unprecedented growth in new originations and refinancings in the last two years has highlighted the struggle of attracting talent or scaling operations to meet the market’s demand. Couple that with the changing way we’ve done business because of COVID-19 pandemic restrictions, and it has made recruitment all the more challenging. There has been a natural shift for homebuyers to desire a more digitized experience and that has challenged this aging industry to pivot. Title companies may want to evaluate their technology and make upgrades to meet the digital needs of the next generation of title professionals. The emphasis, particularly on the escrow side, should be on technology. A digital transformation will not only impact dayto-day work — at scale — but better digital processes will also streamline the closing process and transform the real estate transaction. We are seeing the most successful players in the industry adopt digital solutions.

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Despite the challenges of acquiring new talent in the face of a rising labor shortage, title companies are well-equipped to attract new talent with the enticing possibility of joining an industry on the cusp of massive change.

talent with the enticing possibility of joining an industry on the cusp of massive change. How far will digitization go? There’s one school of thought that believes you can go all the way, but I think it is being oversold, particularly when we look at the title side of the industry. Title has been really slow to incorporate technology. One reason it’s been slow to adjust is because of the varying regulatory environment companies operate in. For example, business practices and regulatory oversight vary in every single state. Now having said that, lenders have likewise been regulated differently, as have Realtors. That makes it unlikely we will have a uniform process anytime soon because these underlying regulatory issues, underlying databases and business practices evolve differently. And this is what needs to change. Maybe we won’t get there in 2022, but we can’t bear to repeat the lack of technology that backlogged our pipelines during the pandemic. What’s clear is that technology is how we answer the talent gap and also remain competitive in a real estate industry that increasingly considers the speed of execution as a differentiator. Title companies play a pivotal role in this equation because we are at the center of each real estate transaction. The goal should therefore be to make it faster, and easier, for the young title agents coming into the industry and the young homebuyers and homeowners who expect results much quicker.

Patrick Stone is founder and executive chairman of the Williston Financial Group. He has enjoyed a lengthy career in real estate and real estate related services, including C-level positions with three public companies and as a director on two Fortune 500 boards.

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As an example of putting this ideal into practice, at WFG we have a central goal: to create a single technology platform called MyHome that can bring together all real estate transaction participants, and to leverage it to provide maximum collaboration and efficiency. The emphasis on technology allows everyone in title and escrow to grow both steadily and securely. And, as we’re seeing more and more, it’s usually not just one company doing one thing, but rather multiple companies relying on partnerships to help them fulfill their mortgage lending goals. These companies are also looking to diversify their offerings within their respective marketplaces in order to provide products and services across a broader segment of the real estate and mortgage spectrum. With these efficiencies at the ready, a new generation of title and escrow talent is more able to satisfy the needs of clients. Embracing technology benefits our clients as well. Our team has worked to advance solutions to help reduce the operational costs of the more than 1,500 independent title companies that issue WFG-underwritten policies. This suite of outsourcing services, which we call WFG Blocks, is a set of turnkey back-office processes that title companies can plug in to their operations in whatever combination they wish. I mention this because solutions in 2022 will need to be easy to use, almost intuitive. But why? Good technology should require little training and be accessible to everyone. The more accessible technology is, the broader the net that can be cast to entice potential staffers from all educational backgrounds. Because of this, another alluring fact about this industry is that it can be a very attractive career even for someone without a college education. Indeed, it can be a tremendously rewarding career and new entrants should know that they can make a lot of money as well. Despite the challenges of acquiring new talent in the face of a rising labor shortage, title companies are well-equipped to attract new

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PATTI COOK Reflects on 45 years in the industry

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By Sarah Wheeler

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In February, Finance of America CEO Patti Cook announced her retirement after a successful career in finance that spanned 45 years. HousingWire sat down with this Woman of Influence winner to find out some of the important lessons she learned along the way.

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HOUSINGWIRE: One of your first jobs in the industry was at Salomon Brothers, starting in 1979. What part of that job did you love? PATTI COOK: When I look back on my time at Salomon Brothers, what drew me to that work and kept me there was the innovation coming to the fixed-income markets during that decade. When you look at how fixed-income developed, mortgage-backed securities were brand new at the time and I was right at the forefront of that work. CMOs or collateralized mortgage obligations were developed. Then, that led to REMICs — real estate mortgage investment conduits — and the market really took off from there. Salomon Brothers was at the epicenter of the innovation taking place in fixed-income and I really loved that firsthand experience working with mortgage-backed securities, CMOs, REMICs and securitization more broadly. HW: You worked at Salomon Brothers when it was rare to see women on Wall Street. What did you take away from that experience that has shaped the roles you’ve had since then? COOK: My experience there really led me to my “excellence every day” mantra. When you commit to excellence every day, it gets rewarded. For me, I wasn’t focused on women being unique in the workplace or having a bigger mountain to climb or anything like that. I genuinely feel I was lucky to have that job and I demonstrated that in my approach to work. I put my head down, worked hard every day, and I was rewarded for it. That commitment to excellence and working hard — even on the days when you might not feel up to it — really shaped my outlook and has been a key driver in my success.

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HW: Was there any thought then that conservatorship would last so long? COOK: At the time, we were singularly focused on fixing the situation and bringing stability to the markets. We weren’t concerned with the longterm view of how they get out of conservatorship. During that time, that wasn’t the focus of our work. We were focused on shoring up the markets.

sions. That also leads me to how we approach our business today at FOA. We strive to offer the widest breadth of products and services, so we can help our customers at whatever stage of life they’re in. Our No. 1 priority and focus today is on the customer and putting them first.

If you consider the last few decades and how the industry’s view of the customer has evolved, it is all about putting power in the hands of the customer. I don’t think we talked about the customer in that way 20 years ago.

HW: Working at lenders, financial firms and Freddie Mac, how do you think about the consumer, the borrower, today? COOK: I think it’s all about empowerment for the customer. If you consider the last few decades and how the industry’s view of the customer has evolved, it is all about putting power in the hands of the customer. I don’t think we talked about the customer in that way 20 years ago. What we’ve evolved to is a model where we provide customers with the tools and expert guidance they need to help enable them to make better financial deci-

HW: You’ve held the top leadership role at some of the largest companies in our industry. What is one key to your success? COOK: My guiding principle has always been to work very hard while always treating all people with respect. This approach has helped me build trust and knowledge, which I’ve accumulated throughout my career and which, in turn, has made me a better and more effective and compassionate leader. I feel very fortunate to be able to look back on a long career that has been filled with such rewarding experiences. HW: Who have been some of your mentors? COOK: I view mentors as those in life who motivate you along the way. The truth is that for me this has and will always be my family. Everything that I’ve done throughout my career — all of the hard work and nights and weekends at the office — have been driven by my desire to provide for my family and help ensure that they were well educated and had everything they needed to be successful. I wanted them to be proud of me. That’s what motivated me. It’s still what motivates me. HW: What are some of the qualities you can identify early on in a junior team member that are great predictors of success? COOK: One of the things I believe I am really good at is identifying young

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HW: From 2004-2008 — at the height of the financial crisis — you served as EVP and chief business officer at Freddie Mac. What was it like to be there as it went into conservatorship? COOK: That was certainly quite the experience. I can say that there is no playbook for a situation like that. There was no safety net. We were working with some of the smartest people in the room — leaders from the Fed, Treasury and at the highest levels of government — to develop a response and sort out the right solution. Our focus was on calming the markets and ensuring stability. In some ways, when I look back at that time, it was like we all had a front row view of history in the making.

“The lesson there is that it’s very hard to forecast your career. Your path emerges over time and if you work hard and treat people with respect during that journey, I believe that you are presented with opportunities that perhaps weren’t there

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just a few years or even months before.”

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talent and then doing what I can to help nurture those careers. This means making myself available to impart wisdom and counsel and helping to ensure that they have access to the tools and resources to facilitate their professional development. I always assume people are smart enough, but I think the best predictor of success is one’s work ethic and desire to learn. Where someone went to school is much less important to me than their willingness to raise their hands, roll up their sleeves and just work hard. I am not the product of Ivy League schooling. I ascribe so much of my success to my relentless desire to learn and stay ahead of the industry. When I see similar qualities in individuals, I will naturally gravitate to them.

HW: A purchase market presents unique challenges for lenders. How is Finance of America approaching what could be a difficult year for originators? COOK: Finance of America was built purposefully different. Our continued success is a direct result of our unique business model that has helped us maintain operating profitability despite the mortgage market evolution. The mortgage industry is currently facing a tough environment and the demand for refinancing has dramatically decreased from the highs of 2020 as rates have increased. These macro conditions have led to a shift from refinancing to home purchase. We believe Finance of America is well-positioned to take advantage of the expected growth in the purchase and non-agency market while still remaining able to leverage the episodic refinance opportunities as we did in 2020. Additionally, we will continue to see significant growth in our Specialty Finance and Services or SF&S segment. This segment includes our reverse mortgage business, our commercial fix-and-flip business, our home improvement business, and our lender services and capital markets businesses. In the fourth quarter of 2021, SF&S accounted for more than 50 percent of our revenue and the bulk of our adjusted net income. We expect SF&S to be the main driver of growth and profitability in the foreseeable future.

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HW: Was it one of your personal goals to take a company public during your career? COOK: The short answer is not in my wildest dreams. I’d actually go so far to say that being the CEO of a company was never one of my goals. Not because I didn’t dream big, but because when you look at my career path and where I started, corporate life was not on my road map until later on in my career and even then not until the last few years. The lesson there is that it’s very hard to forecast your career. Your path emerges over time and if you work hard and treat people with respect during that journey, I believe that you are presented with opportunities that perhaps weren’t there just a few years or even months before. It’s really remarkable.

Inside Redfin’s unique, brave and vulnerable business model The brokerage has declared a covenant with its real estate agents, making them employees. Can this model last?

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By Matthew Blake

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ON A MISSION Way back in the drab plaid of the 1970s, brokerages often classified agents as employees and offered them health care and pension plans. That changed with RE/ MAX, under its swaggering CEO Dave Liniger. “RE/MAX came in with a totally different model,” recalled Stephen Baird, CEO of Baird & Warne, whose father ran that brokerage at the time. “And so, because of that, we had to make our agents independent contractors and terminate their pension plan and health insurance.” An independent contractor agent mostly finds their own leads and can receive minimal training or resources from their brokerage. Some agents, like ones at RE/ MAX, even pay the brokerage fees for office space and marketing tools. In exchange, the agents set a sales commission and negotiate with the brokerage their commission cut. In July, the National Association of Realtors reported that 87% of its over 1.5 million members are independent contractors. “This classification is essential to the real estate industry, homeowners across the country and to boosting the economy,” NAR declared. Indeed, today, brokerage executives see independent contractor agents as not just saving them money — in turn, relegating the agents to go on their spouses’ health plan or the state’s “Obamacare” health exchange — but as a philosophical virtue. The employee model “disincentivizes hard work, and caps earning potential,” said Courtney Poulos, CEO of ACME Real Estate in Los Angeles and Orlando. “With independent contractors, the success of the agent is based on their skill.” Redfin, on the other hand, has had agents as employees since Glenn Kelman founded it in Seattle in 2006. Like Robert Reffkin at Compass and Rich Barton at Zillow,

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race Alipour spoke loudly into the phone over the cries of her two-year-old being strapped into a car seat. “I started at Redfin 12 years ago,” she said. “And in 2017, I decided to go on full-time as a lead agent.” Repre sent i ng homebuyer s i n Ora nge C ou nt y, California, Alipour generally completed 2-3 escrows a month while many colleagues did 4-5. “It is high-volume work,” Alipour recalled. Alipour gushed about Redfin’s training program, and she accessed maternity leave benefits other agents lack. But Alipour exited Redfin for Compass earlier this year, due to Redfin’s sales expectations. “With a two-year-old, I couldn’t meet the quota,” she said. Redfin is a publicly traded company, a nationally recognized listings website and one of the biggest brokerages in the country. But what makes Redfin different — what makes it radically, transformatively different — is that it classifies real estate agents as employees. These employee agents are exceedingly more productive than the average independent contractor agent. They are also more diligently responsive to leads — and perhaps to each other. “We would go out to dinner a lot on the beach in Asbury Park on the Jersey shore,” recalled Jacki Wilfinger, an erstwhile Redfin agent in New Jersey. “And there would be get-togethers, like an escape room.” But Redfin’s model paradoxically makes it much more vulnerable to litigation, including a blockbuster race discrimination lawsuit on the verge of settlement. And while former agents have nice things to say about Redfin, they also leave in droves. “For the hours you put in,” Wilfinger said. “The pay wasn’t great.” So, does Redfin’s model work? Or not?

“Redfin was an amazing place to start my real estate career. They provided me training, and marketing, and covered mileage.”

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- Noah Goldberg Kelman is not from a real estate background. He previously founded and helmed Plumtree Software for seven years. While Reffkin has said agents require the right technology to succeed, and Bar ton espouses that consumers hunger for information and simplicity, Kelman’s insight is that independent contractor agent’s incentives are aligned with them making the most money, and not on the consumer finding the best deal. Living on commissions often means getting paid more for convincing a buyer to increase their acceptable price range or coaxing a seller to hold out for a more lucrative deal. Redfin pays agents a baseline salary — the average salary for a Redfin agent in 2021 was $23,000, according to the company — plus performa nce bonuses not completely tethered to a home’s sale price. For example, homes sold for between $201,000 to $450,000 receive one flat commission, and homes sold in the range of $450,001 and $700,000 receive a different, somewhat larger commission. The model, then and now, turned off many agents who are self-identified entrepreneurs, unappreciative of any ceiling. But it also drew a bountiful new crop of people into real estate. “I shared their sentiment that the brokerage really needed to be fixed,” said one former longtime Redfin agent, who requested anonymity to speak candidly about his many years at the company. “Everyone seemed on a mission and was really smart and that’s what got me on board.” Noah Goldberg came to Redfin in 2014, nine years after graduating from American University and bouncing between different corporate jobs.

“I did a nine-to-five job — inventory analysis — in my mid-to-late 20s,” said Goldberg, presently a Redfin agent in Charlotte. “It was as boring as it sounds like. Redfin was an amazing place to start my real estate career. They provided me training, and marketing, and covered mileage.” TRUST THE PROCESS Like many, if not most, employer-employee relationships — from General Motors giving autoworkers a vehicle to assemble to Wyndham providing clerks the guests to check in — Redfin agents are handed work to do by a supervisor. Redfin is the third most trafficked U.S. website for real estate listings (behind Zillow and Realtor.com) with 49.1 million average unique visitors per month, as of September. Website visitors interested in a particular home or market become leads assigned to agents, according to that agent ’s specif ic geographic area. Redfin agents are spread across the country. But they are most concentrated in wealthier cities including Seattle, Boston, Chicago and San Francisco. A Redfin spokesperson said that the company has attracted agents “who love customer service, and would rather spend their time working with clients than drumming up new business or doing administrative tasks,” a claim that rang true with Goldberg. “I don’t want to spend a lot of time with lead generation and cold calls,” Goldberg sa id. “I cer ta inly don’t want to be that guy who is posting on Facebook, ‘Hey, anybody want to buy or sell a home?’” Every snowflake is unique but even snowflakes are not as varied as the U.S.’s over 1.5 million real estate

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agents. The “average” real estate agent makes $49,200, according to NAR. But that average includes Alipour of Compass, who says she is mostly not working right now, to Chris Cortazzo of Compass, who brokered the purchase and sale of seemingly a quarter of Malibu. Redfin agents are required to shed some of that variegation, follow up on leads, and sometimes outsource home tours to “associate agents” (who are independent contractors). This is seen as clunky and even amateurish by many brokerage executives with a traditional business model. “To me, it is important to have a dedicated person support a customer all the way through the transaction,” Poulos, the ACME real estate broker said. “The employee model can dampen creative spirit and turn us into taskmasters.” But, whether Redfin agents feel like taskmasters or not, they are doing more deals. “The employee model helps Redfin control its end-to-end process,” said Ygal A rounian, managing director of equity research at Wedbush Securities, and an analyst of Redfin. “That process has led Redfin agents to be more productive than other brokerages on average.” While the average NAR member conducts 10 deals a year, according to the trade group, the average Redfin agent performed 32 transactions from the third quarter of 2020 to quarter three of 2021. And despite complaints from some

former Redfin agents, it would appear that agents are generally rewarded for such productivity. After bonuses and stock-based compensation, the average Redfin agent netted $118,000 in 2021, according to the company. So, it would seem, is the company. Since becoming public in 2017, Redfin has consistently reported net income losses, but that seems due to other divisions, including iBuying. R e d f i n pu l le d $1. 9 billion in revenue for the first nine months of 2021 with $849 million, or 44%, coming f rom real estate services, and an extra $54 million ema nating f rom Redf in’s related pa r tner agent program. Redfin rang up $246 million in gross profit — profit before operating expenses, in real estate services — compared to just $10 million in iBuying. In other words, while Redfin lost $109 million in 2021, its brokerage was a financial bright spot. “Our mission is to redefine real estate in the consumer’s favor, but we can only realize that goal if we can recruit the best real estate agents,” Adam Wiener, Redfin’s president of real estate operations, wrote in an emailed statement. “Redfin offers agents a combination of compensation, opportunity, culture, and world-class technology and support that is unmatched in the industry.” Well- c ompensated employee s (with health care). A profitable division. What could be the down side?

“Because we’ve been eager to return to market share growth, we probably also made hir ing mistakes,” Kelman said on an August earnings call. “Nearly half the people who left in the second quarter are people we wouldn’t choose to hire again.” The total number of Redfin agents, which the company discloses in earnings reports, provides a glimpse of a workforce with quicker turnover than the membership of a local gym. After the first quarter of 2020, Redfin has 1,826 agents. In the sec-

to cut agents at the COVID-19 pandemic’s start only to go on a hiring spree when the housing market got hot. But make no mistake, industry experts said, Redfin’s agent turnover, 31% overall in the first qua r ter of 2021, exceeds that of its agent-as-independent-contractor competitors. “That is way above the normal attrition rate for almost any large brokerage in the country,” said Steve Murray, senior advisor to RealTrends. “The industry-wide rate of attrition is somewhere near 2022% from the last data I have seen that was reliable. But most large firms that we work with are more in the 6-10% range annually.” T he t u r nover, it wou ld seem, stems from two major reasons. The f irst is who Redfin is hiring. The majority of current and former agents i nt e r v iewe d s a id R e d f i n marked their first job in brokerage. “It was a good way to start my career. They provided good training, and I learned the business,” said Chris Garvey, who worked in Redfin’s Chicago office as an associate agent independent contractor and now is an agent at eXp. “But I had to eventually leave. The people who stay at Redfin do not have an entrepreneurial spirit.”

NOTES FROM THE ASSEMBLY LINE On a recent earnings call, Kelman slipped this into his prepared remarks: The attrition rate of new Redfin real estate agents in the first quarter of 2021 was 53%.

ond quarter of 2020, the number of agents plunged to 1,399 partly because agents were furloughed amid the pandemic. After the 30 percent drop, the agent count rose 42% to 1,981 agents at the end of December. Agent count rose to 2,456 in June, fell to 2,370 at the end of September, then only to bounce back to 2,485 agents at the end of December. Redfin was not the only brokerage

“The people who stay at Redfin do not have an entrepreneurial spirit.” - Chris Garvey

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Redfin pulled $1.9 billion in revenue for the first nine months of 2021 with $849 million, or 44%, coming from real estate services, and an extra $54 million emanating from Redfin’s related partner agent program.

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Garvey’s point of view was echoed repeatedly, illustrating that it is not just the view of brokerage management like Poulos but the agent workforce itself. Once agents learned the ropes and got a taste of making deals, they left Redfin for a place where they could live on commissions, and be a consumer’s adviser from start to finish. It’s not that those agents necessarily get rich after leaving Redfin. It’s just that the possibility exists for a grand payoff. “When I closed a $1.9 million property with Redfin, my bonus was $8,000,” Alipour said. “I would have gotten about a $55,000 commission at a typical brokerage.” “Redfin brings in more people from outside of the real estate industry and trains them to be agents,” Arounian said. “It does limit Redfin from bringing in the highest earning agents.” The second major reason for turnover is that Redfin’s business model recalls the Sandra Bullock character of “Speed,” who steered the Los Angeles Metro bus at just the right velocity to avert disaster. It is a model that is not only too expensive, rival brokerages say, but also too unpredictable. Redfin must have enough real estate agents to meet market demand. However, they cannot have too many agents, lest they collect a salary and health care, with no leads to chase. Kelman and Redfin brass are fairly candid about this high-wire act. “Traditional brokerages don’t share this challenge,” a Redfin spokesperson explained to HousingWire. “When we hire a new agent, we’re essentially making a commitment that we’ll be able to drive enough business for them to make a good living. “Other brokerages have an incentive to recruit as many agents as possible regardless of whether those agents are able to close enough deals to support themselves because these agents pay the brokerages, not the other way around,” the spokesperson said. “When it comes to making decisions about hiring, we lean in favor of our employees, opting to hire slightly fewer agents and forgoing a few more points of market share growth in a booming market in order to protect the covenant that we have with our agents in the event the market slows down.” But the nobility of the covenant Redfin shares with its agents is arguably mitigated by the pressure those agents have to produce, no matter the housing cycle. “Redfin agents are pretty busy,” said Hooman Zahedi, a Redfin marketing manager who directs a team of agents in L.A. County’s San Fernando Valley. “We have paid vacation time, but you are an employee, and you have to produce a certain number of hours.” The former agent who was first impressed by Redfin’s mission and model, said he ultimately felt hemmed in. “Redfin was able to become a lead-generating machine,” the agent acknowledged, but added, “By the end I felt like I was on an assembly line. It was moving from a mission-driven company to a sales operation with just

a lot of monthly metrics on a white board.” A QUESTION OF CONTROL On Jan. 10, Redfin and a phone book’s worth of fair housing groups including the National Fair Housing Alliance submitted to a Seattle federal court a stipulation that the parties settlement talks were productive, and that a Fair Housing Act lawsuit against Redfin ought to be settled within 60 days. A court hearing in the second week of March may have provided some closure on the lawsuit. The fair housing groups sued Redfin 16 months ago, accusing the brokerage of offering real estate services in predominantly white neighborhoods at a “substantially greater rate than it does in communities of color.” This, the plaintiffs claim, “perpetuates the stark patterns of housing segregation that plagues our nation.” Both Redfin and lawyers representing the fair housing groups declined to comment on what the terms of the proposed settlement may look like. But a lawyer for the groups noted the lawsuit was filed to effect a significant change in Redfin company policy. That theoretically could mean anything from a small-font disclosure notice at the bottom of each listing to Kelman declaring to the world a commitment to focus sales in minority neighborhoods. A brokerage servicing predominantly white neighborhoods is not a man-bites-dog story. National brands as deep-pocketed as Redfin, including Douglas Elliman, Sotheby’s International Realty and to a lesser extent Compass cater, to people with the means to buy luxury homes. Those people tend to be white. According to the most recent Federal Reserve data, 1 in 7 white families in the U.S are worth more than $1 million, compared to 1 in 50 Black families. When Douglas Elliman and Compass entered Los Angeles, a minority majority market, their first offices were in Beverly Hills, a municipality whose population is less than 2% Black. Nary an eye was blinked — much

“What I found is that even agents with the best intentions often find themselves in the position of reproducing racially unequal incomes because racial inequality is so entrenched in the market.” - Max Besbris

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spokesperson said, adding that other brokerages, “Let each agent decide whom to serve, with some promoting exclusivity.”

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less legal action was taken — over these brokerage’s business moves. Focusing on wealthy white neighborhoods is because higher sales prices mean higher sales commissions — a bigger pie for agents and their brokerage to slice. Those were the findings of University of New Mexico sociologist Elizabeth Korver-Glenn’s reports on the Houston housing market, and University of Wisconsin-Madison sociologist Max Besbris’ book “Upsold” about the New York City market. “What I found is that even agents with the best intentions often find themselves in the position of reproducing racially unequal incomes because racial inequality is so entrenched in the market,” Besbris said over email. “Because housing is higher priced and generally there are more transactions in whiter neighborhoods, agents are far more concentrated in whiter neighborhoods and certainly their services are overwhelmingly skewed toward whiter neighborhoods.” So why just sue Redfin, particularly since Redfin’s bonus system — and thorough effort to respond to all leads — is intended to make agents less incentivized to focus on clients willing to pay top dollar? The answer lies in how the company allocates leads in markets, and how managers dole out leads to agents. A Bloomberg News ar ticle recently repor ted that Redfin’s policies can mean agents focus on leads in white, wealthy neighborhoods, while outsourcing leads in poorer neighborhoods to partner agents, who pay Redfin a referral fee if a deal closes. An independent contractor agent writing in their notebook, “Stop taking leads for homes listed for less than $400,000, it’s not worth it” is thin material for a lawsuit. A Redfin manager telling the same to its employee agents is another matter. Morgan Williams, general counsel at the Fair Housing Alliance told Bloomberg, “A price-based policy sent up a big red flag.” Redfin disputes there’s anything wrong with such a policy. “Our ability to offer service is based on price, which we believe is the only fair way to manage customer demand and agent capacity,” a company spokesperson told HousingWire. “In every industry, businesses have to choose which goods and services they sell and set the price for those services, and the Fair Housing Act allows this.” Moreover, Redfin contended that they are accessible to a broader range of consumers than all their competitors. “We’re the only brokerage that’s upfront about whether we can offer employee agent service on a particular home and we’re the only brokerage that expects our agents to serve every customer they meet equally,” the

TOMORROW’S REDFIN As Alipour’s time at Redfin progressed on, she said the company was easing up on agent expectations but not enough to deal with the rapidly shifting market. “It was a high volume of work. Agents did 4-5 escrows per month, while I usually did 2-3,” she said. “Before I left, they asked that I close at least three per quarter, which was lowered [again] to two per month. They kept lowering it, but it was so difficult to do anything in this market.” Alipour recalled one quarter last year where she wrote 21 offers on behalf of clients. One was accepted. Kelman has said he is aware of the challenges facing Redfin agents. “The primary adjustment we have is to pay more in 2022 to new lead agents who are meeting customers’ needs but still haven’t closed a sale,” Kelman said in Redfin’s most recent earnings call. “We have been more likely to lose a lead agent right out of the gate than at any other point in her tenure.” Starting this year, Redfin is paying “ramp-up bonuses” to new agents who meet milestones in submitting offers in their first 160 days. This includes $1,500 for an agent who submits over five offers in 60 days, regardless of whether the offer is accepted. Murray of RealTrends wonders whether Redfin has a sustainable long-term plan. The veteran industry consultant points out that ZipRealty, another company with a listings website and employees as agents, was briefly a real estate darling, going public in 2004. “After years of running basically the same model as Redfin, ZipRealty could no longer support the employee model due to cost,” Murray said. Realogy bought ZipRealty for $166 million in 2014. In short, the veteran industry consultant said, there’s a reason no one else is doing this model. (Not literally no one else. Mortgage lender Rocket is dipping its toes into a real estate arm, so is embattled Better.com, and prolific litigator REX also employs agents. None make the RealTrends list of top 500 brokerages by deals and sales volume, a list that Redfin is no. 5 on.) As for now, Redfin is looking to recruit more agents, while trying to hold onto a veteran core. “There are four and five times the number of agents from when I started,” said Goldberg in Charlotte. “The camaraderie has been really tough during COVID. But it is still there.”

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Title Solutions The title process is complex and time-consuming, with points of friction that can increase time-toclose for lenders and borrowers. In today’s competitive market, lenders are focused on decreasing turn-times and providing a better borrower experience.

Radian................................................. 38 WFG..................................................... 39 APRIL 2022

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The two companies featured in this section offer solutions to reduce application-to-close times and friction as well as increase transparency in the title process.

- SPECIAL REPORT -

Sponsored Content

FG National Title Insurance Company (WFG) is a wholly owned subsidiary of Williston Financial Group and a national title insurance underwriter dedicated to taking time and cost out of real estate transactions. By focusing on its clients and their processes, WFG helps compress the time required to close a loan and/or transfer real property ownership. By empowering industry professionals with integrated technologies, WFG provides efficient, high-quality products and services through four key divisions: Direct Operations, Agency Operations, Lender Services and WEST, its technology and digital marketing subsidiary. WFG develops solutions in direct response to industry concerns solicited through regular engagement with its Executive Roundtable (ERT) of C-suite lending executives. The company ’s post-transaction customer surveys and Net Promoter Score program rankings consistently reflect high marks for customer satisfaction across all divisions. This ongoing engagement is an example of WFG’s foundational pledge to “Communicate, Collaborate, Coexist.” “Through our Executive Round Table (ERT) and the customer surveys we conducted in 2020 and 2021, we found that the biggest pain point for lenders — especially during the last few years’ record-high volumes — was turn-times,” said Dan Bailey. “That, plus challenges with capacity, as well as technology integration and implementation, continue to inform WFG as we develop new solutions that address our customers’ needs.” WFG Lender Services offers a comprehensive portfolio of end-to-end origination products and services supported by: • • • • •

Real-time pricing One-touch ordering One point of contact LOS integration and delivery Consistent, world-class service

W F G ’s M y H o m e , B l o c k s , a n d DecisionPoint products a re per fect examples.

DecisionPoint instant title decisioning has provided a boost for WFG clients by reducing application-to-close times and loan fall-out. It analyzes property encumbrances and applicant circumstances, immediately grades the time needed to clear title and projects a completion time based on a customizable rating system. The result is delivered promptly with a pre-title report. DecisionPoint offers immediate title clearance for about a third of U.S. properties. WFG’s Agency division operates a program called WFG Blocks, which offers title agents direct access to many of the services WFG has developed for its own operations. The six modular programs, or Blocks — Compliance Services, an Expense Management program, Human Resources, Information Security, Marketing and Sales, and Title and Settlement Services — are available as-needed, at any time and in any combination, without long-term or minimum commitments. “The Blocks program provides a way for agents to move fixed costs to variable costs so that they are able to save money and greatly reduce overhead,” said Patrick Stone. WFG’s MyHome streamlines the resale process and enhances consumer satisfaction by eliminating duplicate touch points, providing real-time status updates, enabling proactive communication and facilitating data and document collection, storage and sharing. Additionally, MyHome Funder Dashboard gives lenders and closers instant insight into the history and status of every loan in their pipeline, as well as the steps remaining before they can get to the closing table. “While taking time and cost out of the real estate transaction, we are empowering the Realtor, lender and consumer with greater transparency and new technologies, including digital closing,” said Steve Ozonian. “When we all know where we stand and what’s required to close the transaction, we expedite the process and eliminate errors. DecisionPoint, MyHome and others accomplish this and, most importantly, create a better experience for the consumer, which benefits everyone involved.”

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WFG wfgtitle.com

THE EXECUTIVES:

PATRICK F. STONE, FOUNDER AND EXECUTIVE CHAIRMAN, WILLISTON FINANCIAL GROUP Since 2010, Patrick has led WFG through rapid national growth, driven by a mission to remove time and cost from the entire real estate process through communication, collaboration and technological innovation.

STEVE OZONIAN, CEO AND PRESIDENT, WILLISTON FINANCIAL GROUP With a track record of leveraging technology to engineer dramatic growth, Steve has led WFG to near-$1 billion revenues in 2021 and current reserves of $174 million.

DAN BAILEY, SVP, WFG LENDER SERVICES & WFG ENTERPRISE SOLUTIONS Dan runs operations for WFG Lender Services, heads Enterprise Solutions’ national sales team, and has expanded the division’s client base while providing worldclass customer service and solutions.

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WFG reduces time and cost in real estate transactions

TRADE DESK

Trade associations from across the housing industry are on the front lines of issues that lenders, real estate agents and everyone in between face every day. In these letters, they give their members an inside look at what they are working on, and the most important issues facing each industry today.

AIME......................................41 MBA ......................................41 NAHB ....................................42 NAMMBA...............................42

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NAR.......................................43

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TRADE DESK

Marc Summers

President Association of Independent Mortgage Experts

AIME members, As we enter April, many consumers are beginning to explore their options for homeownership in preparation for the purchase season ahead. Financial Literacy Month, which kicks off this month, is a perfect time to educate borrowers on money management. As a mortgage loan originator heading into an unprecedented season, you may encounter borrowers with less than stellar financial resources who require your expertise in navigating the largest purchase of their lives. Remember, we are able to provide more than just information about rates as advisors to borrowers. As independent mortgage brokers, we pride ourselves in providing a personalized experience to our borrowers and financial education is an increasingly important part of our role

as fiduciaries. Prospective homebuyers may have a basic understanding of obtaining a mortgage and PITI, but they may not know about the best loan products to fit their needs, home affordability, down payments and amortization. By sharing saving concepts, credit health tips and numeracy skills, we are instilling them with long-term buying confidence for the future. Together, we can lead the way in educating local communities about financial literacy. With access to a variety of wholesale lender partners, brokers can tailor a range of products and have increased flexibility to help clients with a wide range of credit scores. My challenge to all originators out there is to establish a plan of ongoing financial education with new or returning clients to help them work toward their American dream.

Association of Independent Mortgage Experts

Mortgage Bankers Association

Robert Broeksmit President and CEO Mortgage Bankers Association

APRIL 2022

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MBA members, One outcome of the pandemic has been the growing adoption of technology across mortgage lending. From e-Signatures to Remote Online Notarization, to eClosing and eNotes, lenders, their customers and their counterparties are going digital more than ever before. Now that lenders have the tools, why hasn’t the digital mortgage supplanted the stacks of paper that have long characterized our industry? One answer is that we have lacked a central source of information on how digital an individual loan can be at the transaction level. MISMO, our standards organization, is answering this challenge. MISMO is launching an e-Eligibility Exchange, powered by Snapdocs. This central resource provides access to criteria that impact digital closings, including counterparty requirements, eNotarization regulations, county recording requirements, settlement agent readiness and title underwriter restric-

tions. And it’s available for free to MISMO members. This is just one example of how MISMO standards are helping to scale a fully digital, end-to-end mortgage process. Other crucial initiatives include Version 3 of the MISMO SMART Doc standard, which is verifiable, and an update of MISMO’s widely used RON standards. This work is possible due to MISMO’s funding mechanism, the Innovation Investment Fee. Last year, more than 1,500 lenders of all sizes and business models invested in MISMO’s work by paying the Innovation Investment Fee. I encourage lenders’ continued support and thank you for it. Through MISMO, the industry will benefit from truly going digital — at scale.

Jerry Konter

Chairman National Association of Home Builders

National Association of Home Builders

TRADE DESK

NAHB members, Those of us in the residential construction industry are keenly aware of the chronic skilled labor shortage. In fact, a survey of National Association of Home Builders members shows it’s one of the top challenges they face, with more than two-thirds ranking it as one of their biggest challenges. This makes it more difficult for builders and remodelers to complete projects on time and drives up housing costs. A recent study by NAHB economists found that the industry will need to add more than 740,000 workers a year just to keep pace with the industry’s growth and worker retirements. To make progress toward filling that gap, NAHB and the Boys & Girls Clubs of America announced an extraordinary agreement at the 2022 International Builders’ Show in Orlando in February. The new collaboration will introduce the na-

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NAMMBA members, The real estate and finance industry thrives on one-to-one connections. And there is no better way to get that connection than participating in the largest real estate and finance-focused event of the year — CONNECT 2022. CONNECT 2022 kicks off September 15-17 in Orlando with three days of networking, conferences, thought leadership speakers, roundtables, a dynamic exhibition hall — the list goes on and on. Due to increased vendor and participant demand, NAMMBA has doubled its space for 2022 and changed the venue to the JW Marriott Bonnet Creek Resort & Spa, just outside Disney World. If you have a stake in the real estate industry, you are invited to attend, sponsor and exhibit. Attendees, sponsors and exhibitors run the gamut from lenders to fintech, real estate to title insurance, MI to notaries. CONNECT is “the room where it happens” for everyone in the industry.

tion’s youth to the many benefits of a career in residential construction by connecting them to individuals in the industry, supplying them with work-based learning activities and providing access to essential skills development programs to further their career exploration. NAHB and its members must continue to play a major part in changing the stereotypes about the building trades. That includes making sure parents, teachers, career counselors and the general public are aware that a career in the housing industry is a viable alternative to a four-year college degree, that jobs in the industry have high earning potential and that the housing industry is hiring. I encourage you to review the workforce development resources available at nahb.org, including updates to the Careers in Construction Toolkit. Together, we can build the next generation of skilled trade workers and keep our industry strong.

“Whether you are a vendor, a provider, a lender or whatever the role is, you can really learn to be more aware and better-equipped to drive the right strategies for your relevant area of focus with NAMMBA,” said Puja Agrawal, chief operating officer of Americas at Finastra. CONNECT 2022 is about humanizing our industry and building relationships between companies and individuals. There is nothing I love to see more than a handshake between two companies agreeing to do business together on the exhibition floor. Hosting the event near the Magic Kingdom? That’s just icing on the cake. NAMMBA Founder/CEO Exhibition space and sponsorNational Association of Minority Mortship placements are filling up gage Bankers of America fast, so don’t leave it until the last minute. You have to start planning now.

Tony Thompson

National Association of Minority Mortgage Bankers of America APRIL 2022

TRADE DESK

NAR members, As the housing industry commemorates the passage of the Fair Housing Act, this is a great occasion to highlight the efforts of the NAR to close the nation’s persistent and highly problematic racial homeownership gap. In 2020, NAR was a founding member of the Black Homeownership Collaborative, contributing to its 7-point plan to create 3 million net-new Black homeowners by 2030. Together with the Mortgage Bankers Association, the Urban Institute, the NAACP, National Urban League and others, NAR is helping chart a course toward this bold and ambitious goal. There are numerous obstacles keeping the Black homeownership rate stubbornly low, including low levels of intergenerational wealth, lack of access to credit and lack of knowledge. An essential part of this plan, known as 3-by-30, is down payment aid. Because many Black Americans were historically excluded from homeownership due to discriminatory housing policies, too many of these households have been left unable to accumulate wealth and capital like their white counterparts, leading to racial wealth gaps. The 3-by-30 initiative proposes a sustainable and targeted down payment assistance program that will address these disparities and strengthen the wealth-building capacity for millions.

Homeownership counseling is another essential element of the plan. Pre-purchase counseling for home shoppers would help educate and prepare them to enter the market. We also want to arm homeowners with post-purchase counseling, too, to help sustain homeownership over the long run. The plan also addresses housing production, as the present inventory shortage overwhelmingly impacts first-time and lower income buyers. Owners have difficulty accessing credit to rehab dilapidated housing in distressed communities where vacant properties sit underutilized. This discourages investments and leads to a cycle of decline. Take a look at the Collaborative’s full plan at 3by30.org. It elaborates on what I’ve mentioned here and discusses the remaining components: credit and lending, civil and consumer rights, President homeownership sustainNational Association of Realtors ability and marketing and outreach.

Leslie Rouda Smith

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MORTGAGE

APRIL 2022

MORTGAGE

As the market shifts to purchase, LOs get creative LOAN OFFICERS FIND POTENTIAL CLIENTS WITH CREATIVE ADVERTISING AND INFORMAL NETWORKS

ar yland has over a dozen E a s t e r n European stores that sell products, l i k e c a v i a r, pumpernickel bread and salo — a Ukrainianst yle bacon. Apart from selling produce that is popular in former Soviet countries, these stores represent a marketing opportunity for Alex Naumovych, a loan officer at Draper and Kramer Mortgage Corporation. Just before a customer buys a container of premade borscht, they see Naumovych’s business cards and flyers that lay neatly near the checkout area. This advertising strategy, among a handful of others, has helped the LO connect with Russianspeaking Realtors and win the business of

“I have my business cards everywhere because the more people that see your cards and face, the better.” - Alex Naumovych

APRIL 2022

borrowers from former Soviet countries. “I have my business cards everywhere because the more people that see your cards and face, the better,” Naumovych said. “Borrowers have called me from seeing my advertising in the stores and a couple of Realtors, too.” According to the Mortgage Bankers Association’s yearly forecast, purchase mortgage originations are expected to grow by 9% to $1.73 trillion in 2022, while refinance origination will dip by 62% to $860 billion from $2.26 trillion in 2021. The reasons for the dip in refis this year, the trade group said, will stem from higher mortgage rates — which have already eclipsed 4%, faster than the projections — and fewer eligible homeowners. With the market shift, LOs whose businesses were mainly driven by refinances in 2020 and 2021, must quickly shift gears and figure out ways to bring in purchase leads. LOs interviewed by HousingWire say that they have actively ramped up their attempts to connect with prospective borrowers and real estate agents.

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BY MARIA VOLKOVA

MORTGAGE

Some LOs are making inroads with potential clients through use of social media, leaning on their multilingual skills and doing old-fashioned cold calling. Meanwhile, others worry that they will soon wash out of the industry.

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C Christian Hernandez, vice president of mortgage lending at Guaranteed Rate, has leaned heavily on social media platforms to generate new leads and build relationships with borrowers and real estate agents. In a TikTok video with “Call Me Maybe” playing in the background, Hernandez — who’s based out of Arizona— includes subtitles that have her contact information instructing borrowers to reach out to her. The mortgage-related content that she makes on her TikTok is then uploaded to her LinkedIn and Facebook profile. Hernandez said that about 30% of her leads flow in from her social media outreach. “I actively use social media and I have built my brand this way,” Hernandez said. “Once I saw how easy it was to generate content through TikTok and use voiceovers and music, I even started connecting with people on an emotional level.” She added, “The mortgage process can be very intimidating for people, and especially right now, there is so much competition. But by putting myself out there and connecting my face to the name and showing borrowers that there is an actual human being with emotions, that has had an impact on my business."

“Once I saw how easy it was to generate content through TikTok and use voiceovers and music, I even started connecting with people on an emotional level.” - Christian Hernandez

APRIL 2022

Naumov ych, in an inter view with HousingWire, explained he uses his connections to the Eastern European diaspora and his knowledge of the Ukrainian and Russian language to generate new leads. The LO markets himself at Ukrainianowned businesses, the Ukrainian Orthodox Church and at Ukrainian festivals, which happen every year in Silver Spring, Md. “I have my own booth at the festival,” said Naumovych. “During the festival last year, 40 people gave me their contact information, and I’ve been in touch with them. The pastor of the Ukrainian church is currently looking to buy a house and I’m working on his pre-approval.” Fahad Janvekar — an LO at Fairway Independent Mortgage — speaks Hindi and Urdu, and he relies on being the “fixer” in his community to connect him with prospective borrowers. “This guy is a fixer, and he fixes people’s problems, whatever they are,” said Janvekar. “He’s great at recalling people, and he directs me to talk to people that may be looking for a mortgage in the community.” Hernandez, who speaks fluent Spanish,

MORTGAGE

Though there are many creative avenues to get business, cold calling and appearing at open houses to connect with real estate agents is here to stay, LOs told HousingWire. A sales manager — who requested anonymity — said he helps newbie LOs by reviewing their strategies to pull in business at open houses. Additionally, he said that he helps his LOs clean up their social media pages and sets up plans for them to be more active in marketing themselves. “There’s a million places you can get business. Whether it’s social media, online networking, in-person networking, Realtors, financial planners, it’s finding where you haven’t explored yet,” said the manager. Janvekar on the other hand, who has been an LO for over a year, reaches out to human resource personnel and benefits managers at mid-tiered companies that don’t have “a full-fledged relocation setup.” “I’m get ting on their radar and consistently communicating with them and introducing myself,” Janvekar said. “My strategy is different, and it’s a slowburn strategy.” Janvekar hopes to see the fruit of his labor come to fruition in the spring and summer, when borrowers are most likely to move. However, some newcomers to the industry haven’t been lucky in growing their book of business.

“There’s a million places you can get business. Whether it’s social media, online networking, in-person networking, Realtors, financial planners, it’s finding where you haven’t explored yet.” La Toya Davis, LO at mortgage broker shop Right Now Mortgage, LLC, noted that in her year as a certified LO, she has not had the guidance she believes is necessary to be successful in a purchase market. “It has been very, very slow,” said Davis. “I posted a few times on Facebook and was connected with a Realtor and we closed four purchase deals with her since I started with the company.” However, Davis’ relationship with the agent turned sour, and she has not yet been able to develop relationships with other agents. “I’m in the process of going to work for a new company where they will train me and teach me the tools of how to be a successful loan officer,” she said.

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also said she uses her multilingual capabilities to connect with more borrowers. However, she noted that she doesn’t limit her outreach to only the Hispanic diaspora and wants to be inclusive.

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POLITICS & MONEY

APRIL 2022

POLITICS & MONEY

In wake of scandal, LOs give continuing education programs failing grade COURSE CONTENT IS JUST A “REHASHING” OF RULES AND REGULATIONS BY MARIA VOLKOVA

questions about the effectiveness of the continuing education programs. Roughly a dozen LOs and instructors told HousingWire that current education courses teach the same mortgage ethics and regulation guidelines that they already know and do very little to teach them skills they need for dayto-day work. In short, they say, the classes are not particularly relevant and represent a big missed opportunity.

f you’re a mortgage loan officer with a decade of experience in the industry, you have likely spent over 80 hours in continuing education (CE) courses. Per regulations put into place by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) and enforced by the Nationwide Mortgage Licensing System and Registry, every loan officer must spend an average of eight hours on an annual basis to recertify their national license. The hours spent on continued education should be useful. Tricky situations can arise in mortgage lending, especially when navigating less-common products or originating non-agency loans. Continuing education classes represent an opportunity for LOs to their sharpen skills. But a 26-state federal investigation that penalized 400-plus LOs for effectively cutting class raises

The very people responsible for delivering the classes say the material could use some updating. CE instructors say the NMLS — owned and operated by a subsidiary of the Conference of State Bank Supervisors — requires them to annually recite and cover regulations, such as the Truth in Lending Act, Equal Credit Opportunity Act and the

APRIL 2022

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POLITICS & MONEY

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“All the rules and regulations have pretty much been implemented and now we’re just rehashing the same rules and regulations.” - John Jeha

Real Estate Settlement Procedures Act (RESPA). John Jeha — an LO at Stonecastle Mortgage who also works as a CE instructor — explained that after new regulations were introduced in 2011, it took about five years for them to be fully implemented and that educators were happy to “flesh it out and instruct the loan officers.” “All the rules and regulations have pretty much been implemented and now we’re just rehashing the same rules and regulations,” Jeha said. LOs often lose focus during CE classes, he told HousingWire. Meanwhile, Ken Perry — founder of the Knowledge Coop, a continuing education company — agreed educators simply aren’t keeping it fresh. “They’re doing the same exact training every single year, ” he said. “They aren’t delivering the latest information.” Rich Madison, vice president of cre dentialing and ac cre ditation programs at the Conference of State Bank Supervisors, wrote in an email that his experience with MLOs “is that the vast majority take CE requirements very seriously” and that if some LOs are not “getting enough out of a school, [they should] shop around and find another one that will better suit [their] career needs. “We’re always pushing schools to make courses more relevant and engaging,” Madison said. “It would be interesting to see scenario-based learning where the content of a course is delivered around discovering the needs of a customer and how the customer scenario presents challenges in the areas of loan products available, fair lending, qualif ying requirements or any number of other potential real-world factors. We would welcome the opportunity to approve courses with a creative take on how they design and develop content.” Loan officers and instructors alike

say that apart from learning regulations, LOs should also be equipped with “esoteric financial knowledge” and an understanding of how to work with borrowers. “The curriculum is not directly relevant to ensuring the licensed individual possesses the intellectual tools needed to create informed consumers when dealing with the professed ‘largest financial transaction’ of their lives,” said William Kidwell, a loan officer at Intelligent Investments, LLC. Kidwell added, “The federal law and the law as adopted by the states set a woefully low bar and certainly has little education related to being in a position to advise consumers on difficult balance sheets, cost versus debt and debt service parameters.”

CE classes are taught by private companies that set up their own educational platforms, which then get approved by the NMLS and the states. According to instructors who teach CE classes, the price for taking these classes ranges between $20 to $150, and the courses are taught based on a laundry list of topics that the NMLS supplies. To access the NMLS platform, LOs must also pay a $30 annual fee. “The whole premise of CE was in response to the Great Recession [and] was introduced in part because of issues with housing [and the need] to protect consumers,” said one California-based LO who requested anonymity to speak

APRIL 2022

freely. “And in order to protect consumers you need to make sure that LOs are ethical, hence the implementation of background checks and credit reports.” The SAFE Act, apart from requiring continuing education, implemented requirements that all MLOs must submit fingerprints to the NMLS for a criminal background check. LOs must also provide authorization for NMLS to obtain an independent credit report. The LO who requested anonymity said that instead of focusing on regulations, continuing education should drill down on topics that can help LOs in their day-to-day jobs. For example, teaching LOs customer service and going over niche products like asset depletion on conventional loans, delayed financing and renovation products.

“They’re doing the same exact training every single year. They aren’t delivering the latest information.” - Ken Perry

POLITICS & MONEY

Continuing education came under the spotlight after a multi-state investigation determined more than 400 mortgage loan originators falsely claimed to have completed an annual continuing education requirement. As a result, LOs in 42 states who settled with state regulators will have to dole out an average of about $2,700 each — $1,000 for each state they are licensed in — for skipping the annual eight-hour course. They must also surrender their licenses for three months and take additional educational programs. The 26-state investigation, which the California Department of Financial Protection and Innovation led, picked up on the discrepancies using a digital tool to check fulfillment of NMLS requirements. The 426 LOs implicated in the investigation all paid for educational programs from Carlsbad, California-based firm Real Estate Educational Services (REES), headed by Danny Yen. Yen was accused of concocting schemes in which he either took the classes in exchange for compensation, or gave LOs class credit without requiring them to show up to class. Part of the penalty stems from REES offering online courses — like a three-hour one on fair housing and discrimination laws — but only being licensed to give in-person classes. However, officials said there was no evidence consumers were harmed by LOs skipping the continuing education courses. Yen did not respond to HousingWire's request for comment. Jeff Anderson — a broker and owner based in California — said it doesn’t mean broader malfeasance didn’t occur. “There are rules in every facet of the mortgage business that loan officers and

"There are rules in every facet of the mortgage business that loan officers and lenders must follow. Some don’t follow the rules and/or they look for shortcuts to circumvent them." - Jeff Anderson

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lenders must follow. Some don’t follow the rules and/or they look for shortcuts to circumvent them,” he said. “These 400 loan officers are just the ones that got caught in a specific scam. If an LO is willing to cheat on CE, it’s logical to me that they’re cheating in other areas as well. It’s nice to hear the regulator say ‘there’s no evidence that any loan generated by these 400+ LOs caused consumer harm.’ But, I’m not convinced it’s true just because the regulator said so. How can they be sure? Did they audit 100% of the loans originated by these loan officers during the past year? Did they interview every borrower? Did they investigate their referral relationships for possible RESPA violations? I doubt they did any of these things.” The California Department of Financial Protection and Innovation did not respond to HousingWire's request for comment. One LO told HousingWire that he’s not surprised that some opted to quickly settle, stay on ice for three months and then move on. Continuing education “is nothing but a big waste of time and a money grab,” he said.

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SECONDARY MARKET

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SECONDARY MARKET

Home-equity investment pioneer Unison taps the secondary market

THE COMPANY RECENTLY CLOSED A $443M OFFERING AND PLANS THREE MORE DEALS FOR 2022

an Francisco-based fintech c o mp any — U ni s o n — recently completed a $443 million private-label offering backed by an emerging class of home-equity assets in which investors and the homeowners share in both the upside and downside of a property’s value over time. Unison expects to bring three additional securitization deals to market in 2022, according to a company executive. The company, through its fintech platform, offers homeowners the opportunity to tap their home equity without taking out a loan — via Unison’s shared home-equity product called a residential equity agreement (REA). Unison, launched in 2004, joins another Californiabased fintech competitor, Point, in pursuing efforts to tap the secondary market to create more liquidity for the financing of shared home-equity contracts. This past fall, Point partnered with Redwood Trust to

"This transaction offers the opportunity for investors to access residential real estate equity and increases liquidity for homeowners across the country..." - Unison

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complete what they described as a first-of-its-kind $146 million securitization deal backed by contracts that are similar to REAs. Bo Stern — head of portfolio strategy and risk for Mill Valley, California-based Redwood Trust — described the Point securitization deal at the time as involving “a new asset class that allows both consumers and investors to access one of the biggest markets in the world” — specifically, the massive homeowners’ equity market. “Home prices have been increasing rapidly over the past year, creating a record $24 trillion of wealth,” Unison said in announcing its new securitization transaction, which closed in late December 2021. “This transaction offers the opportunity for investors to access residential real estate equity and increases liquidity for homeowners across the country looking to monetize the equity in one of their most valuable assets — their homes.” The joint underwriters for the Unison securitization deal, conducted through the conduit Unison 20211, were Nomura Securities and Barclays Capital.

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BY BILL CONROY

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SECONDARY MARKET

Matthew O’Hara — head of portfolio management and research at Unison Investment Management — which is under the Unison umbrella, confirmed that three additional securitization deals are in the works for this year. “They probably won’t be as big as the current one,” O’Hara said, “but... assuming home prices continue to appreciate as they have been historically, then the [securitization] deal side will have to grow commensurately.” Unison, through an REA contract, advances the homeowner a portion of the equity in the property in exchange for a lien position and a share of the home’s future appreciation. Unison also shares some of the downside if the property loses value over the course of the contract. U ni s o n , t hro u gh i t s re c e nt l y announced of fering, Unison 20211, is securitizing existing REA assets it originated and are now held in an investment fund managed by the company. O’Hara said Unison is currently in discussions with a couple of bond-rating firms to help determine the best framework for rating future REA securitizations — with the goal of having a rating agency review Unison’s third REA securitization planned for this year. “Mortgages have existed for 2,000 years, and there’s even a reference to them in Roman writings,” O’Hara

said. “So, the idea of a mortgage is well understood and it’s a huge multi-trillion dollar market. “ We [the shared home - equit y industry] are not a multi-trillion market. We’re smaller and, as a result, [rating agencies] have to understand what the [REA] contracts are, and how putting them into a pool, chopping them up and selling it in bonds behaves on top of those contracts.” The total value of homes Unison has invested in across 200 metro areas exceeds $5‌ billion, according to its website, and those assets continue to grow. The company currently has some 8,500 residential equity agreements in place, according to O’Hara, and that number is projected to approach 12,000 by year’s end. The total asset value of Unison’s REA assets now stands at $1.3 billion, according to the company, up from $165 million as of the first quarter of 2018 — with the annualized net return on REA assets under management since 2010 averaging 16.3%, according to the company. “So, I’m responsible for Unison Investment Management, which is part of Unison, and what we do is we raise money from institutional investors primarily,” O’Hara said. “That’s where the money comes from to fund [the REAs].” As part of a Unison’s REA product, the company will invest up to 17.5% of a home’s value after a 2.5% riskadjustment haircut on the value of the property. The company and homeowner then share in any appreciation, or depreciation, of the home’s value over the course of the contract. The homeowner has up to 30 years to pay off the initial investment, plus Unison’s appreciation cut, through a sale or refinancing of the home — or

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"Since this [HEI securitization] deal was the first of its kind, we are still determining the next deal size and frequency of future securitizations." - Bo Stern

SECONDARY MARKET

through a contract buyout after athreeyear lock-in period. As part of the REA, Unison’s share of the home’s appreciation can range from 20% to 70%, depending on the size of the equity investment advanced. “We’re sitting in an equity position side by side with the homeowner,” O’Hara said. “So, if the price goes up, the homeowner benefits, and we benefit as well. “If the price goes down, the homeowners are losing some of their equity, but we are also losing equity in our position at the same time.” Although each has slight variations, Unison’s REAs are similar to shared home-equity contracts offered through other companies competing in the space, including fintech Point, which describes its product as a home-equity investment contract, or HEI. The Redwood/Point HEI-backed securitization deal, which closed in late September 2021, involved issuing $146 million in securities through a conduit dubbed Point Securitization Trust 2021-1. “We expect to be back in the market sometime nex t year,” Redwood ’s Stern said in 2021 at the time the deal was announced. “Since this [HEI securitization] deal was the first of its kind, we are still determining the next deal size and frequency of future securitizations. The decision will be contingent on many factors, including market conditions, origination outlook, etc.” Like the Redwood/Point offering, the bondholders in the Unison deal will get paid a monthly coupon from the cash flow generated by contract pay-offs. O’Hara said the Unison securitization deal assumes an annualized REA contract

turnover rate of 12% to 15%. “If payments come in earlier or there’s a higher HPA [home price appreciation], that will be used to pay down the bonds ahead of the expected call dates,” O’Hara said. As for Redwood, officials there declined to discuss at this time whether the company is pursuing any HEI-backed securitization deals for 2022, anticipating an earnings release on Wednesday, February 9. O’Hara added that in the case of Unison, the securitization market is an optimal way for the company to decrease its cost of financing while also creating more liquidity, with the goal of lowering REA costs for homeowners. “Obviously, we want to be able to finance our positions less expensively,” O’Hara said “The goal here, however, is not to make it cheaper for us to maximize the return. Rather, it’s to lower the cost of financing [and thereby] lower the cost to homeowners over time, so more people will find it attractive to do an REA contract. “The investors will still get a return similar to what they’re getting today, but homeowners get a better deal, so it’s cheaper for them. And everybody’s happy.”

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“The investors will still get a return similar to what they’re getting today, but homeowners get a better deal, so it’s cheaper for them. And everybody’s happy.” - Matthew O’Hara

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APPRAISAL & VALUATIONS

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APPRAISAL & VALUATIONS

Like it or not, desktop appraisals are here to stay INDUSTRY STAKEHOLDERS ARE TAKING A WAIT-AND-SEE APPROACH

e s k t o p appraisals arrived in March of 2020, allowing the housing market to keep humming while m a ny s t aye d indoors to

prevent the spread of COVID-19. Allowing appraisals without a walk-through was one of several flexibilities the Federal Housing Finance Agency (FHFA) allowed in light of the pandemic. Use of desktop or exterior-only appraisals peaked in April 2020, reaching as high as 17% in some places. By the end of 2020, FHFA signaled publicly it was considering hybrid appraisals on a permanent basis, following proposals from both Fannie Mae and Freddie Mac. In a December 2020 request for information, FHFA highlighted potential benefits of desktop appraisals, including assisting training of new appraiser

Appraisal modernization and digitization, specifically the launch of desktop appraisals, can offer different career opportunities for a new generation of appraisers.

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trainees and alleviating appraiser shortages in rural and high-volume areas. It also pointed out potential pitfalls of a non-traditional approach. There were risks, FHFA wrote, because a “uniform regulatory framework does not exist at both the state and federal levels that holds non-appraisers accountable for their work on appraisals.” A recent federally commissioned report further detailed the appraisal industry’s dysfunctional regulatory regime. But any risks appear to have been resolved. In October 2021, FHFA Acting Director — Sandra Thompson — announced to a crowd of mortgage industry professionals that desktop appraisals would become permanent starting early in 2022. In January, Fannie Mae said it would start accepting desktop appraisals, where an appraiser would not have to perform a walk-through, for some agencybacked loans after March 19. The option is limited to purchase transactions, secured by a one-unit principal residence with a loan-to-value ratio of no more than 90%. Loans for

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BY GEORGIA KROMREI

APPRAISAL & VALUATIONS

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"Desktop appraisals still hold the appraiser responsible for getting the correct information." - D. Scott Murphy

second homes, investment properties, cash-out refinances, construction loans, multi-unit properties, renovation loans, condos, co-ops or manufactured homes are not eligible. Any loan application flagged as ineligible by Fannie Mae’s automated underwriting system will have to use a traditional appraisal. A Fannie Mae spokesperson said appraisal modernization and digitization, specifically the launch of desktop appraisals, can offer different career opportunities for a new generation of appraisers. Appraisers could earn more by doing more appraisal reports, the spokesperson said, spend less time and money traveling to appointments and could more easily work from home assisted by remote data collection. The new policy is welcomed by lenders, who often view appraisals as a “pain point” and have sought to reduce turn times. But there is at least some skepticism of desktop appraisals from appraisers themselves. D. Scott Murphy — CEO of D.S. Murphy and Associates Real Estate Appraisers and Consultants — raised concerns about bearing the liability for an appraisal, but relying on second-hand information. “Desktop appraisals,” he said, “still hold

the appraiser responsible for getting the correct information. “The only dif ference is that the appraiser is not required to visit the proper t y,” Murphy said. “ That is completely different from doing a traditional desktop appraisal, which is done on an abbreviated form with all kinds of exceptions and clauses to protect the appraiser when he has to make certain assumptions.” Although appraisers can do desktop appraisals from a remote location, they must have accurate floor plan data. However, where appraisers get a reliable floor plan sketch is somewhat of a gray area. Few listings — only about one in 10, according to Ken Dicks, director of appraisal compliance and initiatives at Reggora — include that data. The need for accurate floor plan data could indirectly spur the appraisal industry to replenish its dwindling ranks, by giving something for appraiser trainees to do. Trainees could collect the data and be paid for providing a useful service. Since trainees are not allowed to do appraisals without the supervision of a licensed appraiser, appraisers have little incentive to take them on. But relying on other sources for the

data needed to conduct a desktop appraisal, the listing agent, for example, could be risky. Listing agents have a clear motivation to provide information that might pad an appraisal. “If the Realtor says there are hardwood floors throughout, and the appraiser puts that in the appraisal report and it’s not the case, that’s a problem,” Dicks said. Some have also touted the cost benefits that desktop appraisals could bring. A Fannie Mae spokesperson said desktop appraisals “could help make the appraisal process more efficient in a safe and sound manner and have the potential to reduce costs and time for homebuyers, homeowners and appraisers.” Lenders, the spokesperson added, are keen to “understand how to operationalize desktop appraisals because they appreciate the process

“If the Realtor says there are hardwood floors throughout, and the appraiser puts that in the appraisal report and it’s not the case, that’s a problem." - Ken Dicks

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efficiencies and potential cost savings for borrowers.” But Sean Pyle — president of appraisal management company Valutrust Solutions — says he’s already dealing with pressure from lenders who are expecting desktop appraisals to reduce their costs too. “My counsel to clients I speak with is, ‘Don’t think about this in any other terms than potential time savings,’” Pyle said. “Don’t try to wrap cost savings into this.” There’s an assumption, he said, that because appraisers could produce an appraisal more quickly, it should be cheaper. But appraisers, not lenders, assume the liability for producing a complete report. “There’s still some battle scars from 2006 to 2009 where appraisers were made to be the scapegoats,” Pyle said. “But it wasn’t an appraiser deciding to loan 125% of a home’s value for a 3/1 adjustable rate mortgage. The lenders may not like the appraisal process, but they aren’t the ones taking on the risk.” Appraisers are also likely to balk at another pay cut. In the years after the Great Recession, appraisal management companies proliferated, which ate into appraisers’ compensation.

Lisa Rice — CEO of the National Fair Housing Alliance — has observed in many sectors of the mortgage industry that cutting costs can also come at the expense of quality. Oversight, in those cases, becomes extremely important. “Every time you’re paying someone on the ground less, what does that mean about the quality? That lets you know that you really have to be on your p’s and q’s to make sure the quality is there,” said Rice. For now, however, industry observers are taking a wait-and-see approach with desktop appraisals. Kroll Bond Ratings Agency, in a January 2022 pre-sale report, said they gave a “broad valuation haircut” to all loan pools with appraisal waivers. Jack Kahan, senior managing director for residential mor tgage-backed securities at Kroll, explained they performed the haircut because “there is no third-party value provided to KBRA to substantiate the lender value.” For loans with desktop appraisals, however, Kahan explained there is no discount. Although he said that for loans with desktop appraisals or appraisal waivers, it’s possible that could change “in either direction for either product” as they evaluate performance over time and gather more data. “For loans with desktop appraisals, since they are per formed by licensed appraisers, follow appraiser independence requirements, among other reasons, we generally do not haircut values.”

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APPRAISAL & VALUATIONS

NON-QM

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Non-QM APRIL 2022

NON-QM

Excelerate Capital is accelerating its growth in the non-QM market THE LENDER PLANS TO ADD HUNDREDS OF NEW EMPLOYEES BY BILL CONROY

“And one of our strategic plans for our growth is we’re really bolstering up our retail division in 2022.”

"With the Castle acquisition and tech integration now completed, our intent is to lend nationwide in the non-QM market." - Thomas Yoon

APRIL 2022

Yoon said Excelerate is now in the process of building up a “huge team of distributor retail groups” on top of the Castle brick-and-mortar retail network, adding that Castle, at the time of its acquisition, “was more of a shell” with only a handful of employees. “We will be hiring retail guys that carry our flag through the Excelerate branches, but they’re not only in California,” Yoon added. “The bulk of them are in different states, like Florida, Texas, Washington, Arizona and Virginia. “We need to have footprint outside of [California]. They’ll be based at brick-and-mortar branches and going out into their communities and building customers for Realtors and affinity partners.

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alifornia-based Excelerate Capital — a long-time non-QM lender with a growing market presence — finalized its acquisition of Castle Mortgage Corp. in early 2021 as part of a larger plan to expand its origination reach beyond California — with the goal of creating a national lending footprint. That plan is now in full motion and, if successful, will double the lender’s origination volume this year, compared to 2021 — most of it in the non-QM space. It also will result in Excelerate nearly doubling its workforce and lead to its debut in the private-label securities market, according to Excelerate President and CEO Thomas Yoon. “In the past, we did 97% of our production in California,” Yoon said. “With the Castle acquisition and tech integration now completed, our intent is to lend nationwide in the non-QM market.

NON-QM

“That effort will result in Excelerate expanding its workforce by some 300 employees,” Yoon said, adding that the lender is now “geared up to really make a push in all of the states. “We anticipate by June of this year to be right around 700 employees,” he added. The goal of that push is to expand Excelerate’s overall origination volume from around $3 billion annually now to $6 billion or more in 2022, with the bulk of those originations in the non-QM space. Yoon said Excelerate’s non-QM originations in 2021 were “north of $2.6 billion,” and that non-QM volume is projected to expand to $5 billion for 2022. “About 85% to 90% of our overall production is non-QM,” Yoon added.

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Non-QM mortgages include loans that cannot command a government, or “agency,” stamp through Fannie Mae or Freddie Mac. Non-QM loans typically make use of alternative-income documentation because borrowers cannot rely on conventional payroll records or otherwise fall outside agency credit guidelines. The pool of non-QM borrowers includes real estate investors, property flippers, foreign nationals, business owners, gig workers and the self-employed, as well as a smaller group of homebuyers facing credit challenges, such as past bankruptcies. Manish Valecha, head of client solutions at Angel Oak Capital, part of Angel Oak Companies, said the nonQM market “as a percentage of the overall market is about 10% to 12% in a normalized environment” — adding that was the size of the non-QM market in the early 2000s, prior to the global financial crisis.

"We just see the market overall growing, especially as the mortgage industry grapples with a slowdown in agency refinancing volume." - Manish Valecha

“That implies a market size [today] somewhere between $175 billion to maybe $200 billion,” he said. “We just see the market overall growing, especially as the mortgage industry grapples with a slowdown in agency refinancing volume. We see more folks turning their attention to the non-QM space, and we see volumes growing.” A tally of private-label transactions in 2021 compiled by Kroll Bond Rating Agency shows that the value of non-prime securitizations in 2021 exceeded $27 billion based on aggregate loan-pool volume. A non-prime mortgage is essentially the same as a non-QM loan. In addition, at least 25 private-label transactions collateralized by more than 27,000 mortgages valued at $14.3 billion hit the market in January of this year, based on an analysis of the flurry of bond-rating reports published over the month. The offerings were evenly divided among the major private-label buckets, with non-QM accounting for nine deals valued at more than $4 billion. “If you look at it from an origination standpoint, think about all the loan officers that were able to just refi their current pipeline, with interest rates at 3% [or lower],” Yoon explained. “It was kind of a no brainer, just low-hanging fruit. “Well, if you go to any originator and say,

APRIL 2022

NON-QM

For Excelerate, another adaptation is to find ways to build liquidity for its expanding non-QM loan pipeline. To that end, Yoon said the lender is now working to develop a private-label transaction conduit, potentially by forming some type of joint venture with a private equity fund — with the goal of pursuing up to two private-label securitization offerings in 2022. “I can’t explain the actual mechanism yet ... but we are looking at potential joint ventures,” Yoon said. “I’ve been in talks with several really big [private-equity] funds, and we’re trying to figure out a way that we can do it together in one form or another. “I’m hopeful to do at least two deals this year and probably pursue a securitization of $250 million to $300 million for each.” Yoon added that for Excelerate, as one of the early adopters of non-QM lending, it’s important to remain at the forefront of

the industry “and to educate our industry on how to do non-QM well. “There will be some challenges [for the industry] in how to navigate the waters, so I think that’s going to be really important,” he said. “The growth is going to happen, regardless. I think the pain points of entry for a lender to do it well will be a little bit more difficult than for agency [Fannie and Freddie] lending because of the manual [underwriting] nature of the [non-QM] sector.” Key to the industry’s success on the non-QM front, according to Yoon, is training the next generation of mortgageindustry professionals. “One of the ways we’ve approached it is we launched what we call the Excelerate Academy,” Yoon said. “We’re taking new people in the industry — college grads and people that we think have potential — and we’ve created a whole curriculum in our company that we are using to build the operations force of tomorrow.”

“We’re taking new people in the industry — college grads and people that we think have potential — and we’ve created a whole curriculum in our company that we are using to build the operations force of tomorrow.” - Thomas Yoon

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‘Hey, 63% of your refi business is going to die this year,’ and let’s say 70% to 80% of their production was refi, how are they going to make a real living? They have to start learning how to adapt to their environment, and non-QM happens to be one of those [adaptations].”

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HOMEBUILDERS

APRIL 2022

HOMEBUILDERS

“It’s crazy”: Homebuilders big and small struggle to finish projects BUILDER CONFIDENCE REMAINS HIGH EVEN AS BUILDERS QUESTION IF THEY CAN KEEP UP WITH DEMAND

“Every day is a roller coaster clause,” Noel said. “Lumber is of course a big one that people across the country saw, but we are seeing it everywhere, from your spray foam insulation to your windows. Windows have gone up probably about 20% and usually they would be four to six weeks, but now it’s 12 to 14 weeks. So we are working on projects and when we got the quotes it was one cost and price, but when we go to order after getting the plans and permits finalized the price has gone up and now you’re like ‘I didn’t plan on three extra months to have to wait for windows.’ Luckily we did a lot of framing when lumber prices were about $3 for a four by eight, but last week it was about $9.” Owing to a historic inventory crunch, new construction is playing a more prominent role in the housing inventory landscape than it has in decades. In December 2021, 34.1% of U.S. single family homes on the market were new builds, according to a report by Redfin. A year prior, only 25.4% of homes for sale were new construction. Currently, over 1.7 million homes are under

ate Noel’s problem isn’t a lack of work. It’s everything else. “I used to be able to get guys no problem, but now I am bidding on guys and having to raise pay in order to keep the guys I already have, which is just continually raising my costs,” said Noel, the president of HNN Builders, a custom homebuilder in the Chicago area. “I was working with a subcontractor on a project and the initial bid was $35,000 and the guy came back at $50,000 for the work because one of their guys left to start his own company and was trying to steal all their employees. So, they went from having to pay their guys $22 an hour to paying $30 an hour just to stay around.” Then there are the global supply chain issues, which have frustrated small-time homebuilders like Noel and the heads of publicly traded builders alike.

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BY BROOKLEE HAN

HOMEBUILDERS

construction, the highest level in decades. But homebuilders big and small continue to run into the same problems — building permits are on file, contracts with buyers are inked, but subcontractors often don’t show, and access to materials have led to longer build times and cost overruns. To boot, many homeowners are choosing to remodel their current home instead of buying a new one, making it even harder to get skilled labor and the materials they need. The National Association of Homebuilders/Royal Building Products Remodeling Index (RMI) finished 2021 with a strong reading of 83. During the first quarter of 2020 the index had a reading of 48. “We have been in a perpetually bare market for inventory for so long now that builders are having to fill the demand and I am not sure when it is going to end, which is crazy,” said Noel.

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In May of 2021, lumber prices soared to over $1,500 per thousand board feet of random lengths of framing lumber. While prices declined throughout the spring and summer, dipping to under $400 in early September, they quickly rose again, coming in above $1,200 in mid-January 2022. Due to the volatility of commodity and labor prices, Noel instructs his clients to build a bigger “cushion” into their budget than they normally would. “The biggest lumber producers — and the lumber industry at large — has not really adjusted output over the past year and a half compared to what output was prior to the pandemic,” said David Logan, the director of the NAHB. “It is no secret that housing demand has been on a tear, rising higher and higher for a myriad of reasons, yet output in the sawmill industry has remained relatively flat, which is obviously contributing to higher prices. So, we have a fairly constant supply, but there is just unrelenting demand.”

Like other sectors, the mill industry and the construction industry have been hit by labor shortages throughout the past two years. Although residential building construction employment is up 5.3% compared to its pre-COVID-19 level, the NAHB estimates that the residential construction sector would need to add 740,000 workers a year just to keep pace with the industry’s growth, retirements and departures. There is some good news from the sawmill industry, which plays a pivotal role in the homebuilding ecosystem, as employment is back to the level it was pre-pandemic, in January 2020. “This is good news for the mill industry, but employment in that industry has been declining since the beginning of 2017, which coincidentally is when tariffs on Canadian lumber went into place,” Logan said. Tariffs on lumber imports from Canada were put in place in 2017 at the urging of the U.S. Lumber Coalition, which felt that U.S. lumber producers were being harmed by the amount of Canadian lumber being exported to the U.S. As of

“The biggest lumber producers – and the lumber industry at large – has not really adjusted output over the past year and a half compared to what output was prior to the pandemic." - David Logan

APRIL 2022

right now lumber tariffs are at 17.9%, but in late January the Commerce Department issued an administrative review to reduce the tariff to 11.64%. Homebuilders should not get too excited, however, as this is the third administrative review called on this issue, but the NAHB remains optimistic. The trade group is supportive of the Biden administration’s move to reduce duties from 17.99% to 11.64% on softwood lumber shipments coming in from Canada. But rising lumber prices and limited supply is just part of the homebuilding industry’s problem. According to Ali Wolf, an economist at Zonda, nearly everything needed in the homebuilding process is facing some sort of delay and subsequent price increase. Prices for gypsum, a key component for drywall, rose 21% in 2021 according to the Producer Price Index from the U.S. Bureau of Labor Statistics and no new gypsum production is expected to come on board during 2022. Production of roofing materials is also not expected to increase this year. Window suppliers are receiving partial orders from component suppliers like glass, hardware and extrusions, which is further slowing down production. It’s been so hard to find garage doors that the New York Times wrote a feature about the magnitude of the problem. Siding supply is expected to remain tight throughout the year, but siding manufacturer James Hardie announced plans to open additional lines and plants later this year and in early 2023. “A lot of these things are byproducts of softwood lumber,” Logan said. “With your windows, doors and millwork, that valueadded process, after those companies had to pay exorbitant prices for the raw material, they then have to wait for a long time for their product because the production is lagged.”

HOMEBUILDERS

With the supply of these necessary goods backlogged, it is no surprise that homebuilders across the country, both big and small, are having trouble getting their hands on building materials. Despite witnessing revenue soar 26% year over year in 2021 to $13.9 billion, Pulte Group executives remain subdued in their expectations for 2022. During its 2021 fourth quarter earnings call, Ryan Marshall, president and CEO of Pulte Group, the country’s third most prolific home builder, repeatedly bemoaned the “labor shortages” and “significant disruptions in the supply chain” that the industry is facing. “The supply side of the equation has been extremely challenging, with no clear signs as to when things will get better,” Marshall said during the earnings call. Commenting on Pulte’s fourth quarter earnings, BTIG homebuilding analyst Carl Reichardt said, “PHM has a scale advantage over many smaller peers, which will help the company manage ongoing supply chain disruptions that appear likely to persist.” Lennar, the country’s second largest homebuilder, also lamented the supply chain bottlenecks during their September earnings call, despite building and selling more homes than they did in 2020. “The largest players in the industry obviously have a ton of buying power that your typical homebuilder just doesn’t have,” Logan said. “When the high production builders are put on allocation — which they have been at points since the start of the pandemic — you know that it’s 10 times as bad for your typical builder who is building just five to 10 homes a year.” Even with these challenges, homebuilder confidence in the market

declined to its lowest level since April 2021, but remains elevated compared to pre-pandemic.” But Noel says that from his vantage in

"Unless builders are putting up entire suburban sprawl type neighborhoods, they just don’t have the margins right now." - Nate Noel

Market Index (HMI) reading of 83. Since November, homebuilder sentiment has hovered around the 83 to 84 level, roughly the same rate as it was in the spring of 2021. Housing starts are also looking up, rising 1.4% month over month in December to a seasonally adjusted annual rate of 1.70 million according to a report by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, reaching their highest level in the past nine months. “Housing demand has outstripped supply since 2009,” First American deputy chief economist Odeta Kushi said in a statement. “The last housing starts report of 2021 is a positive step toward bridging the gap between supply and demand, as an estimated 1,337,800 housing units were completed in 2021 — 4.0% above the 2020 figure. 2021 was a strong year for construction,” she added. In addition, the number of building permits issued in December rose 9.1% from November, but that does not necessarily mean that homebuilders will have the supplies and the labor to keep up with this demand. “The shortage of skilled labor, materials and lots, are headwinds to increasing the pace of new construction,” Kushi said. “The good news in the December housing starts report is the number of singlefamily homes permitted, but not started

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Chicago, keeping up with the demand for new homes is going to remain a challenge in 2022, and likely beyond. “We are still seeing about a four million house deficit across the U.S. in new construction and homebuilders have not really started making up for it because of the risk,” he said. “Unless builders are putting up entire suburban sprawl type neighborhoods, they just don’t have the margins right now. I just don’t see prices of lumber and everything coming down and helping builders increase their margins, so a lot of builders are sitting on the sidelines or just doing custom stuff. I know a ton of builders in Chicago that just decided to get out of it in the last two or three years just because it’s never fun to continually having to give bad news to their clients.”

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for newly built single-family homes was still relatively strong in January, with a National Association of Home Builders (NAHB) and Wells Fargo Housing

KUDOS

Total Expert team members give back after Hurricane Ida

kud

Company partners with New Orleans Area Habitat for Humanity to rebuild a home By Sarahi De La Cuesta

Total Expert team members took a trip to Louisiana earlier this year to help the New Orleans Area Habitat for Humanity organization. In partnership with the nonprofit, the team was able to rebuild a home that was destroyed by Hurricane Ida, a Category 4 Atlantic hurricane that made landfall in Louisiana at the end of August last year.

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“It’s pretty incredible what you can accomplish when a team of people band together,” said Corinne Seltz, leadership and development manager at Total Expert. “In just two days, we framed an entire house in support of hurricane victims. What’s more, it was a natural teambuilding endeavor. “With our employees spanning across the country and many working from home full-time, we’ve lost the typical face-to-face interactions. Our employees left New Orleans with a great sense of accomplishment and new relationships formed. We also made a cash donation to Habitat for Humanity to help them expand their efforts,” she added. Touching on how the team was able to come together for this cause, Seltz said, “We couldn’t be more proud of our employees who stepped up and made the trip to New Orleans to make a difference in others’ lives. Being in the financial services industry puts a whole new meaning to giving the gift of homeownership — particularly to those impacted by a devastating event.”

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While Seltz explained that the COVID19 pandemic has played a role in their ability to partner with nonprofits for events like this, it hasn’t slowed down their volunteer efforts. “If anything, it’s sparked a greater need to support nonprofits of all kinds and prompted us to be creative in how we give back. If in-person activities aren’t an option, we source other avenues such as virtual food drives and mailing materials to local organizations,” Seltz said. Looking ahead, Total Expert is far from done when it comes to giving back. With the company headquartered in Minneapolis, Minnesota, Seltz said they are particularly excited about working with the Habitat for Humanity Twin Cities, and given the response from the New Orleans trip, they anticipate even more employees signing up to put their homebuilding skills to use. “Total Expert is rooted in empowering financial institutions to form deeper relationships.” Seltz said, “These efforts have allowed us to take relationship-building to the next level.”

dos

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KUDOS

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parting shot ❱ MORTGAGE & FOOTBALL

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Photo Credit: REUTERS / BING GUAN - stock.adobe.com

If owning a home is part of the American dream and football is one of America’s favorite pastimes, the idea of merging mortgage and football just makes sense. February wrapped Super Bowl LVI, and tucked into the watch parties, commercials and never-ending promotional materials leading up to the event was a finance company that’s no stranger to the mortgage industry — SoFi. According to Bloomberg, the online personal finance company is paying more than $30 million over 20 years to put its name on the stadium that is home to the Los Angeles Rams and the Chargers, and this year, the Super Bowl. That’s a record for naming rights to a sports venue, but SoFi isn’t the only mortgage company to throw big money to win over football fans. Wells Fargo, loanDepot, Guaranteed Rate, UWM and Rocket Mortgage have all sponsored Super Bowl ads in the past several years.

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