Transcription:
Courtney Thompson: (
Good morning. My name is Courtney Thompson and we are here in the third-ish session of the Digital Mortgage Conference for National Mortgage News today. And I am super jazzed that the first time that I have had the honor of moderating a panel, I get to bring to you some of the great minds in the mortgage servicing industry. And we're talking about the intersection between mortgage servicing and lending. And the key question of today is, is this a problem, or what is the problem specifically that servicing customers do not frequently stay on the, with the servicer where their loan is being managed? Frequently we have problems with runoff or a lack of recapture, and we're going to dig in with some industry experts today to figure out whether this is a problem, how to potentially solve it, or if the solutions are actually creating a bigger problem.
Courtney Thompson: (
So joining us here today, we have Lee Smith who is the executive vice president of mortgage at Flagstar Bank. Lee wears the hat of lender, servicer and subservicer. So we'll have a great perspective on that today. Ed Fay, who's the CEO of Fay Financial. Ed wears all of the hats that Lee has and he is also a bit of an incubator in the mortgage space or mortgage industry for different areas of the business coming together to see how they can work together in business and in technology. And then we also have the chief digital officer of Finance of America Mortgage, Dan Catinella with us who is really going to bring in a hardcore tech perspective to this universe where he also is wearing the hat of lender and overseer of subservicing in the industry.
Courtney Thompson: (
So thanks to these three for bringing it together for us. And my favorite thing about the humans here, and so I would strongly encourage you to send us some questions along the way, is that they truly embody what is the Burning Man motto, which is not every experiment works, but we'll never know if we don't try. And so you'll learn from these gentlemen today that they really are first adopters in many different instances in the space, and I couldn't be more excited for this 30 jammed packed minutes of fun. So let's start with Lee. Lee in the promotional materials, we see the metrics four or five consumers leave their servicer because they think of buying a home and not the loan. From your position wearing multiple hats in the industry, what do you really think of this? Is that metric misleading?
Lee Smith: (
Yeah. Well, first of all, good morning, Courtney. Good morning, everyone. It's great to be here. Appreciate you having me. It's a fascinating question. And one that I first sort of stumbled across when I saw a quote from Angela Strange, who's a partner at Andreeson Horowitz, who are a private American venture capital firm investing in early stage startups amongst other strategies. But let me read you the quote and then we're going to break it down and analyze it further. So Angela said owning a home has long been a pillar of the American Dream, but very few people fully understand the mortgage that powers it. How does a mortgage originated by a broker in California end up on the books of the Singapore sovereign wealth fund with the homeowner sending her monthly checks to Ohio? And why does it still take 45 days to close a loan?
Lee Smith: (
The entire process is complex, opaque and downright anachronistic. Yet we continue to complacently accept this reality, despite living in an on demand age, where we expect more speed, transparency and ease of use. So first of all, Angela came at this from a technology and digital point of view, and we'll get to that later, but let's break it down further what the question is. If you look at the mortgage origination industry, the top 25 originators account for 37% of the overall mortgage market. It's a fragmented competitive market where there are lots of players. The servicing industry, which is about $8 trillion, 50% is owned by banks. 50% is owned by non-banks and the subservicing industry, which is approximately $3.8 trillion, the top five subservicers account for 60% of the market, three out of the five don't originate mortgages. So the bottom line is there's a mismatch, there's far more originators.
Lee Smith: (
It's a much more competitive market. They're spending more on marketing and brand recognition than there are servicers or subservicers. So then let's continue to further analyze the problem. Nonbanks typically don't have balance sheets and limitless capital to hold infinite MSRs. They're selling products all the time, mortgage loans to aggregators or the MSRs for liquidity or to free up capital constantly. Banks, and we're a bank, we have a balance sheet and capital, but banks have options. There are other asset classes they can invest in and hold on the balance sheet and still capital isn't infinite and there are certain rules in place for banks limiting the amount of MSRs they can hold versus the common equity tier one capital. So all this creates sales and movement of assets. There are balance sheet capital and liquidity constraints. And the other thing is operationally, if you are an originator, you can't just say, we're going to be a servicer.
Lee Smith: (
You need to build that operational infrastructure. There's a fixed cost involved, margins are thinner so you need a certain scale to be profitable. You need to have the regulatory know how and expertise. And then you've got the other dynamic of agency versus Ginnie Mae and the different liquidity requirements, depending on what assets you're holding. So the bottom line is what's the opportunity? In my view, if you are an originator and a servicer operating at scale with a balance sheet and capital, it's undoubtedly helpful. We're seeing this from a recapture point of view, MSR owners realize the value recapture creates whether it's a subservicer doing it on behalf of an MSR owner or a servicer protecting their own book. It's clearly much cheaper and easier to solicit an existing customer than bringing in a new customer for the first time. So a servicer or a subservicer has an advantage if it can originate.
Lee Smith: (
There's a familiarity, a brand recognition and borrowers ultimately want convenience as well as the best rate. Digital though undoubtedly has a big part to play. I think if you look end to end on the mortgage and servicing cycle, there is no true end to end digital mortgage offering. It's clunky, it's paper heavy, which is why it takes 30 to 45 days to close a loan. If the process was digitilized, easier, intuitive, you'd reduce switching and more borrowers would stay where they are if they felt they were getting a good deal and the process was easy. So I think there's an opportunity, but you need a lot of ingredients. You need operations that are scalable, balance sheet capital, and you need the digital capabilities.
Courtney Thompson: (
Ed I see you leaning in.
Ed Fay: (
And one, a lot of the big part of it as well is, we have as a servicer, we have multiple roles to fill. Now, again, you think about a servicer, all of us in servicing are servicers, we're also subservicers for clients. And when you're talking about four or five, again, Courtney, I'm going to steal into your next question. But basically what it comes down to is we're structured a little bit differently as a special servicer. So we have a number of different clients and we also originate. Now with our clients when it comes to the relationship and the four or five going away, don't look at it as going away. We find the problem if they go away from the lender, not from us. So again, depending on what product the person may graduate to or go somewhere else, if we lose a customer because our lender wanted to originate another loan where we're doing non-QM, for example, and the customer qualifies up for Fannie, Freddie or Ginnie, which we're not going to service.
Ed Fay: (
That's a win for our clients. That makes us that's good for us. Now if it's our own loan that we originated originally from one of our lenders, again, you have to protect that client a great deal. Now from a digital perspective, again, the way we're structured, being a little bit different, we're trying, and again, it's becoming more relevant now that rates are starting to come down or come up a little bit, or at least neutral, where a lot of our clients are now looking to us to say, Hey, how can we go back and recapture before frankly, in the last couple years, it hasn't been that important because they really didn't have the bandwidth to set up additional entry points into their, into their origination system. Now they're asking, okay, when are my customers paying off? When are, what are they doing?
Ed Fay: (
How are they acting? Are they, are they saying they're looking for a new loan. And again, it's now a matter of us trying to set up the infrastructure digitally to give them feeds of, Hey, this customer's trying to pay us off at this point. Now its your loan, you own the MSR on this. You have to be aware of that to protect your position. Now as a subservicer, we feel it's not our job to recapture in that situation. Nothing wrong. We'd love to, we have pretty strict do not solicits in our deals. And we want to give that back to the lenders. And you know, we're in a little bit of a unique situation there. So again, it's a little bit of a deceptive number if it's being done right. And I think what we're going to see over the next couple years is people are really going to have to focus on that of, hey, your borrower, that you spent a lot of money, meaning you, the originator, is going somewhere else, they're upsizing or downsizing their house. If you're not aware of that and you lose that relationship on this, it's very damaging to your organization, because as Lee just mentioned, the cheapest lead is the one you already paid for. And again, I think it's a big part of what we need to be doing, as we look to go forward in this marketplace.
Courtney Thompson: (
I think we created our first t-shirt of our session the cheapest lead. Dan, what about you? I mean, it sounds so far from Lee and Ed's perspective that we're saying the metric is, or is not a problem depending on the hat that you wear. How do you feel?
Dan Catinella: (
I think the way we look at it is, mortgage lenders in this day and age really need to start thinking about the end to end customer journey. And, when we look at it,, it's how do you really stay engaged with the customer long after the transaction. I would at least say 30 to 45 days to really complete that transaction, right? That customer is sitting four to seven years on average in the servicing cycle, and really originators and mortgage lenders need to think about how they can stay engaged long after that transaction and that next transaction for that customer needs to be easier, faster and cheaper. We have all of that data. We need to leverage that data to really make sure that we can optimize that customer's experience.
Dan Catinella: (
So that next transaction is really a better one for them and is conducted in an easier, faster and cheaper manner. And really, how do we offer, the lenders, the lender driven digital experience from prebuying all the way through payments into one consistent ecosystem where we're not pushing our customers through different widgets and experiences, depending on where they are with that entire life cycle. So how do we consolidate that from a digital perspective and give the customer one single experience. They built trust with the lender through that first transaction, and the first thing that we want to do after that transaction is, is create kind of this friction point to the servicers. So we really need to start focusing on that. We've done a great job over the years, really creating this digital transactional experience that now has table stakes in our industry. Now we need to shift our focus and figure out how we really sound up that those trailing components way through the payments processing and bring that into the same experience that we focus so highly on, on that transactional experience all the way through payments and making sure that we give that customer a seamless experience back to that lender, when the time is right using the right data and customer intelligence, based off of all the things that they conducted through that servicing process.
Courtney Thompson: (
Great. So going a little bit off script here, but, into our second planned hunk of communication here, when I think about, and Lee and Ed, you're both welcome to smile here, when I think about engaged communication in a servicing process, from a servicing operator perspective, it's almost an oxymoron, right. Having worked with Lee and Ed quite candidly for the last10 years on, how do we maximize that consumer relationship with the servicer to have that connectivity and, certainly, you know, Dan, I think that there's elements of a utopia that you're describing, right. To have these environments integrated from end to end. But, but I do agree with you. I do think that that should be the goal, .You know Ed, when I think about humans that have thought about connectivity with humans in the mortgage servicing process, in the mortgage servicing industry different right than your standard, big box servicer or sub-servicer, operating more of a machine line, I think of you, I think of how Fay Servicing was initially born, the concept of the account manager versus the collector, and potentially right-sizing solutions.
Courtney Thompson: (
What are your thoughts here in terms of what is achievable in the current, setup, technology framework, a bifurcated nature of lending and servicing?
Ed Fay: (
Yeah. A lot of it is about talking to people still, again, the lending in the digital part, we still have to talk to people. And again, this goes back on talk as my, as a subservicer, we're starting to work with some of our clients, as I mentioned before, we're literally setting up, again, they need the clients want digital, but at the same time, it goes back to that relationship. So for example, two of the things we're doing now is we're starting again expecting when origination slows down, especially refi customers need to talk to their lenders. So again, what we're doing is saying we're setting up a couple of campaigns where we're calling customers and saying, listen, you want to have your mortgage looked at and just checked out again and we're live transferring those customers back to the origination shops that we're working that we are servicing for.
Ed Fay: (
Now, again, we're doing that because again, the digital side is very important again. I'm sure Dan does a ton of work with, as far as email campaigns and drip campaigns, but again, having a call every so often, or we have the loans tagged to say, Hey, if you talk to this borrower, if they call in just transfer them over to this number and we have it set up in our system that way. So again, we could have those relationships that, that Dan and Lee and the lender spent so much effort, time and money building. Again, you have to have both again, you have to keep the customer engaged, but also you position yourselves to be able to talk to them. And when you do always be reengaging of how can you talk to the lender again? Now again, we do the exact same thing.
Ed Fay: (
And for frankly, we did it ourselves at first for our own lender where we were lending. Then we're starting to put, move that into some of our partnerships. And then on top of that, for example, on payoffs, people are paying us off while they're either moving or refiying. And again, the original lender needs to know that. They have to have that information so they can act upon it, assuming they still, they still can given the privacy law. So again, it's a little bit of a different situation. As we move forward, the digital is incredibly important, but you can't forget the human touch either, because again, people are still calling. We are still talking to them. And again, when you talk to them, you need to be taking advantage of those opportunities. Like, again, the t-shirt is relevant, the cheapest lead is the one you already have.
Courtney Thompson: (
So same question, concept Lee, but apply scale to it. You are servicing north of a million loans at Flagstar, is that still possible in that environment?
Lee Smith: (
Absolutely. No doubt it is right. I mean, there's a couple of things I'd say, first of all, we're, when you look at our model and what we're servicing, it's predominantly performing loans, right? We don't hold ourselves out to be a special servicer. So, you know, the margins are very, very thin on performing loans. So you need scale just to be profitable from a servicing point of view, if you're servicing performing loans. And so I would argue you, you just need scale to be profitable. The other thing though is when you are servicing loans, and I think this is what has been overlooked for so long, you have so much data on those borrowers. How can you leverage and utilize that data using various data analytics and predictive modeling you, you are at a massive advantage.
Lee Smith: (
So I would say the servicer ultimately has a big advantage in understanding borrowers' habits to what they're likely going to go and do next. So if you can couple that with origination capabilities or other, capabilities, because it doesn't have to be a mortgage, there are other products that you could sell. I think you are at a big, big advantage, so it really starts with having that servicing database of borrowers, and then there's a lot you can obviously, and ultimately do with that. It just hasn't been sort of approached like that up to this point, which is why you have the fragmented mortgage market and you have, a smaller servicing and subservicing market, but servicers in a lot of instances that don't offer originations or other products to the borrowers. But I do think it's changing. And I do think that as we digitalize, the market, you're gonna go, you're going to start to see more and more people scale up on both sides in order that they can do everything.
Courtney Thompson: (
Love it. So, Dan, back to you on this understanding the utopia that you described, but let's put your hat on, right? You outsource subservicing, in your current role at your current company. What is fair to expect? I know that there's a lot of subservicers that attend this conference. And they're thinking, how do I in the wake of COVID 19, enhance connectivity with the humans that are the consumers in my process on behalf of my clients. What are your expectations there, thoughts there, being on the, the more origination side of this coin in terms of the subservicers that you deal with?
Dan Catinella: (
Yeah, I think, we, we obviously rely today on our subservicers to really create that customer experience, from the time that customer completes the transaction to the time that they're ongoing making their payments, downloading tax documents and all the other things that customer interacts with, regularly within that life cycle. I see a shift where lenders are going to want more and more control over those experiences in the future. I think when it comes to customer experience, those originators really need to be in control of that end-to-end customer experience. So I, I see a shift where lenders are starting to invest more and more time, really focused on how they can really control that experiences and really build integrations with these subservicers. Especially if you have multiple subservicers like Finance of America deals with today. You know, each of them have unique experiences and you got to create some consistency for your customers to make sure that you can engage them in the way that those, those lenders really want to engage their customers well after that transaction.
Dan Catinella: (
So I see it as a partnership, really making sure that you can build close partnerships with those subservicers today, and really ultimately, work together to really solve this problem that the industry has. And ultimately that's regardless of how many subservicers or what subservicers really build those partnerships, that the lenders can really start to take control of those digital experiences, not only through the transaction, but well after the transaction. And use, like Lee said, use the data to make sure that you're giving the customer the right advice, well after the transaction, and you're able to surface different opportunities for that customer long term. I mean, just in the education and financial literacy, if a customer's got student loan debt, if it's a first time home buyer, if they got poor credit or they got more high interest, credit than they ever had before, making sure that we understand that customer's profile, keep them into the lender's digital ecosystem well, after the transaction, and make sure we can service opportunities so that we can help that customer, meet their financial goals. Not necessarily just sell them additional products, but give them advice and really put them into a financial wellness and help that customer well after that initial transaction with the lender,
Courtney Thompson: (
That makes a lot of sense. Oh, go ahead, Ed.
Ed Fay: (
Again, I think what's going to have to happen is as refis start to slow down, again, we have to develop closer relationships between your subservicer and the lenders. I think that a lot of those things are for the last few years, it's just been, Hey, where can I get the best price, not where can I get the best service? And again, then some of the ancillary services, like I'm talking about where we're live transferring customers, again, that takes manpower. It takes resources overall, and again, it goes back to coupling that with the data and with the digital, it it's expensive to do those things. And as Lee mentioned, it's a low margin business, and originators really have to start to think how they want to interact with their servicer, what services and fees they want to pay to basically make it a long term relationship. And yet I do think they'll have a change in the dynamic over the next few years over just price to, Hey, what can I get additional? What can I pay for to have more data, to have more research, have people calling my customers, talk to them about us? So again, people have to start having those conversations with their subservicers as it will make a big difference.
Courtney Thompson: (
It's it's crazy how picking up the phone is still a way that we really, really should be connecting with humans, despite the digital age.
Ed Fay: (
It has to be a combination for sure.
Courtney Thompson: (
Now we only have seven minutes left here. And I want to take a deep dive into where in technology is the answers or do they exist in technology today, but I would be remiss, being the nerd that I am not to bring up the implications of the connectivity of these two processes from a regulatory perspective. If anybody read Chris Whalen's editorial yesterday in the National Mortgage News, very compelling words, which I won't repeat in this forum. What of that, right? In an environment where maybe the actual technological solution doesn't exist, we don't have this utopic end to end profile of the consumer from a financial perspective. What are the dangers, or are there dangers, Ed, Lee, Dan, by suggesting a best solution to a consumer to keep them in your pipeline when really a more affordable solution or, one additional fact that you don't have about that consumer can dictate whether or not you made a good decision in guiding them in direction A or direction B?
Dan Catinella: (
I'll start. So I think when it comes to giving customer advice, I, I still do truly believe that that is where the mortgage advisors play the most critical role. I think where a lot of our focus is, is making sure that we use the right data to really understand that customer's profile and where we may be able to suggest different aspects, but really you got to, you have to have that human connection and that discussion about what their, what that customer's financial goals are. And those aren't those typically aren't things that you're going to put in a 1003 application and different data points through the transaction. So, we look at it as, as, as how we can make sure that we're using data accurately to make sure we're surfacing the different relevant touch points with a customer through that complete end to end journey and making sure that we're giving our advisors as much data as possible so that they can make suggestions on how they can help customers meet their own financial goals. But we do believe that is where the human element comes in and trust comes in. Digital tools can certainly suggest different avenues, but when it comes to really analyzing somebody's financial goals, and making those really important life critical decisions, we believe that's where our mortgage advisors, come through. And, that's where they're most valuable for sure.
Courtney Thompson: (
And Ed or Lee,, anything to add?
Lee Smith: (
Yeah, Courtney, I actually think that technology and the digitalization of the mortgage servicing business can actually help from a regulatory point of view, because I think you can use the data to prove that you're doing what is in the absolute best interest of the borrower. I think it's much more easy to do it with technology versus when you don't have that and you're relying on a conversation and then a bunch of paperwork from sort of three years ago. I think what's interesting to me from a technology point of view as we think of this conundrum is if you look at mortgage, there's actually very few LOS systems, right? You've got kind of two or three that dominate the industry, and then you've got people that will have a proprietary system. And then if you look at servicing there's one major platform and, and maybe a couple of others that are a bit smaller.
Lee Smith: (
So trying to do a, a full end to end is difficult, right? Because you've got these vendors, big vendors that kind of either have the loan origination system or the servicing system blocked off. What you're finding now though, is you've got fintechs that are coming in, they're finding pieces of the puzzle that they're able to improve on. And so they plug in to a certain step along the journey. And we are working with a couple as you know, Courtney, but it still doesn't facilitate an end-to-end solution. And I think ultimately that's what we need. You know, we need someone to kind of throw everything up in the air in terms of what we're doing today and be able to come up with an end to end solution that starts with the origination of the loan and, and continues with the servicing of the loan. That's the challenge. And at the same time, everything that we do has got to be saleable to the agencies or Ginnie Mae because ultimately if you're originating a loan, that's the threshold, are you originating something that's saleable?
Courtney Thompson: (
Absolutely. Ed, do you have final thoughts on this?
Ed Fay: (
Really what it comes down to, I'm going to go back to your, the regulatory part of your question. You have to use your technology to put in guiderails. Again, if you don't have those rails, you will not survive in this environment. I'm a nonbank servicer. I have 50 states, 14 municipalities, five territories, and the CFPB as regulators, they look at everything. So again, if you don't use those guide rails for everything you're doing, it it's really dangerous.
Courtney Thompson: (
Awesome. Well, we are just about out of time. Lee, Ed, Dan, thank you for sharing your perspective. I think that this is a really, really interesting topic. I think that it shows us that we've come a long way, but we've got a long way to go. And, you know, from a tech provider perspective, I hope you've heard this. I think that there's a lot of unsolved opportunities here where, the right company could really come in and, and help the mortgage servicing, mortgage origination and the convergence of these two industries along the way here. Thank you for everyone who's watching. And I know these three follows are on LinkedIn. And so if you have any other follow up questions with them, that's where I would hit them up. Have a great afternoon.
Dan Catinella: (
Thank you. Thank you all. Thank you, Courtney.