Join us for a discussion with officials from the Federal Housing Finance Agency's recently announced Office of Technology to hear about the new department's goals and initiatives and where they see the office fitting within the ecosystem of regulation in the mortgage space. Deputy Director of the Division of Conservatorship Oversight & Readiness, Jason Cave, Associate Director of the FHFA, Anne Marie Pippin and Senior Financial Analyst Liang Jensen will chat with National Mortgage News' editor in chief Heidi Patalano Tuesday, August 30th at noon.
Heidi: (
Good afternoon and welcome to today's Arizent Leaders session with officials from the Federal Housing Finance Agency's newly established Office of Technology. I'm Heidi Patalano, editor-in-chief of National Mortgage News. I'm thrilled to welcome our guests who will also be appearing at our Digital Mortgage conference taking place September 13th to the 15th at Westgate Las Vegas Resort and Casino. You can register to attend by visiting conference.national mortgage news.com/digital mortgage. And with that, I'd like to welcome Jason Cave, Deputy Director of the Division of Conservatorship Oversight and Readiness or DECOR as, as we'll call it for short Associate director of DECOR and Marie Pippin and financial analyst, Liang Jensen. Thank you all for being here today. Let's kick things off by having each of you give a bit of background about your role in this office and what you'll be doing there. Maybe Liang, would you like to start us off?
Liang: (
Sure thing. Thanks Heidi. And happy to be here today. This is Liang Jensen. I've been with FHFA for about five years. Prior to joining FHFA I was in mortgage finance banking, capital markets consulting for about 10 years. In the last four years at FHFA, I've been doing risk monitoring, reporting from the conservative side, and I'm really happy to be able to start this new Fintech office together with Ann Marie and Jason.
Heidi: (
Thank you. And Ann Marie? We'll go around clockwise.
Ann Marie: (
Sure thing. Hi everyone. Ann Marie Pippin. I'm an associate director of DECOR within Jason's division at the FHFA, leading the office of governance and strategic initiatives and our new office of financial technology, which we're really excited to talk to you about today. I've been at FHFA for about five years. Recently I did move over to DECOR. The bulk of my experience with FHFA was in our division of enterprise regulation, where I worked on governance and various supervision policy, aspects of that related to enterprise-wide risk management, artificial intelligence and machine learning. Prior to that, I've worked in several federal agencies and various roles related to risk and internal controls, but super excited to talk to you guys today. And with that, I'll turn it over to Jason.
Jason: (
Oh, great. Thanks Heidi. And thanks everybody. Good afternoon. Really excited here to be talking about the launch of the FHFA's new office of financial technology. In addition to heading up the FinTech strategy for the agency, I run the conservatorship office, and before that, spent about 20 years in Washington, as a regulator at the FDIC. Spent a lot of time on international domestic policy work, like the Basel capital agreements worked a lot on FSOC, so had a pretty good working relationships with the other agencies in town and the Treasury and had the benefit of really working with some terrific people. Looking forward to this engagement on financial technology in today's discussion. Thanks.
Heidi: (
Thank you so much. Yeah, it's really great to hear where each of you are coming from here. I do wanna kick us off with more broadly, what the mission is. In the announcement of the office of technology, it's mentioned that, like other financial regulators who have also established similar offices — the Comptroller of the Currency, the FDIC, et cetera. So maybe Jason, you could talk to us about what your goals are here with the creation of the office, what your initiatives will be at the start.
Jason: (
Sure, sure. Happy to. So when we launched in July the office, we were very clear that this was to further FHFA's ability to understand the technology-driven development and risks, and to facilitate responsible innovation and the housing finance market. So that was the broad remit of the group. I think you'll find that that's probably similar to our sister agencies just substituting their articulated regulated entity space. It's a model that as we were developing our office, I spent a lot of time working with former colleagues to understand why they got into this fintech and innovation space. Pretty much across the board, everybody said this was a real value-add, allowed both the staff and the principles to better understand how technology is shaping the agenda and their space, and an opportunity for them to also use technology to drive their agenda and better understand the fact that technology has rapidly changed and transformed financial services. Housing and mortgages are no different.
Jason: (
So, given our remit as regulator and conservator of the GSEs and regulator of the FHLB banks, it's a very large part of the mortgage finance space. And so for us to better understand how technology has been driving the market, and also be able to understand where it's going and where we could lead it to better advance our mission has really become a primary primary goal of our agency. Our director has placed a premium on that. So you'll see, an RFI that was issued the same day that we went live in July. And look for those of you that were how I used to be — you don't get involved in a discussion until it's at an NPR stage — I really ask you, please read the RFI. FHFA takes RFIs very seriously and they're a very important vehicle for gathering essential information and for shaping views.
Jason: (
So, if you could all please read it, give us your comments. Later on Anne Marie will talk about it in a little bit more detail, just in case you didn't take the RFI to the beach. She'll give you the Cliff Notes. So that's a little bit as to why we're at a high level getting into this. Probably a couple other things on that note, Heidi. We kind of figured that we were probably one of the later agencies to get into the fintech space. There's already been a lot of innovation and mortgages. I wonder if there's much really left to do in this area. In my experience, it seemed like the mortgage process itself had become much more digital, but in beginning the early discussions and looking at some of the analysis, some of the research done, I think we've found that there has been a fair amount of innovation in certain aspects of the mortgage process. Take that as a first case study for our office, that when you really look at some of the numbers — the number of the days and the mortgage cycle from beginning to end, and the costs associated with getting a mortgage, the numbers show a different story.
Jason: (
We could look at many different studies, but generally like the average cycle time is about 50 days and that hasn't changed much in 10 years. And more notable, most studies that I've seen have shown that the cost to originate loans more than doubled. So, you think about, well, if there's been so much innovation, usually in any area where you see innovation, those kinds of metrics go down over time, right? The fact that ours have been persistently high. Going up on costs is probably something that we think that maybe we need to understand better. What's going on with the technology, where has it been able to really make a change? Where has it not? Where have there been persistently stubborn areas in the process technology, hasn't had a chance to flourish and are there ways in which we could help advance that or address that? That's going to be a very big piece of the beginning part of the office's work. We're really looking forward to hearing from the industry. I'm sure everybody has a lot of reasons for why that's the case and also how to address it. We want to start with the basics. We want to start with the facts. We want to start with the data and really see where that takes us.
Heidi: (
Right, right. I think I've heard from lenders that it's all the regulation, right? It's all of the regulations that they have to be in compliance of that adds into their costs. It keeps costs higher if there's more regulation. So how are you going to strike a balance here in terms of just not having the end result be, you know, a load more rules for the use of these products for lenders.
Jason: (
Right. Right. Well, we've heard that. I've heard that for many years. I've heard that in many different settings at my former agency. Let's look at the data. Let's look at the numbers, but one of the things we're going to really insist upon doing is really look at the whole picture, not just focusing on one driver. I've already gotten many calls from people to say, I'm happy to tell you where the issue is. My charge here is to really take a look at the whole piece, look at the different parts of the process.
Jason: (
So why have certain parts of the mortgage process been more amenable to technological innovations? There's been a lot of regulations in the past 10 years. I look at my part when I refinanced mortgage, say 10 years ago, versus last year: I went from running around, collecting a lot of paper, spending a week getting documents, sending it in the mail to the last time pointing and clicking in two hours, being done. My part of the process was went probably from a week to two hours. The regulations during that period of time, I don't think it changed very much yet. It still took me two months to close and my closing costs went up. So my question is why,? Where are the pain points in the process?
Jason: (
We just want to understand. We don't want to have that set up, 'Well, it must be here. It must be there.' We want to take a real holistic informed data-driven review of this so that we could look at where fintech and related innovations could help out. There's a lot of other areas where that are drivers of this. We have other offices at FHFA that have been around for a while. We're not looking to create anything new there, but we are particularly looking at where things such as AI and ML and blockchain. We already hear a lot of things that these are instruments that might advance create greater efficiencies. We've also hear that they actually create additional unintended risks. They're not scalable. We hear all those sorts of things. So it's very interesting for us. We get to hear it all. We want to continue to hear it so that we could be more informed to say, maybe there are certain aspects where these things could be helpful or maybe not so great.
Heidi: (
Right. Well, I'm glad you mentioned AI because that is one of those areas that has really helped to speed up many aspects of the origination process. In terms of working with other agencies, we've heard from the CFPB that they're concerned about these algorithms, that they could lead to unfair or biased decisioning. Can you tell us specifically how you're going to study that issue?
Jason: (
Well, sure and look, I'm a 30-year regulator. Anything where you are relying more and more on things that are not, not a regular judgment and the like. There's always something new with these things, models and the like. It is important to understand, what drives them, what attendant operational risks might be associated with them. We at the FHFA put out one of the first advisory letters on artificial intelligence and machine learning and the risks and considerations there. We're very interested in this as well, but, we've also seen some good analysis done by Fin Reg lab and some others that there might be some potential uses for some of this technology to make things more efficient.
Jason: (
So, again, we look at it from a couple of standpoints The ultimate borrower seems as if they're paying a whole lot more to close on a loan than they were 10 years ago. That has impacts on access to credit and inclusion. These are important things. We're definitely not looking at innovation for innovation's sake. We're looking to see where are the areas to move the needle, to address things in a safe way. From that standpoint, things like blockchain, things like, artificial intelligence, machine learning, we want to understand it better. We've been working with the CFPB. We have a very good relationship with their office. We spend a fair amount of time making sure we're well coordinated on these things. I think we all share the same goals there.
Heidi: (
Well, I wondered if maybe you could speak about a few other areas, such as eNotes, cyber security. If you could talk about how you're looking at each of these issues and maybe what's the top priority in terms of what you wanna attack first.
Jason: (
Sure, sure. Well, again, top priority: it's important with these groups to be particularly focused in the short term. We do want to really drill into the mortgage process, where the costs and complexities really lie, where to understand that better. We would like to develop a heat map that really drills down into the different phases of the process, where over time we've seen efficiencies, where we haven't and really focus on that to better understand it. I think that's a good way for us to understand where technology might be able to play a greater role. That's gonna be first and foremost, what we're gonna do over the short term. We'll have exercises. We will likely do tech sprints and all of those types of things that innovation offices do. Not just because they're cool or interesting, but because we actually think it'll help us move the needle. We work very closely with the enterprises and the banks. In fact, we already have been. They have innovation offices. They have great ideas. They're already doing the bulk of this work. In some ways, we want to make sure we're keeping up with them so that as they come up with good ideas, we, as an agency are informed and we already know the technology. We know the players so that we're not having to play catch up and slowing things down. That's going to be important as well. You talk about cyber security. Everything we do is with an eye towards, 'does this mitigate cyber risk? Does this increase it?'
Jason: (
The literature on some of these new technologies is mixed. Some would say that some of the blockchain, the way it's set up, it minimizes it. Others say there's other new attended operational risks. For us, we really have a lot of work to do to really better understand it. We're looking forward to that. We think that's a good place for us to be focusing our time in the near term.
Heidi: (
Yeah. Now, Anne Marie, I know you were going to speak about, the request for input. Could you tell us more — are you looking at anything so far, have you started reviewing that? What can you tell us about that effort?
Ann Marie: (
So far? Yeah. You know, I was just gonna jump in and say really when you look at the RFI, it's really a preview for the areas that we want to focus in on most and where we're looking to gather information from market participants, from everyone on the call today about where challenges lie, where the opportunities lie, where the risks lie and the use of fintech in mortgage processes broadly. The RFI is broken into about six core sections. I think it's 17 questions in total, and we have questions that we pose kind of broadly around the use of fintech and innovation and how to define that. Then mortgage processes and mortgage finance space, identifying fintech opportunities, uh, within the whole ecosystem of housing finance. We've touched on it a little bit too, but understanding where the use of financial technology can be used to create more equitable access to mortgage credit through various technologies.
Ann Marie: (
But also understanding and identifying and mitigating fintech-related risks. We have some questions there, as well, regtech. That's something we haven't touched on too much so far, but that's also an area where we're looking to understand better: the use of technology to make compliance processes and regulatory processes more efficient and more automated in a safe and sound manner. Then in the final section of the RFI, we're really looking for input too, from the public on how best we can serve you. Where can the office of financial technology best engage. Jason mentioned tech sprints — that's certainly something we've seen some of our peer regulatory agencies start to engage in. That's something we're interested in, but we want to know where should we focus. Where do the problems exist and where should we focus our energies on trying to solve for that?
Ann Marie: (
That's just kind of an overview of the RFI. [It's] open for about 45 more days, until October 16th,. We definitely encourage everybody to take a look and we certainly welcome feedback. We're also going to be holding a couple of stakeholder events. I want to give Liang an opportunity too, to talk a little bit about some of our stakeholder outreach that,that we're already starting to conduct and some things that we have planned.
Heidi: (
Yeah. You read my mind! Liang, tell us about it.
Liang: (
Thanks Ann Marie. The stakeholder engagement outreach is obviously very important for this fintech office. We've been very busy engaging with not only the private companies in the gintech startups, but also academia, industry groups and market participants who have a point of view about fintech in the housing finance space. Obviously we are maintaining a neutral position in these discussions, but we really encourage that two-way communication and want to encourage participants and stakeholders who wanted to start a dialogue to reach out to us about the stakeholder engagement, activities,and planning. We're planning an RFI listening session in early October. That would provide an opportunity and a platform for the stakeholders to engage with us virtually in real-time to provide feedback. We also have other stakeholder engagement activities and planning. So stay tuned on those.
Heidi: (
That's great. I have a question here from someone in the audience that I think is a good one. I Know that you're in the information gathering phase, but one of our viewers wants to ask what will the role and responsibility of this office be to approve, regulate or deny certain in innovations in the future?
Jason: (
Right. So, that's a good question. For the most part, we will be working with the regulated entities. So that would be Fannie Mae and Freddie Mac and the FHLB banks. A lot of how most of this will work is, they will continue to present...different proposals to us, different programs. I really view our office — we have a policy arm of FHFA that deals with a fair amount of this work in a lot of ways. Our office is really [there] to be able to provide those groups with a deeper insight on some of the more financial technical type of innovation as they're considering some of the proposals and pilots. One thing to note is that we're very much looking to do responsible pilots. You see that on the FHFA website and Fannie Freddis as well. That's something that we're very much doing. But our group is really to provide them some greater expertise. Also, the same for our colleagues in the supervision ranks, as they have to deal with things such as blockchain, machine learning and the like. We're to be really a repository, a place for them to be able to go, to be able to take some of this deeper. I think that'll be our main role and we'll see over time as things evolve.
Heidi: (
That's really helpful. I think that really, that that's really good to know as what the mission is here, to really be information gathering, synthesizing that information and working with the other arms of the agency.
Jason: (
Yeah. I would say the other thing - I think this gets at the question as well - is a term, use cases. And I think, what we'll be doing in our group a lot is really developing the use cases for some of the things such as blockchain, machine learning, artificial intelligence, smart contracts, all of these very interesting things. To really say, Okay, sounds very interesting. Very exciting. How would it practically be used in mortgage context? In the GSE mortgage context? How could it be used? How could it be scaled? What problems are addressed here? A lot of times you'll see some very interesting things and you say, well, that was very interesting. What was the problem that it was solving?
Jason: (
We have to be very disciplined on that to saym very interesting, but again, what's broken here? What part of the process is potentially broken? How does this fix it in a safe way, in a replicable way, in a scalable way? We're really going to be very diligent on doing that because we can go many different directions here. We do need to be focused and also partner with our regulated entities who are doing a lot of the analysis already.
Heidi: (
Yeah, absolutely. One thing that we've covered a lot of course is blockchain and how wonderful the potential is for it. But the thing I hear over and over again is you need everyone's buy-in in order for this to work, in order for this to actually be a possibility. I guess I would hope that this paves a way for making this more of a realistic thing for people. What we find is just that, uh, different parts of different people, different entities in the ecosystem are all running at different speeds in terms of their tech adoption. I don't know. I guess it's not really a question, but a comment.
Jason: (
Well, I think you're right. There's many analogies for blockchain. I think sometimes it's a new rail, you know, and, well, we already got a lot of rails. So there's a lot of things and this is why, again, looking at the use cases and really looking at these things before we say, Hey, let's do blockchain. There's a lot of potential disruption and the like, and we'd really need to make sure before we even consider it as something that we would want to get behind, really understand the costs and the benefits. And thinking about all the players in the value chain, particularly the borrower at the end of the day. It's one of those things that it would be interesting and the like, but at the end of the day, it's not gonna move the needle, might cost people more. I don't know. That doesn't score very high on some of those things, but what if it's safer? What if we find, going through it, it's a safer way to do things? That's important too, for us. This might be an area where certain folks in the industry are light years ahead. We're just beginning on that journey. So it'll be very important really to start with the facts and really see where the discussion goes. But we're very interested in beginning to understand that better.
Heidi: (
Yeah. Well, you know, another thing one of our, our viewers asked, which I also wanted to ask you about was working with the mortgage industry standards, maintenance organization, or MISMO as we all call it. The nonprofit arm of the Mortgage Bankers Association. Do you have plans to work with them? Have you been engaging with them because they've done a lot of work to try to, to establish standards? What would you say about, working with them?
Jason: (
Yeah. I'm glad you mentioned it. In fact, they had their fall sessions this week. They allowed me to crash one of their sessions on emerging tech and talk a bit about the office, what we're, what we're looking to do. I think it's fair to say there might have been a few skeptical folks in the audience that might have heard some of this sort of thing before. I've got some people— we have some people there to win over. FHFA already participates in several of the groups. It's a great organization. There's a couple of groups on blockchain, emerging tech that our office will engage in a more regular way. That's why I just say this too. We are just beginning. We're really trying to make sure we cover the waterfront and at least talk to as many people that are part of the system. If we haven't reached out to you, please reach out to me. It's not that we're ignoring it. We're really just trying to make sure we cover as many people as possible. So, please reach out. We've got many different avenues. We pretty much meet with anybody that wants to meet with us. Tell us a little bit about what they do. Liang has been great with handling that for us. We've gotten a chance to meet with a lot of people and understand some of these things better. So please reach out. I know when a regulator asks to do that, it's not always the first thing people wantto do, but I promise, we want to engage. We want to understand.
Ann Marie: (
I think Heidi, Jason, can I add to that just a little bit? I see there's a question in the chat too, around office hours and whether or not we're gonna be holding those. The intent there is yes. We're just working through some of the details on how to do that and how best to do that. We want to engage in many different channels and forms and, and really hear from market participants, hear from people that are on the ground living this day-to-day and understand where the opportunities are, where the challenges are. One way that we've seen peer regulators do this, is holding what are called office hours. It's where, you know industry participants, various types of speakers, academics, nonprofits we invite in to talk on a certain topic for a short period of time. So come talk to us for an hour and potentially that's something too that we could open up to a large audience in our agency. We could open up to other other folks. That's certainly something that we're wanting to do.
Heidi: (
We did have a question: does the engagement extend to industry tech vendors? Are you working with them in addition to lenders?
Jason: (
Yes, yes. We want to. Get us while we still have time on the calendar. It's open to even trade groups. We think it's important. There's a lot of different parts of the process. Before we start to come up with views on things, we want to make sure we we've heard from all the pieces and again, there are a lot of different ways to do that. We'll be at conferences and we'll be doing more of these podcasts, all those things. We'll have the RFI comments, but again, there's many ways in which information is delivered. We want to be open to. Zoom calls are very quick, easy, painless. We're very much open to hearing from,everyone that wants to us.
Heidi: (
Excellent. Excellent. Another question here: any specific areas of the mortgage process value chain that you have formulated some problems, statements, and hypotheses on? I would guess your answer might be not yet, but I wanted to see if you do have any early comment on that.
Jason: (
No. Yeah. It's great question. Like you said, the answer is not yet, but that will be the ultimate success of the office. When you have us back in a few months... I would like to say that we will have a better idea as we go through the RFI and continue the discussions.
Heidi: (
A good one that someone has asked is how do you think technology can help to improve the financial inclusion and mortgage access, especially, to low and moderate income folks. Could you speak to that at all?
Jason: (
Well, yes. And I mean, we've already had discussions. This is again, one of the areas I think the enterprise have been been really helpful on is that there are a lot of companies, whether they're fintechs or other companies with some very good ideas,. One of the things that we've seen is how to make sure that those that pay rent, that, that gets captured in a way that can work into, into their underwriting process. [It's] something that a couple years ago was not really, was not really done. I think you've seen from our agency and the enterprises, some advances there, but with all those advances policy advances, you need to make sure that technology keeps pace with it.
Jason: (
So what we're seeing is, companies that are saying, 'okay, well, there's a need. Now that there's a policy imperative, there's a need then to fill that. In some cases, technology can be useful in doing that. The basic things of setting up the systems and the records, so that, that basic transaction can get credit. We want to understand better, 'How can we encourage more of that responsibly? Are there opportunities to scale those appropriately as well?' Tech sometimes gets a tough rap here, but I think there's also a lot of good stories. One of the things that we're gonna be doing is working with universities. A lot of universities have these incubation-type labs and such that are working with different people, students and companies, that are trying to advance some of these these new ideas. We want to understand that better and see what promise some of that holds as well.
Heidi: (
Right, right. Great. Okay. Well, thank you all for your time here. I just wanna give you one more opportunity, if there's anything we haven't covered here that you wanted to mention before we sign off.
Jason: (
Yeah. Well, one thing just to wrap up. A lot of people that say, 'Cave you're not the most technological savvy person. What are you gonna do here? Have you bought into every one of these innovations?' I just wanna be very clear there be 30 years as a regulator. I wanna make sure that this agency takes a very balanced view of new technology. We really want to make sure we understand the ability for technology to increase efficiencies, by providing information to all parties in a faster manner. We think that could hold great promise, but we need to be convinced that any efficiencies gained are not at the cost of weaker governance and controls my experience as a regulator show that those controlled deficiencies often show up at the worst possible time.
Jason: (
I did note this morning that in the newspaper,. in Australia, there's a situation in one of these crypto platforms where a woman that was supposed to get a hundred dollars ended up getting 10.5 million Australian dollars, and she bought a house with it, which is not exactly how we're thinking about mortgage crypto in that sort of a situation. It's just an example. In traditional finance, operations mishaps also happen, but it's just a reminder that these are things that we need to be very considerate of as we advance into this new place here. I just figured I'd note it and close with that. If that had happened the other way around, I'm sure we would all know right away if she had went with 10 and a half million and got a hundred instead. Anyway, those are things that we'll be watching for as well.
