Transcription:
Chris Drayer (
Good afternoon, ladies and gentlemen. My name is Chris Drayer and I am the CEO of Reevaluate. We are the track sponsor, and the session that we're getting ready to view is assessing the progress on industry wide buy-in on blockchain. If you were looking for how to make a better taco, that is in the next room over in half an hour, so apologies for that. At evaluate, we reveal likely movers and their packets on some of the seats. You can open it up and you can schedule an appointment for a borrower retention assessment, if you'd like to do that, there's a URL there and there are some tasty treats there for you as well. With that, I'd like to introduce Jason Cave.
Jason Cave (
How you doing? Did they get the right chair?
Cara L. Newman (
I think we're flipped. Okay, there was discussion before we came out on the stage. Yeah.
Jason Cave (
Well, it's like my luck on the roulette wheel, so there we go. Oh, that's my good jokes. That's right.
Cara L. Newman (
Well, I also heard that we're not talking about tacos.
Jason Cave (
Well, okay. Well, there goes most of my material. We'll able to get out of here early then. All right, so who starts ?
Cara L. Newman (
So I'll introduce myself. I'm Karen Newman. I'm the head of structured finance at Redwood Trust for anybody that's unfamiliar with Redwood. We are active in the secondary market for Super Prime Jumbo Loans. Redwood is also the largest non-bank issuer of RMBS in the United States. over 118 securitizations. We've issued over 60 billion in RMBS off of our Sequoia platform. So recently we've started focusing increasingly on integrating technology into our business. We do that through our Horizons platform, which is an internal venture investment arm within the company and then we're focused on practical incremental deployment of those technologies in our business. So I work pretty extensively on that. Jason, take it from here.
Jason Cave (
Sure. I'm Jason Cave. I'm a Deputy Director at the Federal Housing Finance Agency. So, I think most of you have probably heard of us, but just if you haven't, we are the agency that is the regulator and conservator for Fanny and Freddy and regulator for 11 federal home loan banks. So it's we're, we don't make the papers a lot, which is good, but under our under our care and supervision is a good portion, probably about eight and a half trillion or so of of mortgage assets out there. So it's a big space. We work very closely with Fannie and Freddie and have just launched a new office, an office of financial technology because as we could see from this conference, there's a lot of innovation in this space and my job is to understand it better and see how we could make sure it works for particularly for consumers and borrowers. So, really excited about it and happy to talk more about it this afternoon.
Cara L. Newman (
So, if we want to just jump right into our discussion about integrating blockchain. The thesis for this panel is that blockchain technology can help increase transparency, reduce costs, and solve problems throughout the mortgage industry. From the introduction that I gave and Jason gave, we have a lot of touch points with different facets of the mortgage finance ecosystem. So, as I mentioned, Redwood doesn't originate loans. We buy loans in the secondary market. We sell them to whole loan investors and securitize them after they've been through the diligence process. We work with investment banks and all the different securitization parties and a whole array of whole loan buyers in the secondary market. So Jason, you work similarly with counter parties throughout the mortgage finance ecosystem, and maybe you have some thoughts or just questions to start off with about how this technology could be utilized just knowing that there is an established ecosystem out there of counter parties that are used to transacting in a certain way and how to think about approaching integrating technology.
Jason Cave (
Yeah, no, it's a great question. At this stage, since we're in the early days of our office, I have the benefit of being able to have a lot of questions. The time will be soon where my boss will expect me and my group to have the answers. So this is the honeymoon period. So that's why spending time coming out to conferences like this, I've spent a lot of time with people in the exhibit halls to understand their piece of the of the mortgage ecosystem. We put out a on our website a request for information, and that's Washington speak for we want to learn a lot more about something we don't know much about. So we're going to write down a bunch of words, but have a whole lot of questions and we've got that out there.
(
Comment period closes October 22nd. If you haven't or folks in your organizations haven't had a chance to check it out, please do. I'm happy to send it around. I put it out on LinkedIn every week or so. So a lot of you, I've probably linked in with, but check it out. Feel free to comment. If you would rather do it bilaterally, pick up the phone, especially if there's something you really think we got wrong or don't like, give me a call. But we're in the stage really of wanting to understand, really how the mortgage process is working, the different players in the process where the bottlenecks or the challenges, pain points, whatever you want to call them are and you might say, what do you mean?
(
When I say that, one of the things that we've looked at from a high level, while there's a lot of innovation in the space, a couple of metrics that we look at is, the time to close from beginning to end, and the costs, the time to close hasn't seemed to move much in the past 7, 8, 10 years and costs have gone up. So question at FHFA is, if there's been this innovation, we would think that you'd start to see that in some of those numbers. So we're trying to understand, why that hasn't been the case and what we can do, particularly with Fannie and Freddy to help there, because at the end of the day, this is the borrower is the main part why everybody's here.
(
It's all nice that we're here, but we're here for one reason. I mean, it's for the borrower. And so if the value is not going there, how can we use innovation and a better way to make that happen? So a lot of questions everybody has views on it. The great thing is it's like a police search. I talk to everybody and somebody's like, it's not us, it's them. The good news is we'll talk to everybody. So by the end of it, hopefully, we'll be able to make some sense of it, but we think this is really important. It's a big priority for our agency and blockchain, I should say. Blockchain is, yeah, going back to the topic. So, read a lot about blockchain everybody reads about it.
(
My 13 year old neighbour, he could tell me about blockchain. So it's one of those things that when I read about it, it seems that some of the things that it can do are some of the issues that are challenges in the mortgage business, talking, having one set of records that, people can look at at the same time rather than sequentially, clear record, all those things that, those seem to be value adds. The question is, "Is the juice worth the squeeze?", "how to put something like that on legacy systems?". At FHFA, our view is we we're open to looking at everything given the numbers that we're seeing, we're open to looking at it. If it could help over time, it's something that we'll want to pursue, but there's probably also other options as well, whether it's AI, ML, or just really, adopting some of the automated underwriting systems that the enterprise has already have in place at a greater extent.
(
So we're agnostic on it. We're just want to make some progress on some of these numbers.
Cara L. Newman (
I was lucky to sit in on a number of presentations from different technology companies that are participating in the conference. It was really interesting to see those demonstrations and hear the feedback from Julian and the panel of judges and just knowing the different, the wide variety of technology providers that are here at the conference today. It just goes to show how many different perspectives there are on how this technology could be integrated by the ecosystem. As you think about, what kind of feedback coming back from your request for information would be helpful. I mean, I would imagine that getting a broad variety of those voices, not just from new technology companies, but probably from established participants from lots of different perspectives, would probably help round out your analysis when the feedback comes back. Is that a correct assumption?
Jason Cave (
Yes. No, it is. I mean, we really want get feedback from anybody, hopefully consumers or borrowers, but old tech, new tech the kind of feedback that's particularly helpful is, some concrete examples. If there are use cases, that's the big term use cases, where are the use cases that are being used even outside of mortgage finance that we say, well, it's used over in supply chains here, but there's some possible value in this process. We want to know about that. As concrete of proposals, I hear a lot, or I read a lot about DEFI and all that, it's all very interesting, and it says, there's no central counterparties or things like that.
(
That's interesting. I don't know if that's good or bad. I'm an old central counterpart guy to guy. I used to be a bank regulator. I kind of thought those were important, but, we're open to hearing more about it. But more than just sort of saying, Well, this is a better approach. Why is it a better approach? What are some of the, solutions really, what are the problems that some of these solutions are meant to address? At the end of the day, the thing that we're going to care most about is, how does it move the needle on borrower costs and time to process? That's going to be the big thing. So the more and again, facts are always good, or data is always good. So to the extent that's available or you guys can point us in those directions, that's going to be helpful too.
Cara L. Newman (
I like your focus on the tangible examples of how the technology is used. That reminds me of one of the earliest conversations I had actually with a bank that's headquartered in a Midwestern state that was looking at how to integrate blockchain technology into their mortgage finance business, because they had actually started building a blockchain in their agricultural financing business. And their first use case had been putting cattle ear tags on blockchain, because those assets are just very difficult to trace through the entire ecosystem. And they had had tremendous success with with their agricultural financing system on blockchain to just improve efficiencies. And ultimately my understanding is improve their financing costs. So just, it goes to show that when, a discussion moves from the conceptual, what is blockchain? We're talking about nodes and, computers talking with each other without intermediaries.
(
Now we move down into the nitty gritty, which is, okay, that's great, but if I invest all this money building out this technology, what is it actually, What is the benefit to my company? What does it actually mean to me? Well, for this bank that's headquartered in a Midwestern American state, it actually meant more efficient financing in their agriculture business. So it's exciting to work in the early days of new technology and just imagine, if that is one discreet use case for a bank in America, what that could mean spread throughout the entire ecosystem. So I can give just another, interesting example. ultimately, at Redwood, we're not in the business of originating mortgage loans, but the cost that we incur when we go through the securitization and whole loan trading process, ultimately that impacts the price at which we can purchase loans.
(
The faster we can, we can sell loans on our end, the lower our financing costs, and the faster we can then recycle capital and deploy it in purchasing new loans. And on our securitization platform this year, we actually added blockchain technology to make borrower payments available the next business day after the borrower makes the payment. That's just a use case of how blockchain technology could be used, but it shows that you can actually use blockchain to reflect information almost instantaneously for parties to see andutilize potentially in their financing, potentially to expedite the acquisition process. Which at the end of the day, particularly for folks in the audience who deal directly with originators, the longer you finance alone, the more costs you incur. So the faster you can complete a sale in the secondary market, the faster you can redeploy that capital. So just, those are a couple of just interesting use cases, One in mortgage, one in agriculture, but just blockchain is actually actually being deployed today in tangible ways. So just thinking, I'm excited to see the feedback that comes in on your request for information, because I think there just are more pieces that, I haven't heard of possibly you haven't heard of that are out there that just help inform the next steps that we all take.
Jason Cave (
Yeah, I mean, I think that's great. Just to hear that, here's an example like it is used and I think, there's others you have a figure that was here. And so it's, the examples that Kara, that you all are doing with redwood are like, Okay, if it seems to work for you guys, and we're dealing with a set of all of these participants and you've found a way to do it more efficiently, those are things that are worth us looking at. And, maybe it's not apples and oranges, or maybe it's different types of apples, but, it makes sense to begin to sort of see, and again these aren't short term things like, first question is, does it make sense?
(
The next questions that we're going to have is if it makes sense, should these things be phased in? Should we be doing pilots? I mean, there's a lot of, at FHFA, just with the enterprises that I know, Kevin's here from Freddy. I mean, there's's a lot of ways that if there's value that we could roll these things out or at least test them out. And then if it's really bad idea, well then we've tested it. Maybe it's ahead of its time or not fit for prime time ever, but, we're at the stage of its given the numbers again these are things that we need to be looking at.
(
So yeah it's interesting just to think about the different approaches to integrating blockchain technology and Redwood's approach has been taking an incremental approach to figure out how we can work with the system as it exists today. And I think that's a consistent theme in the questions in your in your request for information. It is, there are established market participants and there is awell developed mortgage finance ecosystem in the United States. And how do you take that at face value and figure out within an intricate system that is mature, how do you introduce new technology in a way that's safe and allows the system to benefit from the benefits without creating undue risk? So is that something that you're also interested in getting feedback on is, what risks are out there when people think about, integrating new technology?
(
It, is. I mean, again, you know while the the work we're doing in the in the financial technology area is important, and the term we use a lot is responsible innovation. So we're for responsible innovation. And what, what that means is that we are not for innovation, just for innovation's sake. It's got to pass the litmus test of, not adding additional risk to to processes or, and it's gotta be able to, whatever these innovations are, we've gotta be able to show that the parties are, we're not dealing with something that's going to be riskless, of course, but that all parties understand or have a good enough sense of what the risks are and how they're mitigating them. So I think one of the challenges, as I see it with financial technology, especially in the regulatory space, but let's face it in your organizations as well, we always say like, regulators don't want to take risk.
(
Well, mindset, most of you all don't either. You take risk, you get fired. I mean, so it's not like we have amonopoly on not wanting to take risk, and some of these things we're talking about are new ways of doing it. And, let's face it, a lot of people don't get paid a whole lot of money to take those big changes. So we're aware of that, and so, but one of the things that we're trying to do at FHFA, just like a lot of our other regulatory agencies that have these operations, is to not just look at technology or innovation as an incremental risk. Sometimes there's like the view that, so like, take AI and ML, the view is if you use that, there's an incremental risk. It's more risky than not using it.
(
That kind of, you'll see that in a lot of our, some of the guidance that regulators put out. And I used to write that stuff. I mean, that's what you do. Oh, there's third party, there's fourth party is fifth party, and you gotta have this, and you gotta have that. And I guess my point is, you do, but one of the things that we're doing more of at our agency is there's also a risk of not advancing some of these technologies. And so we we're trying to be more balanced about it. It's not just because the issue when we put out something and says it's just incremental risk that a lot of people say, then we're not going to adopt it. And so we gotta strike that balance. So that's an important part. And then the other thing on that is, like whether it's blockchain or AI, sometimes there's a view, and I used to have this, that the existing approach is riskless.
(
I think we all know, and through what we've all gone through and the mortgage, and whether it's the foreclosure issues or the crisis or whatever, that, the traditional process, that there's risks there are operational risks and the likes. So it's, to be balanced about it. There might be a different set of risks. But I think trying just to be a lot more objective with the fact that this current system in it also has a set of operational risks too. So, we're trying to do we want to have that balance in our new office.
Cara L. Newman (
So in hearing you describe the incremental risks of, adding technology into the ecosystem, it kind of, that speaks to why the system benefits. One parties test new technology incrementally as opposed to just disrupting all established processes and trying to create an entirely new ecosystem, particularly when there's parties that are used to transacting in a specific way and have gotten comfortable with, how to comply with the letter and spirit of the law, how to operate their business efficiently, and how to most importantly, manage risk like that, adding new technology with all of the unknowns that are associated with it. Sometimes you might not even appreciate how, for example, in a business that deals so much with consumer information, you might not have a full appreciation for the impact to protecting important consumer information is actually affected by utilizing new forms of technology. So as parties think about adding new technology, it seems to make a lot of sense to kind of deploy, test, observe, reflect, revisit how, what's worked, what hasn't worked, integrate lessons learned, and then take the next step as you figure out what makes sense for your business, what regulations need to be changed to reflect the new reality and how parties can continue collaborating on integrating the technology.
Jason Cave (
Yeah, no, that's a good point. Something that, in working with Fannie and Freddie, they've been very helpful that, there's a wide range of, lenders out there. It's not all just big players that could adopt, technology like that with and that have a big operation of which, they could deploy those costs that there's, smaller and medium size as well. And so, having to deal with those challenges, that's why the other thing is, and again we're, like I said, we're open to learning more about blockchain, we're assessing the progress buy in on it. But I think it's something that I've definitely learned in working with the enterprises, there's a lot of tools that have already been provided in the automated underwriting space.
(
So, a lot of this might also just be, how do you guys and everyone get greater penetration with those things? You may find thatY, we're very caught upon the numbers at because it's Washington and that's what, that's what you do. And might find out that that a lot of progress gets made just by greater adoption of some of the things that have already been put in place. And that's a lot easier for everybody. You know and then, maybe some of these other things are down the road, but, we want to make sure that we're not just trying to reinvent the wheel and and looking at it from ways. So that's why we're very open at this stage.
(
And want to hear from you all. I've got a very open door policy. I talk to anybody that wants to talk to us. We do, everybody talks about office hours. We've been doing office hours since we started in July. It's usually like me finding somebody interested on LinkedIn and say, hey, let's spend a half an hour. And if they're not scared to talk to the government, we generally have a pretty good discussion. We're not licensing. People ask about sandboxes. I say, I have a sandbox, but that's more, the cat uses it now more coz the kids are so old. But it's we're, whether we need all of that stuff. We're not the CFPB, they've got their mandate, they've got their mission SCCFTC, good luck on crypto and all that fight. We don't need to get into that, but there's a lot that can be done in the mortgage and housing space, and that's our territory and we want to make sure we make some progress there.
(
So feel free and pass on this question, but I have been wanting to ask you one of the specific questions in the request for information deals with a tech sprint and just knowing that there's a lot of participants in the mortgage finance tech space that are participating in the conference. What do you envision that looking like?
(
Well, like ideally it would look a lot like the the demos that you all have participated or judged or observed this week. So this nothing else are my team and my team is a team of two like Anne Marie and Leon are here somewhere, and I think they've been there they are. They haven't missed a tech sprint. My attendance has been a little more spotty, but the good news is they've gone to most of them and the bad news is for a lot of you is, they're taking good notes as to future participants and judges and the likes. So we do want to engage in in tech sprints but we also want to be smart about it. I think at first it was like, yeah, let's definitely do them. And now the more we're looking at things, it's like, let's make sure whatever we're going to do is avalue add versus hey, this was cool because you guys, everybody is very busy with things, but it seems like a good way to get ideas out there. And so yeah, we're open to them.
Cara L. Newman (
I think while I am still working through how an established mortgage loan aggregator like redwood could participate in a tech sprint, I haven't figured out our angle yet to respond to a particular question, but I'm working on it. I think the concept of a tech sprint is what's the most exciting part about my job, which is working with a lot of new technology entrants into the mortgage finance space, which is, I talk with a lot of visionaries that have a very aggressive view of where technology could land the industry, in five, 10 years. And it's inspiring to talk with the founders of technology companies to hear where they think technology can go and then to talk with people like you, Jason and other participants from kind of the real traditional finance world to say, okay, that's a great vision.
(
But how can we collaborate in the meantime to get there? What kind of parties do we need to have buy in the headline for this panel to actually get to that end stage? And a lot of the great ideas that I have heard have actually just come out of discussions like this discussions with technology providers to say, there is an inefficiency in the system that I feel it could be solved. That discussion then inspires a further discussion with somebody who you talk with a few months later who might have a similar problem or potentially a solution. So I think the idea of creating a marketplace for ideas where participants can raise their hand, can talk about what they have developed and what kind of solution that might have. It actually just having the discussion regardless of who wins the race. Just the fact that everyone is talking together in one forum just creates a lot of inspiration for people that are working on a similar issue from different perspectives.
Jason Cave (
Yeah, and again, I mean, where we're, where the market is going, and not that I have a crystal ball. I'm not an economist, but some of the REFI boom is clearly slowed down, news flash, right? But in these issues with costs and and the like some of the things that maybe didn't seem, you know closing costs seem to be as big of a deal when you're getting a lower rate all of a sudden become bigger deal and, so this might be a good time to see what we can do to to make some progress there.
Cara L. Newman (
Absolutely, it's cost and it's ease of access and it's ease of process. I mean, the process of closing alone was definitely a consistent theme of the presentations that I listen to that just can just be a barrier to people that are unfamiliar with the process don't have the context for, how to understand the process. It just creates a lot of barriers to entry. So even if cost is not an object, which realistically for, many of us in the room, it is just eliminating some barriers that beyond cost have just been embedded in the system for, for such a long time.
Jason Cave (
Yeah, no, and you use, it's a good point. Clearly a big part of my agency's agenda equitable housing sustainable housing, the enterprises are spending a lot of time putting together plans. It's a tough time with affordability. But, increased costs I think everybody knows, I mean, have an impact on access and, you think about, how many people might have been, shut out of some of the recent, refi boom because, they do look at and see 12,000 and 15,000, can't do it and so, and does that become even a bigger deal in the next wave? that's definitely something that we have our eye on.
(
Well, I noticed that our count clock has has hit zero. So not sure if we have the opportunity to answer questions, but I would of course be happy to answer questions here or after. But I think I don't see any hands raised.
Audience Member 2 (
What do you think the short term value proposition is? Blockchain in the house? So not the long term short term.
Cara L. Newman (
I can take that one first if you'd like. So I'll give the use case that immediately crystallized for me why this was I immediately understood why my boss was was encouraging me to focus on technology. When alone is originated, there is so much manual entry of data in different systems. When redwood goes to buy a loan, our due diligence funder or redwood, depending on the data in the loan will then scrape all that information, plug it into into systems to review the loan that then gets conveyed to Redwood system to be ingested into our systems that we can then create ASF tapes that are needed in the secondary market. All of that takes time and Redwood, just like any other participant in the secondary market, needs to review all of the data on a loan before we're able to purchase it.
(
If at the point of origination all of that data were just entered into a central trusted repository that Redwood and all other participants, including our due diligence vendors, potentially other buyers in the whole loan market would have access to. Just think about how that game of telephone would change if we just all had information or had access to that information at the time of origination. And that time is money to every participant along the journey that that loan takes to the ultimate investor. The longer it sits on the originator's balance sheet, the longer it needs to be financed in most cases. So closing the loan and selling the loan helps an originator save money.
Jason Cave (
Yeah, I would agree. And I mean, I think it's the short term proposition, it's also, there's a lot of things that go into that, in a system or companies where there's a lot of legacy systems. I almost think about this blockchain a little bit like the railroad, you're building a new set of rails, okay? So if somebody says in the old days, like, wait a second, what's the short term proposition? I just built the canal, right, and they say, and I'm like, "Well, if I can only answer this to the short term proposition, I might say I can't find one." But then we wouldn't have a really, we, so I kind of, I use these analogies coz I'm not a techie. And so it's like the short term one might be difficult, but if we've got systems that are not keeping up and they're not going to keep up over the long term, then maybe we gotta make sure we look at it from the medium term and sort of say, look at it from that standpoint. So I hope that helps. You're, you're shaking your head, so either you're being nice or you agree. So, okay, good.
Cara L. Newman (
Oh, I see, hands, there's a glare. So I'm sorry if I'm missing anybody else
Audience Member 1 (
Question. You mentioned the honeymoon period that you're researching now. Is there a timeline where you expect to have.
Jason Cave (
Well, sure Lee, how you'll get a sense of when the honeymoon's over is next year, if there's somebody else sitting up here, the honeymoon was over and we didn't get no look in seriousness, we want to do this. We want to be very smart about this. And this is again, there's very few things as important as housing. There's many players associated with it. It's very easy for me to look at a couple of numbers and say, Oh, this is going in the wrong directions, The solutions, I am sure everyone's going to say, I could tell you exactly why it's the case. So there is all the reason to identify the issues and, just sort of begin to sort of work through them and just sort of see how we could all work through them together.
(
And there's already been a lot of good work. As I said, we, blockchain might be a way forward, but also looking at some of the things that have already been done and say, how can we make the, how can we get some better penetration and better use there as well? So but that will definitely be a test. If I'm not here next year, it's probably coz the honeymoon period was over. I hope not. I hope that, working with you all and, digging into this, we'll be able to make some progress actually. I'm pretty sure we will coz I also know Fannie and Freddy and I keep talking nice about them coz the Freddy guys right here and he helps us with a lot of things. Look, they're very motivated to I think everybody is motivated, so it's just how can we help harness it, how can Washington help? I had to say that once, I'm from Washington here to help. So there he goes. He had to hear that. So anyhow,
Cara L. Newman (
Any other questions? Oh,
Jason Cave (
There's a good craps table out there you probably don't want to keep asking, but anyway,
Audience Member 3 (
Assuming the next steps is situation where you've been.
Jason Cave (
Yeah, so I don't want to get too far ahead coz I, especially I'll get my enterprise partners twitchy. But I think like any of these things, look, we have a lot of these tools. If it seems that there is some value that there's some clear use cases, use tests, whatever, we have a lot of tools. I mean, we have the ability to do pilots. Again, a lot of this is also, we're talking about blockchain and that might be new, but the process by which, our agency with Fannie and Freddy with others have like worked on other things. This isn't the first problem. So there's been other things, whether it's, day one certainty and aim these are other things that have been have been done.
(
I'm told to wrap it up, please. So there's a lot of ways to do it. I tell you what, it's not going to be like a big bang here. We're getting rid of all that. And it's blockchain. I mean, I shouldn't say we're not, but I wouldn't see it going that way. I think this would be a very incremental. Let's make sure we learn, make sure we keep the other set of rails going coz we don't know how it's going to go, but oh, I think we gotta go. It says, I don't know, you re wrap it up please. Four exclamation points. Yeah, I'd stay all night. But anyway, thank you. And please if I haven't grabbed you and linked in with you and you're not afraid of dealing with the government please reach out. Thank you.