Top IMB, Bank, GSE Tech Execs Get Real About Mortgage Fintech in 2024

Is mortgage any more 'digital' now than 10 years ago? How have lenders, fintechs and GSEs changed the game, and where is progress lacking? And is 2024 just more retrenching, or a time to invest and play offense? Get clear answers and practical playbooks from this all-star panel of IMB, bank and GSE tech leaders, led by National Mortgage News Editor in Chief Heidi Patalano.

Transcription:

Heidi Patalano (00:06):

Hello everybody. Welcome to the session Top IMB and GSE Tech Execs Get Real About Mortgage FinTech in 2024. Thank you to the panelists joining me today. Lovely to see you all. So one thing that we really wanted to explore in this panel was to talk about how far we've come in the past 10 years, how much progress have we made? Where have there been the biggest successes and where is progress lacking most? And actually I'm going to start off on the far end. Bryan, you want to kick us off?

Bryan Budd (00:40):

Yeah, so I mean I think over the last 10 to 15 years, a lot of progress is made in digital contact for customer solutions, whether it be digital, POS solutions, digital websites, mobile apps, things like that. But I think we still have a long way to go. I think we were talking about this before, we're just now tapping the surface, especially in under invested segments like servicing, how we can deploy tech to help customers find solutions.

Heidi Patalano (01:08):

Yeah. And Sonu, do you have any?

Sonu Mittal (01:10):

I would say there's definitely been progress, but not enough given how much data we have now, we should be able to do a lot more. And I think I was sharing with you, Heidi, last year I was here representing a lender and this time I'm representing a GSC. And one of the things I said is that we need to do more, especially when it comes to GSCs as well. So I'm excited that I can play a role in helping move us forward. But to Bryan's point, there's things which we may have done on income assets and collateral, but now we need to make sure that we are connecting those things and taking full advantage of it.

Lyra Waggoner (01:51):

Yeah, I definitely agree and echo that. I think it's a little bit of a hard pill for us to swallow in this room because this is what we've made our life's work. But I think if we were at this conference 10 years ago, we're largely working on the same things today we were 10 years ago, which is better borrower experience automation data, adding more efficiency into our process. And so I think we're largely working on the same stuff. There's been tons of progress. I especially feel it in borrower facing technology. 10 years ago, lenders like movement, retail lenders were still using short forms and kind of inefficient ways to collect applications. So I think there's tons of progress on that front. Obviously a lot of really promising automation solutions. But a lot of these, again, and I speak for a lender that has very, very broad product serving all states and all loan officers and all scenarios, I think a lot of this product and innovation focuses on skimming segments. It has not touched our entire process to say we've really brought automation that's serving every transaction at a lender with a lot of complexity and product

Heidi Patalano (02:55):

Now. So we are getting real here. So I want to ask a tougher question. Looking ahead to 2024, how should especially smaller lenders prioritize their tech spend this year? Where do they pull back? Where should they keep their money? Where should they keep their focus in this probably an environment where rates will high for a while.

Lyra Waggoner (03:20):

I think, and I mean this is great timing. We're obviously at this conference and there's so many incredible products that have been highlighted and demoed. I think though if I speak on kind of behalf of a lot of my peers, I think we have added a lot of tech, especially in the last 10 years. So we have a lot of tools and we're not fully leveraging the stuff we already pay for today. So I think taking those meetings with your existing vendors, those business reviews, spending time to understand the depth and the product of features that are not enabled for you and your implementation and honestly focus on better integrations. I think a lot of times we deploy product and kind of try to get it to market quickly and don't come back with our original intention of those fast followers and phase twos. And so I think we have a lot of opportunity in our existing tools. I also think there's some tools that focus on things like margin management, so things that make you better on the capital market side. Those are clearly places where in this market we could have a lot of return for investment.

Sonu Mittal (04:21):

And I think more than anything else Lyra just piling on is collaboration among originations and servicing needs to be a lot more than what it's been. No doubt this cycles is a challenging one. Cost originate is extremely high, but even in a good cycle you don't want to optimize, Hey, here's my CRM solution, here's my POS solution, here's My Product and pricing solution and here's My LOS and so on. We need to make sure as an industry that we think about That. Are we unlocking the full potential and the value from It? Otherwise you're actually only increasing your cost when we already know it's a challenging market.

Bryan Budd (04:58):

And then sitting on both sides of that fence, the originations and the servicing verticals, it's interesting because whether you're large or small, it started off with, hey, what is small under but large or small, all of us are in the same boat relative to analyzing our tech spend, prioritizing and really trying to drive a forward strategy with probably half to a third to a quarter of the tech budgets that we've had in previous years as we kind of buckled down. And so I think all of us are coming together and really focusing on a couple of the same strategic initiatives. Number one, how can I leverage my tech and tech platforms that I have to drive further efficiencies and utilize the existing staff I have at greater scale and depth? And then number two, how can I increase that top of the funnel revenue streams through reaching new customers, providing more efficiencies to drive realtor relationships, partnerships, and then new business strategies.

Heidi Patalano (05:58):

Well yeah, Brian, I want to specifically talk about Mr. Cooper because in a recent earnings report, Mr. Cooper reported a 75% customer retention rate, which is really incredible. So I was wondering if you could talk about how you're using technology there to kind of marry the servicing originations together?

Bryan Budd (06:18):

Yeah, that's a great question and obviously we're humble and proud of that retention number. I think it really comes down to a couple of things and it starts with number one of really making sure that we're staying in front of our customers and providing value added solutions. So it's not just about asking for sales, right? I think we leverage our digital platforms to show home valuations and FICO scores and other products that can help the consumer manage their holistic asset, which is their home and the largest single asset that most Americans own. And so that value add tool is a driver of activity to our website, which then allows us to present offers and capitalize the opportunity. And then combined with leveraging our data analytics that we get from our FICO partners and others to understand where needs are and then utilizing quantitative analytics to really drive targeted marketing. So as we talk about budget reductions, we want to lessen the marketing exposure with having greater impact and conversion rates.

Heidi Patalano (07:30):

Great. Well it's very interesting. One bit of data that I've heard discussed over the past day and a half was about the cost to produce a loan cost per loan. So the NBA found that the production cost per loan in Q two was $11,044 per loan, and then that was just down slightly from the study high of 13,000, roughly a little more than that in the first quarter of 2023. So how can technology aid in lowering these costs and Sonu News specifically, I want to ask you about how Freddie Mac is trying to facilitate the lowering of those production costs.

Sonu Mittal (08:11):

Yeah, great question. What I would say is first we have our digital offerings, one of them is the asset and income modeler. And what we've Seen is the Lenders who are taking full advantage Of the offering we already have are seeing a reduction in cycle time. By 15 to 17 days, they're seeing less quality defects By another 16 to 17% and their cost to originate is almost $2,200 less per loan. So one just making sure, same thing which we were talking about earlier is how do we make sure that the offerings which we already have folks are taking advantage of it. The second thing I would say is, Heidi, is that I joined Freddie Mac six months ago and one of the things which we looked at that we need to do more for the industry, so we actually stood up a new function within my division in single family called Loan Products Division, which is really focused on two, their mission is really two areas of focus. One, how do we go and look at every loan product which we offer from Freddie Mac's perspective and what are some of the barriers which exist for us to get more business and create more sustainable home ownership across the country? And then second is how we can do our part in reducing the cost to originate not just for sellers or lenders, but also for the borrowers. So again, we believe we have not only made good progress, but we are also dedicating more resources and focus on delivering more things when it comes to credit capacity and collateral as we go into 2024 and beyond.

Heidi Patalano (09:52):

Well, since we're talking, I am going to ask you a harder one. And so one thing that we're reporting on all the time in National Mortgage News, we're hearing a lot about repurchases at the GSCs and it's been a quite contentious issue. Obviously some lenders are pretty upset. So I wanted to get your comment on what you see happening and how this could be ameliorated.

Sonu Mittal (10:20):

Yeah, so I think, again, I've never heard of this topic before. So first is I would say is we want to partner and communicate and collaborate better with all the sellers out there. As I've mentioned, when I joined in March, one of the big focus areas for me was is how are we making the right progress when it comes to QC or quality control and repurchase area? And what I would say is what we've been focused on is how can we be more consistent and timely so that way we can drive the right outcome for the industry. So what I would say is when you think about in any redesign you look at as we've been looking at end-to-end redesign, we've been making changes to the process, but also looking at how we can leverage technology, I would say is over the years when you look back, we were a little bit under invested when it comes to leveraging technology.

(11:17)

I know we are at a Digital Mortgage Conference, so it makes sense to say that, but what I would say is most of either it's the quality defect rate or either it's the repurchases, we are no longer seeing the peaks, which we saw earlier this year. So we are starting to see the right trend and I want to just thank any sellers in the room or lenders in the room because we actually partnered with the industry, created a quality control focus group for them to provide feedback on us to us on how we can continue to make it easier for them because we are not in the business to put loans back, that's not our focus. Our focus is to provide liquidity and stability to the marketplace in addition to the affordability. So again, a lot more work to be done, but what I would just say is keep the feedback coming and we are committed to listening to your feedback and acting upon it where it makes sense.

Heidi Patalano (12:13):

Yeah, makes sense. Well, Lyra, I wanted to ask you about your experience in, I know that at movement you had a proprietary tech model and then you outsourced and then you were back to proprietary. So especially at this time where it's very, very tough. I wondered if you could talk about that experience through the lens of today's environment and what you might say to a fellow lender about that.

Lyra Waggoner (12:42):

And movements had a combination of proprietary and heavy third party, but also just career-wise probably spent most of my career building proprietary within lenders. I would say there's not a single answer, it's probably a combination. I think that right now it feels like as lenders, I think all I can speak on behalf of all lenders and say they're looking at efficiency in the size of their team and the cost to maintain systems. I'm hearing a lot from my peers about the ongoing maintenance and their ability to invest in their proprietary systems. So I think it definitely feels like the trend is towards looking at third parties or low code platform type solutions that give you a lot of control over it, but don't leave you with an entire proprietary build. So again, no, probably one set of rules for every lender. I think most big lenders are all, at least a combination of proprietary and third party. But certainly I think this market is challenging us to all take a really hard look at that strategy and say, how are we setting ourselves up for a much more repeatable success in the future with the way we build and maintain systems?

Bryan Budd (13:54):

And just as another pure who uses a bifurcated approach of both vendor and proprietary, what often gets lost in that proprietary analysis, so that may seem less expensive upfront was one of the things that you touched on, which is the ongoing maintenance development support, whether it be integrations, and every time one of those integration partners changes, you have to go update code. And so it became extremely costly to just maintain over the long haul. And that gets lost in those initial ROI conversations and discussions as you're looking at what may seem cheaper today ends up costing you 10 times more down the line. And that's a prevalent concern of ours today and how we evaluate where are we spending And realistically, a lot of our vendors can do things better than we can. That's what they're focused on. That's what they do well, and so let the experts do what they do.

Heidi Patalano (14:50):

Yeah, that's interesting. I've just heard it said many times that you adopt several different technologies and they're all stacked up on each other and kind of not working efficiently. They're overlapping functionalities and some people use this one and that one and it's like an ongoing struggle. The struggle is real, it continues.

Lyra Waggoner (15:09):

The struggle is real. And I mean I think kind of going back to the opening, I think integration and being thoughtful about the way that we are integrating the product we have, I think every lender has a lot of area for opportunity and the vendors in the room probably see this where the potential of your product and the return for your clients is much greater if there's more of an investment in integration with that. So I think, and that's all stuff we probably have the resources and ability to do today, it's less fun than adding a new thing that we can go out to market with. But I think really sitting with end users, understanding and efficiencies while I have to open this screen, putting some investment in just our own configuration of our LOS technology, I mean these are all the things that are not the magic bullet, but they all add to that overall experience. And it's all stuff that we already have today, we're paying for it. And you probably have those resources with you today and it'll make your vendor product better.

Heidi Patalano (16:05):

Yeah, I'm just curious, how do you do an audit like that? What is your process for going through everything that you have and saying like, alright, how well are each of these things working? Anyone want maybe Brian, do you want to

Bryan Budd (16:20):

Yeah, it's an ongoing and sometime deflating exercise that we continue to go through when you discover that you have three effective systems doing the same thing or could be doing the same thing. But it really comes down to communication. And even inside of a tech team, you can see siloed teams between your infrastructure, your data management, your dev teams and things like that. And so it comes down to collaboration and communication to make sure everyone's on the same page of what our goals and objectives are, understanding what our offerings are from existing partners so that you can really truly analyze and make the right decisions.

Heidi Patalano (17:00):

That makes sense. Yeah. So of course I want to ask about AI. We, that's just what it's all about these days. That's the software of the, well, not one software, just a function anyway, Given the increased use of it, I wondered how you see mortgage Tech jobs changing. For example, I've heard that maybe lenders will need data scientists and they're going to need data specialists in the future. So how do you see jobs evolving to react to the increased use of AI?

Lyra Waggoner (17:37):

I mean, I think it is the buzz, Right? And definitely the hot topic. I've been in some of the sessions here at this conference and others, I think that the average lender probably maybe doesn't need to employ a data scientist today. I think potentially investing in a partner. So selecting some contractors that have made that their focus inside of a larger practice, getting some advice about their own data and accessibility of that data. I think if you just went out and posted a job for a data scientist at your average lender, your data scientist would probably find that there's some foundational work that needs to be done to help surface data in a better way for them to make it usable. I think we also have to think about how we put those kind of that end AI output in the hands of the right workflow, right process at that moment. And so there's probably work that needs to happen in our systems. I know so many of our vendors in the industry are focused on that, how they would actually surface that to that end user. And then there's of course large organizations that you probably already employ some of them, right?

Bryan Budd (18:40):

That is true. Yeah. What I will say is that is a challenge. You start building some of that, you start deploying AI, and our FinTech friends have a lot bigger pockets than publicly traded entities sometimes. And so we have to be very careful on that spend. But we really look at AI as truly it is going to be a game changer. It's going to continue to change the way we both originate and service loans. Some very specific examples on the front end is what we call front office modernization, where we're really utilizing AI to understand based on these borrowers profiles, a what loan products present them quicker, present a narrow option event from the loan officer, so that sales process more efficient. And then into our back office in processing underwriting to make sure those milestones are triggered autonomously without even a human interaction, allowing those individuals to scale more efficiently, needing to not have to go and hire the next refi wave, a significant amount of staff. And then similarly on the servicing side, it's more focused on how do we get customers the information that they need to transact. When a customer's contacting their servicer, it's usually because they have a question or an issue or they need help. And so utilizing AI to present real, the information that that customer is seeking efficiently and allowing that customer to utilize the digital tools allows us not only to help that customer self-serve, but then again provides scale and efficiency to our call center operations, which is our single largest expense.

Sonu Mittal (20:23):

And I would just add from Freddie Mac perspective, we already have a really big focus on having folks with this kind of expertise. So a community of practice, and I think we all would agree, is it's important to make sure that we continue to retain and grow that talent as we move forward. So we are a heavy user of AI already today, and we are looking at, I know the new thing everybody's talked about is Gen AI and we are looking at learning and educating ourselves more about it before we see what use cases may potentially come out of it. But again, I don't think you can stay away from AI in this digital age we are in.

Heidi Patalano (21:02):

Yeah. Well, one thing I've heard in many of the conversations in terms of getting your people internally to adopt some of these technologies, it's like they still want to check to make sure.

(21:16)

That the automation or the AI did the thing that it's supposed to be doing and that there's an inefficiency that crops up with that because you got to check the checker who check the check. So I wonder if you have any kind of thoughts about how you get beyond that with your people when you're getting them to adopt these things and really trust them, believe them that they work? Lyra, do you have any?

Lyra Waggoner (21:41):

I mean, yeah, I would say it depends on the use case and It Depends on your type of users. We could not profile our types of users from this stage, but say in certain roles there is

Lyra Waggoner (21:52):

More of a willingness and in other roles just kind of the conditioning of that role. And what made people great was that diligence in checking and checking and double checking and being extremely detailed. And so when you start to add automation and say, you don't need to do that anymore, that's very hard to relearn. I think that leading through data with that and saying, Hey, we have this sample of users that are using this process and here's the results we find the same quality in the end or whatever your measure is, I think is a great strategy to try to really help people understand there's some confidence that this has been proven out through data versus just saying, Hey, you don't have to do that anymore. Skip it without kind of filling in the details that you've gone through thorough testing and a been able to prove out that that automation is successful. But it's complicated.

Bryan Budd (22:41):

I mean, foundationally, I think just to kind of drive that home, it comes down to communication and then transparency, which is what was talking about with the data, right? Starting with communication, explaining the why are we doing things, how is this working? And so that the end user can understand that why helps them trust the application or product or whatever is being developed easily and sooner, quicker adoption. And then the transparency. We all know that we implement things and we want to thump our chest and be proud of all the value, but they're not always perfect. And so being honest and transparent that, hey, this implementation had an issue and here's how we're going to work together to overcome it, I think is a critical key to continued adoption and moving forward.

Heidi Patalano (23:31):

Yeah, that's very interesting because you just kind of have to show them, I guess with the numbers you got to make that case. One thing that I definitely wanted to touch upon here, one of the biggest stories that we've been covering at National Mortgage News is the Black Knight Ice merger. And I know that went through and that will surely change some things. So I'd like to just hear how you think this may change things. And Sonu, I'm giving you all the hard questions, so I'm Just. Thank you.

Sonu Mittal (24:01):

Yeah, one, I have a ton of respect for both of those organizations. I would say from our perspective at Freddie Mac one or just as an industry, it's great to have that come to a resolution because I think we were all waiting for the outcome of what that's going to look like. So I think if I'm a seller or a lender now I can start thinking about what is my next point of integration or strategy with either ICE or Black Knight or whatever the different things which will come out of that. So I think from my perspective, it's good that we are no longer in a holding pattern That we finally have a resolution and both companies have great things to offer. So hopefully folks continue to keep the innovation going.

Heidi Patalano (24:49):

Right. Bryan, any thoughts?

Bryan Budd (24:51):

Yeah, thanks for your sponsorship. No, realistically I agree with Sonu in that again, it's fine to have great to have a path forward. I know there's a lot of uncertainty. I look at it from we are transparently customers of both to some degree, both ICE and Black Knight and I look at it and say, Hey, they're now the two largest entities on each side of the mortgage ecosystem. And so long as they continue where they started, which is making sure they're listening to customers driving solutions and continuing to innovate and not hitting on that fear of they just continue to become bigger and just continue to charge more. If they continue to be innovators and thought leaders like they have been and what's led them to this discuss that they've had today, I think it's going to be a great win for originators and servicers time will tell.

Heidi Patalano (25:56):

Lyra.

Lyra Waggoner (25:57):

Yeah, I mean, I would say that I think a lot of what we're talking about is related to integration and efficiency across these systems. So I think in theory to think that we have a really powerful and well deployed partner that is now going to serve the entire process, I think that sounds promising. We could get to a state of much better accessibility to data and integration. I also think that something this large, it takes years to put that together. And so they may end up operating as sort of independent companies and lenders might not realize the benefit of that shared ownership. I think there's also just a lot of concern about the size and the power of just really any individual partner. I think lenders definitely want great choice and options in the market, so I'm hearing all versions of it, but we certainly wish 'em the best. And I think the idea that a single partner with that much market share could serve the end-to-end process is really promising in a lot of ways.

Heidi Patalano (26:56):

Well, I do want to do just, I love the crystal ball question. What do you see coming in the next year, both in terms of tech that you're excited about that may be used in the next year, may be coming out in the next year, do you think the housing market may turn around? I'm here for all of it. Give me your best Nostradamus predictions. Lyra, I'm going to start with you.

Lyra Waggoner (27:22):

Alright, well great question. If I had the ability to predict it, I would not be sitting up here. So I'll say that. So I think in the cap market space, again specifically margin management, that has such a focus in our industry as lenders. We are all looking at how we are working on projects that are adding to our margin management and profitability. And so I think there's a lot of promise and vendors in that space that feels like a place of true innovation. So I think that's very promising. Obviously AI, I think each lender will start to take bits and pieces and product will start to come out. There'll be great vendors and partners that are serving AI in terms of overall market, I think we're hunkered down and expecting these months right now to be some of the best months we'll have in the next six or so months. So I think lenders are really realistic about the state of the market and making sure their team is the right size and their support is the right size to kind of continue to weather this storm.

Sonu Mittal (28:26):

Yeah, I think from my perspective at Freddie Mac, we are here to partner with the lenders, sellers, servicers through any cycle. So I know this is a challenging one, but our role is to make sure we continue to provide the liquidity stability. But I think the big focus, I would say for us is also on how we continue to create more sustainable affordability options. So either it's the special purpose credit programs, we've launched our own special purpose credit program, now we are learning from it how we can continue to iterate on it and serve more minority home borrowers as we go into 2024. And then as I touched on earlier, is how we truly think about what role we can play in reducing the cost to originate for the sellers lenders and also the end borrower. Because we all know that we will all win as an industry if we continue to do that.

Bryan Budd (29:24):

And I'll try not to go to the dark side of the 2024 of discussion, which is, and I'll lead with that. These thoughts and opinions are solely my own and don't represent Mr. Cooper all that legal jargon ahead of time. But I think we're poised, given where rates are at and the state of the economy and some macroeconomic things that are occurring to have, it's going to be a tough year. Budgets are tough. Mortgage activity is purchase mortgage activity. I think I saw it was at a 22 year low. So we really have to batten on the hatches. And I think on the other side, our borrowers are going to be facing real challenges that we haven't seen since the last crisis. And really it's about, I look at it from both sides, the origination of the servicing. And so on the origination side, it's how can you reach customers? How can you provide them options that will be affordable today, but maybe leverage them opportunities to refinance down the road knowing that that hurts. CPRS, we're talking about backstage about some of the focus on portfolio performance and the cash flows of the assets that are requiring.

(30:35)

But conversely, on the servicing side, it's do the loss mitigation tools that exist today, are they really equipped to help the consumer in this type of environment? If you look at the most common loss mitigation tool, being a loan modification, being origin at pims, a 7% or 7.5% or eight, or who knows where rates are going to go modification for a customer who's got a three and a 5% interest rate and can't afford their payment is not a great long-term option. So some creative solutions are needed, and I think that's where the industry can come together and collaborate, whether it be partnerships with our invested Fannie Freddie, FHFA, but really find some more practical solutions in this type of market for customers in need.

Heidi Patalano (31:20):

Yeah, That's great. Well, I want to thank you all for your time here and for coming to share your knowledge with us. And thank you. So we're wrapping it up. All right.

Bryan Budd (31:33):

Thank you.