Track 4: Are instant mortgage approvals a dream or reality?

In a world of direct-connected income and assets, loan approvals should be instant. But those profiles still must be underwritten, and GSE AUS only gets you so far. This panel will discuss the state of digital underwriting, what it does beyond DU/LP, how it fits into the POS and LOS, and how it powers smarter purchase market execution for lenders. 

Transcription:

Announcer (00:06):

Hi, everyone. Welcome to the last session of this track, and what will be in between here and happy hour drinks. So, we're almost there. we're gonna talk about, our instant mortgage approvals, A dream or reality. I like to welcome, Kevin Kauffman from Freddy Mac, who will be moderating this up on stage, and he'll handle it from here.

Kevin Kauffman (00:54):

All right, so good evening. It's officially evening now at this point. And, thanks for joining the session. I can tell you my name's Kevin Kaufman. I head up client delivery for Freddie Mac, client delivery and, engagement as a whole. And what that means is all things related to how we interact with the entire mortgage ecosystem. So, lenders, servicers are technology partnerships and alike. And so I've had the great pleasure over the past two weeks of getting to meet these folks here. And I think we have a really good session and we'll start with some introductions. Shane.

Shane Osborne (01:33):

Hi, I'm Shane Osborn. I'm the director of Corporate Efficiency for Hallmark Home Mortgage based out of Indiana.

Sara Knochel (01:38):

Hi, I'm Sarah Nakle. I'm the head of candor's Data and Analytics division at Candor Technology in Atlanta, Georgia.

Laurie Duda (01:46):

Hi, I'm laurie Duodo and I'm Vice President. I'm over underwriting, post-closing and servicing. Glad to be here.

Kevin Kauffman (01:53):

All right. So, instant mortgage approvals, dream or reality. I think from my perspective, I'll just start by saying the digitization of this industry has come so far, and so I think those of us who remember actually working with paper files, and, and pushing different color, files themselves and red was a streamline and green was potentially a HeLOCK and what everything meant, but where we've gotten to today is something that is far different. So that digitization of the mortgage process has really taken us to where we are and the next steps that we want to get to. So I'm gonna ask some questions of the folks here. And, so with us getting closer to the digitization and the automation, the key parts of the mortgage process, what are your organizational goals? And we'll start with you, laurie.

Laurie Duda (02:48):

For us, So when we, was considering the, automated underwriting, it had multipurpose, it was about, streamlining, increasing production and, as it grew automating, from the beginning, getting things moving quicker in our systems to move faster and, accuracy was really important.

Kevin Kauffman (03:13):

And Sarah.

Sara Knochel (03:14):

Well, originally Candor's goal was to create a high quality, consistent automated underwrite. But now that we've invented a computer that can do that, we've realized that, the other benefits it provides are multiply the closer you move it to the borrower and the POS space. And then also it benefits, secondary marketing activities as you move it backwards into post-close QC and due diligence. So we're really just expanding our footprint and taking that capability to the front and to the back.

Shane Osborne (03:46):

For us, it was a multitude of things. First believing that auto underwriting could be automated in general, and then what did that mean to us as an organization? Cuz I'll be honest with you, when you start approaching it is very adaptable to where you want to make it best for your organization. For us, it was the cycle time. Why, how can we possibly get and be more competitive as far as application to closing? for us too, the ebbs and flows that we go through in this industry, I mean, we're in a huge downturn right now where unfortunately there's people that are facing loss of employment. You're looking at your staffing models every 60 days, wondering how you're gonna be able to make it work. And with automated underwriting, you can handle those ebbs and flows a little bit easier because it takes less human bodies to do the job. Now does that mean that you're going to lay off a bunch of people because you chose automated underwriting? No, but you be able to utilize those resources in other areas and maybe tap into someone else's skill set in a different area. And obviously the cost to originate, I mean, it's higher now than it's ever been. So my job as the director of corporate efficiency is how do we do it the most efficient way and at a lower cost? And the automating underwriting model has really helped in multiple facets of the business.

Kevin Kauffman (04:59):

Yeah, and just to add, so I mean, with LPA as a product and, and being at the forefront and Freddie Mac's flagship product, and it's been out for, 30 years at this point. I think when we look at it, that evolution from what technologies and how they've been created over that time to where we are today, the objective is to reduce steps in the process to try to minimize cost, to reduce risk. And those are the things that we look at of leveraging technologies. But those things all come with barriers of adoption. So all of you who have ever tried to implement any piece of technology that's gotta come with some sort of barrier. And so I think if we start with you, Shane, what are some of the barriers that your organization has run into?

Shane Osborne (05:46):

The biggest barrier for us was the buy-in of the organization because it creates fear, but it also creates a lack of trust. We as an industry have always worked together as human beings to bring together a whole process. When you start automating some of your processes, your salespeople especially, they like that human interaction to be able to say, Well, I want to call my underwriter and ask questions. Well, the way we've approached it and we're able to overcome that in that trust factor was really pitching it as you have an underwriter, they're just in your laptop and you can resubmit it as many times as you want and be able to get the results that you're looking for. So, definitely from an organizational perspective, it was the buy-in and getting people to understand the why behind what we were doing.

Kevin Kauffman (06:29):

Laurie, what about you?

Laurie Duda (06:31):

For us it was, first of all, getting the product introduced correctly. something like this was so important. We did not do this companywide. We started with a test model with, one of our branches and, worked from there. The candor team was really helpful in the weekly meetings, to, answer questions as we were adapting to it. This system has been amazing as it is because of the steps we took to integrate this step by step, branch by branch, and getting everybody comfortable with it, being able to ask all the questions. We had, group chats, things like that so we could immediately answer questions, immediately. Of course, our underwriters were resistant. And this is not about replacing underwriters for our company, it's about giving them the opportunity to increase their productivity, double, triple, quadruple what they do in a day more accurately. And so embracing candor and owning it, understanding it's a tool and one of the sayings that came by my way was that they wanted to make the underwriters field bulletproof. And really that's part of it because of the quality of, of the automated underwriting system. So, it has been very successful with our company because we didn't just plunge everybody into it. We took it step by step and, made sure everybody really had a full grasp and a buy-in and felt comfortable with the system.

Kevin Kauffman (08:00):

And Sarah, so you get to see it from a lot of different views. We heard two of them, but what are some of the others that you hear?

Sara Knochel (08:05):

Well, Shane and laurie's experience are very common from what we see with our clients. but what I would add to that is what we typically notice is that first there's a phase of learning to trust our underwrite, learning to really rely on the quality. And then when that phase is over, the fun part starts. And that's where businesses learn to exploit that technology and to remake their business model in ways they never thought possible before. And that's really been one of the most enjoyable parts of working at CANDOR, is seeing how our clients innovate once they get beyond the trust and they start to get creative.

Kevin Kauffman (08:40):

Yeah, and I'll say all of these things are about creating a better manufactured loan. And we had this conversation a couple times and it's, it's that the bulletproof comment is a really good one. I mean, so from being the investor, being a GSE, that's something that we care about. That shared risk is something that we discussed of all of us play a role in the industry of that shared risk and how do we look at it and what seat do we sit in and brings? What lens do we actually look at what our risk is? And so these are the types of things that you don't want to hear back from the investor after you've sold that loan. And if you look at tools that's a really big piece. So I think whether it's investment, whether it's, what's been key to what's been really instrumental to you getting to this point? We'll start with you again, Shane.

Shane Osborne (09:33):

I think the biggest things that have been instrumental for us is being able to adapt our process to a new concept. We have completely redesigned the way that we manufacture loans based on this automated underwriting because as she said, it's very innovative when you start thinking about you take out the ping pong effect, you take out the process or bouncing the loan back and forth 15 times to an underwriter because they have questions or they're not sure if the documents the right one. So what we've discovered is that the cycle times we've discovered that the cost to originate is lower. We've discovered that the post-closing department is more productive because they're not spending a bunch of time asking for additional information cuz the investors are buying these loans on first looks without any quality issues from an underwriting perspective, it's just a multitude of things. When you can take your purchase transaction and go from an average cycle time of 37 days to 20 days, what does that mean for the organization? And it means that people are more productive, people are able to get more done, and the borrower experience has improved because the human interaction with the borrower, they have more time for it. They don't feel so much pressure because they're able to interact better.

Kevin Kauffman (10:36):

That's great. Laurie, what do you think?

Laurie Duda (10:39):

The innovation for us is, several things. first of all, we were overwhelmed with the results, the positive results, and it was a total buy-in on our executive staff. And, so they immediately implemented this. When you have, your credit and your Aus can or auto runs up front, we want that process starting as early as possible. So the first person that touches the files has the conditions and it just, it speeds the process up. the other option was, we went from, a very competitive, the volume was so high it was hard to the staff up. So now rates are high, it's a little different. inventory's low. So, we developed a cash offer product based on our candor, system. And it just really equipped the LO's with a completely different tool. Iots of brave reviews, from, Los stating they have relationships with realtors. They wouldn't have had an opportunity to get just a lot of positives coming from it. So for us it changed both from the front end, the initial, credit pull all the way to creating a new product. so definitely it affected our business for sure.

Shane Osborne (11:54):

Yeah, and I'd like to add one thing to that, laurie, is we have been able to go out to the market, especially for some of the newer loan officers and they're able to walk into a realtor's office and say, I'm not just gonna give your buyer a preapproval where I've calculated their income and I've made sure they work and that type of thing. It's actually a fully underwritten conditional preapproval. And the sales people are all over that because that buyer is going to be more appealing to either the realtor or the seller because they can say to the seller, This person already is approved or all they need is the appraisal title and homeowners, and they'll be able to close that loan. S,o it gives you a competitive advantage in the market. And right now it's very competitive. I mean, it's hard for the sales people out there right now.

Kevin Kauffman (12:39):

And I mean to those points I'll say Freddie Mac did a cost to originate study at the end of 2011. And this is something we look at as as valuable. You've seen several different studies on the market, but we get a true sense of data input. So from date of specifically looking at loan being submitted to LPA to loan being funded. And so what I can tell you is what we have identified is we've put lenders into three different types of buckets and those three different buckets that you look at as small, medium and large, and how are they originating and those who are originating, leveraging a maximum optimal state of leveraging digital tools with a change in behavior. And I want that statement to really sink in for everybody is you don't buy a new tool and put it into your existing process. And, we talked about this last week and the idea here is you, you have to change your behavior and leverage tools in a way that's going to allow you to get to a new state rather than we've always done it this way and we have to do it this way tomorrow. And so as an ex underwriter I can say it's like, I was trained how to be an underwriter by an underwriter. And so we did all of these steps, but the idea is we're at a point in time now because of the digitization that allows us to look at things so dramatically different that you can say, we can highlight a piece of information that is critical and it's exception. And I can look at the exception versus just really focused on the whole picture. It's leveraging tools to tell me what is wrong and why. But that's a behavior change. And it goes beyond just your seat. You have to carry that conversation back to your operations and make sure people are really looking at it. It's not to minimize their jobs, but it's actually to enhance and as you said, it's supporting them as as underwriters. And so, we'll jump a little bit ahead here. we got some time. And so what I'll say, what I'll ask is what's the most valuable outcome from investing in technology? And Sarah, I'd love to hear from you of what you see.

Sara Knochel (14:46):

Well I would say what we primarily invest in at CANDOR is quality. So boast, laurie and Shane gave examples of innovative products where they will give a cash offer to a borrower. They wouldn't do that if they didn't trust the underwrite no matter how fast it was being done. So at candor, no matter what products and services we offer, we always have to have an underlying level of quality. And so, I'll tell you a little story about how the company was founded. Our founders, two of our founders, Tom Show, Walter and Mark Shaw actually have a background in forensic audit. They spent many years after the meltdown looking at bad loan after bad loan come through and they literally said to themselves, There has to be a better way. So CANDOR wasn't founded with any goals around cost reduction, speed increase. It really was just can we make a safer loan? The funny thing is once you invent a computer that can do a high quality consistent underwrite with low risk, you get all these other benefits cuz it's, that's such an integral piece to the entire loan making process from what happens in borrower experience all the way to what happens in the secondary market. So we invest in quality first and foremost.

Laurie Duda (16:03):

And with that, the key point that really sold us was they ensure. So, that's how much they believe in their product. So when it's, candor cleared is candor insured and that's why we've seen such a huge, benefit on the back end. Not only do loans go through with little to no conditions, they move faster, they're off our warehouse line in a week or more faster than they were before. So imagine the cost savings that alone and that was the huge, aha moment for all of us once we really continue and we still continue to analyze these numbers. But yeah, it's great you guys ensure, what you sign off and approve. So that's huge for us.

Shane Osborne (16:50):

Yeah, and I think for us, speaking to what Sarah is saying, when you can have a level of trust of a quality loan package, the impact that that can have on your organization, I mean you're talking about increasing your profitability, you're talking about reducing turn times, but at the end of the day, there's a comfort level that has come with us with working with the automated underwriting and knowing that if it was automated underwrite, it's solid, it's unbiased, it's, I could put the same loan in front of two of my underwriters and the output would be completely different because there's that feel good that always comes with underwriting. I mean, I've been in underwriting for 25 years and I'll be the first to admit it. If I don't like the way something looks, I'm gonna ask a question about it. Right? This eliminates all of that. And that too in turn gives your processors of comfort level and a level of trust because the one thing that has come out of it is I like candor and I like the automated underwriting because I know what's going to come out every single time. There is no question about what the conditions are gonna be. And they're very concise, they're well written, they're easy to understand, you're able to present it to the borrower and make it borrower facing without worrying about an underwriter writing a chapter of, I need this, this, this, and I need this because of this. So you just start to see, and it's a trickle down effect and it starts to affect every single department. And at the end of the day when you can manufacture a quality purchase transaction in 20 days with no investor conditions and you can get it off your warehouse line in seven business days, that's a beautiful thing.

Kevin Kauffman (18:21):

So let's stay there. Let's, talk about some of the success that you're seeing and just stay with you, Shane. Just hit, what are some of the big items that you've seen from the success standpoint that you've achieved?

Shane Osborne (18:31):

The number one is the cycle time, and the number two is the profitability of those loans. But the number three is it's given us more of a competitive edge and it's more attractive to our internal staff because it's kind of built some trust levels and departments where people didn't trust each other because human beings by nature don't trust each other. They don't have to worry about that. So I mean, from a cultural perspective it has helped tremendously as well.

Kevin Kauffman (19:00):

laurie.

Laurie Duda (19:02):

You talk about the number of days and so forth for us, I mean, think about it. If you've got your automated underwriting, you've got a PIW or your appraiser can , it's your, your timing on your loan is based on title and appraisal. And so, we can do 10 day loans. I mean, isn't the goal everybody's after a seven day, this, that's the competition right now. Everybody wants things so quickly. So it does allow us to, get things moving a little bit quicker by having that run up front. everybody knows what's needed quicker and so they can start working on the file before it gets to underwriting, waiting for those underwriting conditions prior to that. And, they had to wait for the underwriter to send it back over. So, for the branches it starts in their systems first, which gives the branches a lot more control. So, yeah, there's a lot of, wonderful things about it. I had another thought and left my mind, but Yeah.

Kevin Kauffman (20:02):

Sarah, what do you, what else do you see? what are some of the common successes?

Sara Knochel (20:06):

Everything that Shane and laurie have mentioned, some other things I've heard, some of our lenders have created what they call a candor certified loan. And what it is, when they first run candor, if they get a favorable result back, they will tell the borrower, We'll pay you $3,000 if we don't close your loan in 15 days. I mean, talk about, a way to keep your borrower from shopping around or going somewhere else. So again, our lenders are just being really innovative with their business. yeah, it's just a great thing to see.

Laurie Duda (20:41):

We, do the, on our offer letters, cash offer, preapproval, either one, we'll pay the seller $5,000 if they don't close.

Sara Knochel (20:49):

See, and this is what I mean about innovation, like not the borrower or the seller.

Laurie Duda (20:52):

They have to win they're out there in a very competitive market to win the bid. My other thought was like, I, remembered, so I've talked with different people about automated underwriting and they said, well, why were you even interested? Or what makes a difference for you? Don't markets change? And I said, Well sure. When we first were looking at considering it, we were, in just a huge onslaught of just so many loans and not enough underwriters. So sure we were looking at it to see how this would make us more efficient when the volume's so high. But now it's even more important because rates are so high we can't have an error on the back end. I mean, it's just, it's very difficult to get those files, in a costly manner corrected if there's been a mistake in it closed, with that mistake in error. So, it's even more important now because the quality they offer in a difficult market with rates. So, our loan has to get it done correctly the first time for sure.

Sara Knochel (21:51):

I'm gonna add one other thing that laurie just reminded me of. Normally in a downturn market, when lenders have to look at how to cut costs, the only tools in their toolbox are eliminating people and other things that they have to pay for. What we feel like is we're able to provide them a new tool in their box, which is capture, market share, which takes you out of the panic mode and instead into the opportunity, and the growth mode. So we just, we love being able to do that for our clients.

Kevin Kauffman (22:24):

That's great. And I think one thing that we, we can talk about, and this is a common worry, we've probably sat on one side of the table or another at different times in our careers and looked at technology and its application to replacing humans. And so, definitely interested, I think we have some different views here, whether it's intentional, unintentional, but the idea of of technology is to make it easier, right? But at the same time, can you do more with less? Can you do more with the same? How, how does that look? So Shane, let's start with you.

Shane Osborne (23:01):

I think it's both sides of it. It just depends. you definitely can do more with less, but do you want to do more with less or do you want to be able to give the people that you already have the tools to do more, do it faster and do it cleaner? And I think that the digital mortgage age that we're in, and where I see it going is more and more adoption of what candor has to offer, whether, and it's not just the underwriting piece, it's the QC piece, it's the appraisal piece, the document readers that are out there today. I mean, think about it, 10 years ago that wasn't even a thing. There was no system that could scan a document and tell you whether it met guidelines or not. And now there is, I foresee in the very near future that there's going to be a platform that's very similar to this for appraisals because it's all digital information. And if you can scan a document and something can read the information, then it can spit out. I mean, algorithms play into it. I mean, there's a million things that I think are coming our way and I, our company, while we are small, we are embracing it because you certainly don't want to be sitting on the back porch. You wanna be on the front porch and you wanna make sure that you're up to date and that, a lot of people have said to me, You guys got into candor very early, aren't you? A little bit nervous about, the sustainability of this product and so on and so forth. I said, No, I was not in the lease bit concerned about that because I think there's going to come a time when your AUS system and their system will work simultaneously and do what we're doing today simultaneously. So my recommendation for those that are really interested is to get in now and get a good understanding of it so that you are at the foundation and help build it when it becomes global because it's going to come global. It just is.

Kevin Kauffman (24:46):

Sarah.

Sara Knochel (24:48):

This is just my theory, but, I think the difference between the different kinds of technologies you can pursue and whether or not they actually are transformational for your business has to do with whether or not you're buying a widget that you're sticking on your existing process, or if you're buying a whole solution and platform that lets you completely remake your process. So it truly is the definition of disruptive, and I think that's what we have created here. And, I'll leave you at that, laurie.

Laurie Duda (25:18):

No, he was just talking about the different, things that the system does. It just, it does amaze me. I mean, a handwritten boe, it calculates my income off a handwritten boe. I mean, that's just, that's pretty amazing. and all the investors, accept and just flawlessly go through, we send over the income worksheets that the system offers us. So, again, the biggest compliment has been our investors, that we do business with have said, what is going on like the last three, four months? because we're really up and running this year. We can't get over how clean your files are. You're, they're just looking amazing. So when somebody else is recognizing your success, that's huge. without us sharing anything that we're doing, they just, they saw the difference.

Shane Osborne (26:02):

So yeah, when they're calling you and saying, Your first pass rate has increased by 35%, what are you doing? Everybody wants to know what's happening because I mean, that's unheard of for it to happen that fast.

Kevin Kauffman (26:12):

And we love a great quality loan at, frankly thats what we want. Right exactly. So a couple minutes left here. I just wanted to ask, just, in general, just if we can start just Laurie just with you, if you want to just, what do you see the digital mortgage outlook for the next few years given the state of our industry today?

Laurie Duda (26:33):

I think, more and more we're gonna be implementing, I mean for us, we're looking at, the front end from the point the loan officer takes the application. Our goal is to have that file go directly to underwriting with the communication you can get with our systems, with the emails and confirmations to the borrower and what the docs are needed and how amazing would that be and how quick could that be? And that allows us to look at something clean, everything's uploaded, the systems have read everything. We can, analyze the documents we need to analyze, send back an approval, hopefully that is ready to close, if not the items we're waiting on. So, that's, for us, it's getting everything, from the front end on as automated and clean as possible because, that's where we see the holdups is, a physical person not like moving that file from step to step to step. Why, what's that hold up? So alleviating the different hands that touch it and the automated systems that can read the documents, request what's needed, they're sent back, read, uploaded, you're in underwriting, so for us it's definitely on the front end.

Kevin Kauffman (27:41):

Shane.

Shane Osborne (27:42):

I think for us it's the front end, but it's also the middle, simply because I think laurie just touched on it a little bit. When you've got somebody sitting with 40 loans in their pipeline as a processor, for instance, and they have all these callback dates set up and all this follow up that they have to do. And now with modern technology, their bots and plugins that can send automatic reminders because the borrower hasn't uploaded their documents to, we use total expert. And it automatically sends a notification, You're three days behind, we've asked you for this three days ago, here's a reminder for it. And again, what it does is it gives the focus on the total loan package, because the more automation that you have and the more digital communication that you can have, that frees up the human being to use their mind to focus on the finish line. So as much automation as you can build into that without taking away jobs, the better off you're gonna be.

Kevin Kauffman (28:33):

That's Great. Sarah, what do you see?

Sara Knochel (28:35):

I keep using this word, but it's quality and, for us at Candor, the future is taking quality both to the front, the middle, and the back. So we're heading the POS, we're heading the post close and due diligence. We've got new loan products coming and, all kinds of analytics, that are also gonna be developed.

Kevin Kauffman (28:57):

That's great. And from Freddie Mac's perspective, I can tell you is we look at data standards across the board. One of the things that we're focused on heavily right now is the affordability and sustainability, of the mortgage market. And so as we look today, it is a very unaffordable market. So what we ask for is everybody's partnership from being a lender, from being a technology provider, is to find unique ways that we can drive down cost to originate, and how do we pass that back onto the consumers? So the one thing that all of us have in common is we're all consumers. And so when we look at it, it's, we're trying to help a group of consumers who need it the most, and we're gonna focus on that to help drive our mission. And we ask for your help in achieving that. And so with that, I just want you to, to think through that. And remember, this is about changing behavior. This isn't about implementing technology alone. You have to change your process and you have to get to that point where you've accepted it and you're looking forward. So with that, I will welcome you to join us. We, the four of us decided we were gonna buy you drinks next door here. And so we, we welcome some conversation and hopefully get a chance to talk to you then. So thank you to our panelists and appreciate your time. Have a great day. Thank you.