Join this live conversation between National Mortgage News' Heidi Patalano and Better's newly appointed President and Chief Operating Officer Chad Smith on key strategies for loan officers to deploy in a high rate environment and how his company is evolving to meet the market conditions of today and beyond.
Transcription:
Heidi Patalano (00:10):
Hello and welcome. I'm Heidi Patalano, editor in chief of National Mortgage News. I'm here today with Chat Smith, the COO of better. Thank you so much for joining us, Chad.
Chad Smith (00:21):
Thanks for having me.
Heidi Patalano (00:22):
I'm glad to have you here because we're also going to be having a conversation with you in a little over a month at the digital mortgage conference, so this is a little prelude to that. I just want to remind the people watching on the live stream today that you can register on the upper right panel. Those watching on demand can go to
I'm going to sound like an ad here, but if you are an originator, you can use the code MLDR for a special discounted rate for $495. So that's M-L-D-R-M-L-D-R-M-L-D-R. That's how you help people remember these things. Right. So anyway, that aside, I just wanted to say thank you again for joining us here today. You'll be at the conference on stage for a super session with Jason Bressler of UWM, Sridhar Sharma of Mr. Cooper. You're looking forward for 2030 big-picture kind of conversation, and I'm really looking forward to that.
Chad Smith (01:36):
Yeah, me too. It's an honor. I'm excited to be there.
Heidi Patalano (01:39):
Well, we had you here today because we really wanted to talk to you about what LOS can do to thrive in mortgage today. And you're at better. You started here just recently. You started at that or just recently, but you have a long resume in mortgage. Of course, you were at Mission Loans, you were at Caliber Home Loans, Loandepot, and LendingTree. So I know you've got a lot of great wisdom to share with the audience. So I guess my first question is not so much about the soft skills that you need as in an environment that's very tough right now. I mean, I know we're optimistic about the future. There have been developments recently that everyone's hopeful about, but I wanted to ask you, what's your advice? You're kind of coaching for LOs in a market as it is now?
Chad Smith (02:35):
Yeah, so I think obviously it's been a really challenging macro and this has felt very long. And for originators specifically and really all mortgage folks, I think it starts with making sure you're at the right platform. What kind of tools and support are you getting? And then it does kind of go back, there's been a lot of new entrants into the market with 2020 and 2021. A lot of people came into the business and that capacity is continuing to come out. But a lot of the soft skills of just fundamental blocking and tackling, calling your referral partners, following up, making sure you're focused on things that would make sense from a conversion perspective. Obviously at Better we generate quite a few leads, which is helpful for loan officers to get a leg up, if you will.
Heidi Patalano (03:30):
Yeah, yeah. Well, I'm very interested in hearing about the lead generation tech at better and actually specifically in regards to the home equity loan product, which is very new at Better. So could you tell us about that technology?
Chad Smith (03:49):
Yeah, so I mean it's basically one day HELOC, right? A consumer can come in and get fully underwritten and validated digitally. So if you think about that from a loan officer's perspective and a borrower's perspective, it's easy. It's fast from an lo, it converts very high. So you have a customer that's put their hand up, which probably converts higher than going out and calling through a phone book, if you will. And so we've been able to kind of digitally validate and give a borrower the best rate and the best product based off of their qualifications. And so then I think more importantly, it allows the loan officer to offer a product to maybe a previous customer, maybe someone they did a purchase for 12 months ago that has built up home equity in their home and then reminds that consumer that this originator has helped me twice. And so home equity has kind of not been generally originated since the crisis other than maybe the banks. And so that product has just kind of come back and it really feels like over the last six months. And so now it's just another tool in your tool belt.
Heidi Patalano (05:04):
Right. Well actually I found some statistics just from the New York Fed that came out this morning that, let's see, balances on home equity lines of credits rose to 380 billion. The ninth consecutive increase by quarter and about 1.8 million HELOCs in total were originated in 2023 and the first two quarters of 2024. So that speaks to exactly what you're saying and the numbers show
Chad Smith (05:30):
It. I think it's the right product for the right time. I mean, if a consumer has a low 3% on their first lien home price appreciation has done what it's done, and you need to make, so what they call the lock-in effect. So you're not going to move, so maybe you want to make improvements to your home, but a cash out refinance would take you out of that 3%. And so taking a home equity line of credit or closed end he loan. And then in addition, I think, I don't have all the stats off the top of my head, but credit card debt's at an all time high, you're starting to see the ratio of debt ratio to income be close to I think crisis levels. And so just from a de-leveraging perspective of taking a consumer out of multiple revolving debt accounts into one simple loan has a lot of benefits. One, it's a much more manageable payment, so there's some relief for the consumer. Two, there's usually FICO appreciation when you consolidate as well.
Heidi Patalano (06:34):
Yeah, yeah. So I know you were talking about leads in terms of the consumers that are coming to you, coming to better to do the research and find out, but I wondered if there was anything you could offer from your experience prior to better about this kind of work in terms of getting that volume out there for the los in the audience who might be watching and saying, how can I actually go out there and get this business?
Chad Smith (06:59):
So I think from a leads perspective, obviously you can go buy leads, and from there it's about do you have a good CRM? Do you have good tools to make sure that you're touching that consumer? And then do you have good nurturing campaigns? Obviously one of the hot topics is credit triggers. And so you buy a lead, you do all this work, and then you run credit on the consumer and then five people call it. And so it's like what are you doing to protect your investment? And I think in addition, especially on purchase leads, if you're finding that consumer relationship and then bringing in your local realtor partner and then helping them get a transaction, then they're probably referring back and it becomes kind of a cycle of a referral network. And so I think whether you're at an organization like better or anywhere, you have the ability to do that. And I think it's really important. Right now there's obviously been margin compression, so you have to be on top of your customer acquisition costs and you have to have the right price to the consumer. I think that's another shift that's happened is consumers aren't just listening to maybe their referral partner or their realtor to go use someone. They're actually shopping around, not for lack of trust, just from an affordability perspective, rates have suddenly become more important in the environment.
Heidi Patalano (08:31):
Right, definitely. That reminds me of something I heard you say in a recent interview just in terms of talking about going after that volume of business in a time now that you had, let's see, an independent study saying, pardon me, that you were getting 17 units per person in 2023.
Chad Smith (08:58):
On the purchase side, our loan officers average 17.7 units in 2023. And I think the industry average is single digits, obviously. And I think that's a combination of a lot of things. It's a combination of technology, tinman, our proprietary tech. It's very efficient for mortgage people and the consumer, and then our lead ingestion engine. So if you think about a consumer coming in digitally, getting fully validated and focusing the loan consultant on a higher intent lead, if you think about the lead universe, if you buy a hundred leads, I mean you may not get ahold of 50 of 'em, right? And so how do you make the loan officer more efficient by talking to the right consumer at the right time and then fulfilling that quickly? I dunno, I think in that same interview I quoted that I think there's 82% of the country is a prime member, but mortgages still take 50 days. And so at better specifically in lots of places, we've been really able to cut that down, which then improves your pull through. It allows you to give a sharper price to the consumer, which also improves your pull through and conversion. And then that ultimately lowers your customer acquisition costs. So you can share that with the consumer and then reinvest for growth, which is what we're doing now.
Heidi Patalano (10:32):
Right. But I also wonder in terms of an age of streamlining and cutting down costs, what does the backend office look like when you're doing that high volume and you're really slim down operations for efficiency. How do you make sure that those are great loans, really good solidly underwritten? What can you say about the relationship between tech and those people? Like we were talking about people checking the tech.
Chad Smith (10:59):
So at Better specifically, Tinman, our underwriters underwrite on a conforming loan 10 to 12 a day. I think the industry average is three to four, and there's a lot that goes into making that happen. Some of that's workflow, some of that is task-based. And then some of that is just our system and then the people that we have, but we have a lot of automation checking all the way through the whole process. And I actually think in a lot of ways, bias and fraud and making sure it's a right loan is done much better through technology with OCR and all these things that have come up in our industry for the last few years. And then you have to have a team that has the vision, kind of a technology mindset to actually execute on that.
Heidi Patalano (11:50):
Right, right. That's very interesting. Better has been in the field developing a lot of these technologies for years. I know something I found very interesting is that some AI technologies need about six months to get up to speed and to really be honed and fine tuned so that the checkers don't always have to be checking the checkers in a way.
Chad Smith (12:16):
Yeah, no, I think FHFA just had a conference on AI and the safeties and the risks with it, and I think the industry is proceeding carefully. So I think in my experience, what I've seen is off to the side, there's a lot of pilots and testing, maybe you're almost processing alone twice, once in your normal flow and then once to teach things how to make sure that there aren't errors. And then in the current state, you're definitely having a human check the checker at the end of it
Heidi Patalano (12:49):
All right. Of course. Of course. And we really appreciate you coming here today because Better will be releasing earnings in two days. And I know I can't ask you certain questions of course, because you have that coming up, but I did want to talk about a comment that [CEO] Vishal Garg said made in the last earnings call talking about Uberizing, the loan officer, which is partially what we're talking about here already. I just wanted to hear more about what you feel that you're offering the loan officer in terms of this kind of experience and the improvements that you've made more recently to lead routing and maximizing conversion, like you were saying.
Chad Smith (13:28):
Yeah, so I think if you look at better's history and just this is my 90th day to day, and so the obsession on the consumer and the mission of the culture of the whole organization is unlike anything I've ever seen. And so everything is just obsessed on to make it better, faster, easier, better, cheaper, better for the consumer. And so category leader there. And so I think there's been a shift in the last five or six months where we've hired experienced loan officers move from kind of a fixed cost model to a more variable compensation structure, which is a little bit more traditional mortgage. And so how do you make sure that that same amazing experience for consumers can be replicated for loan consultants or loan officers? And so if you think about the driverless car, maybe on a one and a half trillion dollars total addressable market, maybe only 150 billion of that is ready for a driverless car.
(14:31):
And so how do you make sure that you're helping more homeowners achieve homeownership? And our mantra is to do it cheaper, which saves them money. And so as a result of that lead routing and some of these other strategies that you have, this amazing engineering team at better now deploying some resources and focus around that kind of leads us to uberizing the loan officer where you get statistics like 17.7 purchase loans per loan officer. And I think in this margin environment, and I realized the last couple days have been interesting for the markets and everyone's optimistic about that, but compliance costs, all these things haven't necessarily come down. And so if margins have to continue to come down too much capacity affordability, you need to figure out loan officer comp. And so I personally believe that the market sets loan officer comp, not necessarily a company.
(15:32):
And so if a loan officer needs to make X, our view is how do you make them so productive that the per loan is not necessarily as high because they're doing for the same level of effort, they're doing three more loans but making the same. And I think that's where we're headed with Uberizing, the loan officer, is they can come to the better platform and be tremendously more productive, and not just in the loan officer chain, but the whole fulfillment chain. If you're underwriters underwriting 10 loans a day instead of four, all of that cost comes out, which can either be deployed into price or bottom line.
Heidi Patalano (16:09):
Yeah. Well, that brings me to an interesting thing I wanted to ask you about. You worked at so many different lenders, You are someone very known in the industry. I know that Better when it first started out was a big tech splash. It made a big splash as that, but not necessarily having the mortgage lender people that with the long tail in the industry involved. And now I think bringing you in is very interesting because you have so much experience that you're bringing to this. And I saw actually that Jessica Manna from Go Mortgage is starting as VP of Growth soon. She just announced that on LinkedIn. So I thought it was interesting because I remember, and sorry to long tail here, a long lead up to this question, but I remember Better taking people right from college and then training them and teaching them to become los. My thesis is that bringing you on board, having Jessica on board, there maybe is this recognition that you need veterans, you need people that really know the business to be a part of it. And that's great to see. I just wanted to know if you could share with us a little bit of a view into that shift in strategy.
Chad Smith (17:35):
A great question. So I would say Better is a FinTech, right? It's a technology company. Mortgage is a product. I mean, tinman has funded a hundred billion of volume on it, which is our proprietary software. I think we're the only FinTech to have done that in mortgage. I would say my arrival is complimentary, but Vishal and the team think differently. So an example of that is I'm asking him a question and I'm thinking about how to raise pull through by 3%, and he's thinking about how to do it in one day. I think where the magic comes in is can these two thought processes help each other? Then I would also say hiring people off the street at some scale, you need to do that in large consumer direct because you're not going to, at some point you'll run out of targets, so to speak. So I wouldn't say that that's necessarily off the table at a future date, but what I would say is at 3% in a refi market, things are easier to accomplish than at 7% in a purchase market. And we've seen the conversion deltas by hiring licensed experienced people and putting 'em on a more traditional incentive plan. And so it's the right strategy for the right time. Yeah,
Heidi Patalano (18:58):
Yeah. Well, that's very interesting. And it leads me to another question in terms of recruiting talent. I know that oftentimes lenders are looking at their past track record in great years. What are you looking for besides just those numbers? Just the volume? Yeah,
Chad Smith (19:17):
So I think on the consumer direct side of the business, you're looking at loan officer license counts. So you could fill capacity to match our, we are very long tech, we're very long leads, so we need to match that to be long loan officers. But yeah, I mean, we're not looking for people that have jumped around a bunch. I mean, I would say quality people that have licenses to serve the amount of marketing that we have and that you can check modex and these tools that show their volume over the last 24 months and 12 months and year to date versus just 2020, which is obviously not a great benchmark. Right. A lot of people look good those years.
Heidi Patalano (20:06):
Yeah, right. Well, that's very interesting. I wonder also about cultural fit. I know some companies are really big on their company culture. Are there certain kinds of qualities you're looking for in these lenders?
Chad Smith (20:25):
So I think in all cases, character, integrity, all of those things are most important. I would say we have, I mean, the amount of inbound that we have at better
Heidi Patalano (20:40):
Inbound, meaning
Chad Smith (20:41):
Just people trying to come work here or seeking interest, including a lot more than I would've ever predicted in distributed retail because again, I think the market's tough. People need help. We have great technology, so we're going to close that customer on a purchase loan quickly and hit our escrow date. And then we have this marketing machine. A lot of our traffic is organic, it's just more exclusive traffic that converts higher. And so it allows a loan officer to be more efficient. So we have a lot of inbound traffic. Having said that, we're still very selective, and I can get back to you with these specific numbers, but the waterfall of applicant to hire is quite dramatic, really. So I think that says two things. One, we care about who we hire and serve our customers. We're not going to compromise that. And then two, it also shows how much pain is still out there in the marketplace,
Heidi Patalano (21:43):
Right? Yeah, we've tracked a lot of that m and a activity, a lot of layoffs, and some of that is still obviously happening. Well, so let's see. The next thing I wanted to ask, when you have something queued up in your head and then it just disappears all the time, there's nothing like it. Oh, well, okay. So another thing I wanted to ask you was in this other conversation that I heard you have where you were talking about other shops going from, not everyone is a better, right? Not everyone has a whole system that's proprietary that's been developed that have millions of dollars, but you talked about the pain point of being in a lending shop that has lots of different vendors and that there are some inefficiencies there. And so I guess I wanted to speak to the audience that may not be a better and may have those things and draw on your past experience at other lending shops to talk about what you saw there and what should be improved if you are in that situation.
Chad Smith (22:52):
So I think sometimes you're trying to higher volume, you're a mortgage operator, maybe you're smaller, maybe you're bigger and you're trying to higher volume, and this person needs this and this person needs this, and I only work on this system. And so it can be common to have multiple CRMs, multiple credit vendors, multiple kind of systems. So I would say to answer the question directly, the first thing is just integration. And I think because of cyclicality of our business, you make an investment and then things change and then you cut investment. And so sometimes things just don't get finished. And so from telephony, CRM to LOS, I think it has to be a tight integration. And I think this is largely more of a challenge in distributed retail, but people like different workflows, whereas consumer directs usually traditionally been more consistent to where it's set at the top and everyone goes in there. So I think the interview you're referring to is just some of people have signed up, now they have these legacy contracts, everyone's trying to cut costs, and then I want to get rid of this to just simplify to go to one solution, but then we might lose this guy. And so that was kind of in the vein, whereas tinman is one system, so everything's going to start to finish. I mean, we obviously have a telephony stack, but I think in our business model currently, it makes things simpler.
Heidi Patalano (24:31):
Yeah, yeah, absolutely. Because no other option. That's right. That's right. And well, one thing I did want to ask that just I don't think covers forward looking things, but we do see that refi is picking up a little bit. There is some refi activity picking up. So I wondered about trying to, let's say that this refi comes back because it always does in this cycle. So how do you maintain the efficiencies that have been gained in this tighter period and also remain ready to grow?
Chad Smith (25:10):
Yeah, so that's a great question. I think a lot of mortgage executives are struggling with that right now in deciding what to do. Obviously over the last couple of years at Better, we've been very focused on cost out most of the industry, I would just say there's still been a culture of innovation and investment. And so there's been massive discipline around, okay, we're going to have to really say no over here to make sure we're continuously investing in one day heloc, one day mortgage with a verified pre-approval, those types of things. And so I would say the years of investment at Better in Tinman have us really ready to flex. I mean, you have to remember, there's a company from zero to 58 billion, and the platform handled it. So I mean, obviously it wasn't literally zero. And so we're growing now and we were growing early because we've created the opportunity to do that. And if our loans per person efficiency is higher than most in the industry, then I think it allows us to lean in. I think the days of just throwing bodies at everything for all mortgage companies have come in, and you've seen that a lot of mortgage companies had leadership changes and tried to, is it the right leader for the right time, cost discipline? And then when it's time to grow, you'll probably see changes. But I do think there's some permanent scar tissue from this cycle that people will be more disciplined this time around.
Heidi Patalano (26:55):
I love that you said scar tissue, because you know what I wanted to mention, when you Google Chad Smith, of course, what's the first thing that comes up?
Chad Smith (27:02):
Chili Peppers drummer.
Heidi Patalano (27:06):
I wanted to find a way to work that in somehow, and now you've done it for me.
Chad Smith (27:11):
And randomly in 1994, we broke our wrist on the same day. No. So that's my big claim to claim with the Chili peppers. And I only knew that because I was in the hospital in Flagstaff, Arizona, and it was on the TV or something, and I was like, oh, what are the odds?
Heidi Patalano (27:30):
Wow. Oh my God. Well, I'm so glad I know that.
Chad Smith (27:32):
Now. Unique, such a unique last name.
Heidi Patalano (27:35):
Right. Oh my God. That's hilarious. All right, well I'm glad we talked about that. I'm glad I now know this fact. Alright, well thank you Chad. I wish we had more time, but thank you for joining us for this sit down, and I am really looking forward to seeing you on stage at the Digital Mortgage Conference.
Chad Smith (27:51):
Yeah, thanks so much for having me in your awesome offices, and I'm really looking forward to Digital Mortgage, so we'll see everybody there. Yeah.
Heidi Patalano (28:00):
All right. Thanks, everybody. Thanks for joining us. Have a good afternoon.
