[PULSE] Mortgage lending in a post-COVID, digital world

[PULSE] Mortgage lending in a post-COVID, digital world
We are living in fast-changing times, and lenders that don’t embrace those changes will not compete well for business in a post-COVID-19 world. In fact, the changes we’ve seen since the advent of the global pandemic are significant enough to serve as a catalyst that will drive all lending digital. But are all lenders equipped to make that transition?

The trends and lending requirements I’ve highlighted below became important long before the coronavirus made it to the U.S. This pandemic has made them impossible to ignore. The result has been a number of new consumer demands that together are changing the way lenders interact with borrowers. But our industry is not reacting to these new demands nearly as quickly as others, and that could be a problem.

Peering into the future of lending

Nils Bohr, a Nobel laureate in physics, once said, “Prediction is very difficult, especially if it’s about the future.” Anyone who hopes to paint a picture of life after the coronavirus should bear this in mind.

We can’t know all of the ways this crisis will impact our business going forward. We have already seen evidence that mortgage servicing is forever changed and purchase money lending will suffer, at least in the short term. Low interest rates have kept refinance loan volumes robust, but no one knows for how long.

What we do know is that COVID-19 has driven virtually all commerce online. The tech giants have done a fantastic job of keeping consumers buying, even for some very complex products and services. Zillow, for instance, is still enticing new home buyers to transact and Carvana makes it possible to buy a new or used car from the comfort of home.

The mortgage industry, in general, has lagged behind other industries in terms of maximizing the benefits of new technologies. While other industries have learned to deliver high levels of customer engagement and satisfaction to online consumers, too many lenders are still originating loans much as they were 20 years ago.

COVID-19 has put an end to that. It’s time for lenders to finally prepare themselves for mortgage lending in a fully digital world. Lenders that fail to meet the changing demands of their borrowers in this regard will find it difficult or impossible to win their business in the future.

Setting the mortgage industry up for success

As a mortgage technology executive, it would be my great pleasure to report that all a lender needs is great technology. Sadly, that’s not true. Lenders must avail themselves of the best possible tools, but that’s only part of the solution. In addition, they must change their entire approach to the business because borrowers have changed their expectations of the home finance industry.

To succeed, lenders must truly understand their businesses and the impacts technology can have on their borrowers’ experiences.

One of the most significant impacts of the rush to online commerce is that the mortgage industry no longer has the luxury of defining a “good borrower experience.” That work has already been done for us by the world’s tech giants — and the bar has been set very high. Consumers have enjoyed near instantaneous online experiences with overnight — and in some cases same day — delivery.

In our experience, borrowers are looking for the right mix of new technology and processes that together give them the loan origination experience they crave. Some of these requirements include:

A customized experience on any device. Consumers want the freedom to transact on any device and receive a personalized experience. There is no one-size-fits-all approach to the new mortgage lending business.

Easy online pricing and shopping. Mortgage borrowers are beginning their journey online. If they don’t find a lender’s offerings there, they will simply seek out another lender. This is how today’s consumers shop.

Scenario building and comparison capability. Today’s borrowers don’t just want to find products. They want to understand how their various options stack up against each other. It falls to the lender to make this clear to them.

An easy and intuitive online application. We know from experience that if we don’t make the application simple, we won’t get prospective borrowers to apply. Once we get the information required to issue a Loan Estimate, the clock starts ticking.

Interactive workflows. Our process must be customized on the fly for different borrowers and products. Do we already know the borrower? Is this a low-risk, low-LTV loan? How can we most efficiently collect the information we need to complete the file, working in parallel if possible, to underwrite the loan and push it on to close? In what cases can we close the loan fully electronically?

Maintain constant communication. Throughout all of this, the lender must remain in contact with the borrower, just like the Amazons and Apples of the world have done.

Redesigning the mortgage shopping process

If lenders are going to rethink their business, they should start at the beginning.

The standard process borrowers have followed to find a new mortgage lender hasn’t changed much over the last decade or two. Consumers go online and shop for rates or contact the lender their real estate agent has suggested. After that, it tends to get messy.

Lenders must constantly weigh the consumer’s experience against the compliance requirements handed down by regulators and investors. Our response has been to flood the transaction with paper documents, request the same information multiple times and keep the consumer guessing about where their loan is in our process.

That won’t work in a post-COVID world. Lenders that win business in the future will have excellent answers to some tough questions, and those answers will become their “secret sauce” for attracting and winning new business.

Here are the questions lenders need to be asking now:

1. How much of our process can the borrower complete digitally?

There is plenty of research that indicates the vast majority of mortgage loan borrowers are not ready to self-originate. They want a hand to hold during the process. But when should the lender inject the loan officer or consultant into the process?

2. Can the borrower shop for a loan anonymously?

Consumers have pushed back against companies that ask for too much personal information before demonstrating their value to the borrower. But without enough information about the borrower, the lender will struggle to provide a pre-approval. How early in the process must the borrower be identified?

3. How soon should we ask to use data we already own about the borrower?

Banks and credit unions have existing relationships that provide consumer data they can use to process the loan. Asking to use that information too early can put borrowers off. Not using it and acting as if the borrower is a stranger is just as bad. Deciding when to ask the borrower to access this data must be a strategic consideration.

4. How early in the process can we order critical decisioning data?

Having a credit report upfront makes the work of underwriting the borrower much easier – and product and pricing more accurate. This leads to higher pull-through rates and lower overall cost-to-close. But asking too early can damage the lender-borrower relationship. When should this process occur?

Delivering on the new mortgage promise

Many of the elements I’ve just described are available to mortgage lenders today, but few if any have combined all of this into a seamless offering for borrowers.

To do that will require a great deal of thought, strategic planning, and a high degree of automation that goes well beyond simple business rules loaded into a decisioning engine. It will also require a technology platform that will allow borrowers to find their way into the lender’s customer relationship management (CRM) system, on to the mortgage point of sale (POS) and then into the loan origination system (LOS), with only the human interaction required to meet their specific needs.

One key to success will involve deploying technology that is advanced enough to know when a deal requires human attention. Exception-based processing will make it possible to scale the type of loan origination experience that today’s borrowers demand.

Online retailers have taken advantage of the COVID crisis to hone and fine-tune their online experiences. Now, consumers are looking to our industry and expecting similar results. Lenders must provide the kinds of experiences that today’s home loan borrowers are expecting. Can we deliver them?

Of course we can, but only if lenders embrace the right tools and techniques now. Those that do will be better able to separate themselves from the pack in a post-COVID world. There is still time to join them.
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This missile silo-turned luxury bunker might be just what 2020 needs

This missile silo-turned luxury bunker might be just what 2020 needs
About a year ago, RE/MAX agent Ken Flaspohler took on what he said is the most exciting luxury listing he’s ever had. Hidden somewhere in rural Kansas and nestled 15 stories below the ground, the listing consists of condos constructed in a repurposed Atlas missile silo.

The exact location wasn’t shared with HousingWire, or even posted on the listing site, but Flaspohler said keeping the location information low key is what comes with the territory.

The site’s developer, Larry Hall, purchased the silo in 2008, then remodeled it into the survival bunker it is now. Surrounded by concrete walls that are nine feet thick, Flaspohler said the over 20,000-square-foot space consists of individual condos with their own kitchenette and bathrooms.

What was once used by the U.S. Air Force for missile storage has been transformed into a luxury, secluded living experience.

“People say this looks like it’s out of the Jetsons,” Flaspohler said.

According to the listing site: “Survival Condos run from $1.5 mil to $4.5 mil and most banks will not finance. You must be liquid to become an owner.”

Other features in the silo include a library, his and hers workout rooms and steam rooms, a bar, an inground swimming pool, a hospital and dental room, a dog park and a media room.

Flaspohler, a RE/MAX agent based in Kansas City, has been in real estate since 1986. He said this listing is like nothing he has ever taken on before. Taking shelter in place to a whole new level, residents can survive in the missile silos for up to five years, if needed.

“This is not your typical second home to have,” Flaspohler said. “[It’s] in case you feel like there could be something, like maybe a little bit of what we’re going through now, a pandemic or a world event that might require maybe a little extra caution and safety.”

Running water is connected to underground wells that run through the silo’s treatment plant, and there are wind turbines and diesel generators that create power.

The silo also has its own aquaponic system, where the community can grow its own vegetables.

Since the pandemic hit., Flaspohler said that there has been a lot of interest in the listing, bringing people from all over the country to take a tour.

“At the beginning of COVID, people weren’t quite sure what was going to happen…and I don’t think it got as bad as maybe people might have thought at the beginning of COVID, so it seems [interest] kind of tapered off a little bit. And then I don’t know why now, [interest] picked up here in the last month,” Flaspohler said.

As for how this compares to other listings he’s had, Flaspohler said this one is basically similar to a condo in Kansas City, but has a higher quality of “extras” and prices.

“I’ve been doing this since 1986, and certainly sold houses, farms, land, a couple of buildings,” Flaspohler said. “This was just such a unique property. I knew I was going to enjoy working on because it’s such a unique property.”

From left: Aquaponic system, indoor pool and silo under construction.
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Mortgage modifications are on the rise, MBA says

Mortgage modifications are on the rise, MBA says
Forbearance exits measuring how many borrowers cancelled agreements to suspend mortgage payments rose to a one-month high in September’s first week, led by a surge in loan modifications, according to a report from the Mortgage Bankers Association on Monday.

Total exits from forbearance rose to 0.23% of servicers’ portfolios in the first week of September, almost double the 0.14% in the prior week, MBA said.

About 9.48% of forbearance exits were due to mortgages being modified by servicers, meaning the terms of the loan were permanently altered and the borrower was brought current. A week earlier, modifications were cited for 6.56% of mortgages that exited forbearance, the MBA report said.

The overall share of mortgages in forbearance fell to 7.01% of servicers’ portfolios, down from 7.16% in the prior week, MBA said. About 3.5 million homeowners are in forbearance plans, MBA said.

The share of Fannie Mae and Freddie Mac loans in forbearance dropped 15 basis points from the prior week to 4.65%. Ginnie Mae loans in forbearance, primarily mortgages backed by the Federal Housing Administration and the Veterans Administration, fell 50 basis points to 9.12%, while the forbearance share for portfolio loans and private-label securities increased by 28 basis points to 10.71%.

“At least a portion of the decline in the Ginnie Mae share was due to servicers buying delinquent loans out of pools and placing them on their portfolios,” said Mike Fratantoni, MBA’s chief economist.

The CARES Act passed by Congress at the end of March gave mortgage borrowers the right to up to 12 months of forbearance without being dinged on their credit reports. All a borrower with a government-backed loan has to do is attest to having a financial difficulty caused by the pandemic.

The volume of calls from mortgage borrowers to the servicers handling their home loans jumped to 8.7% from 7.2% in the prior week, the MBA report said.

The average speed to answer a call rose to 3.3 minutes from 2.4 minutes, and the abandonment rate measuring the share of callers who hung up without speaking to a customer servicer representative rose to 7.3% from 5.1%, the report said.
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Part 1: A third-party opinion on how to build your broker tech stack

Part 1: A third-party opinion on how to build your broker tech stack
HousingStack is a real estate technology landscape that provides a dynamic visual that reflects the rapid changes in the sector. The HousingStack is exclusively for HW+ members. To join the HW+ community, go here.

I’ve been asked to put together some recommendations on what a “brokerage technology stack” should look like as well as what teams and agents should be thinking about. As I pondered that request, and how I might try to not overcomplicate this, I kept coming back to “it’s not that simple.” 

Scott PetronisHW+ Analyst

How would I slice this up? What lens should I look through? What problems am I trying to solve with this tech stack? So here’s the way I thought about dissecting it. 

Brokerages wear a lot of hats. I don’t mean that in the negative way that it sounds. I mean it in the way that brokerages are both businesses that need to operate as a for-profit concern, and they are real estate businesses that need to create value for agents (primarily 1099 contractors) so they can maintain a healthy retention rate and generate commission revenue. This is important because many of the systems that run the “business” are there for the W-2 employees to use day-in, day-out for operations. While the systems that help to run the real estate business (the brokerage) are there to help 1099 agents generate revenue. And both need to (ideally) work seamlessly together.

And when you really think about it, anyone who runs a team and individual agents as well have things they do related to real estate, then they have a business to run. All of these companies need to be able to do things like track expenses, make sure they pay people or get paid, communicate with people and manage information about the business. These are just basic needs. 

This initial article focuses on the systems you need to run your business. And while many of you already have some of these systems in place, when is the last time you checked their effectiveness? You may find that some of the newer systems on the market better support your needs as you’ve grown or evolved. You might also discover that you’ve become complacent (we all do) with your providers even though you’re potentially paying three, four, five times more than you should be. 

The rest of this content is for HW+ members. Join today with an HW+ Membership! Already a member? log in

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If Biden wins, what happens to Fannie and Freddie?

If Biden wins, what happens to Fannie and Freddie?
If former Vice President Joe Biden wins the White House, it will derail the Trump Administration’s plans to release Fannie Mae and Freddie Mac from conservatorship.

What, then, would happen to the world’s two largest mortgage financiers? Most likely, it means more time in conservatorship as the Biden administration grapples with the COVID-19 crisis, said Jaret Seiberg, managing director of Cowen Washington Research Group in a note to clients on Friday.

“The question becomes whether those inside the administration who want to move beyond the status quo will have enough influence to disrupt a system that is effectively delivering low-cost mortgages to consumers,” Seiberg said. “We believe that is unlikely in the short-term as the Biden administration will focus on more pressing priorities such as a COVID-19 recovery bill.”

After the pandemic is over, the companies that back about half of the residential mortgages in the U.S. could be released as regulated utilities, he said. That would cap their profits, potentially keeping mortgage rates cheaper than if they were private companies aiming to maximize returns for shareholders, he said.

“Democrats are likely to want to preclude a future Republican White House from deciding the fate of Fannie and Freddie,” Seiberg said. “The best way to do that is likely to release them from conservatorship under a utility-like structure. That would mean limits on GSE profitability and pricing.”

It’s a model suggested more than a year ago by Harvard University Senior Fellow Donald Layton, who was the CEO of Freddie Mac until June 2019. Treating them like utilities would reduce profit pressures that could cause Fannie and Freddie to hike the guarantee fees they charge for backing loans and packaging them into securities, he said.

“Some observers of GSE reform have suggested treating them like utilities, such as a local electric or water utility,” Layton said in a July 2019 paper. That approach with other companies “has worked adequately (if not perfectly) throughout the United States for about a century now. To me, that classifies as tried and true!”

A June decision by the Supreme Court on a case that involved the director of the Consumer Financial Protection Bureau has made it even less likely Federal Housing Finance Agency Director Mark Calabria will be able to complete the Trump administration’s goal of returning the companies to the private sector.

The fallout from the ruling that allowed the firing “at will” of the head of a single-director agency meant that Calabria’s position is uncertain in a Biden administration.

And, if the election puts both the House of Representatives and the Senate in the hands of Democrats, it means Congress can address the issue, said Stephen Myrow, managing partner of Beacon Policy Advisors in Washington, D.C.

“If Biden wins, he’ll appoint a new director, and then it will be up to Congress to figure out what to do,” Myrow said. “If Trump wins reelection, Calabria will have the pathway to go ahead and do what he wants.”
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Orchard Title parent raises $69 million

Orchard Title parent raises million
The homebuying marketplace which provides title services through Orchard Title recently completed a $69 million Series C equity funding round led by Revolution Growth, with participation from existing investors FirstMark, Navitas, Accomplice, and Juxtapose.
Source: thetitlereport.com

Industry’s second-quarter premiums increase

Industry’s second-quarter premiums increase
The title insurance industry generated $4.18 billion in title insurance premiums during the second quarter of 2020, according to an analysis by the American Land Title Association.
Source: thetitlereport.com

FNF launches weekly podcast

FNF launches weekly podcast
The FNF Family of Companies recently launched a weekly podcast that focuses on real estate matters. Read on to learn which FNF executives will be producing the podcast.
Source: thetitlereport.com