Lykken on Lending

Lykken on Lending

A Weekly Podcast by Mortgage Professionals

06-20-2022 Hot Topic: Freddie Mac AIM For Income Using Direct Deposit & RVOE With Christy Moss And Christina Zulueta Randolph

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LOL 06-20-2022 | Direct Deposit

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In our Hot Topic this week, we have Christy Moss, Chief Customer Officer, FormFree, and Christina Zulueta Randolph, Sr. Director, Single-Family Strategy & Integrations, Freddie Mac, to discuss Freddie Mac’s announcement that lenders can now reverify employment with direct deposit data, as well as what FormFree is doing to help lenders take advantage of AIM for income using direct deposits.

 

Want to know more about Christy Moss?

Christy Moss, CMB, is the chief customer officer (CCO) at FormFree. As head of the company’s customer strategy, the 30-year mortgage industry veteran leads voice-of-customer initiatives across the organization and oversees sales.

Before joining FormFree, Moss spent 11 years at Fannie Mae (OTCMKTS: FNMA), where she played a critical role in advancing business initiatives in the post-crisis mortgage lending ecosystem. From 2015 to 2019, Moss focused on the driving lender and partner adoption of technologies that improve the borrower experience and lender profitability in her strategic business and relationship manager role.

Moss has held advanced positions in the correspondent lending divisions of CitiMortgage (NYSE: C), Wachovia (NYSE: WB), and GE Capital Mortgage Services (NYSE: GE), where she gained an in-depth understanding of the primary and secondary mortgage markets. She has received numerous accolades for her contributions to housing finance and holds a bachelor’s degree in public relations from Georgia State University.

Direct Deposit Verification Solutions for Mortgage Companies & Lenders

 

Want to know more about Christina Zulueta Randolph?

Christina Randolph is a senior director of technology partnerships in Freddie Mac’s Single-Family Strategic Delivery, Data, Operations, and Technology division. She oversees software partner strategy across the origination technology continuum and is responsible for distributing and optimizing Freddie Mac tools and capabilities within the software partner ecosystem.

Ms. Randolph has been with Freddie Mac for four years, focusing on increasing the adoption and utilization of digital offerings to lower origination costs, maximize operational efficiencies and improve the overall lending experience for clients and consumers. Her team also plays a critical role in surveilling the fintech landscape for partnership opportunities that will help lower risk and further digitize and automate once manual processes.

With almost 25 years of experience in the mortgage and technology industries, she has held various roles in sales, operations, implementations, and product management at companies like Fannie Mae, FIS Global, PHH Mortgage, and Chase Home Loans. Her career has become dedicated to transforming the mortgage experience by bridging the gap between business processes and technology challenges.

 

IN THE NEWS:

Home Equity in America Hits Record $27.8 Trillion

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Hot Topic: Freddie Mac AIM For Income Using Direct Deposit & RVOE With Christy Moss And Christina Zulueta Randolph

Back with me is my co-host, Jack Nunnery. Jack, it’s good to have you on this show. I appreciate you.

It’s great to be here.

We do turn out some good content. We hear about it all the time. That’s because this show is created by mortgage professionals Jack and myself, and it’s for all mortgage professionals, which is you. We are grateful to have you as our reader. Our commitment is to bring you timely information in a blog, so you can read it anytime and anywhere. There is some interesting news. Home Equity in America hit a record level of $27.8 trillion. That was in the news.

In the hot topic segment for this episode, joining us is Christy Moss, who’s the Chief Customer Officer at FormFree and Christina Randolph, who’s Senior Director of Signal-Family Strategy & Integrations at Freddie Mac. You are going to enjoy this interview so much. It’s one of those recordings you don’t want to end. It’s delightful. It’s fun to talk to people who are passionate about what they are doing. Christy and Christina are back. You are going to enjoy that show.

I’ll say thank you to our sponsors. We have Finastra Fusion Mortgagebot Solution, Seamless Platform, because the entire platform is housed in the cloud, and it creates the opportunity for borrowers to have flexibility in how they complete the application. They can start with one channel and move over, and join seamlessly to another channel. In other words, on their desktop, their cell phone, and their other things. We are also mobile. It’s nice to have our borrowers able to have that flexibility. Checkout the Finastra.com.

We had John Weinkowitz on, and he did a great job. He was on June 6th. Also, FormFree, which we will have as our guest on the hot topic. It’s a leading provider of a direct source of Vas, Verifications of Asset, and income and employment data. You are going to hear all about it. Very exciting. Pleased to have that partnership as well as Lender Toolkit. That’s a great job with some of their technology. They are clients like NRL that can’t say enough good about Lender Toolkit, and we are so grateful to have Brett Brumley and Brent Emler on the show in the past. We’ll have them back here again soon.

The Snapdocs they do a great job getting those tools and support you need to implement eMortgage technology effectively. If you want to check out Snapdoc’s eMortgage Quick Start Program. You do a great job. Briana Ings talked about that on March 28th on our show. Also, Total Expert. We were at the Total Expert Accelerate 2022 user conference in Nashville. That was such a good conference, and all the breakout sessions.

I had the privilege to present there with Josh Lehr, and it was wonderful to sit there on stage and talk again about recruiting and such an important topic these days. Kudos to Total Expert for putting on a phenomenal conference. This is one of those must-go-to conferences. They are a leader in the marketplace. They are the only purpose-built CRM and customer engagement platform that creates growth and loyalty for modern lenders and financial institutions.

We hear about the roadmap for what they are creating. It’s pretty exciting. Same thing with SimpleNexus, and Andria Lightfoot on the show. We’ve got Shane Westra and Jay as for possibility coming on for SimpleNexus. Lots of good stuff. Also, Mortgage Bankers Association of America, Lenders One, The Mortgage Collaborative, as well as SuccessKit, Knowledge Coop, Mobility MMI, and Modex based. Many good, great sponsors here. The Mortgage Advisory Tools as well as DW Consulting. We say a special thank you to Adam, Les, Matt, Alice, Allen, and Jack for their contributions each and every week.

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I am very excited to have one of my dear friends on here. Jack Nunnery is here, co-host but I’m talking about Christy Moss, Chief Customer Officer at FormFree. Christy, it’s good to have you here.

I’m happy to be here with you.

Joining you is a good friend of yours and someone who’s becoming a friend of ours is Christina Randolph. She’s the Senior Director of Single-Family Strategy & Integration at Freddie Mac. You have worked closely with her. Many people know you, Christy, and you have been on many times but if you would introduce our guests and explain the unique and amazing relationship between both you and the companies.

Christina and I first began our friendship and partnership at Fannie Mae. She was at Fannie Mae when I was there. We were both working diligently to help lenders understand the value of the utilization of digital tools. Now she leads a team at Freddie Mac and is making tremendous headway with the organization and the enhancements that Freddie is bringing to the market. Christina brings a unique perspective in that she was once a loan officer.

When we talk to lenders about how they should be thinking about the utilization of the tools, it’s because she’s done the work. Christina and I get passionate because we truly see the value that this brings to the market. Every time I’m together with her on stage, in a show or a webinar, it truly brings value to the audience, and I love sharing the stage with her. Christina, I’m thrilled to have you here.

Christina, what do you want to add to this?

Thank you much for inviting me. Our relationship now being in different organizations, me being at Freddie Mac and her being on the FinTech side at FormFree, I feel like we did not miss a beat. All of the things that we were driving towards at Fannie Mae in helping lenders optimize their outcomes and operationalize a lot of these digital offerings and capabilities didn’t change for us, and it bled over into our new role.

A little background about me. I come from a loan officer background. I’m a little bit unique, and then I started in the mortgage business when I was seventeen. Not quite yet an adult but not quite yet old and crazy enough to know any better or maybe I was crazy enough, and I didn’t know any better. I was and still am grateful for the opportunity I was given at such a young age to come into such a vital industry like housing and finance.

I’ve held various roles but I was primarily a loan officer. To Christy’s point, having lived this at one point in my career and at the time not having access to these digital verifications and tools, I didn’t realize how much it was holding me back and my role as the first line of defense into the consumer experience around mortgages. Fast forward, I made the leap over to the technology side, and now I get to do something that I love and collaborate with some of the biggest names in the origination technology ecosystem like FormFree.

I get to meet folks like you and Jack. The favorite part for me, besides meeting some of the most fascinating and hardworking people in this industry, is that my team and I get to work with a lot of different software providers in FinTechs to identify opportunities to work together to bring something meaningful and game-changing to the market.

As a former loan officer and having to watch our industry evolve from that heavy utilization and reliance on physical documentation to this incremental digitization that we are seeing now, and to see it still evolving, has been exciting. Furthermore, to have the opportunity to be a part of that change and help surveil the market, look for source data from partnerships and affect some of that real transformational change. Even to work with lenders to operationalize and optimize and implementation around these digital offerings is even cooler.

Jack and I had the privilege of talking to these two amazing mortgage professionals. It came out clearly about their passion but it awoke something in Jack because this is down one of his favorite topics with Jack. Let’s get this topic started and get it introduced if you would.

I have always been a fan of process engineering and optimizing processes. This rekindled that personal interest that I have in that aspect of the business. I have a question for Christina. Freddie Mac has been making a lot of headway in making it easier to verify borrower credentials. Freddie announced that lenders can now reverify employment with direct deposit data. Can you explain how that works?

To back up a bit and talk about the credentialing piece, it’s not about the credentialing and the challenges that we’ve seen in this digital verification space. Consumer habits have changed. They needed to change a lot over the past couple of years anyway. Regardless of that, consumers’ willingness to provide their credentials and permission, their data has been much less of an issue in recent years. We’ve moved into an era where there’s a lot less apprehension because of things like automatic bill payers, money transfer applications, and online retailers.

LOL 06-20-2022 | Direct Deposit

Direct Deposit: Consumers are more willing to provide their credentials and permission; their data has been much less of an issue in recent years.

 

All of these platforms have our account information stored, and we are willing to have them have our information to make it convenient to execute all of these types of financial transactions. That’s paved the way for larger financial transactions like mortgages. By way of adoption and normalization, it’s become easier for us in the housing finance space to look at different ways to leverage the data that is permissioned by consumers, and then banks being more open to supplying it.

I wanted to set the stage about the credentialing piece because we are not seeing as much of an objection in that area as we had in the past when we first rolled out some of these digital tools. Back to the topic of reverifying employment using direct deposit data from bank statements. We announced yet another enhancement right to our asset and income modeler program or aim, as you may hear us refer to it.

That is the automation of the ten-day pre-close verification. We all love our acronyms in the GSC space. That will also be referred to as a ten-day PCV. Freddie Mac has a tool that can assess not only assets and income but now employment two by leveraging third-party data from approved partners like FormFree. The key component here is in loan product advisor’s ability to automate that final right before closing employment verification tasks that have traditionally been manual.

Lenders have the responsibility to ensure the borrower is still employed at the job they said they had when they applied. Usually, that was 30, 60 or, in some cases, 90 days prior to the process. Lenders have to pull an employment reverification report or maybe they have to make a phone call. They have to document the phone call, wait for the manual report, make sure that report meets investor guidelines, and then attach it to the report file. There are many steps. There is so much extra time.

Now you can order a reverification report or even refresh an asset or income report that you may have used earlier in the process and send it through a loan product advisor, which a lender typically is submitting to AUS one last time to ensure the eligibility criteria have not changed. You can instantly get a message back that says, “You are good to go. Employment has been reverified.” You have to make sure it closes by the state, which we calculate for you.

What I love about Freddie Mac’s innovation is that we try to think about the easiest way to put these capabilities in the hands of our lenders faster. Developed our risk assessment to leverage several sets of financial data in seconds from partners like FormFree. We built the integration to the third party, so you don’t have to vet out as a lender the report yourself and make sure it has all the details the guy tells you it needs. We built the logic to calculate the dates you need to know to take the guesswork out of your deadlines. Potentially saving the lender 10 or 20 or maybe more minutes per loan. That’s the power of the offering and, quite frankly, the power of the data.

What is FormFree doing to help lenders take advantage of the RVOE?

The ReVerification of Employment. I love the power of the data. We say at FormFree that empowering the consumer with the utilization of their own data is the most efficient way to lead the manufacturing process. Kudos to Freddie Mac for recognizing the power of the consumer’s data and putting these operational changes to the market so that lenders can take advantage of them.

At FormFree, we work closely with Freddie Mac. We are able to go ahead and be able to prepare for the release of the RVOE or the ten-day pre-close verification. Simply said that if a lender is ordering an asset report account check, then the lender can now order a digital verification of employment from our dashboard. The Encompass integration will be updated as well. What we’ve done is we’ve made it easy for lenders who were already embracing the digital transformation of the industry by ordering account checks.

You simply order DVOE, and within a matter of seconds, we report back to the lender 90 days of direct deposit history that the consumer is still employed. This is all off of the bank data bank. Back when Brent Chandler first said there is an industry need for sharing data digitally, he said the power of everything that a lender needs to know about a consumer’s ability to pay is embedded in the bank account. You see where they work, their net income, their transaction history and you can verify their assets. The ease of doing it this way is supercharged.

There’s no other way to talk about it. Christina didn’t mention the cost reduction. In the market, there are some costly products out there to do this reverification automatically. What we have been able to bring to the market is optionality to lenders to reduce costs. Guess what’s at the top of the mind for lenders? Reducing cost, embracing speed, and empowering the consumer with their data and, more importantly is, bringing a product to the market that is competitive in their regions. That’s what we’ve done. We are ready to go. It’s out of their lives.

That’s what I want to bring out. This is not something that’s under development that you are going to be releasing. This is on the shelf, ready to be used.

Lenders who do business with FormFree, you’ve probably seen a slurry of email, posts from us on LinkedIn, and some outreach by your account managers but it’s out there ready to use. As you are looking at the benefits of digital technology, you should be thinking about a couple of things. Number 1) Is it better for the consumer? It is because they don’t have to provide you with W-2s and pay stubs. Number 2) Does it cost me less money? Yes, it does. Number 3) Does it save my underwriters, processors and pre-closers time? Yes. I’m not quite sure what else lenders need to know to get started other than three yeses.

When we were talking, you interjected a term that Jack and I were loving, and it’s called immutable. I want you to expound on the word immutable.

Immutable for us means the data is truth versus trust. The data cannot be changed, altered or manipulated. When you get data directly from the source, whether it be the bank account or the payroll providers that we work with, it is immutable. Meaning it is 100% trust data. Freddie Mac realizes and embraces that they would much rather have direct source data than paper documents that have been touched, manipulated and have the propensity for fraud. That way, they know it’s accurate. The benefits to the lender and the consumer are astronomical.

Everyone is involved in this thing. There are many wins up and down the entire food chain on this thing. It was fun, Jack, to watch you come completely excited about the concepts here. I wanted you to apply to what Christy was saying about the immutability because that brings in a lower loan loss reserve rate. Expand on some of that.

One of the things that we discussed was that as you begin to use immutable data, and then there is a rep and warrant relief round using that immutable data. Now we start talking about improving the manufacturing process and reducing the risk of repurchase. Most organizations take a reserve against the likelihood of future repurchases. One of the things that I was able to do at one of my previous employers was get our reserve for forward-looking repurchases reduced from five basis points down to one basis point.

When you start running that through your P&L and then you scale it with large volume, the cost savings are certainly significant. Moreover, as we start talking to those people that ensure our business, it’s a good talking point to leverage the technology that accesses this immutable data to calculate key areas of the file, such as qualifiable income.

LOL 06-20-2022 | Direct Deposit

Direct Deposit: It’s good to leverage the technology that accesses this immutable data to calculate key areas of the file, such as qualifiable income.

 

Fraud is prevalent. We talk about fraud a lot but where do we see fraud occurring? It’s over in the income side of the file. I’m not saying we’ve eliminated fraud and collateral valuation but we’ve certainly substantially mitigated fraud over the collateral valuation. Where we are seeing it is over in income when you use technology like this, you can make substantial improvements in your risk profile when it comes to mitigating fraud in income calculations. Let’s get back on topic. Christina, Freddie Mac announced that with expanded asset and income modeler so lenders can assess home buyer income with direct deposit data. Can you describe how that works for our audience?

I know our friend and colleague, Kevin Kauffman, was on your show, and he talked about this a little when he was here. To offer the recap, I talk about the simple process for automating the ten-day pre-close verification, where this is all built within our loan product advisor risk assessment capability along with partners like FormFree. Direct deposit works the same way.

Instead of only reverifying employment, LPA is assessing an additional set of data that we can use to not only calculate income and save tons of time chasing down correct and accurate documentation but it’s also to potentially offer the potential of rep and warranty relief. Imagine not having to ask a loan applicant who is a wage earner and gets paid their income directly deposited into their bank account every pay period.

Imagine not having to ask them for any physical or digital even copies of their income documentation. The best part of this is that it can be applied to 93% of Americans who receive their pay via direct deposit into their bank account. That’s a pretty wide funnel to start with. That’s an important point because here at Freddie Mac, we are on a mission to make home possible and that centers around affordability, sustainability, and equitable home ownership, leveraging technology and tools that are available to us to execute this mission.

Something like AIM offers an incredible amount of value and benefit for everybody up and down the chain, from realtors and consumers to LOs, processors, underwriters and beyond. When we think about all those different benefits that AIM provides to lenders and the industry as a whole, operational efficiency and a better mortgage experience, they hands down typically always win the pageant.

If you look on the other side of that, the ability for that loan to qualify for a potential offer of rep and warranty relief is as significant. What we are talking about here by leveraging data from the source of the truth to evaluate from our risk lens is increased data quality and a significant reduction in fraud. Especially in the categories where QC defects are at their highest. When we leverage data from the source of truth, we are raising data standards that we all use to make data-driven and data derive assessments and decisions and wrapped around both sides of the efficiency play, and the data quality aspect is the ability to drive costs down.

When we leverage data from the source of truth, we're raising data standards that we all use to make data-driven and data-derived assessments and decisions wrapped around both sides of the efficiency play. Click To Tweet

This is where the rep and warranty relief eligibility is a game changer, especially with the shift in the market. It’s something we don’t talk about enough but AIM can be a key tenant in protecting and preserving margins. Relevant in several examples, you mentioned having a lesser insurance policy and carry less on loan loss reserves and warehouse lines. If loans have less of a chance to be repurchased and I’m in a finance seat, this would implore me to analyze those reserves and those warehouse lines. I should be able to carry less cash and allocated it elsewhere because I’m less susceptible to the risk that comes with certain types of loans.

Less insurance policy is a cost saver. Here at Freddie Mac, we are offering this assessment at no cost to a lender. I definitely would love to have conversations with lenders to be able to take advantage of that. Besides that, there’s the efficiency play. There are fraud and risk mitigation efforts. There are staffing and bandwidth issues, economies of scale, and being able to produce more with less. That’s a no-brainer for me when running a business. There are several different value propositions that I could cite but when you talk about verifying raw, direct source immutable data that can’t be changed, that right there in and of itself is a game changer that can drive costs down significantly.

As a follow-up thought of some of the comments you made, you talked about operational efficiency gains. Have you done any business use case studies with regard to what lenders can save by adopting this type of technology?

We released a cost-to-originate study towards the end of 2021 that is published on our Single-Family website that is available for anyone to take a look at it. We have broken it down by various types of lenders. As we all know, lenders are unique. The mortgage process itself may not have changed over the past many decades. Each lender individually has nuances in the way in which they operationalize any of their tools or even their people in the manufacturing process.

The mortgage process itself may not have changed over the past many decades. Each lender has nuances in how they operationalize their tools or even their people in the manufacturing process. Click To Tweet

When you look at the differences between different types of lenders and the savings that they could realize, you have to look at it through the lens of a large, medium, and small lender. With origination cost on average in the $9,000 bucket, you have in that cost to originate study the breakdown of the large, medium, and small lenders and what they could realize from their savings. We have done, to a certain extent, cycle time reduction and cost reduction. It can be anywhere I’ve seen from 5 to 10 days or 20 days. It all depends on what the lender’s baseline is and where they are starting from. We have seen that it can vary across different types of lenders and sizes of lenders.

I’m going to get in with a question back to you, Christy, because a lot of people who hear at AIM might read different things. This is the Asset Income Modeler. I’m very excited about this concept. What is FormFree doing to help lenders take advantage of AIM and it’s specifically for income using direct deposits? What are some of the business benefits of opting into the AIM program for income using direct deposits?

At FormFree, we are continuing to innovate alongside with Freddie Mac, and it’s super easy. We provide the asset data from the consumer linking their bank account. LPA does the work, meaning we deliver the asset data by reissuing key or non-fungible tokens. That’s another word, Jack, that you might love. Non-fungible, meaning it cannot be altered. It is the truth of LPA.

LPA does the assessment of the asset data, which includes the direct deposits and spits out the income. It is that easy. The only thing that lenders have to do is take advantage of these tools and order an account check report. Essentially what Freddie Mac has done has moved the assessment of the consumer’s assets and income up to the front of the process.

Meaning lenders, the minute they take an application, should be ordering a VOA report and then submitting that data to LPA so that in their case file findings, they get the exact direction. They know if the income was identified off direct deposits, and then they can make strategic decisions about where to go to meet those stipulations.

Strategic meaning, “Where am I going to spend my money to verify the consumer’s data to get this loan?” If you don’t need to spend $100 on an income report, then why would you go ahead and order a report to verify the income when LPA is doing that work for you? The second piece of that question is the benefits. We can talk about this all day long. Every day we see it on LinkedIn.

Other companies are doing layoffs, and people are talking about the margins and talking about, “Where are we going to get production?” If you are able to reduce your cost as well as create a better borrower experience, which will lead you to referrals, then that is a strategic decision on how to build your process. One statistic came out at the MBA MISMO conference, and I’m going to toss out a couple of things. The cost of manufacturing alone is right at $10,000. Banks are spending between 9% of that total cost on technology.

IMBs, who are the ones who are looking for additional production, are only spending 4% of the cost of the manufacturer. You can see where the larger institutions have invested in the technology for the consumer and manufacturing process. As we look at the coming months, where lenders are going to be strategizing on, “How do I bring more production in?” the way that you do that is exactly what Christina said, “You do more with your staff. You don’t need to staff up as production, the ebb and flow.” If you let technology do some of the manufacturing stages, then you are not at risk of staffing up and then having to staff down.

LOL 06-20-2022 | Direct Deposit

Direct Deposit: If you let technology do some of the manufacturing stages, you’re not at risk of staffing up or down.

 

I have a question for Chrisy. When you look at process enhancements, I think of OEM. It’s not an Original Equipment Manufacturer. It’s Optimization, Enhancement, and Mitigation. How do lenders get started using this technology?

One of the things that FormFree invested in early on was creating relationships with LOS and POS partners. We like to say we are where the lenders need us to be. We have an expansive list of integrations that we have worked to build so that lenders can place an order for an account check. The first thing they have to do is connect with us. Let’s get them started. Let’s become partners. Our team of account executives works diligently to help lenders onboard understand the benefits.

The second piece of it is that technology partners have to be where lenders need them to be. You have to make it easy for lenders to use these tools. What we’ve done is we are embedded in about every LOS and POS out there. We have an expansive relationship with Encompass, which still accounts for about 60% of the market. That integration will be updated a little bit. That’s how the journey begins.

In partnership with Freddie, we’ve realized that lenders are at this point where they need help adopting these tools. I have to toss it over to Christina first to compliment them on the recognition that you can’t build an interface and say, “Go use it.” You have to show lenders, “Here are the benefits to your organizations. Here’s how you get started. Here’s how you talk about it with your loan officers, underwriters or processors.” Christina, do you want to share a little bit of that work that Freddie is doing to assist lenders in using these tools that you guys have invested in?

Thanks for laying the groundwork there because, on Freddie’s side, we work very similarly. We encourage folks to consult with your Freddie Mac team. We, like FormFree, have dedicated resources to help you understand the impact of these digital offerings like AIM is on your business. We have to at least get the conversations started. Kevin had mentioned this before when he was on but there can be numerous points of implementation, successes, and failures.

When working with trusted advisors, both at Freddie Mac and FormFree, will help you to either avoid and/or learn from some of these implementation pitfalls that we’ve seen, lived and heard and develop best practices suited to your organization to help you optimize outcomes. One of the things that I wanted to highlight here is that FormFree has done the heavy lifting.

You’ve developed and built integrations to the majority of the POS and the LOS out there on the market that lenders use. You, and even to a certain extent, have worked with custom lenders in their own proprietary systems. You have to make this easy. You have to enable the ability for lenders to operationalize. We have all of these different steps in a manual process. For us to come in and say, “We’ve got this great, new, shiny digital automated capability, and you guys should use it,” then to have the lenders come back to us and say, “This is a clunky process. Everybody’s disjointed, none of these systems are talking to each other.”

It’s counterintuitive to what we are trying to move this industry forward toward, which is a more digitally automated way of working. Whether you start on the FormFree or Freddie Mac side, at some point, there is a convergence. To Christy’s point, there are certainly different aspects on each side that we have to prepare lenders for but at some point, we have to come together to understand, “What is the lender’s POS or LOS system? How do they process loans and use each of our tools?”

We can then consult about what changes need to be made. Jack, you mentioned process re-engineering. That is a huge component of this joint implementation that form Free and Freddie Mac are trying to accomplish that if lenders keep their process the same but then add in all these digital capabilities, they are not going to affect any kind of real change in their cost structure and their business model. We have to work together to understand what waste can be eliminated from the process to get truly to a new way of working and manufacturing loans.

Jack, did you want to do a follow on that?

My follow-on logically is people resist process re-engineering. They say, “My process works fine.” That grinds on me because your process is costing $9,500 per loan. Your process isn’t optimized. When I hear Christina and Christy talk about something that speaks to one of the highest-cost jobs inside of the process, and that is determining qualifiable income, it takes a long time to do that.

You use your highest-cost associates to do that. This is relevant in our industry. You can re-engineer your process or continue to complain about the $9,500 cost to originate alone. I go, “Let’s re-engineer our process, use the technology out there and let’s, 1) Optimize our process. 2) Enhance the borrower experience, and 3) Mitigate risk around repurchase. It’s a win-win-win.

I want to go to outside of the industry for a minute. I want to go to a quote. I’ve used this a number of times when I’ve spoken before. Nokia had 85% of the market share of the cellphone market. Along came this thing called the iPhone. What’s interesting is Nokia invented the buttonless phone but they didn’t capitalize on their own technology that they developed in-house. I go to the point that you were saying, Jack, and I want to get Christy and Christina’s response to this.

Stephen Elop, who was the CEO of Nokia, made this statement at the end of one of his famous speeches that is, “We didn’t do anything wrong but somehow we lost.” That goes to business as usual. Don’t change the process. If it isn’t broken, don’t try to fix it. People are fixing their business processes all around you. If you stay stuck, you are going to be saying the same thing as the CEO of Nokia said when they were the market dominant, factor in there. Christina, comment on that. I will love to get your final thoughts on that as we wrap this up.

In the previous quote that I said, “The banks are spending 9% of the costs to originate on technology.” What I hear if I am a small to mid-size or even large independent is that the banks are creating a better experience. They are reimagining the way that the mortgage process is delivered to the consumer. As a business owner, what that also tells me is that I better be competitive. Meaning I better use the same tools that are being presented across the industry, otherwise, I’m going to get left behind. That’s number one. Believe me. These are huge investments by Freddie Mac in bringing new ways to assess credit risk. It is a gift to the lenders to give them rep and work relief.

As, Jack, touched on, the impact of that is huge. When you are able to reduce your loan loss reserves, that’s cold hard cash in the market, you can redeploy that. If I’m a lender and I’m looking for ways to be more competitive, I’m going to do it better, faster, and cheaper than my competitor. Better is using the tools that the consumers are already using. With Venmo, PayPal, Stripe, and Amazon, they are already doing these things. The consumers expect a better experience.

If you are still stuck in the old ways of paper collection, you are going to get left behind. If you can manufacture a loan faster than your competitors, you are going to capture more referral business. Realtors love speed. They don’t want to call the lender every day. If you can do it at a cost point that is less than your competitor, you are going to have more capital to improve your price. I say this all the time to my lenders, “If I’m a lender and I’m looking to beat my competitors, I’m going to capitalize on these tools, use my cost savings and improve my price, so I’m going to capture more of your market share to my competitors.” That’s what you do for the market.

Business realtors love speed. They don't want to call the lender every day, and if you can do it at a cost point that is less than your competitor's, you'll have more capital to improve your price. Click To Tweet

Christina, wrap this up.

Nokia may not have done anything wrong but they certainly missed a step along the way. I don’t believe there’s any right or necessarily wrong way here. We are talking about complex software implementations but we have a responsibility as the folks that develop and build these things to make it easier for lenders to take advantage of and help them to operationalize and optimize their outcomes.

As Christy mentioned, if you don’t take advantage of some of these tools and change your behaviors, that was something that Jack was getting at. If you don’t change the outlook on your organization, it’s going to be a lot harder to change the process overall. One thing that I always say is that we have to establish a baseline when we get into these conversations to understand where you, as lenders are starting from ground zero.

What is your cycle time now? We have to understand maybe what is broken from that app to approval or that app to close the timeline. How many times does a loan go back and forth to underwriting? How much does it cost you to originate each file? What’s your average pipeline? It sounds basic but many lenders have a difficult time measuring their success because they don’t even know what they were trying to improve upon, to begin with.

Beyond this, let us help you. We can fail together but we can also succeed together. I will counter-quote. This is from one of my colleagues that she unknowingly has drilled into my head because we live it every day but it’s also a famous quote from Winston Churchill, I should know it, “Success is not final. Failure is not fatal. It is the courage to continue that counts.” Let’s all be courageous and continue on this digital journey together because there is nowhere else to go but up. AIM higher as an industry. I will leave you with that.

Laying on that acronym, Asset Income Modeler. The call to action is how if someone says, “I got it. I want to take action.” What’s the first step they need to do?

They need to give us a call here at Freddie Mac, and we have lenders that work with dedicated account teams. We also have a call center. They can answer any questions and consult with Christy at FormFree.

How can you get a hold of you, Christy?

Like FormFree, I’m everywhere you need me to be. I’m on LinkedIn and on Twitter, My phone number. You can email me. This is one of the most favorite things to do is work with lenders. I’ve been in this industry for a long time. One of the things that I realized is that I want to leave it better than I found it. This is truly a passion for me. I want to leave this industry better than I found it a long time ago.

I love talking with lenders. We have a fantastic team here. We’ve got Jocelyn Brooks. She’s been our Director of Customer Success, for many years with Freddie Mac. We have a team that understands how lending should be done and to help lenders create the experience for how lending is going to be done and is being done in the market.

Jack, your final thoughts.

We do a lot of show that is a give-and-take value prop work effort. This one is a no-brainer. If in process engineering you can do something that optimizes the process, translate reduces your cost, you can do something that enhances the borrower’s experience and mitigates important or critical risk to the franchise. That’s the Holy Trinity of process re-engineered. It’s a win-win-win.

Folks, Jack and I have these special guests, Christina Moss, Chief Customer Officer but you are about making lenders more successful and that’s your passion. As you said, Christy, your goal is to leave this industry better than what it was when you entered. Also joining Christy is Christina Randolph, a Senior Director Singlle-Family Strategy & Integrations at Freddie Mac. Thank you both for being here. It’s a great information. Interesting and exciting.

Thank you much for having us. This was a great discussion.

It’s always fun being with you.

Jack, let’s update our readers as you texted me the numbers to their average cost originate loan. What is that number?

It’s $10,637.

That’s average, which means there’s a number of people who are well above that. Some below it but that is crazy. Folks, this was a very timely show. Jack, I enjoyed doing this interview with you. I love hearing your passion for the process. One of the reasons we get along so well is that we share that but also how much you want to make a difference in people’s lives. Readers, I encourage you to share this show out with your executive team. Share it around your company. I appreciate you mentioning it to others and posting it on social media.

We appreciate you being here each and every week as we do our sponsors. Jack, thanks for being here. It’s great to have you as the co-host. Thank you all for being a part of this show, sharing it and making it such a big part of your lives and the way of getting information. We are grateful to you. You are the reason why we are being successful because you are sharing it. We love doing it. We are glad that you are receiving it. Tell others about it. We look forward to having you back here next time. Have a great week. Happy Juneteenth, and I hope all the fathers have a great Father’s Day. See you back here on the next episode.

 

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