A common issue with eClosing technology is that even the best solutions can result in fractured workflows made up of multiple systems, logins, and workflows. This can make the adoption of eClosing technology a difficult task. 

ICE Mortgage Technology has set out to change this with its Encompass eClose solution, the ideal closing solution for Encompass LOS lenders who want to maximize their cost savings and gain operational efficiency in closing and post-closing. 

Unlike other solutions, the Encompass eClose process keeps stakeholders in the systems they use today, removing the adoption friction that many other platforms may present. This helps reduce origination costs by eliminating the expense and complexities of dealing with multiple vendors and technologies. Encompass eClose is extending this model with the recent introduction of the Point-of-Sale (POS) Framework which integrates with any point-of-sale (POS) platform its lender customers and their borrowers are using today.

Additionally, Encompass eClose offers the same workflow regardless of the type of closing being performed, from full ink to hybrid to full eClose. This gives lenders, borrowers and settlement agents flexibility in the closing process. 

“While our broad goal with Encompass eClose is to help drive industry-wide adoption of electronic closings, it goes beyond eClose adoption,” said Rebecca Frisbie, Director of Product Management. “We want to fundamentally change how residential loan closings are done by removing the inherent inefficiencies in the process. We do this by incorporating document ordering, borrower engagement, settlement agent collaboration, eSignatures, investor delivery and more in a single workflow. We call this the power of one.” 

With Encompass eClose, ICE Mortgage Technology has created the industry’s only true end-to-end eClosing solution that provides a single source within the industry’s leading LOS. Encompass eClose is connected to the ICE Mortgage Technology network, leveraging the industry’s largest ecosystem of lenders, settlement agents, counties, investors and services through integrations with Simplifile and MERS. 

Encompass eClose leverages leading technology, in compliance with all eSign and eNote requirements, as well as a tight integration between Encompass, Simplifile and MERS. This integration keeps the data trusted between systems and eliminates the need for manual rekeying and reconciliation. By replacing manual processes with a fully digital experience, Encompass eClose helps lenders increase efficiencies and reduce time spent at the closing table.

The Encompass eClose platform provides both the lender and borrower with choice and real return on investment. With hybrid, lenders are seeing a return on investment right away, and often are up and running in less than a month. With eNotes, lenders like Googain see all the same benefits of a hybrid eClose, in addition to faster funding, shorter warehouse time, reduced risks, and a better borrower experience. 

“We are focused on our customer experience and digitizing mortgage for our customers,” said Shawn Song, President, Googain. “By adopting eClosing, we are reducing errors and delays – reducing frustration for borrowers and giving them peace of mind. With more than 70% of our loans being eClosed with ICE Mortgage Technology, we know that this is just the beginning of our efficiency and digitization.”

Rebecca_Frisbie-Web-Res

Rebecca Frisbie, Director Product Management, ICE Mortgage TechnologyAs Director of Product Management, Rebecca Frisbie has spent the last 12+ months working tirelessly on the launch of ICE Mortgage Technology’s highly anticipated product, Encompass eClose solution. Her extensive knowledge of the borrower’s journey during any mortgage process makes her the perfect leader to drive solutions towards a fully digital experience.

The post ICE Mortgage Technology’s Encompass eClose solution helps lenders maximize cost savings and gain efficiency appeared first on HousingWire.



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A few months ago, the United States housing market failed Econ 101. Table 1, below, reports the 10 hottest U.S. metropolitan areas in February 2022, based on year-over-year growth in median listing price according to the residential real estate listing website, Realtor.com. The table also reports the year-over-year percent change in new listings for each market.

Table 1: 10 Hottest Housing Markets out of the Top 250 Metro Areas, February 2022

Metro AreaMedian Listing Price (Y/Y)New Listing Count (Y/Y)
Bridgeport-Stamford-Norwalk, CT64.5%-8.9%
Naples-Immokalee-Marco Island, FL53.0%-16.7%
Bellingham, WA51.7%-8.3%
Myrtle Beach-Conway-North Myrtle Beach, SC-NC50.8%-18.2%
Santa Fe, NM48.9%-4.7%
Cape Coral-Fort Myers, FL45.0%-0.8%
Punta Gorda, FL43.6%-7.7%
Torrington, CT43.0%-4.6%
Panama City, FL39.7%17.9%
Las Vegas-Henderson-Paradise, NV39.6%-6.2%
Source: Realtor.com  

Even though sellers’ median valuations in each of these housing markets grew by an astounding 40% or more over the previous year, only one market, Panama City, Florida, saw a year-over-year increase in the number of homes newly listed for sale.

The finding was equally confounding on the other side of the distribution where house price growth was weakest; though home values dropped by at least 10% in each of the 10 coldest markets, the number of homes added to the for-sale inventory increased in eight of them.

These results defy economic logic; a big price increase is supposed to attract more sellers into a market, not fewer. When economists observe this pattern, they usually attribute it to a downward shift in supply that is unrelated to price. For example, if a natural disaster destroyed thousands of homes in a housing market, prices would rise due to the loss of inventory. But this explanation cannot support the data in Table 1; no calamity decimated housing markets across the United States in February.

A different explanation makes more sense: Growth in the for-sale inventory slowed in nearly all the hottest markets a few months ago because of speculation. Despite unprecedented house price appreciation, homeowners in the hottest metro areas gambled that their property values would continue to grow at red-hot rates, and these gamblers did not want to risk missing out on an even bigger payday in the near future.

That “near future” may now be in the past; the latest data indicate that homeowner speculation in the housing market has come to an end.

This change is evident in Table 2, which lists the 10 hottest housing markets in June, the most recent month of available data from Realtor.com. Contrary to the findings from five months ago, eight of these housing markets reported a year-over-year increase in the number of new listings, which is the supply response normally follows a hefty price increase. Gamblers in the housing market appear to be content with their gains, and now they are cashing in their chips.

Table 2: 10 Hottest Housing Markets out of the Top 250 Metro Areas, June 2022

Metro AreaMedian Listing Price (Y/Y)New Listing Count (Y/Y)
Panama City, FL42.9%65.6%
Cedar Rapids, IA40.9%6.8%
Waterloo-Cedar Falls, IA40.7%-2.9%
Topeka, KS40.7%-12.0%
Miami-Fort Lauderdale-West Palm Beach, FL40.1%4.1%
Fayetteville, NC37.7%9.0%
Killeen-Temple, TX36.1%31.2%
North Port-Sarasota-Bradenton, FL36.0%21.2%
Huntington-Ashland, WV-KY-OH36.0%18.3%
Punta Gorda, FL35.3%7.5%
Source: Realtor.com  

The end of seller speculation in the housing market is long overdue and welcome news for buyers. If this trend persists, it will mean that more existing homes will soon be added to housing markets that have been starved for inventory for the last two years. This rise in inventory will tilt the bargaining power in these market toward buyers, and house price growth will ease.

Early signs of blossoming competition for buyers are already evident in the data from Reator.com. Nationwide, the number of listings with a price cut surged 74% month-over-month in May and 51% month-over-month in June, easily the biggest increases on record.

But some analysts may be missing these signals. For example, in the face of rising mortgage rates and reduced affordability, forecasters at Realtor.com recently revised their prediction for the annual change in existing home sales in 2022 from 6.6% increase to 6.7% decrease. But contrary to this new projection, home sales will not falter if sellers are speculating no longer, adding more inventory to the market, and settling for lower prices.

The forecast is uncertain because economic fundamentals have been absent from the housing market for a while. Figure 1 below plots the correlation between the year-over-year change in the median listing price and the year-over-year change in new listing count for the top 250 housing markets in the nation.

This analysis is restricted to the top 250 markets because smaller markets typically have fewer than 200 active listings per month, which makes average values more susceptible to a handful of random, unusual events. (Graphs for cut-offs ranging between the top 100 and top 400 housing markets have the same pattern.)

Figure 1: Correlation between Median Listing Price (Y/Y) and New Listing Count (Y/Y), Top 250 Metro Areas

image-3
Source: Author calculations, Realtor.com

As previously mentioned, conventional economic reasoning predicts that housing markets with faster house-price growth will attract more listings; in other words, the correlation between changes in these two series should be positive. But Figure 1 illustrates that the data over the last five years generally contradicts this expectation. Since 2017, the start of the series from Realtor.com, this correlation has been negative 80% of the time. Steady house price growth has not encouraged more listings in the hottest markets.

When put in context, this history makes sense. During the earliest years of the series, many residences were still worth less than they were at the peak of the housing bubble in 2006. This was especially true in low- and moderate-income ZIP codes. Even though homeowners had enjoyed several years of rapid house-price appreciation during the recovery, many resisted selling their properties at a loss.

The end of the series was punctuated by unparalleled house price growth following the COVID-19 recession. Homeowners in the hottest markets did not sell because they anticipated or hoped for even greater returns.

Neither of these conditions remain true today. For the first time in a generation, almost all long-term homeowners have substantial equity and no expectation of outsized house-price gains. Put differently, the housing market is returning to normal, and the latest findings reflect this new reality.

For the first time on record, the correlation between house price growth and the change in new listings has been positive, as expected, for three consecutive months. And last month, this positive correlation was three times stronger than any previous month in the series. Conventional economic wisdom predicts this outcome, but home sales models that have been tuned to the market’s abnormal behavior over the last decade might not be accounting for a return to normalcy.

Kwame Donaldson is an economist whose research focuses on residential and commercial real estate markets, demographic trends, and GIS analysis. Over the last decade, he has held senior roles in the U.S. Census Bureau, Moody’s Analytics, and Zillow.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Kwame Donaldson at knd@alumni.rice.edu

To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com

The post Opinion: The end of seller speculation in US housing market appeared first on HousingWire.



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Imagine getting a $1 billion, interest-only loan and later lying to your creditor. That’s what a congressional subcommittee said happened between Fannie Mae and Invitation Homes, the single-family rental landlord that in 2017 got a $1 billion interest-only 10-year loan from the government-sponsored enterprise.

The Select Subcommittee on the Coronavirus Crisis found that from March 2020 to July 2021, as many as 29% of the company’s eviction cases resulted in the tenant ultimately losing their housing — a rate more than four times higher than the rate it represented to Fannie Mae.

Officials from Fannie Mae asked Invitation Homes about its eviction practices in March 2021, the report alleges, following news reports that Invitation Homes was disregarding federal guidance to curb evictions.

Via email, an Invitation Homes representative told Fannie Mae that only 6% of the company’s eviction filings in the previous six months resulted in “residents losing their housing,” the report alleged.

But the congressional report found the company’s internal data for October 2020 through March 2021 painted a different picture. That data showed approximately 27% of tenants Invitation Homes filed to evict in that period lost their housing either formally, through court-ordered eviction, or informally.

Recent research by Ashley Gromis and Matthew Desmond of Princeton University has found that informal evictions outnumber formal evictions five to one. Informal evictions are instances where landlords incentivize or coerce tenants to vacate rental properties without relying on the courts. There is little data to track the prevalence of such strategies.

Invitation Homes also told the congressional subcommittee in May 2022 that it “did not maintain centralized, detailed eviction proceeding data,” and a company executive told congressional staff that it could not give even a rough estimate how many tenants moved out, because it did not keep track of this data for all its eviction filings.

A spokesperson for Fannie Mae said it is reviewing the report and evaluating its findings.

Kristi DesJarlais, a spokesperson for Invitation Homes, called the subcommittee’s report a “fault-finding mission.”

“We have always worked with our residents to keep them in their homes, and we will continue to do so,” DesJarlais said.

The report, which focused on four large single-family rental landlords, found that they collectively filed three times as many eviction cases as previously reported, totaling almost 15,000 eviction filings.

The findings specific to Invitation Homes reveal Fannie Mae’s powerlessness when it comes to influencing the relationship between a landlord and a renter, even when Fannie Mae financed the property. In sharp contrast, a mortgage backed by Fannie Mae comes with a comprehensive array of borrower protections.

In 2017, Fannie Mae facilitated a $1 billion loan to Invitation Homes which allowed the company — at the time backed by private equity giant Blackstone Inc. — to lower its debt costs across its single family rental properties.

The deal generated pushback from 25 affordable housing groups, mortgage and real estate trade associations who criticized the deal as running counter to Fannie Mae’s mission.

The following year, Federal Housing Finance Agency director Melvin Watt ended the government-sponsored enterprises’ foray into large-scale investment in the single-family rental market.

“What we learned as a result of the pilots is that the larger single-family rental investor market continues to perform successfully without the liquidity provided by the Enterprises,” said Watt at the time.

The post Congressional report finds Invitation Homes downplayed evictions to Fannie Mae appeared first on HousingWire.



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Over the past few years, lenders have put a microscope to their processes to see where they can improve the borrower journey. But there may be one area they’re still overlooking. HousingWire sat down with Kara Shipulski, vice president of strategic partnerships at Liberty Mutual, and Sean Larney, ​​vertical manager of strategic partnerships at Liberty Mutual, to discuss how partnering with a nationally recognized insurance company improve borrower engagement for lenders.

HousingWire: With rising rates and dramatically lower refi volume, mortgage companies across the industry now have to do more with less to be profitable and competitive. What’s a potentially overlooked opportunity for lenders to stand out in their origination offerings and increase efficiencies?

KaraShipulski

Kara Shipulski: As mortgage companies look to balance profitability and competitiveness, they are likely finding themselves putting even more effort into to deepening their relationships with customers beyond the mortgage transaction. 

One way lenders can expand the relationship is through expanding their product offerings, and some of the most relevant products include other financial products such as auto, home, or small business insurance offered by lenders’ partners.

Providing access to products like these allows a mortgage company to make things easier for their customers, which helps build trust, and encourages repeat business and future referrals. Offering these adjacent products also enables additional revenue flow for the mortgage company, which allows them to focus more on enhancing their principal products instead of cutting costs – something everyone benefits from.

HW: How can partnering with a nationally recognized insurance company improve borrower engagement for lenders?  

SeanLarney

Sean Larney: Engaged borrowers make for happier and more profitable customers, but how do lenders ensure high borrower engagement from their customers? Satisfaction. Increasing a borrower satisfaction helps the lender earn trust which in turn keeps the customer engaged. 

In a world where a borrower’s choice of lenders is seemingly endless, one way a lender can capture the customer’s attention and keep them engaged is through delivering value added services. 

Offering even just one additional product adjacent to a lending product shows a customer you understand the whole home-buying process – you see them as a home buyer on a journey, not just an applicant and that helps solidify your spot as their choice of lender. A lender can rapidly improve brand consideration by partnering with a company with strength in an adjacent area like home insurance. The key here is to deliver these services by leveraging partnerships with large and respected brands in a way that allows you to meet the customer needs without an overly burdensome investment. 

What are some key pain points for a lender who may not have a partnership with an insurance company?   

KS: In many cases, the thought of partnering on another product to distribute to customers can be overwhelming to organizations. At Liberty, we work to keep things easy for our partners through responsive and personal service from a dedicated Relationship Management team*. This team is specifically aligned to understand the needs of partners in various shelter-related industries and can help a partner navigate the nuances and complexities of the insurance business. 

In a broader sense, consumers are becoming more accustomed to and demanding simplicity in all their daily transactions. For companies who want to set themselves apart in a competitive landscape and improve customer satisfaction and loyalty, seamlessly offering home insurance at a relevant shopping moment can help streamline the customer experience and create a one stop shop for all the customer’s home buying and financing needs. Not providing that seamless experience can put lenders at a disadvantage in comparison to their competitors.

HW: How do Liberty Mutual Partner Programs work, and what do lenders need to know to get started?

SL: We offer a wide array of diverse and innovative partnership models, selling Auto, Home, Pet, Business Lines Insurance and more through partner organizations. Our broad range of partnership models let us custom fit our partners’ needs, whether it’s your first time working with an insurance company, or you have your own P&C license. We have several ways to plug into a lender’s existing processes and we’re actively working on building out our toolbelt to deliver turnkey partnership models that maximize value and ease, while minimizing implementation and operational costs.

*Level of program support may vary based on group size

To learn more about Liberty Mutual’s programs, visit libertymutual.com/partner-programs, or contact us at voluntarybenefits@libertymutual.com

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As mortgage origination volume continues to fall from the heights of the pandemic-spurred boom, many lenders see cost-cutting as their top priority this year.

About 39% of 210 senior mortgage executives representing 189 lending institutions said cost-cutting was the most important agenda item, the first time that has happened since 2017, according to Fannie Mae‘s mortgage lender sentiment survey. The importance of talent management, which gradually climbed since the pandemic, was the second priority for lenders. The importance of consumer-facing tech ranked third, continuing its downward trend after peaking in 2019. 

“So far, 2022 has presented a number of new challenges for lenders to navigate, including continued significant home price appreciation, rapidly rising interest rates, persistent inflation, and a slowdown of global economic growth,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

With mortgage origination volume expected to drop by about 40% to $2.4 trillion, both depository banks and non-bank lenders, including Wells Fargo, Pennymac, Mr. Cooper, loanDepot, Guaranteed Rate and Fairway Independent Mortgage, have conducted at least one round of workforce reductions this year. Eliminated positions are mainly administrative positions and include processing, underwriting and closing jobs that are in less demand as loan origination shrinks.

Cuts were being made in back-office staff (71%), general and administrative expenses (66%) and loan officers (19%), according to the survey. 

About 54% of mortgage executives said they thought online direct-to-consumer lenders would be their biggest expected competitors over the next five years, citing lower costs, streamlined mortgage process and advanced analytical and marketing capabilities. 

“Millennials are driven to technology,” said an executive of a large institution, categorized as a lender that produced more than $2.3 billion in loan origination volume in 2021. “Direct to consumer lending can lower variable costs significantly. A large portion of those savings can be passed on to consumers via lower rates and fees.” 

Traditional banks came in second, with lending executives noting the advantages of access to capital lower rates and being able to cultivate relationships with customers through other products and channels. 

“In an environment with weakened mortgage demand and rising rates, lenders told us that operational efficiency, strong customer relationships, and the ability to offer lower rates have become critical,” said Duncan. 

As for strategies to navigate the downmarket, about 42% of survey respondents said they are improving the mortgage origination process and customer experience.

“We want to improve all aspects of our mortgage process, from origination to closing to give our customers the best mortgage experience possible to increase referral business from past customers that we provided mortgage services,” said an executive of a small institution categorized as a lender that produced less than $607 million in loan origination volume in 2021.

Expanding footprint by opening retail branches and hiring loan officers followed by 27%  and partnering with builders or real estate agents trailed by 25%.

Lenders that expanded even in a challenging origination market include Arizona lender Geneva Financial and Planet Home Lending. Geneva Financial, which has more than 130 branch locations in 46 states, opened an office in Chicago in May to offer products including conventional and government loans. Planet Home Lending, which delivers home loans backed by Fannie Mae, Freddie Mac, VA, FHA and USDA in more than 45 states, also expanded to Portland Oregon in May to focus on borrowers looking to work with homebuilders. 

While LOs from large lenders have been laid off, recruiting battles are still fierce for experienced ones who are still offered signing bonuses. 

“Our industry knows that the process of going into a marketplace trying to find experienced originators is a very competitive and somewhat of a lengthy process,” said Paul Buege, CEO of Inlanta Mortgage

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Despite drops in revenue and income in the second quarter, Old Republic International Corp. executives remained positive during their earnings call with investors Thursday afternoon.

“While we are reporting decreases in revenue and pretax operating income for this quarter, it is important to keep in perspective that these comparisons are to a year that saw record-setting demand for housing and investments in the real estate market,” Old Republic Title President Carolyn Monroe told investors. “Our reported second quarter results for both revenue and pretax operating income rank fifth in terms of all-time highs, trailing only the fourth quarter of 2020, and the second, third and fourth quarter of 2021.”

Overall, the company recorded a second quarter net income, excluding investment gains, of $210.2 million, dropping 4.8% year over year. With the inclusion of investment income, the firm saw a net income loss of $40.1 million.

As the market has become more volatile, executives said, the company has shifted from investing in stocks to investing in bonds.

While Old Republic Title certainly faced headwinds during the second quarter due to rising interest rates and a slowdown in homebuying demand, it still managed to generate $1.03 billion in title net premiums and fees, just 7.1% below its second quarter 2021 level. However, the segment’s pretax income was down 21.1% year over year to $109.5 million.

Like its “Big Four” counterparts, Old Republic’s commercial title sector had a strong quarter, with premiums rising 45% year over year. Overall, however, direct title volume was down 24% compared to a year ago. Executives said they expect volumes to remain at a lower level throughout the rest of the year as interest rates continue to rise and home prices remain firm.

“We will continue to manage and align our expense structure accordingly, as rising interest rates are expected to soften commercial activity, as well as residential markets,” Monroe said.

She continued, saying despite the decline in title volumes compared to last year, premium volume is still roughly 60% higher than it was in 2019, prior to the COVID-19 pandemic.

“We remain very pleased with our strong levels of profitability in both general insurance and title insurance,” Craig Smiddy, Old Republic’s CEO, told investors. “Our diversified specialty strategy should continue to produce stable, profitable results and value for our shareholders.”

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The U.S. Treasury Department has issued new guidance empowering state, local and tribal governments to direct more of the funding appropriated under the American Rescue Plan Act of 2021 toward affordable-housing investments.

The $350 billion American Rescue Plan (ARP) includes a range of aid focused on reducing hardships that individuals, businesses and communities face due to the COVID-19 pandemic. The Treasury Department’s new guidance is focused on the ARP’s flexible funding — called the State and Local Fiscal Recovery Funds (SLFRF) program.

The new rule guidance is designed to expand the supply of affordable housing by making it easier to develop, repair or operate affordable housing. 

Some 600 state and local governments have already appropriated nearly $13 billion in SLFRF funds through the first quarter of this year for housing expansion and lowering housing costs, including $4.2 billion for affordable-housing development and preservation. The new guidance from Treasury builds on the existing SLFRF-backed efforts by expanding the scope of eligible affordable-housing projects and enhancing the flexibility of directing funding toward those projects.

“Increasing the nation’s housing supply is essential to lowering shelter costs over the long-term,” said Deputy Secretary of the Treasury Wally Adeyemo. “Treasury continues to strongly encourage state and local governments to dedicate a portion of the historic funding available through President Biden’s American Rescue Plan toward building and rehabilitating affordable housing in their communities, and the actions being announced today will make it even easier for them to do so.”

The new Treasury guidance will increase the flexibility of using SLFRF program to fund long-term affordable-housing project loans, “including those that would be eligible for additional assistance under Treasury’s Low Income Housing Tax Credit,” Treasury’s announcement of the rule changes states. 

The new guidance also expands the range of presumptive uses for SLFRF-supported projects — offering state, local and tribal governments greater flexibility to leverage other sources of federal funding for affordable-housing efforts. Previously, the funding rules limited presumptive use of SLFRF funds to two programs sponsored by the Department of Housing and Urban Development.

“In addition, Treasury is updating guidance to clarify that SLFRF funds may be used to finance the development, repair, or operation of any affordable rental housing unit that provides long-term affordability of 20 years or more to households at or below 65% of the local area median income,” the announcement of the new guidance by Treasury states.

Marvin Owens, chief engagement officer at Impact Shares and former NAACP senior director, said the lack of affordable housing affects people across the board — particularly when interest rates are rising as they are now. “But it hits and impacts people of color — Black, Latino and low-income families — even harder because of the broader economic conditions that they have to deal with,” Owens said.

“I think the Treasury Department’s decision to leverage an existing program to be able to begin to address this is something that that I celebrate, because it’s been something that housing advocates have been asking for some time,” he added. “It’s a good example of the federal government listening and understanding and hearing from folks who are on the ground, who are seeing what’s happening and bringing new insight to the conversation.”

Impact Shares is a nonprofit investment firm that manages socially responsible exchange-traded funds (ETFs), including the Impact Shares Affordable Housing MBS ETF (NYSE: OWNS) launched in in 2021. It is an ETF focused on purchasing agency mortgage-backed securities that are secured by “pools of mortgage loans made to minority families, low- and moderate-income families, and/or families that live in persistent poverty areas,” according to Impact Shares’ website.

“When you are able to create more avenues for affordability, you then open the door to access, and access is really the big key,” Owens said. “We can’t close the racial-wealth gap and [expand] homeownership without access. And I think that’s why this program really makes a lot of sense because it will help to close that gap.”

Owens said expanding affordable housing opens the door for more mom-and-pop minority ownership of rental properties, which helps to build intergenerational wealth. It also allows more people of color to build solid credit credentials as renters to bolster their chances of qualifying for homeownership — and to save for down-payment necessary to purchase a home. Today, the gap in homeownership rates between Black and white families, for example, is greater than when it was still legal to not sell a home to someone because of skin color — a discriminatory act made illegal by the 1968 Fair Housing Act.

In 1960, a 27-point gap existed between black and white homeownership. As of the first quarter of this year, according to data from the Federal Reserve Bank of St. Louis, that gap is 29.3 points — with the white homeownership rate at 74%; the African American homeownership rate at 44.7% and the Latino homeownership rate at 49.1%.*

“With housing construction slowing amidst inflationary pressures, economic uncertainty and higher interest rates, both public- and private-sector financing will be necessary to create the supply of affordable rental housing that is needed to help ease costs for families, especially minorities and those with low and moderate incomes,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.

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Lenders continue to face tightening profit margins as interest rates stay substantially higher than they were last year. In light of this, HousingWire recently caught up with Teraverde Chief Technology & Innovation Officer Rob Peterson to learn more about the key to lender profitability in today’s lending environment.

HousingWire: As businesses of all types begin to rely more heavily on automation, is the mortgage industry doing enough to keep pace?

lender profitability

Rob Peterson: Most segments of the economy have effectively adopted technology to reduce their costs.  For example, the Federal Reserve Bank of St. Louis computes a 34.7% increase in total labor productivity in the US from 2003 through 2022, largely through business process improvement and automation.

In the overall process of residential lending, our industry has not used automation.  As a CTO, I have to smile when some lending executives mention that the costs of technology in the mortgage industry are high. Nothing could be further from the truth.  In fact, our industry spends thirty times more on labor than it spends on technology.  No wonder residential mortgage lending has wild swings in profitability!

Over the past ten years, our industry has increased the portion of costs spent on labor. The blue bar is compensation cost since 2012. Note that the compensation cost starts at a low of 64% of total origination cost in 2012 to 69% in 2021.

Interestingly, technology spend as a portion of total origination cost was about 2% in 2012, and its about 2% in 2021. And total origination costs have increased from about $5,100 in 2012 to over $10,500 in the first quarter of 2022.  All the while, origination volume has increased steadily and instead of adding a modest increase to a spending budget on technology to effectively manage the volume, hiring personnel became the norm.

And these costs have a direct impact on lender profitability as you’d expect. If a lender were pitching their business on Shark Tank, I can imagine Kevin O’Leary blurting out, “You spend 30 times as much on labor than technology… Stop the madness!”

HW: What challenges are lenders facing when it comes to adopting new technology solutions?

RP: The first thing we need to differentiate is the difference between innovation with technology and adoption of technology. An industry that continues to increase its labor cost structure by failing to innovate is destined for a rough ride. We’ve surrendered lender profitability to waiting for the next refinance boom.  We need to be actively innovating to manage costs to the point where the earn rate is always greater than the burn rate.

Jonathan Corr, former CEO of Ellie Mae had a favorite saying:  “Our industry solves its issues with “human spackle.” Instead of innovating business processes and adopting technology to automate all things automatable, we hire people to do the same tasks today that they did in 2012.” In fact, the overall dependence on labor goes back to TIL machines, carbon paper in typewriters for VOEs and VODs, and manually typed conditions on commitment letters.

Jonathan stated that, “The typical lender used only a small fraction of the capability of Encompass to truly automate all that is automatable.” The reason is a lack of innovation from lenders in creating new improved business processes that are enhanced with technology. Lenders struggle with change and human spackle is easier than true innovation.

One can see human spackle in the charts above. We doubled volume from 2019 to 2021, but our labor cost actually increased in absolute dollars and as a percentage of total cost to produce a loan. Two-thirds of the cost to produce is labor, so when volume and margin fall, industry profits fall very fast. The result: Many lenders will give back the profits they earned in the boom times through losses over the next years.

Has there been innovation over the last 10 years? Absolutely. However, the majority of that innovation and technology spend as been focused on the front line – in origination. I’m not downplaying the great leaps that the industry has taken in the origination space, especially when coupled with increased regulation, compliance oversight, and the ever-changing landscape of the housing market. But I am more than certain of the significant deficit in the innovation and use of technology for lenders once the loan file comes in from their sales teams to the operational staff. The significance of not only innovating technologies for operations but actually adopting that technology will reap dividends many times over the amount spent on the investment of procurement, implementation and training needed to utilize it.

It doesn’t have to be that way.

The road to automation through innovation is one that starts with the senior executives.  The C-suite has to recognize the importance of adoption by providing the catalyst.  There is a principle created by U.S. Air Force Colonel John Boyd, that not only revolutionized the way the United States trains its combat pilots but has also been used in other branches of the military Special Forces, FBI, CIA and other foreign service agencies.  This principle is “OODA loop:”

Observe, Orient, Decide, Act.  In the simplest of terms:   

Observe: collect the data;

Orient: analyze the data;

Decide: what should be done based on the analysis;

Act: due what you’ve decided to do.

During the Korean War, Boyd noted the U.S. Sabre pilots were more productive than their opponents piloting the Russian-made MiG. By comparison, the MiG was a better equipped, faster, and more versatile aircraft. What made the difference? Their agility. The Sabre was able to move in response to their adversaries much faster. In terms of the OODA loop, a pilot in the Sabre could observe their opponent, orient themselves in terms of their situational awareness in the fight theatre and then quickly move to decide their next course of action and act upon it.  Clearly, those who act first win. 

Similarly, lenders that can quickly cycle the process for their OODA loop will surpass their peers – and quickly. We’ve all made the observation: Technology spend and innovation is low. We now have to orient: What are the current technologies available to push innovation in my origination process? Once the technology is found, the decision and action must quickly follow.  Those who choose indecisively or not at all have to reset their loop and get back to square one. 

HW: Is the cost of investing in innovative tech and automation ultimately worth it in terms of profit and productivity?

RP: Refer the chart below. In 2003, the typical underwriter achieved 115 closed loans per month. In 2021, the typical underwriter achieved 28 closed loans per month.  Said another way, underwriter productivity fell by a factor of five. 

Teraverde Intelligence (TVI), Teraverde’s proprietary method for evaluating business process and productivity confirms these numbers. Interestingly, within a specific lender, TVI indicates that underwriter productivity varies by a factor of three among the most productive and least productive underwriters, after controlling for loan degree of difficulty. 

So, the answer to the question, “Is innovation and automation worth it?” is unequivocally, “yes!”   But herein lies the rub. It’s not about spending money to acquire more shiny objects within a lender’s tech stack. You don’t have to have your technology teams build new shiny objects.  In a lot of cases, you don’t even need new shiny objects.

The key to productivity is innovating the business process to actually take advantage of the existing tech stack elements, and then driving adoption throughout the organization. 

Again, driving adoption starts with C-level executives. It means that the CEO has to push their senior executives to follow the directive. It’s now time to leverage the technology and innovations that are available today. And here’s why it’s important. If an organization innovated to increase underwriter productivity to 100 closed loans a month, it would reduce underwriting cost by 75%. Overall, if operational labor efficiency were increased by 25%, the lender would reduce its cost per loan by over $1,500. That’s $1,500 that drops right to the bottom line.  $1,500. Per. Loan. That is more than significant – that’s monumental – that’s $1.8 million per year! 

Want to see innovation in action? Spend two hours watching the movie, “The Founder.” It’s the story of Ray Kroc and innovation in the fast-food industry.  Watch the movie with an eye on how Kroc and McDonald’s created business process innovation, controlled labor cost, reduced cycle time, drove adoption within each store and improved product quality all while earning outsized profits. Do you see any parallels to the residential lending business? 

HW: How is Teraverde helping lenders improve productivity with automation and how can businesses measure tech efficiency?

RP: My business partners have developed a TopTiering by Teraverde. In short, about 30% of a lender’s employees produce 80% of the profit. Identifying the specific 30% is hard. TopTiering is identifying the 30% and then finding opportunities to boost the productivity of the remaining team to the point the lender is profitable in all market scenarios.

Teraverde calls this a resilient business model that is profit (not volume) driven. It’s a different mental model, and it’s not for everyone. It requires a commitment to examine the basic assumptions of the residential lending business and changing the productivity of employees.  Productivity is increased by innovating in the business process, focusing on low-hanging fruit, continuous improvement, and a commitment to being profitable in all business conditions.  We’re not talking about just your origination team – we’re looking at each individual in the loan life cycle. 

It’s amazing to me that the same employee who has completely adopted a smart mobile device, changing their buying, travel and free time behaviors fiercely fights mortgage technology. Why is that? The reason is the employee doesn’t see the advantage of adopting mortgage technology because the technology is not deployed with a simultaneous upgrade of the basic business processes. Technology is deployed as an add-on, not an improvement of their role and responsibility to make their job less manual and more enriching.  In the words of one employee, “It’s just another shiny object that doesn’t really help me or my customers.”

To combat the two elements of human nature when implementing technology, wanting the easiest way and having an aversion to change, there has to be an immediate and beneficial lift of the technology. 

As an example, an underwriter that is proficient in self-employed borrower income computations may have a backlog of files to review if they are the ”go to” underwriter. Why create the backlog in the first place? Utilize technology that is available to be able to capture the necessary data and perform the calculations. Not just for that underwriter but for all of your underwriters. The significance of the technology utilize is three-fold: increased speed for the calculations (faster individual underwriting times), expanding the workload across the department (not all self-employed have to go to a select few) and increased data integrity and resiliency.

The TopTiering approach requires adopting a business process that uses employees to spend their time on the work that requires true analysis, problem-solving and customer-centric activities. It designs out the variations in process, checkers checking checkers, duplication of work, bad data quality and hindrances that block the automation that could be achieved in a lender’s existing tech stack. Once an employee has a business process and tech stack that makes their lives truly easier, adoption will follow and those employees that don’t adopt – you can release them to your competitors.

It requires an open mind, the adaptability to change and a willingness to say, “Stop the madness!” Also, leveraging industry experts that are solely focused on specialized products and services that quickly enhance their tech stack. The reward is more productive employees, profitability and increased customer satisfaction. It’s hard work, but it provides a significant business advantage in the difficult times that are imminent.

To learn more about how Teraverde is helping lenders improve productivity with automation, visit teraverde.com.

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Nonbank mortgage lender Pennymac Financial Services laid off 32 additional employees in July, ahead of its scheduled Aug. 2 second-quarter earnings report.

It marks the California-based company’s third round of layoffs this year, as Pennymac had a workforce reduction of 236 employees in March and cut another 207 staff members in May.

According to a Worker Adjustment and Retraining Notification (WARN) alert submitted to the Employment Development Department (EDD), on July 18 the company cut 30 employees at its Thousand Oaks office, and two more who worked from Westlake Village. 

HousingWire sent an email to the company seeking additional information but did not immediately receive a response. 

The workforce reduction includes seven data science management employees, four senior analysts and three data scientists. The cuts mainly focus on vice president positions, including areas such as financial risk, secondary market and portfolio investment.

Bumping rights do not exist for these positions and employees are not represented by a union, wrote Stacy Diaz, executive vice president of human resources at Pennymac, in a letter to the EDD filed May 19 and reviewed by HousingWire. 

Pennymac is scheduled to report its second-quarter earnings Aug. 2. However, an estimate from Inside Mortgage Finance puts Pennymac as the fourth-largest U.S. mortgage lender by volume in the period, behind Rocket Mortgage, Wells Fargo and United Wholesale Mortgage

According to the most recent available data, Pennymac reached $59 billion in originations from April to June, down 21.8% year-over-year. 

In the previous three months, the company reported to the Securities and Exchange Commission (SEC) total loan acquisitions and originations of $33.3 billion in unpaid balance, down 29% from the previous quarter and 50% from the first quarter of 2021. 

In the first quarter, its net income dropped more than 50% from the same period in 2021. However, the company still reported a pretax net income of $234.5 million from January to March, essentially unchanged from the prior quarter.

“The unprecedented increase in mortgage rates resulted in lower overall industry origination volumes and left originators and aggregators who still hold excess operational capacity competing for a much smaller population of loans,” David Spector, chairman and chief executive officer of Pennymac, said in an earnings call.

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