Lykken on Lending

The first half of the Lykken on Lending program will feature our Weekly Updates….to read more info about our regulars and weekly updates go to our website!

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Weekly Updates with Alice, Allen, Matt, Les, and Rob

Welcome. It is Monday, March 21st, 2022. I am in Miami at the Mortgage Collaborative Conference. It’s a great conference. We’re enjoying so many meetings and already seeing so many friends. I encourage you to check out The Mortgage Collaborative. These conferences are so beneficial to lenders. This show is created by mortgage professionals. It is for mortgage professionals and we’re so grateful to have you as our reader.

Our commitment is to bring you timely information in a format that you can read anytime and anywhere. I’m so excited about our Hot Topic segment. We have Lori Brewer, a good friend, formerly the Owner of LBA Ware, which was acquired by SimpleNexus. I encourage you to go back because we did an interview with Cathleen Schreiner Gates. I love Cathleen. She’s an amazing leader and has done so much already for our industry.

The thought of both her and Lori together, you’re going to want to read the Hot Topic segment. Lori gets into some of the exciting things that are already beginning to happen as a result of the acquisition of LBA Ware by SimpleNexus. Read the Hot Topic segment. A thank you goes out to Industry Syndicate. Check out all the podcasts at IndustrySyndicate.com. They promote our show, as well as some of the top leading podcasts in the nation.

I want to say special thank you to our sponsors, the Mortgage Bankers Association of America, as well as Finastra Fusion Mortgagebot Solution. Experience the power of a fully integrated approach to mortgage lending that simplifies the borrowing experience and streamlines the process for employees. Also, the Lenders One conference in Phoenix was great. It was well-attended and there was so much information.

Also, we have The Mortgage Collaborative, TMC. Go back and read the interview with Rich Swerbinzky on February 7th, 2022 that I did. Also, we have Total Expert as the sponsor. Thank you. Knowledge Coop is a sponsor. They do a great job as a learning management system. Check out their new release on April 1st, 2022. Go to KnowledgeCoop.com. Also, Mobility MI, Mobility Market Intelligence and Modex. Both these sponsors do a great job of helping you recruit top LOs and giving you intelligence about what goes on in the market. Be sure to check these companies out.

Also, we’re thrilled to have Snapdocs as a sponsor. They help lenders overcome obstacles to adopting eMortgage technology. Also, SuccessKit. I love what Julian Lumpkin and the group are doing. Check out the interview we did with Julian on January 10th, 2022. SuccessKit.io. Also, I want to say a special thank you to the Lender Toolkit.

We want to thank sponsor PennyMac TPO. Go back and read the interview with Kim Nichols on November 1st, 2021. I also want to say thank you to FormFree. Finally, a special thank you goes out to Debbie Wemyss at the DW Consulting Group, helping people with their LinkedIn profiles. Finally, I want to say a special thank you to Rob, Les, Alice, Allen, Matt and Jack Nunnery, who’s going to take over the show for me at this point. Thanks, Jack. We’re cohosting.

You’re welcome, David. We can’t wait to get you back. We want to hear about how you did race Ferrari in Las Vegas and your time in Miami. It looks like David has a wonderful life traveling around the country doing some exciting things. We can’t wait to hear about it, David. Let’s get into the segments and here is Rob Van Raaphorst in the MBA Mortgage Minute.

Welcome to the Mortgage Minute and the latest news from the Mortgage Bankers Association. The Senate Banking Committee advanced the nomination of Sandra Thompson to be FHFA Director. MBA President and CEO Bob Broeksmit released a statement applauding the Senate Banking Committee and noting Thompson’s experience, including his acting director and knowledge of the real estate finance industry and how it will serve her well as she continues to lead FHFA. Broeksmit called on the full senate to quickly confirm her nomination. That’s it. Thanks for joining me.

Weekly Updates: The Senate Banking Committee advanced the nomination of Sandra Thompson to be FHFA director. MBA President and CEO Bob Broeksmit applauded the committee’s choice.

Thanks for that update, Rob. Always lots of great info in Rob’s MBA Mortgage Minute. Let’s go to Les Parker with the TMM spotlight and macro view of the market.

They felt Putin’s mistake in those times when China played on hate. Ukraine kept marching on. Oil, the dollar, stocks and bonds suggest that the Ukrainian situation gets resolved with modest damage to growth in advanced economies. Meanwhile, Goldman Sachs sees a 33% chance of a US recession in 2023. The Fed’s steadfast willingness to slow inflation strengthens the dollar and treasuries. It is hard to justify mortgage rates going much higher without stronger growth. Right or wrong, never fight the Fed but the market’s always right. These views are my own. Take the right step at TMSpotlight.com.

Thank you for that update, Les. If you’re interested, go to TMSpotlight.com to subscribe for free. For Les’s newsletter, use the word Power for the free subscription. We’re going to go to Matt Graham with a mortgage rate update. Matt, the Founder and CEO of MBS Live, with his Mortgage Market Updates. Thanks, Matt.

Thank you, Jack. This might be a little bit quicker than normal because markets are going fairly crazy on fresh newswires from a Powell speech. Powell expanded on the press conference and said the announcement by saying that they expect to begin reducing the balance sheet at the coming meeting over the next three years. It’s still unclear when Powell says at the coming meeting whether he’s referring to a coming meeting or the coming meeting. If it’s the coming meeting, that would be in May. If it’s at a coming meeting, we’re talking about June probably at the latest. This is an important narrative for the bond market and stocks as well, for that matter, because it is a lot faster than anyone expected.

Back at the end of 2021, a big factor in the rising rate environment in early 2022 was this adjustment process to a faster normalization timeline and that refers to the Fed shrinking the size of its balance sheet. They wrapped up taping. With the announcement itself, we got the rate hike that we were expecting and we had actual explicit mention of the normalization process at a coming meeting which was pretty intense for a Fed policy announcement and probably more than most people were expecting.

Powell doubled down on that in the press conference. The press conference didn’t add to the market weakness. The weakness came primarily on the dot plot of rapid acceleration in the pace of the Feds rate hike outlook. Every Fed member or that medium Fed member sees a rate hike at every single meeting for the rest of the year.

Even before this Powell speech, we had an additional 25 bits of rate hikes priced in. That meant a hike at every single meeting plus one of those meetings would need to be at a 50 basis point hike. After Powell at a rate hike, Fed funds futures are accelerating further and we’re getting close to two 50 basis point hikes. This is all in the name of the Fed trying to get back on the right side of its inflation-fighting mandate. They feel like they were caught flatfooted by inflation long ago as in the 3rd or 4th quarter of 2021. Post-Ukraine, things have gotten even worse and they feel even more desperate to try to get back onto the other side of things. As Les mentioned, that’s leading to some calls for recession.

We’ll see what we see as far as that goes because the Fed will change course if it looks like we’re headed there and if it looks like inflation is calming down. No matter what they do to the economy in terms of growth, their prime directive is to get inflation back under control to whatever extent they even can, considering that the demand side of the equation isn’t the whole equation.

Either way, the bottom line is the big shift inside the policy is having a massive impact on rates. It’s the fastest rate spike we’ve had since the mid-‘90s at this point. Rates are up another eighth of a percent, well over 4.5% for the average lender for a top-tier 30-year fixed scenario. That could certainly go higher before we find our footing. Also, at this point, little to do with Ukraine.

It’s damned if we do, damned if we don’t because on the one hand, if the Ukraine situation were to improve, bonds would lose the portion of their safe haven bid that they had due to the war. If the situation deteriorates, it puts more upward pressure on inflation implications and means they’re going to have to act that much faster to combat inflation. It’s not a great time to be a fan of low mortgage rates but the higher we go, the sooner we’ll bounce and then more ground we’ll have to cover the next time rates have a lower rate trend over time.

Matt, I’ve had a loss of words here and that doesn’t happen very often, a fast rate increase in many years. I was doing a little prep work for the show and I had my eyes off the news for a couple of minutes. When I looked up, I saw the equity markets had gone from about 140 down to about 350 down. I wondered what drove that news or reaction in the equity market. You explained that to me, Matt. Correct me if I’m wrong but it was thought to be into Q2, sometime Q3 beginning so the Fed is already intimating that that could start much sooner than August or September. Am I right in that, Matt?

For sure. August and September were probably a little bit late in the first place. There were a lot of people that were making that call and participated in a couple of surveys where people were giving their opinion on when that would happen. My initial guess was June, this was back in January but I would not be surprised if they did it at the next meeting. Unfortunately, I wasn’t listening to Powell’s speech as it happened. I’m reading a news wire from it and I’ll have to clarify whether he said at the coming meter or a coming meeting because that would be an important distinction.

A lot of the regional Fed presidents are going to be speaking individually so I’m sure the market’s going to be watching closely what that group has to say as they speak. Starting Wednesday and running through Friday, the regional Fed presidents are going to have an opportunity to answer a lot of questions, Matt.

It’s going to be another interesting week for sure. The best thing to plan on would be volatility. What we’re telling our clients on MBS Live is the higher rates go, the more the chances improve that we’ll see some bounce but we keep being set up for that and disappointed. We are waiting for the market to give us a solid indication of a sustainable meaningful correction before we change our strategy accordingly.

Thanks, Matt. To our readers, you can learn more about Matt’s great services at MBSLive.net. Use LOL as the signup code to get an extended trial and no credit card is required. Next segment up, Alice Alvey is going to talk to us about a legislative update. Alice, what have you got for us?

I’m going to pile on with not-great news. How’s that? We’re listening to the market update and it’s great to have you hosting the show Jack. Thanks. I’m going to focus on UDAP. Not that it’s bad news but to see what happens in these times is our regulators zero in on our ability as lenders to make sure that we are good at risk analysis and monitoring our fair lending and in this case the UDAP, which is our Unfair, Deceptive or Abusive Acts or Practices.

Our UDAP regulations which have been around for quite some time made the news with MBA that the CFPB is going to be starting to expand how they look at UDAP. One of the things to level set for everybody who may not be familiar with this regulation is although it does say that it’s intentionally to monitor the cause or are likely to cause substantial injury to consumers, our challenge is we all define substantial a little bit differently.

What do we consider to be substantial injury or an act that is reasonably avoidable by a consumer? When you read into the regulation and some of the areas that the CFPB has expanded on, it is an area that lenders need to make sure they devote staff and time to. This is the time when times get a little tougher. Agencies start looking at areas where they know that we potentially have weaknesses.

I always warn folks that the biggest area of weakness under UDAP that I saw during my consulting days was in the area of verbal and email communication. What is it that loan officers and processors are saying but also what is it that they are not saying? What are important aspects of a product as an example that should be communicated?

Weekly Updates: The biggest area of weakness under UDAAP is in the area of verbal and email communication. What are loan officers and processors saying and what are they not saying?

Are we leaving information out of advertising that is important in making sure the consumer understands the impact of the product? Those are areas that when you pile on that, we’re using very sophisticated algorithms as an industry to target our messaging, whether that’s email advertising. In particular, mostly our electronic communication or how we may analyze data for who is going to be getting certain types of communication. That’s the area that the CFPB has expanded in their manual that they will be looking at.

As you think, “This is great. I’ve got all these tools in my customer relationship management software and I’m using all these layers of services that are helping me dissect various leads and how to market to them,” you better make sure you’ve got a full understanding of your algorithms. On top of that, have written policies and procedures for how you are monitoring that they are not creating any disparate impact.

I wanted to point out that in the recent headlines under UDAP, there’s plenty to read that points you to exactly where it is the CFPB is going to be expanding its exams. I found a good write-up from Ballard’s where the law firm used a lot by mortgage lenders and they had a great write-up on some of the details as well as what the specific changes are. I recommend checking them out. That’s my report, Jack. Thank you.

Thanks, Alice. Let’s talk about that for a second. When you have many different people constructing many different emails, reaching out to different consumers across a very large and expansive market, the first thing that comes to my mind something that we used to do ostensibly is the first line of defense. What is the first line of defense for auditing yourself? It’s the business auditing the business.

The objective of that is to make sure that you do what the process says you should be doing at the point in time and the process calls for that to be done. Alice, as I think about this, it would be here where you would implement these preventative measures and compliance measures in your first line of defense program and make sure that you’re testing through your organization to ensure compliance with the UDAP reps. What do you think about that?

That’s a great recommendation. I would guess not a lot of companies have that. By putting something like that in place, you’re able to then build your metrics. When you first start doing it, you go, “How is this going to help me?” What starts to work is the data that you collect over time and then it also helps bring to light where you need to fill gaps in written policies and procedures for people that have a meaningful way to do the right thing.

I’m going to always throw in training in there because there’s a lot of coaching that folks need. It’s always amazing how much awareness of UDAP makes a big difference. A lot of people aren’t even aware of how far this regulation reaches into their very conversations day-to-day with consumers. What you’ve said is a great recommendation.

Thanks, Alice. If you are looking to expand on that for the readers, I always thought that if we audit ourselves and we do a good job of that and I’m in a frequent job of that, when auditors get in our shop, then they should be finding that which your first line of defense team has already found, cured and is monitoring for timely compliance. It takes away the surprise moments in an audit.

Maybe sometime in the future, we can dedicate some more time to a show to talk about the first line of defense and how to implement the first line of the defense program. Thanks, Alice, very much for the update. We also thanks folks at Union Home Mortgage for letting Alice participate in the show. Always great information. Thanks so much, Alice. Next up, Allen Pollack with the tech update. Allen, what do you got for us on the Weekly Tech Update?

Lots of cool stuff going on. Instead of a funny joke or some bad dad joke, I’ll talk about two great binge-worthy shows that you need to check out on Netflix and Amazon. These two that I’m going to mention, the first one is called Super Pumped. It’s the Battle for Uber. It is based on a shocking true story and it is the rise and the fall of the Uber founder.

You sit on the edge of your seat and watch it. There are three episodes. Maybe a fourth came out. It is interesting. It’s a pretty clean show, meaning if you compare that to the Wolf of Wall Street, which had a lot of vulgarity and other things, this show isn’t as bad or anything like that but it is a fantastic story. Showtime does a good job. You want to check this out. It’s called Super Pumped, especially if you’re interested in unicorns and what they go through, what an amazing story.

The next is called WeCrashed. It’s an Apple TV plus series and it’s chronicling the rise and fall of WeWork. The reviews are mixed. 65% rating from critics and 79% rating from audiences on Rotten Tomatoes. I’ve found Rotten Tomatoes for those of you that are familiar with their rating system in general. Anything that’s 70%, 75% and above is hit or miss based on what you like.

Anything that they have is 90% and higher is usually pretty good. Be your own judge. Check it out, WeCrashed. That’s interesting thinking about how many people go to offices, how many people may need something like WeWork where you get your office space or how many people have this whatever we’re calling the greatest resignation error of all time. Many people are looking for new jobs or retiring or doing jobs that are making them happier even though there’s less money. Check that out. Those are two great binge-worthy shows.

Let’s talk about some industry news, Jack. The first one is the document automation platform. They’re a startup called Ocrolus. Some of you may have heard of them. They rolled out a new roster of document-centric applications for Encompass. The company said that the applications are designed to reduce mortgage application process delays due to review queues. That’s nothing new. That’s document automation extracting data and processing roles.

Weekly Updates: Ocrolus rolled out a new roster of document-centric applications for Encompass. The applications are designed to reduce mortgage application process delays due to review queues.

Jack, you and I engaged on a similar project many years ago but it’s never going to go away. We’ve got so many processes to automate and so much data and so many eyeballs and people involved in the process. It’s an easy win to automate the things that have less subjectivity or have the data to make an accurate assessment.

They debuted the new ICE experience, their new platform or they call it their product suite. They’re saying they reduced loan approval times and they simplify the integration process. You want to check this out or talk to your existing vendor or consider document automation. Before I move on to the next topic, Jack, I know that you feel strongly about this area. I thought I’d maybe swing it over to you and see if you have any points of feedback on the document automation side.

Allen, you and I worked extensively on a Greenfield project where we implemented several bots in the process. We used data scraping. My basic thought on it is whether we solved manufacturing defects or we came very close to a defect-free environment. Feed is going to be an output of scraping data and automating processes.

One of the things that we saw through it was not only that we were able to drop cycle times but we were able to substantially reduce the number of manufacturing defects that were a byproduct of pushing loans through our process. That’s important because, ultimately, that’s going to reduce the number of repurchases from investors or agencies down the road. The final benefit of that is that as you automate processes, then the scalability of your organization begins to improve dramatically.

The ongoing evolution of our business but you pick up some major wins when you do that. The scalability cycle time and the reduction of manufacturing defects all strike the core of what we’re trying to build here. That’s an efficient low-cost manufacturing process that gives us comfort in the fact that while we still have humans sitting on top of the automated processes and monitoring the flow that a lot of the work is being done by machines and verified or validated data. How can they get much better than that?

It’s like we’re working smarter, not harder. We can repurpose certain folks through different things but we have what’s coming down through the sausage. We know it’s good quality sausage and we know the wrapper that goes around the sausage is also going to fit and it’s good quality wrapper too. It’s a bad analogy but I was in Costco and they were selling Turkey sausage with a plant-based wrapper that’s healthier for you.

I was thinking someone must have used the data or looked at customer demand to figure out that they need to change the wrapper to get more people to buy. Working smarter, not harder. There’s a perfect testimonial, folks. Jack and I worked on this Greenfield project. That was the goal we set out to do and we did accomplish it. Technology has only since that time improved.

Look at this vendor, look at other vendors but document automation whether it’s upfront, in the middle of the process or at the end of the process. You’re going to be able to move things down the pipe faster, recognize defects faster and better align your teams to be working smarter. I appreciate the feedback on that topic, Jack.

Weekly Updates: With document automation, you can move things down the pipe faster, recognize defects faster, and better align your teams to work smarter.

Let’s also talk about one other quick update that occurred during the ICE experience. Riskified made an announcement. They partnered for a stronger bidirectional interface. That was one of the things I picked out that was important. We were talking so much about the slowdown. We’re in a purchase environment, there are fewer real estate rates are rising. How do you attain more customers. That integration and bidirectional interface are extremely important.

I’ll talk more about acquiring customers at the moment. I wanted to bring up one other company. This is interesting. This company is called Knock. We talked about them once before. It’s a property tech or what we call PropTech. They’re a home-buying fintech. They brought in $220 million of new financing but it’s not what they originally set out for. It was designed as $220 million in part to help reach profitability after abandoning their attempt to go public.

The company’s also slashing its workforce by 46% because the new financing is so much less than they had hoped for at their initial public offering. What do they do? Their product includes what they call a home swap product, which are they fully integrated mortgage and as much as $650,000 in an interest-free bridge loan to cover the down payment on a new home, up to six months of mortgage payments on the old home.

We talk about innovation and what’s going on and we talk about all the regulations we have. We get these PropTech companies that are doing all these unique things. Innovative, cool trending, we’re going to see a lot more things like this. Even a show of the times, they decided not to go with their public offering. I don’t know why but they still raised $220 million but they did slash jobs.

I did promise last time, Jack, that I bring up this company called Wordle. If you remember, it was a software engineer in Brooklyn. They sold it for in the low seven figures and it was acquired by the New York Times. It’s taking off like crazy. I play Wordle with my family. A lot of people are doing it. You simply get six guesses to pick a word and you go through the process.

It’s low-tech and low-budget. Everybody’s doing it. I mentioned it not only because it’s a trend you want to get onto you because you want to be cool and stay relevant but more importantly, think about the tech you’re building. KISS, Keep It Simple, Stupid. Think about the organization that we’ve talked about, the Moscow Method of how to organize what you want to do with your roadmap.

Wordle kept it simple. It is the absolute simplest interface. It takes up no memory and no space on your phone. It’s a simple design with 6 boxes or 5 boxes and 6 rows. Think about your tech. Think about the drip campaigns you’re doing and how to acquire and sustain them during the application process. Don’t overburden those people with too much complexity. Keep it simple. Keep your originators part of the process.

Have them reach out at the right touchpoints. Wordle’s a great suggestion but even better you can relate that to what we’re doing in the mortgage. That’s it, Jack. I’ve got some amazing topics we’re going to talk about next time. I’m going to bring up seven points that I feel are critical that we need to be focusing on as an industry tech-based of less of the update and more focus on those seven items. One of those seven is something we’re talking about, which is data and analytics. We have Lori Brewer on. With that, Jack, I’ll send it back over to you. Thanks, everyone, for being our readers.

Thank you very much, Allen. I’m excited about the next episode with what you’re going to talk about. If anybody’s interested in reaching out to Allen, you can contact [email protected]. Thanks, Allen, for the weekly update. This brings us to the end of our Weekly Mortgage Update.

Thank you to our sponsors, Finastra, Lenders One, Mobility MI, Modex, MBA, Knowledge Coop, The Mortgage Collaborative, Snapdocs, SuccessKit, Lender Toolkit, PENNYMAC, as well as Total Expert. Thank you so much. I look forward to having you back here next time.

 Important Links

• The Mortgage Collaborative
• SimpleNexus
• Cathleen Schreiner Gates – Past episode
• IndustrySyndicate.com
• Mortgage Bankers Association of America
• Finastra Fusion Mortgagebot Solution
• Lenders One
• Rich Swerbinzky – Past episode
• Total Expert
• KnowledgeCoop.com
• Mobility MMI
• Modex
• Snapdocs
• Julian Lumpkin – Past episode
• SuccessKit.io
• Lender Toolkit
• PennyMac TPO
• Kim Nichols
• FormFree
• DW Consulting Group
• TMSpotlight.com
• MBS Live
• Union Home Mortgage
• Ocrolus
• Riskified
• Knock
• Wordle
• [email protected]