As we emerge from a few of the worst years in mortgage history, what have we learned? What's the optimal originations channel mix for banks vs. nonbanks? What are the biggest wins and challenges across performing and default servicing today vs. the last cycle? Is a unified originations/servicing tech stack necessary and possible? How important are non-mortgage products in overall strategy? And what's the 5-year vision and priorities for today's top players? Don't miss this lender and servicer super panel for all the answers.
Transcription:
Heidi Patalano (00:00:10):
Good morning everyone. I'm Heidi Patalano, Editor in Chief of National Mortgage News. As you just heard, on behalf of our editorial staff and Arizent, it's my pleasure to welcome you to Digital Mortgage 2024. We are thrilled to have you here in a time when margins have been tight and it has been a long, hard period for so many in the market. Your presence is a testament to your belief in the power of innovation. You've chosen to invest in the future knowing that the right technology and forward thinking strategies are essential for emerging, stronger and better when the tide turns. And guess what that time is now as optimism begins to bubble up with the anticipation of a more favorable interest rate environment, you're positioned at the forefront of a new wave of opportunity. You saw this moment coming and your foresight is about to pay off.
(00:01:12):
This year's program is all about equipping you with the tools to navigate this shifting landscape with agility and efficiency. We're diving into how leaders in the field are revolutionizing the mortgage market, transforming the tech enabled frictionless transactions from the rare capability of a few mega lenders into a standard for all you're in for an exciting journey. We're bringing you insights directly from major players in the market shaping our industry. Leaders from Fannie Mae and Freddie Mac are here to share their perspectives on how AI is positioned to impact our world. Tomorrow I'll be on stage with assistant director of the Consumer Financial Protection Bureau, Mark Ricardo to explore how that regulator is fostering safe innovation. But there's one highlight that I am especially excited about and that is the Innovation Challenge sponsored by LendingTree. This is no ordinary showcase with a $10,000 prize. On the line, you'll see some of the brightest minds in mortgage technology presenting some groundbreaking new tools. We're honored to have two returning judges. Back with us, we have Julian Hebron of the Basis Point, and Robin Clayton, Director of Performance Marketing at PRMG. We're also welcoming a new addition to the judging panel, Freddie Max, Vice President of Distribution and Single Family Acquisitions. Christina Randolph. And Christina, I hear you're great for straight talk and deep insights and welcome aboard. So thank you.
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We're also welcoming back Sue Woodard, who after sitting on the judging panel in previous years will be coaching the teams in the competition. And thank you to Lending Trees Head of Sales, Will Adams, the co-host and sponsor of the competition, but that's not all this year. We've also included a number of fantastic networking opportunities. Please take advantage of the scheduled breaks and informal gatherings to connect with fellow professionals, exchange ideas, and forge new partnerships. Networking is a key part of this conference and we've designed these opportunities to help you build valuable relationships that can support and inspire you long after you leave.
(00:03:54):
I look forward to this event every year, not just for the chance to connect with you, our valued audience, but also to showcase the research that we're doing at National Mortgage News. Later this morning, our Janet King, our Vice President of Research, will present findings from a survey of your peers about tech stacks and resource planning. She'll be joined by Erin Langevin of Guild Mortgage, who's going to offer her thoughts on the results and how they relate to her own work as Senior Vice President of Retail Operations at Guild, we'll also hear from Leah Price, Senior Financial Technology and Innovation Specialist at the Federal Housing Finance Agency, who will discuss the lessons learned from its recent Tech Sprint along with participants of the Sprint, Better Senior Vice President of Engineering, Ziggy Johnson, and they'll be joined by National Mortgage News reporter Maria Volkova. Their perspectives promised to be both enlightening and thought provoking. But first, let's dive into what is sure to be an inspiring start to the conference. Please join me in welcoming our first panelists. We have Jason Bressler, CTO of UWM, Jeremy Collett, Executive Vice President, excuse me, Chief of Capital Markets at Rate, pardon me. Sridhar Sharma, CTO of Mr. Cooper and Chad Smith, COO of Better for the session, moderated by Julian Hebron, Mortgage Industry Vision 2030. Let's get this conference started. Come on up.
Julian Hebron (00:05:47):
All right. All right. All right. How's everybody doing in San Diego this morning? Let's hear it. Come on. Yes. Well, thank you. Thank you, Heidi. I just want to say a quick thanks to everyone on the National Mortgage News team for bringing us together for another year. This is year nine of this conference, which is fascinating when you think about it and how much has changed. But to Heidi, Sharon, John, Maria, Andrew Mason, Jessica, the whole National Mortgage News team, I just wanted to start by saying thank you to all of you for bringing everybody together. The people that are in this room now, the people that are on this stage that you're going to hear from all the stages that you're going to hear from over the next couple of days. There's obviously tons of interesting stuff going on out there. And so from a tech perspective, of course this morning I'm going to introduce these folks and these teams and we're going to talk tech, but mostly this morning to kick off is actually a business strategy session.
(00:06:47):
Why? Because we, tech is the driver of all the business and we do want to focus on the business components of everything this morning. So we all know this. I'll do a quick recap. Rates peaked at 8% last October, the 2024 peak on April 25th of seven and a half percent. We're about 6.25% this morning. Jeremy's going to correct me on that if I'm wrong, but you've got fed cuts ostensibly coming in nine days. Okay, so you got this whiplash 2020 to 21 of these best years ever. Then you've got, you get whipped in the other direction from 2022 to present on extreme strain, and then you are now in this position of starting to shift to offense. Today is about offense. So what these folks are going to do, I'm going to introduce each team. We're going to do a past, present, future format as we go through the next hour.
(00:07:43):
They're going to cover how they navigated the last nine quarters, how they're structuring sales and fulfillment for this lower rate cycle, what actually matters in AI right now. Of course, how to balance profitability across originations and servicing, and how small and mid side lenders can compete and collaborate with bigger players. So buckle up. We're going to give you everything you need to plan for four Q 1Q and beyond. And if I may, I just want to repeat something I said in a social promo for this post. Consider the strength of the four teams represented here on this stage. I'm going to run 'em down really quick, starting with Jason Bressler, UWM United Wholesale Mortgage. They're America's fifth largest lender. In 2019, they gained one slot per year for five straight years. 2023 became America's largest lender. They funded 108 billion last year. They funded 60 billion year to date.
(00:08:35):
They're still in number one position. And as CTO, Jason has built a tech army that delivers on the business strategy, and he is going to lay it out for you today. So give it up for Jason, everybody down the line. Next up, Sridhar Sharma. He's the CTO of Mr. Cooper. So let this sink in. They grew their servicing portfolio $1 trillion in six years from 548,000,000,000 4Q of 2018 to 1.56 trillion as of two Q on a pro forma basis. That's pending certain deals that they've done closing becoming America's number one servicer. Sridhar, as you're going to learn today, has led this strategy with technology for Mr. Cooper itself. Its sub servicers, investors, GSEs, and of course consumers across the performing and non-performing lifecycle. So give it up for Sridhar.
(00:09:34):
And then we've got Chad Smith, Better Mortgage. They were founded as a digital first proprietary tech stack lender in 2016, and in just five years, they grew from 500 million to 58 billion by 2021. Plus they power one of the US, as is most prominent digital bank's. Ally Chad joined a COO and President earlier this year to bring his full market and industry collaboration sensibilities to an org that's already proven that they can gain share in a market like the one that we're heading into. So we're going to talk a lot about that, and they might just have one of the tightest tech platforms out there right now. So give it up for Chad. We're going to be talking about that.
(00:10:19):
And Jeremy Collett, who's Head of Capital Markets at Rate in July on July 9th, guaranteed rate. They rebranded as Rate. They launched the first ever digital mortgage nine years ago, July 8th, 2015. So we're all here. We're all wonks on this stuff. So let's know our history. It was G rate that did the first digital mortgage in July, 2015 before the October tri deadline. November 24 was when Rocket actually launched right after the first digital mortgage. Quicken Loans launched Rocket on November 24 right after the tri deadline. So credit where credit is due there. They're now the eighth largest lender in the us. They have a multi-channel strategy that Jeremy's going to lay out for us. And as head of cap markets, he's going to do some market stuff for us, gain on sales, the lifeblood of the business. So we wanted him on this business strategy session. So give it up for Jeremy too. So we're going to start with speed round. I'm going to run down the line. These are kind of one word answers, just to have some fun and get you all warmed up. And it's just fun, super fast, simple stuff to let everybody get to know you all. So I'm going to ask a couple quick questions and they're just one word answers, starting with some personal stuff and moving into some business stuff. Jason, Beach or mountains.
Jason Bressler (00:11:43):
Beach.
Julian Hebron (00:11:44):
Sridhar
Sridhar Sharma (00:11:45):
Mountains.
Julian Hebron (00:11:47):
Chad
Chad Smith (00:11:47):
Beach.
Julian Hebron (00:11:49):
Beach all day long.
(00:11:50):
All right, next. Jason. Coffee or soda?
Jason Bressler (00:11:53):
Coffee.
Sridhar Sharma (00:11:54):
Coffee,
Chad Smith (00:11:55):
Coffee.
Jeremy Collett (00:11:56):
Coffee.
Julian Hebron (00:11:57):
Yes. Cats or dogs?
Jason Bressler (00:12:00):
Dogs.
Sridhar Sharma (00:12:01):
Can I see Anita?
Julian Hebron (00:12:03):
Yes, you can.
Sridhar Sharma (00:12:03):
Dogs, dogs.
Chad Smith (00:12:06):
Dogs.
Sridhar Sharma (00:12:06):
Dogs.
Julian Hebron (00:12:07):
All right. Window or aisle on a plane?
Jason Bressler (00:12:11):
Oh, aisle. A hundred percent.
Sridhar Sharma (00:12:13):
Doesn't matter. My height doesn't matter.
Chad Smith (00:12:18):
Aisle.
Jeremy Collett (00:12:20):
Yeah, these shoulders need an aisle. Yeah.
Julian Hebron (00:12:22):
Nice. Alright. Most preferred personal content. tv, music, podcasts or reading?
Jason Bressler (00:12:28):
Reading.
Sridhar Sharma (00:12:29):
Reading.
Chad Smith (00:12:30):
Reading
Jeremy Collett (00:12:31):
Music.
Julian Hebron (00:12:32):
Wow, look at that. Of all the trends that you would expect, I was expecting somebody to say podcast, but that says a lot about what you're about to hear from all these folks. All right, let's move into business stuff. Rates above or below 6% by year end this year.
Jason Bressler (00:12:49):
Below.
Sridhar Sharma (00:12:50):
Below.
Chad Smith (00:12:52):
Above.
Jeremy Collett (00:12:53):
Going to go below.
Julian Hebron (00:12:55):
Okay. Listen to that. People. That's getting exciting, right?
Sridhar Sharma (00:13:00):
I never win with lotteries, so don't take my,
Julian Hebron (00:13:07):
All right. Last one on the warmups. Originations. Near, above or meaningfully above NBA's. 2.1 trillion 2025. Year end target
Jason Bressler (00:13:17):
above.
Sridhar Sharma (00:13:19):
He's got to say above. I'm going to say below.
Julian Hebron (00:13:21):
Okay.
Chad Smith (00:13:22):
Above.
Jeremy Collett (00:13:23):
Above.
Julian Hebron (00:13:24):
And just straight above. Not meaningfully. Above for anybody. Just above,
Jeremy Collett (00:13:28):
Yeah.
Julian Hebron (00:13:28):
Okay, got it. Alright, so we're going to move, like I said, we're going to do past, present, future. So let's move into the past and how you got here segment with these folks getting into the positions that they're in today, going into the market that we're about to go into. They're already formidable as we just laid out. So Jason, you came to UWM in 2016 after Long Bank and non-Bank, 10 years including 14 at G Rate. We just talked about getting to the number five, going from number five, originator 2019 to number one last year. Just lay it out a little bit. We'll do these in short segments and then we'll expand it as we move through the hour. But how and why it happened? Is it just the tech that you've built? Is it this going all in on wholesale commitment? Is it something else?
Jason Bressler (00:14:19):
The answer is yes to everything. We're obsessed. If you know our CEO, if you've ever talked with me, we're absolutely obsessed with growing the broker channel and the wholesale market. We don't divert our attention into silly things like title companies and insurance companies and things like that. That literally takes your eye off of what you should be focused on. So we did go all in on wholesale. That has been a very big part of it. And then also, yes, the technology. I think there's a lot of companies and obviously everybody needs to say that they're invested in technology. When I started in 2016, we already had great rates, amazing customer service, great products. When I sat down with the CEO, which is why I decided to come over was we didn't have tech. We had about 130 people and he asked me if we could actually become a technology company that did mortgages and I said we could, but only if we do it in a build versus buy model. And we build everything ourselves, securitize it, support it, literally everything. And so as we really invested into the technology, that's when we were able to get out in front of brokers and give them not just the same tools that all the big boys had, but literally make them so much better than anybody could ever imagine and give it away for free.
Julian Hebron (00:15:32):
Thank you. And to you and to the audience, we're going to go much deeper, but I want to get everybody set up here and then we'll start going down the hole a little bit more. So you came to Cooper in 2015, then hypergrowth of the portfolio, again, a trillion in six years started three years later per your SEC filings. And I'm going to say that number again from 548 billion in four Q of 2018 to 1.56 trillion pro forma as of two Q of this year. So what's the playbook? Is it purely deal making and MSR and other lender servicer acquisition? Is it powering sub servicers? Is it the team's depth, which you all are known for your depth? And again, is it the tech? It might be all of the above, but just lay it out, set it up for us.
Sridhar Sharma (00:16:25):
Sure. The easy response to that is all of the above. To be more specific, if you just drill into that number, you talked about our growth by almost a trillion dollars in terms of portfolio size. We grew the portfolio by a trillion dollars, but if you look at our headcount as a company, we've stayed pretty much static over the last seven years and a lot of that is based on our insistent focus on efficiency. So if you look at our playbook, you asked if it's deal making, if it's technology, if it's the people, it is all of the above and it's a vicious cycle. We've invested in being the most efficient player out there. That's been our goal so that we can deploy our human capital on our customer and helping our customer as a servicer. And as we continue to invest, we get efficient, we get more efficient, and as we are more efficient, it helps us in our deal making so we can go and make some of these more bold bets and aggressive bets. And that's a vicious cycle for us. The focus is to be the best, be the most efficient that we can, so we plow it all back to the customer and that cycle's what's been helping us over the years.
Julian Hebron (00:17:38):
Thank you. And again folks, we're going to go down each of these holes a little bit, a lot more actually. Chad. So you came to better this year after running direct at Loan Depot, then at Caliber founding your own firm after that, going from 500 million to 58 billion in just five years. Says a lot about customer acquisition power as a direct lending organization, but also powering other banks that need the resources and the tech stack. Is there some special sauce on consumer direct acquisition that led to this hypergrowth or is it also just deal making? Is it the tech same kind of question for you?
Chad Smith (00:18:29):
Yeah, I mean I think it's all the above as well. I would say the company, the founder, obsessed on customer, whether that's a partner or the ultimate borrower. And so that obsession is all about how to make life digitally better for the consumer to where you can get rates in seconds, get pre-approved in minutes, get a real estate agent, and turning the whole home ownership into a digital journey. And obviously I've been here a few months now and that obsession is throughout the whole organization with everything that they do. And so I think that's when you get into customer acquisition when you have these digital tools that attract and make it very simple. I think customer acquisition, just part of that about conversion of that funnel once they get there,
Julian Hebron (00:19:23):
Which for those that don't know Chad as well, this is what he does. It's who he is. So we are going to talk more about that too, Jeremy, so you come to Rate in 2010 right after the financial crisis is starting to calm down a little bit. You launched the first digital mortgage five years later. Just mention that you're now the eighth largest lender. How do you get to this spot? Is it this multi-channel strategy with retail at the core and then kind of taking that model and building out from that? Or is it kind of the broad products that y'all are known for a broad product set and evening out gain on sale and price stability? I wanted to ask that from your perspective or is it the tech leadership which includes y'all are known for also incubating tech firms inside your shop?
Jeremy Collett (00:20:14):
Yeah, I would say the development of product that definitely ebbs and flows with the markets. So I would just say that's a core tenant to how we run the business. But as you know, pre 2010 before the financial crisis, a lot of the products, roughly half of the products that existed sort of pre KT boundary there ceased to exist right after that. I think the core value involves tech around where we got to where we are in all areas of business. When I started in capital markets, it was amazing how much bad data there was and everybody is familiar with this cliche bad data and bad data out. And that was true across the entire industry. The position data that we use to make hedging decisions was fouled with bad data. It was very common for whole on bulk tapes to be repriced because data was wrong.
(00:21:22):
And I think the last 15 years or so have been really all about using the tech to clean up all that stuff and build it around sort of blocking and tackling of the business. So that's where we are now. Those issues and secondary marketing are pretty much gone for the most part. There's tons of checks and balances and what guaranteed rate did over the last 15 years was do the same thing with the digital mortgage. I think Victor, our CEO, came up with this concept of the pod model, which has really put processing and application like responsibilities and a team around a producing loan officer to free them up to be able to go out and just be a salesperson. So the digital mortgage sort of came in and enhanced and maybe took away some of those manual tasks, but again, kept the producer free from digging into the loan manufacturing process, which is really good from a risk management perspective as well. But I think that's where we've been in the past that made us successful. And then now with the digital mortgage enveloped around the loan officer, the loan officer's free to grow business and we've just containerized that whole business and develop pretty successful partnerships with some of the biggest realtor real estate agencies in the country.
Julian Hebron (00:22:53):
Thank you. And I'm going to go in on that a little bit more, but I'm going to stay with you and then we'll come back down the line again and shifting the question a little bit still on the pass and then we'll sort of start shifting more to the present. NBA performance report for two Q just came out pretty recently, eight straight negative quarters, two Q was the first positive quarter after eight negative. What's the lesson? Is it always just boom and busting, you got to be nimble or are there sort of specific business model or tech strategy adjustments that worked for you during this cycle? And in your case, is there anything about out certain types of products, programmatic issuance, maybe that might be something that emerged during this period?
Jeremy Collett (00:23:43):
Yeah, yeah, look, I think the trend in mortgage banking in general, and we're kind of digging into the present a little bit, but you definitely see this in servicing bulk bids and servicing valuations. The trend is definitely to get more revenue, more transactions out of the initial purchase transaction. So if you look at any bulk MSR bid and that's servicing rights, I would say anywhere from 25 to 30% of the value of that price is tied up and not servicing cash flows but repeat transactions. So we're literally frontloading future revenue into servicing values right now and that's the tip of the iceberg. So I think that's the first natural hedge is to augment your origination business with servicing, but now that's even taken another step to where we're front loading future refi transactions, value in servicing now, right? So it's going to be really interesting, and I don't know if you want to get into this now, but we talked about it. It's going to be really interesting how those expectations, those valuations of future refi transactions sort of manifest themselves right now that we're potentially going into a mini refi boom.
Julian Hebron (00:25:04):
I want to get into that in the next segment and we're going to go through it with a few of you. It's a big, big deal. Since we're on that topic, Chad, I'm going to come back to you on the same question, but Sridhar, let's go straight to you. Just right there.
Sridhar Sharma (00:25:20):
He was going to complete my story. Your question on Boomer bust. If you look at our approach, our strategy has always been to continue to develop a balanced business model. What Jeremy was just talking about, we obviously invested in a very scalable platform. We invested in technology and people that allows us to build up this servicing portfolio, which when rates change allows us to recapture a lot of the portfolio there and offer better products to our customers there. And no matter what the rate cycle is, our businesses and when the rates are high like they are right now servicing cashflow servicing business does really well. When rates start turning, it's already recapture and refinance business that starts doing really well. So it's a bit of a balanced approach from our perspective. I think Jeremy, you were hitting up on the same point. As the industry starts maturing towards not being just on this side or this side of the fence, you get a better, more even spread irrespective of the macro environment.
Julian Hebron (00:26:29):
So Chad, now back to you on this. Is it just boom and bust and we know this as an industry, again, the reason I like this panel so much is because it's folks that really know how to do this frankly, our whole industry knows how to do this pretty well. Everyone knows how to adjust, but it's been pretty bumpy these last nine quarters. Yeah,
Chad Smith (00:26:51):
Yeah. I mean obviously in the consumer direct model it's a little bit more boom and bust than others. It's a little bit refi centric. I think what's different in this last nine quarters is the people with servicing have really fared much better. And so those that were pure origination and sell model, I think in better's case specifically 50% of our customers come back at least give us a shot at the website or through some type of funnel. They had a great experience and so to Jason's point where you're selling MSRs or whether it's co issue or best X, you are capturing that revenue now, but I think Cooper and all these people with servicing the next refi boom is going to look different because I don't think people expected the Coopers and the Penny Max of the world to own all of the servicing that have origination arms, whereas maybe in the past it's MSR owners or some of these street firms that didn't have origination capability. And so I think that's what I focus on every day is how am I going to compete with that?
Julian Hebron (00:28:00):
Think about that people, that's a very, very interesting statement about the color of this refi market. We are going to do more on that, but Jason, I want to close out if you will, the past segment with you during this 20 to 24 period, you dominated originations also by dominating the purchase market. You were also number one in purchase, so you're also ranked number one, not just for 2023, but year to date 24 on purchase. So you've built this 1600 person tech force. 1700. 1700 now. Okay. Why'd you become number one in purchase and critically, what gave your firm the risk tolerance for such investments to invest that heavily during the worst period and maybe at least in the modern era of the industry?
Jason Bressler (00:28:53):
Yeah, I mean I think number one is opportunity is always there in this market. It's why probably most of us got into mortgages in the first place is everybody always needs a mortgage. And so there's a lot of sustainability for your career in something like that. For us, a lot of it focused around education. We had to educate the wholesale community, the brokers on actually how to sell purchase mortgages, how to go after that, not to sit back and relax, to even tell them, look, you are brokers and we obviously believe that brokers are a much better choice going into the retail channel broker save consumers on average over $10,000 per loan transaction, telling them that, teaching them the skills but then also creating the technology around it to actually manage and then mine their own pipeline and then come out and tell them, Hey, here's five different ways you should be selling this mortgage.
(00:29:49):
Even if the interest rate goes up, that's still better for the consumer based on the entirety of what it is that you sell for the investment piece of what you asked. I think it really comes down to the people and the people that we have. It's not the investment in trying to continue to grow, it's actually trying to make sure that we invest in our people properly. And so we do that by constant. We've never laid anybody off in 33, 34 years, you've seen all these companies lay people off obviously and shut down completely. What we really tried to do is not just hire the right people, but then give them different career opportunities. You're in operations, you're doing different things. Do you want to be an underwriter? Come and move into underwriting, we'll train you how to do that, give you a new career set.
(00:30:31):
You wanted to be an IT ever. We'll come in and actually train you how to be a developer, a QA network. It doesn't really matter what it is, but you invest in the people like that and that's really where we spend our time, our energy, our focus, our money. Basically everything starts to take care of itself. And so not only did we educate the brokers, not only did we give them more technology tools to be able to help them sell, but we kept the core of UWM together throughout that. And that's not just the leadership team that's six, 7,000 people together during that time and told them we are in for probably the biggest refi boom in history. Rates have never gone up this fast this quickly. They will not come down that quickly, which means there's a massive opportunity for churn over and over and over as rates continue to go down
Julian Hebron (00:31:20):
On the team note, I'm throwing this in extemporaneously because you brought up team and the importance of team. You have this phrase that you even put in your quarterlies and everything else. We are thumb pointers, not finger pointers. Yes. What does it mean?
Jason Bressler (00:31:34):
We take accountability for everything. What we don't ever want to do is say that something is somebody else's fault. It's always ours. At the end of the day, if you look at anything that happens to you, if you can look inward and say, look, let's not blame anybody else for this. We are where we are. How did we get here now how do we fix it? How do we attack it and make it so much better than it used to be?
Julian Hebron (00:31:57):
That's on me instead of that's on you.
Jason Bressler (00:32:00):
Exactly.
Julian Hebron (00:32:01):
Got it. Okay. Thank you. All right. Let's move to the present state of your orgs in the industry. Obviously we have to start with the rate outlook. I'm going to start with Jeremy here. NBA and Fannie have rates at six point a half and 6.4% respectively by year end. I think if this August headline, CPI number prints on Wednesday as expected at 2.6, that's down 30 basis points from July. And core CPI has a two handle, which ostensibly would be down 30 basis points from 3.2 from July. Rates could have a five handle in four q. I think you all kind of agree, but just a little more color there.
Jeremy Collett (00:32:38):
Yeah, sure. We talked about this Friday. I do feel like investors in markets have sort of moved on from the inflation story. PCE just came out, I think it was two and a half or 2.6. For the most part, all inflation data is trending back and towards the fed's target range, and it does feel like there's a lot more concern now on the employment side of the fed's dual mandate. So I don't know if everybody saw because it wasn't widely reported to the media, but the Department of Labor revised their job growth numbers for the year ending March, 2024 and effectively wiped out 818,000 jobs that we had previously thought were created over that period. That's like a 30% drop in drop growth. So it's pretty substantial, pretty alarming. And then we continue to see weekly initial claims and continuing jobless claims come in weaker. Last week the Jolts job openings report showed that a half a million jobs help wanted ads were eliminated from the previous period.
(00:33:57):
And then of course Friday we got pretty disappointing employment data. The manufacturing sector is losing jobs 20,000 plus per month right now. So it does feel to me like markets are now kind of more queued in on the employment side of the Fed's dual mandate. Like I said, where does that put us? I get this question all the time. I kind of do a market blog and send it out to all of our originators and everybody's looking for this first fed rate decision. We probably get a cut later this month and wondering what does that do for rates? Well, that's already priced in. I don't know that everybody understands that, but markets where markets are, bond prices are treasury rates, et cetera, their basic ahead of the Fed pricing in what they think is going to happen. So just as an example of that, the 10 year yield was in the three eighties just a couple months ago, and then all this employment data started to sour and now the 10 year on Friday, I think it got down to 363.
(00:35:09):
That's a big move after some disappointing employment data. And that just suggests that the market thinks the Fed's going to start to cut pretty aggressively. Do we get a 50 basis point rate cut at this meeting? I don't know. I would say we probably get at least a 50 basis point cut in two of the last three meetings. I think right before an election first cut in the cycle. It's probably going to be hard to do 50 for them to be honest. But regardless, that's already priced into where rates are. So what kind of reaction do we get? It probably depends on how the Fed hints at future rate cutting activity. And also like you said, CPI, that's certainly important, but if the employment data continues to rapidly depreciate, deteriorate rather, you could see some supersized rate cuts. Rates are really high right now. So is this another case of the Fed waiting too long? It's possible.
Julian Hebron (00:36:11):
So I think the Fed has the worst job in the world.
(00:36:15):
They're wrong always. The market's always going to blame them either way. So with that said, this is real and this is important and this is not everybody about nine days from now and what it means until November seven when the next FOMC is, and then the next one on December 18. This is like, what do we look like? I want this discussion to be what does it look like between now and say midyear next year? How much runway do we have? So I'm going to finish a little bit on the market commentary and then we're going to get into retention and some of these other things. Okay, one last caveat about rates dropping. Aren't we right on point with the Fed's dual mandate? You've got core PCE at 2.6, you've got unemployment at 4.2. I mean, it's two different surveys. That's all wonked out, but unemployment dropped Friday despite the jobless count that had all the headlines. Isn't that kind of Goldilocks economy still, that's the soft landing right there, and does that not justify multiple cuts of 50 bips?
Jeremy Collett (00:37:21):
Yeah. Yeah. I mean, I think so. I think the UNR, right? There's a lot of noise around that and everybody always points to the labor participation rate and all these things that influence that, but that Department of Labor revision where almost a million jobs went, poof. I mean that's real and everybody should be concerned about that, right? So yeah, I agree. The futures right now are pricing in about a hundred hundred 25 basis points of cuts this year, and I expect that's what they'll deliver. I just don't know if we're going to get a big cut this month in nine days, by the way. I love it how you always have a perfect timeline of events down to the day the year. I think you told me Friday that it was exactly the 16th year anniversary of Fannie and Freddie going into ship.
Julian Hebron (00:38:08):
That's right. Yeah,
Jeremy Collett (00:38:08):
That was pretty incredible.
Julian Hebron (00:38:10):
Yeah, historian, try try, Sridhar. Let's start teeing up the hottest topping of refi market, which is retention. Okay, so 73% retention according to for two Q, according to your most recent quarterlies, that's almost four times the 20.1% all refi retention rate that ice reported last week. It gets more granular with cash out and rate and term, but let's just stick with all refis. You're almost four times that. So talk about that a little bit. How are you getting it done?
Sridhar Sharma (00:38:47):
If our CEO was sitting here, Jay and he heard that statistic, he would still be disappointed. He would say, why isn't it 90%? That is partly how we keep getting things done because never satisfied.
(00:39:05):
But the broader answer is, look, we've been building on a lot of, when you think about our strategy to bring the portfolio, grow the portfolio size, we have access to a lot of the data that comes with a portfolio this size. And a lot of what you're seeing in terms of recapture is a result of our investments in looking at data and data analysis and staying focused on the customer over the long term. You combine these factors. Part of our model focuses on the customer and customer value and the data that we have that we've acquired over the years that helps us get the retention rates that you're seeing right now. Now, that's only one part of it. The first part of the data and analysis is to identify customers in the money that we can go after. The second part of it is providing our team members the tools to be extremely efficient in how they're able to go close that transaction.
(00:40:05):
And that's again, Jason was talking about obsession. Obsession and investments in providing the brokers the tools that they need. We've been focused on providing our MPs and loan officers the tools that they need to be able to talk to the customers and where necessary, and we've invested in digital tools to make it easy for our customers to get to us when the rate on environment changes, combination of these factors helps us get to where we are, and this is still not done, our journey is not done. We continue to find new ways to make things better. That's one of the things I love about a forum like this. Yes, we come in here with some success behind us, but there's always so much more for us to learn because I'm always going to assume that there's somebody else out there that's smarter than us that we can learn from.
Julian Hebron (00:40:54):
Thank you. We will come back on this theme, but Jason, I'm going to go to you. Similar question. I'm going to change it up a little bit because for you, if I understand it right, as the refi market ramps up, it's all about making sure not that the mothership gets those loans somehow, but that you are returning those loans to the brokers that originated them, right? Yes. So can you talk it out?
Jason Bressler (00:41:16):
Yeah, I mean, the fact is you look at any loan officer, if you look at the loan officer community as a whole, I think that the top one, 2%, again from the obsession place, they are obsessed with their customer base with growing their clientele. The other 98% are not as much. They have other interests, they have other things in their life. And so I don't want to say that it's necessarily lazy, but it's a lack of understanding, I think of how to properly mine a database. I think too many loan officers got into this industry right before and during covid where you just literally had to pick up the phone. Most people didn't even train. They just basically were like, I know a lot of people, I should be a loan officer. And so as you try to mine that pipeline, you don't really know exactly what it is that you're supposed to be doing.
(00:42:10):
Now, AI can help with a ton of that stuff and can really get out in front of it. But yes, we are obsessed with the fact that saying, Hey, you originated, let's say 175 loans last year. Those 175 loans, almost all of them have a refinance opportunity. And so obviously we want you to originate back with us, but we care more about making sure that we can present that to you so that you have the information and start calling and create your own refi. Boom. Now, you do not need to wait for rates to drop in order to start refinancing. It's an absolute fallacy. And again, if you don't understand it, that's okay. We'll, not only train you, we sent 500 people out a week loan officers to UW when we pay for 'em to come out so we can train 'em on all this stuff and then we deliver those loans back to them using our technology and then have them call out,
Julian Hebron (00:43:02):
Create your own refi. Boom. Now. Love it. Chad, I'm going to go to you and then I am going to come back. We're going to have Chad remark on this, but then we're going to come back and remark on is this going to be one of the biggest refi opportunities? Again, we're going to talk it out for a minute, but Chad, first I just want to talk about this is your wheelhouse capturing markets. The one we have coming is something that we had that I had the privilege of doing together with you at Depot. This is what you do. You're in a shop that proved itself in the last refi market. So tell us how you're thinking about it.
Chad Smith (00:43:42):
Yeah, I mean similar to Cooper, UWM, all of us, I think your own database is important because customer acquisition cost is what makes or breaks you in these environments. But when you look at the tougher markets, when I've competed with Cooper in the past, it's like their number one metric was how much credit card debt did someone have? So it all goes back to data. What data are you investing in now? How are you set for when some customers in the money, I mean in better's case specifically, there's a large database there of previous customers. So what are we doing with that day one? And so how are we investing in that? And then that lowers your customer acquisition costs because unquote, that's free, similar to a servicing book. And then it allows you to invest in other marketing channels because your blended customer acquisition costs should be acceptable.
(00:44:37):
And so for us, it's about what marketing strategy are we deploying? How are we staying in front of our previous customers? So if we sold it to this guy, they don't get it back. And then are we delivering a great digital experience for them and then making it easy. And obviously we've been able to help customers get insurance and other vehicles through digital, which is all just different touch points and then scaling capacity. I think that's a big part for those right now. And it seems very choppy. Obviously the people on this stage are scaling capacity, but I don't see it everywhere. But you got to have, in the non-bank space, you got to have licensed talent. And I think similar to what Jason said, 2020, 2021, I mean if I had a hundred bucks for every time I heard, I hired my Uber driver and he killed it. And I think not to run away from this in better's case, I mean we've seen that train the people off the street not work as well in a 7% environment as it does in a 3% environment. And I think mortgages are sold today, whereas they weren't in those years.
Julian Hebron (00:46:03):
So from a efficiency of tech platform standpoint, just a couple quick stats, tell me if I'm right or wrong here, but three to five minutes to get a rate table and a quote for a consumer, 12% of apps are apt commitment letter in under 30 seconds, 65% of loans done with full appraisal alternatives, AVMs drive-bys, et cetera, 12 conforming underwrites per day purchase process. I'll leave it at that, I'll leave it at that. The purchase part is a little bit different, but just those stats, those stats hold, do you have to hire a ton or are you generally like, Hey, no, the tech is enabling us to go faster without having to just do the standard. All right, it's refi, boom, we got to stack on a bunch of fulfillment folks.
Chad Smith (00:46:55):
No, I think Tin Man, which is the name of our proprietary technology, clearly drives a lot of efficiency. I would say it's not just the technology, but the workflow, the process, the people, all the things that everyone's talked about. But yeah, those stats are all a legit, I mean, you can get a rate in three seconds. You can get a commitment letter and under 30 and then our one day mortgage in a lot of cases, or in all cases the same day if you're digitally validated, but even under an hour in a lot of cases for the happy path. And so on the fulfillment side, the thing that I've seen compared to the industry is on conforming specifically the underwrites per, but even govey underwrites per workflow. We have a great team out in India that's working 24 7, and all of that investment, which is really what we call tasks in Tinman, has been methodically thought out, obsessed over, and continued to be invested in even during this challenging time.
Julian Hebron (00:48:05):
Thank you. So before we close out this part, this part is so critical, this refi part. So I do want to spend one last little bit on it. So Jeremy, you're justifiably concerned about how we would manage for prepayment speeds as an industry, as rates drop. Can we talk about it a little bit and does it mean that rates hold higher than the market might suggest? Because it's not just about EPOS at the LO level, which then of course flows through all cap markets desks, but it's more than that, right?
Jeremy Collett (00:48:41):
Yeah, a hundred percent. And look, I definitely don't mean to throw cold water on the excitement over lower rates in the refi opportunities, but let me offer this. There's probably two big risks with this that I don't hear anyone talking about. One is managing your relationships with the GSEs has changed a lot from what it used to be, certainly before the pandemic. But if you think about what's happened over the last two years, there's really three kind of mandates driving the GSEs and how they work with their customers and how they price customers. One of them and everybody knows is your housing goal, affordable mix, what kind of loans are you doing to underserved areas and what's that represent and what you're selling? The second one has to do with MBS parody. So there's one UMBS contract that Fannie loans and Freddie loans both go into.
(00:49:44):
So it's really important that they perform pretty closely that there's similar loan characteristics in it, mostly average note rate, average loan size. There are certain states that like California, that have a higher propensity to refinance more efficiently, which makes sense, right? Because loan sizes are larger here, there's more incentive for the bar to refi. And then the third one is this sort of ROI target that they have. So everybody knows Vanny and Freddy, they subsidize their affordable housing goals, rich production with more profitable loans for them, like non-owner occupied loans. The refi piece of this really affects the UMBS parity piece, but then also the ROI piece, right? If you own an MSR and it refinances, you don't get paid back to principal balance. It's just gone. It goes poof in the thin air. So like a servicer fan and Freddie are just long this big strip of interest only, and when it pays off, it's gone.
(00:50:50):
So that obviously affects their returns. The UMBS parody piece is another one, right? If you go back to 2019, it seems like there was more noise around this in 2019 because we weren't quite in this pandemic mode to where you just expected everything to refi once we got into 2020 and the Fed started QE and started cutting rates. But there were times in 2019 where certain servicers, certain originators had prepayment speeds to three, 400% of the overall market. So that typically resulted back then with a slap on the wrist and a call from your rep and maybe your spec pools traded behind other issuers. I don't think that's going to be the case this time around. Everybody's been on the receiving end of negative pricing adjustments, higher G fees worsening, and it's been painful in a lot of ways. Fannie and Freddie have done an effective job of pushing their mandates to originators to be responsible for that themselves. So I know this whole concept of essentially building recapture and having really high recapture metrics, staging up the original LOS to be preloaded with that data so they can refi efficiently. But I would just caution everybody to take a good look at your prepayment speeds, and this is a great place for tech and mortgage to come together. It really is because you're not going to have an idea what your speeds are going to be kind of in a near real-time basis without a real tech initiative to calculate them.
Julian Hebron (00:52:34):
And then you can dial your marketing efforts accordingly if you have that.
Jeremy Collett (00:52:39):
Yeah, a hundred percent. Yeah, I mean that's what I think you can do. I mean, some of it's just going to refi, but to the extent that you can manage them, I think it's going to be really important and everybody should be having conversations with your GSE reps just about what that could look like. I think the consequences are going to be pretty severe for running too hot.
Julian Hebron (00:53:02):
Thank you for doing that. We said that this is an offense session, but we also got to play some defense even.
Jeremy Collett (00:53:11):
Yeah, we can't just start jacking up threes. Thanks for
Julian Hebron (00:53:14):
Doing that. But shifting back, Jason, there's something that you put in your quarterlies that I think is interesting and you don't have to address it this way, but the PA plus is this worth covering is in terms of your special sauce and your fulfillment process during a crazy refi boom. To me, is that something, it seems special to me in terms of being able to just be like, Hey, processing, I got a full book here, Claire Mount.
Jason Bressler (00:53:38):
Yeah, I mean I think the thing is, and I've been saying this for probably the last, I dunno, six to 12 months, is this is, I've been in the mortgage industry now for 28 years and this is probably the most important time in the mortgage industry in general because the advance of technology and we like to throw everything under this AI umbrella. There's very little true artificial intelligence. A lot of this is predictive analytics, but the use and the awareness of what that is and how people are trying to invest right now is, this is the first time probably since paperless actually became a thing where we all have the opportunity to completely re-envision our workflows and how we actually do business and what it means to be efficient. And so yeah, plus, which for those of you that don't know stands for processor assist plus, this was one of the things that we wanted to offer.
(00:54:36):
The hardest part about a refi boom, and we all know this is scaling up and scaling down, laying people off, then trying to hire a bunch of people. You overpay a bunch of underwriters, then you have to let a bunch go when things like this happen. PA plus allows us to look at our broker community and say, okay, you probably really had to downsize at some point on operational costs. We will offer you a model that's cheaper than contract processing, but your contract processor can use it too. And you can scale that up and down at your own kind of whim on how you want to do this, but we'll handle the entire process for you. So for what is a pretty nominal fee, we will literally take care of everything. If you want to hire processors, great, we're there to support them too. If you don't and you want to stay as slim as you possibly can, we're offering that up as a way to have an enhanced workflow. It's been wildly successful for sure, but it's just part of enhancing the workflow and trying to get lean where we need to get where the industry needs to get lean and then make sure that we, and not just UWM, but the entire community is set up for true scalability instead of just being so reactionary to what happens with rates.
Julian Hebron (00:55:45):
So good. Thank you. Appreciate it. Alright, Sridhar, we're going to transition to future segment and I have a fun one for you. So we have 10 minutes left. Do you believe originations or servicing is where lenders deliver the most value to customers over time?
Sridhar Sharma (00:56:05):
That's a fun one. I'm going to either make my head of service
Julian Hebron (00:56:09):
Or let me add something to make it a little easier. Or is the end game a seamless endless loop from originations to servicing like that?
Sridhar Sharma (00:56:19):
I was going to go there because I definitely don't want to make my head of servicing or head of originations mad. I did that in a previous conference where I said, servicing is boring. And he came at me just to qualify my point there was servicing seems boring. Nobody talks about it, but ton of opportunity there. That's where I was going. Nobody paid attention to the second sentence. But to your point, I think it's a cycle. These rate cycles like we were talking about, they keep going up and down. There's several things that are outside your control. So for you to just focus on one or the other, I think you, you're going to see this as a endless loop where you can continue to offer something to your customers when rates are high, rates are low, it doesn't really matter. Like Jason was saying earlier, housing is a basic need that's never going to go away. The market's never going to go away. You need to keep delivering to the customer no matter what the macro environment is. So from our perspective, focus on originations is just as important as we focus on the servicing experience.
Julian Hebron (00:57:29):
Thank you. Chad, I want to go to you and just back up for a second because you mentioned, say the name of your tech platform again and then say what it means. Because I think from a tech adoption standpoint, for everyone thinking about the future, everyone's always thinking about adoption. But say the name again and say what it means,
Chad Smith (00:57:51):
Tin Man, and it's the machine with the heart to get you on your journey home.
Julian Hebron (00:57:56):
Yeah, yeah.
Chad Smith (00:57:57):
How good is that? That was good. How good is that? They don't even work at better. I like that.
Julian Hebron (00:58:02):
It's so good. It's so good. So yeah, go ahead.
Chad Smith (00:58:05):
Yeah, I mean, look, there's been tremendous investment in Tinman over the years and I can take zero credit for it. I'm a little bit more focused on doing what we've done for the consumer experience and trying to help the loan officer a little bit more with some blocking and tackling. But yeah, I mean we should not have the same cost structure to scale based off tinman and the investment that we've made to where our processors carry way bigger pipelines. Our task-based workflow has a lot of specialization that should keep cost. We should be able to lever up here pretty handsomely based off the technology.
Julian Hebron (00:58:56):
Thank you. Alright, I want to ask all four of you this one. So let's start with Jason. Just run down the line. This is as promised, we want to say, what are some of these bigger, more established players in origination servicing as well as tech itself? Are they just eating our lunch or are they maybe able to help us if we're a smaller to mid-size player? So the question is, do you believe in building tech in your shop that can eventually be used by the whole industry?
Jason Bressler (00:59:27):
No. I believe in building tech that is good for the broker community. I think as we branch out and as a publicly traded company, obviously we would look to want to monetize. But in financial technology as a whole, I think that where we help is our enhanced workflow and the commitment, the true commitment to technology of what we actually have will help everybody else in the industry as they copy and follow us.
Julian Hebron (00:59:55):
And also, you all have been kind of leaders on this migration from like, well, I'm a retail lo inside of a correspondent shop, but maybe I can truly be my own entrepreneur inside a shop like yours. This is kind of this drum that you all have beat, right? I mean,
Jason Bressler (01:00:14):
Yeah, a little bit. I mean, I'm one of the only people I know that spent their first half of their career in retail and then the second half in wholesale. At the core of it, every loan officer is an entrepreneur. And I think that, again, from my experience, retail shops try to hold them in by saying, you are nothing without me. I have technology, I have the rights. I have this enhanced workflow. None of it's true. And so what we try to show people is absolutely not that you actually can branch out on your own and here's every single possible way to do it and do it instantaneously.
Julian Hebron (01:00:48):
Thank you again Sridhar do you believe in building tech in your shop that can eventually be used by the whole industry.
Sridhar Sharma (01:00:56):
My answer is going to be a little bit on the kinder side of it. We are an operator first, so we build technology for our customers and for our team members first. But then we also, and we are also a large sub-servicing shop. We offer the technology for servicers. We also offer private label experiences, so we are able to customize our technology for others to use. But to a large extent, we are not a software company where we just get something out to install and use. It's more we bring the tech along with the process and the tech and process along with the people. So yes, we are able to offer it to the industry, but more in a controlled manner is what I would say.
Julian Hebron (01:01:38):
Yep. Thank you Chad.
Chad Smith (01:01:40):
Yeah, I mean, I would say what we're focused on, obviously we power Ally. I think we have an active team that looks for other partners that we can leverage our technology, workflow and process to help them do loans cheaper. We've had some of that with home equity and other things as far as letting a true SaaS or whatever. I mean, I don't know that we're focused on that, but I wouldn't rule it out, I think, but that's not where we're really focused right now. We do have a business in the uk. We have kind of done that in our UK business, which is obviously a test, if you will. And so it works.
Julian Hebron (01:02:22):
Yep. Thank you, Jeremy.
Jeremy Collett (01:02:24):
Yeah, you're really putting me on the spot with this one. In my world, in capital markets, absolutely not. I'm super paranoid about everything we're working on. I don't want to share with anybody and it just doesn't work, right? We work too hard to tell everybody what we're doing as an organization. We've obviously had plenty of investments and everything from DocuSign to remote, notary, you name it. So I think as an organization, yeah, we're fine with that and we have an investment profile that supports that. But for Jeremy Collette, absolutely no way.
Julian Hebron (01:03:08):
Alright, we've got about two and a half minutes left, so I want to have you guys close us out with your answers on this final question that'll set us up for the next couple of days. Affordability is this huge issue. So the question is, is the American dream of home ownership waning or permanent?
Jason Bressler (01:03:30):
I mean, home ownership says American as apple pie. Definitely not waning at all.
Sridhar Sharma (01:03:36):
Not waning.
Chad Smith (01:03:37):
Not waning.
Jeremy Collett (01:03:38):
It's permanent.
Julian Hebron (01:03:39):
Yeah, I believe it's permanent as well. And that's what we're all here to do. So I want to just say thank you to you all and if you want to add any final remarks, we do have a couple of minutes. I intentionally didn't have everybody go into the weeds on things like gen ai, but there is one quote, Jason that you said in June that moved through the industry like wildfire. Do you want to say it again?
Jason Bressler (01:04:07):
Yeah, I get asked all the time. I do a lot of speeches and I talk to a lot of people and people would always ask me, is AI going to replace my job? The answer is, AI will not replace your job. People who use AI will replace your job. Yeah.
Julian Hebron (01:04:22):
Yeah. It's worth repeating and any other remarks on that? Again, the next two days are full of AI stuff, but if you all want to close it out with some AI stuff, we can do that quickly though. One minute left.
Sridhar Sharma (01:04:32):
Sure. I agree with him. That's the easy one. When you talk about AI and even the previous question about technology in general,
(01:04:41):
One thing to keep in mind, and that's underscored and everybody's responses here, it's not just the technology side of it. It's technology combined with process that makes things work. You got to pay attention to both, which is why you just can't give it out and make it work. You've got to combine it with the process side of it. Pay a lot of attention to that. You got to be willing to change your underlying process every so often. I think that's their intent, man. That's there. And what Jason was talking about. Obviously these guys do a much better job at branding it. Cool names, but yeah.
Julian Hebron (01:05:15):
Yeah. Thank you. Well, we'll leave it at that. I want to close it out. I want to keep us on time. I want to say thank you to the four of you and your teams. These folks are going to be around, so if you want to catch 'em, you should. They're busy people, but can we just please give it up for these four people? So good. So good. I hope everybody has a great show and thank you guys again. This is so good. Really appreciate.
Mortgage Industry Vision 2030: Lender & Servicer Super Panel
September 27, 2024 11:52 AM
1:05:52