Lykken on Lending

Hi everybody, looks like we’ve got a really interesting podcast episode with Jim Paolino , Founder & CEO of LodeStar Software Solutions, to discuss whether the future of the mortgage industry is a relationship-based or technology-based business?

You can listen to his podcast here: Lodestar’s Lending Leaders

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Is The Mortgage Industry A Relationship Or Technology-Based Business With Jim Paolino

It’s good to have you on the show. It’s a cold day here in Central Texas and we’re sitting in the middle of a deep freeze. I woke up to 7 degrees and it felt like 9 below. I hope it’s warm wherever you are. Bobby was texting me from Florida. He says, “I tune in to your show on the beach.” We had just had an ice storm hit our house. We have every tree laden with frozen ice. It looks like someone delicately created this icicle on trees.” It’s the most spectacular thing. We got about 6 inches of snow. It’s something so unusual for Central Texas. I hope you are doing well. Wherever you’re at, stay warm. We are having rolling blackouts. First crazy snow cold we’re having.  

All that to say, if I go dead for a little while this time, it’ll be because we had a blackout, but I’m dialing in my cellphone. It’s good to have you with us. I’m pleased to have you here as part of the show. It’s Monday, February 15th. This show was created by Mortgage Professionals. It is for mortgage professionals and we’re so glad to have you as our audience. Our commitment is to bring you timely information anytime and anywhere. I realized this is President’s Day, so Happy President’s Day to all of you. I have no market updates because we’re not going to have Matt Graham of MBS Live joining us, but we do have Allen. Alice is taking the day off. She texted me. She said, “I enjoyed the day off. I want to spend some time with myself.” Happy day off.

Allen is here. We’re going to get a good tech update here in a little bit. In the Hot Topic Segment, I’m excited about the conversation we’re having with Jim Paolino. Jim is the Founder and CEO of LodeStar Software Solutions. We had a great conversation. I’ve known Jim for a while. He’s a critical thinker. I want you to pay attention to the Hot Topic Segment because we’re going to have an interesting discussion about the industry shifting from a relationship 101 human standpoint. First, the technology-based solution is going to step in there a little bit more and take more of the relationship away. We’re going to have a great discussion on that.

We are part of the Industry Syndicate. I’m thrilled to be a part of them. I encourage you to check out IndustrySyndicate.com. Also, I want to say a special thank you to our sponsors, The Mortgage Bankers Association of America. We have Michael Fratantoni on January 4th. We had an update on the MBA’s forecast for the economic scenario, as well as housing. It’s very interesting to go back to that. Finastra, its fusion mortgage bot solution does a great job of bringing efficiency to doc prep allowing you to receive, manage, store, retrieve, and deliver loan, files in an electronic manner. Also, it does a lot of tracking as a custom great compliance system. I encourage you to check it out all. They are a great system for the mortgage community because they like to provide data and analytics.

On January 11th, we had Dan Putney talking about their latest survey. Also, I’m thrilled to have Lenders One as a member of our sponsor group, as well as The Mortgage Collaborative. Both of these co-ops provide a unique opportunity for both lenders and vendors to get up close and personal and interact with each other in a more meaningful way. Conferences are great. I can’t wait for them to get back, but check out Lenders One and The Mortgage Collaborative, and how you can connect with other lenders your size. There’s great pure analysis going on there. Also, the Mortgage Lenders of America. Thank you for their sponsorship, as well as Indecomm, which supports every stage of the mortgage life cycle from automation to outsourcing and compliance.

If you’re looking for that third-party outsourced solution, check out what Indecomm has to offer. That’s Indecomm.com. Check out their website, as well as Insellerate who does a great job of helping lenders close more loans by engaging better. Listen to the interview we did with Josh Friend on August 17. Go back to that. Knowledge Coop, our friends over there do a great job of helping you with training, as well as MobilityRE and Modex. Both of these companies allow you to recruit based on facts, not fiction. It helps you get deep insights into the real estate community, as well as a mortgage loan origination community. Find out who you are producing the volume and who you should be targeting.

A special thank you goes out to Allen. He’s joining us. As I said earlier, Allice and Matt will not be here. Welcome to the Hot Topic Segment of the Lykken on Lending show. It is February 15. We’re thrilled to have you here and we’re also thrilled to have joining us on the show, Jim Paolino. He is the Founder and CEO of LodeStar Software Solutions. We’re talking about the future of the mortgage industry as relates to the relationship. Are we seeing a shift more to technology controlling that? We’re going to be getting into that and we’re excited about that. Jim is a thought leader in our industry, and I always enjoy sitting down and visiting with him. I’m so glad I get to share one of our many conversations with you, our audience. Jim, it’s good to have you in the show. How are you doing?

I’m doing great. Thanks so much for having me. I couldn’t think of a better way to spend President’s Day.

It’s a great way to do it. I’m excited to share your critical thinking and perspective with our audience. Let’s talk a little bit about LodeStar Lending for those who are familiar with the company, but for those who might not be, tell us a little bit about LodeStar. What do you do? What’s the space you’re in within the mortgage technology? Talk a little bit about that.

I founded LodeStar eight years ago. We grew out of the industry. I grew up in the title insurance space and a family-owned company. I remember there were typewriters at the office. I used to type up policies. I was crawling on the file cabinets when I was 7 or 8 years old. I have memories of what the industry was like. I basically developed technology tools starting around 2009 to 2010 when they were updating the HUD as many of you probably remember. I started developing great calculators’ ways of quoting fees to mortgage companies to real estate people, realtors, title agents, and anyone who needs to quote that data. I was able to start that company, LodeStar, to push those same tools out to the industry especially seeing trade coming in 2015 until now.

We’ve been able to grow through that where we work with lenders throughout the country. We were named the 11th fastest-growing company in Philadelphia across any industry. It’s been a very fortunate time for us to help lenders that we work with. I would say our core is middle of the market. A few hundred to a few thousand loans from most lenders. We save you time and money. We automate the process of disclosing fees, guaranteeing the information that you’re providing to the consumer, which we’ll talk about a little bit later. It allows you to focus on all the other aspects of the business that are much tougher for me.

I’m so glad to hear that you’re launching your own podcast, LodeStar’s Lending Leaders and it’s so good. I’ve always enjoyed my conversations with you because you show good critical thought. I love hanging around smart people who think sometimes out of the box or at least think accurately or critically about the box that we find ourselves in at times. Tell us a little bit about that. How can people listen to your podcast and where do they go?

Thanks so much for bringing that up. I was resistant to starting a podcast for the longest time. Ultimately, I miss talking to people like yourself at conferences. I thought doing something else was a good way of having those conversations. If I can have conversations with people in the industry that I find interesting, that would be something that people want to listen to. The name of the podcast is LodeStar’s Lending Leaders. It’s available on Anchor and YouTube via video, Apple Podcast, and anywhere you get podcasts. Spotify as well. We launched our first two episodes and we’ll have a new episode coming out every Thursday. At this point, it’s about 20 to 30-minute conversations with different people in the industry.

Like in the title, Lending Leaders, people who are on the lender side and sales. I have a client coming on who manages a large mortgage company in their business development. I’m speaking with someone from the MBA about diversity, equity, and inclusion. The other side and this is something that I want to talk a little bit more about for our topic, is we have a recurring thing that we’re launching what’s called America’s Next Top Home Buyer. The whole idea of that is to hear from the consumer about their perception of the industry like the conversations you’re having with Allen on this show, which are very interesting.

You need to always keep that consumer’s perspective. At the end of the day, this is the largest transaction of people’s lives. It’s important to realize not only what they think about the process and industry, which is not to get too far in the weeds or the things that we talked about. It’s part of the thing to do. Selfishly, because I’m in my young 30s, I know quite a few people who are buying houses right now one way or another, so I try to get those Millennial voices out there.

It’s so important what we do because I’m not sure those of us who have been in the industry for a long time yet understand that we listen to a lot of information. You’re going to be featuring that. Check it out. I’m interested in what you’re learning out there. Was your family in the industry? What did you start and how did you get in the mortgage business?

My family still runs a title insurance company based in Rhode Island and it was one of those classic things. My dad started it. He was a lawyer at some point in the ‘80s. His cousin who worked at Remax came in and said, “Can you do a closing for me?” He’s like, “I can figure that out.” He did and he goes, “What if I do two of these every month so I can cover my rent? What if I do three?” It was a very natural and getting-ready industry, and then I grew up on the title side of the business. That’s where I developed those tools for those companies and obviously, lenders being their key clients. That was my transition into the mortgage industry. Now at LodeStar, we focus more on selling to lenders.

As we’ve talked, as I said several times now, I love your critical thought and how you view the industry. You have a great perspective. To start out with this question, you believe that the mortgage transaction will never truly be 100% automated. I agree with you but talk about your reason for that opinion.

As I said before, this is the largest transaction of someone’s life. The importance of diving a person through the sales aspect of the process beyond that is you’re always going to have that person-to-person interaction because people are craving that. The history of Millennials, a lot of it is by people who aren’t Millennials so that’s what I always want to break down. One of the stories I love coming up on my podcast is a friend of mine. He’s a doctor down in Miami. He just bought his house. He found his realtor because that realtor was showing a home in the same apartment building. They met the realtor, they started working with that realtor through that, and then they drove around. They drove to a bank by them and that was the mortgage company that they worked with.

Nothing online or on Zillow to get started. I’m sure they looked for properties on those but there’s very much the real-life process that still happening. Once a Millennial finds that person, usually the realtor because of how the transaction works, they need that resource. They will follow that resource advice as much as possible. Owning that relationship has a lot of value. That’s something that you certainly need to use technology to enhance. The Millennials or even Generation X who want to do everything on their phone from application to close is not realistic.

There’s certainly a group of them that are going to be doing more and more. We are seeing evidence of that. That’s the core of the question and the answer is no. We’re being shipped back to a purchase market and I like to get your perspective on mortgage technology. Will it be coming into the spotlight as we move deeper into a purchase of markets? Obviously, it’s been very instrumental, especially on the refinance but what is your perspective on mortgage technology and the purchase market?

That’s going to be important because there’s such a natural inclination to start that search online, whether you’re going on any MLS service or websites that are showing home listings. That’s a very natural way for people to start with a purchase. You’re always going to have that as the initial starting point. The need in the purchase process, especially with technology, has to do with the fact that there are a lot more other players involved and the transactions tend to take a little bit longer. I found that statistic. Allen said that the number of transactions that take 90 days is going up and the overall closing time is going up.

Mortgage Industry: Homebuyers must be kept up to date with the entire mortgaging process, whether through portals or update systems.

When you look at the mortgage industry, clearly, we’re going to have higher production costs associated with personal loans. I’d like to get your perspective on the cost to originate that. In refinances, the cost associated that typically. What do you think it’s going to happen with the cost factor?

You’re only going to be able to automate and take that down so much. Allen brought up the point before that there’s still that fourteen-day waiting period for appraisals. It gets to the Warren Buffett line that nine women can’t have a baby in a month. You can only automate things to some extent and there are going to be some very, in some cases, natural or sticking points of timelines that you can’t enhance. That’s where you have to start looking at other methods aside from technology, whether it be legislative or requiring what needs a full appraisal or something like that, to use that as an example. Technology will always push up against those use cases.

Allen, if you’re tuning into this conversation, I want to invite you into it. What are your thoughts?

I love that you said sometimes it’s not always technology because I try to tell people that all the time. There is no one silver bullet because you could have the best technology but use it wrong. There’s always a people element. Your example of your friend not using technology and finding that relationship is never going to go away. Technology only enhances the experience. I did want to ask you one question. Do you look at a focus for lenders to build their tech strategy? There are a lot of things you can think of. I talked about data earlier. There are things that you must have. There are things that are nice to have. What do you think truly would be recommended for tech strategy for lenders out there?

I feel like with technology, people are always attracted by that shiny object. In our industry, it can be AI or blockchain replacing so many aspects of the process, or remote online notarization and closing becoming the way we do business going forward. Those things may change at a certain point in the process. There may be adoption over time. As you said, there’s no silver bullet. You just have to figure out where you can use as many lead ones as possible. The most important thing when you’re looking at that is how everything fits.

What is integrated with what? What usually is your LOS, POS, or the main systems where things are happening? Do you have technology that’s integrated with that? Is this easy to use? That’s what we focus on our end. Is this working in an automated fashion within your core systems? Otherwise, you’re just adding time or steps to the process. It’s less about how shiny those objects are. It’s more about how well everything works together.

Mortgage Industry: Technology integrated within the mortgage industry must be in an automated fashion. Otherwise, you are only adding time or steps to the process.

I agree. I’m going to be talking about technical documentation and it’s always important as a vendor to have it. However, I’m going to turn it into a question for you. How important do you think it is for lenders to work and have their own teams build some variation of documentation? What are your thoughts on that, especially with their own technology?

That’s definitely an area where you see some lenders a lot more advanced than others. Some have their in-house development teams and can pull those proprietary solutions together, which makes a lot of sense if you have the investment and can do that control. There are others who quite frankly can’t spell API. I always like to make with that. It’s going to depend on the situation and the lender. There’s always a trade-off of customization and control to the time, money, and investment that you have to put into building those solutions. Ultimately, it will be better to build something yourself, but the cost-benefit may not be there necessarily.

Mortgage Industry: There is always a trade-off of customization and control to time, money, and investment that you have to build into mortgage solutions.

For those smaller lenders, it’s understanding what you can do and what you can’t do, having a good knowledge of your systems, what things can integrate, and what you can build yourself. Even a smaller to medium-sized lender, having a developer on staff who understands the industry, you will probably benefit a lot from that. I know some of the chief data officers and other openings and positions in the industry. Even having someone think like an engineer, which is my background, in terms of how you can streamline this process, let’s take a step aside and look at this as a process, look at the touch points, and how can we automate things to make this go faster on our end.

I couldn’t agree more. I’m happy I brought that up. Lenders ask me certain questions about who should they have on their staff. You need someone who can be the translator. If you were to hire an engineer/BA, it’s somebody to help your organization succeed with that technology.

Sometimes, it can be a project manager so they may not be coding themselves. I’m sure as a vendor, Allen, you get frustrated when someone thinks they understand how fast things can happen with technology or how fast you can build things out. It’s not always the case.

That is an understatement, isn’t it? Given that you spend the time you have in the industry and have worked with technology, I’m sure you’ve seen some pretty big colossal strategic mistakes. When it comes to planning, implementing, and deploying technology, what are some of the biggest mistakes you’ve seen?

I have talked to someone about a major LLS who’s a partner of ours. They handle the implementations, so they come in when someone needs to clean up their system because it’s broken. They’ve had it for so many years and designed one thing over another. I asked them that same question. What was the biggest issue that you’re fixing? Their answer almost every time is over customization. You’re customizing something for one specific type of loan.

Let’s say, “We do construction loans. That’s everything we need. Let’s build the system so it does construction to purchase loans well.” Maybe you want to start doing refis or VA loans. There are so many wrinkles, so keeping that flexibility in mind of, “Let’s build a solution that we can change later.” It’s in line with Allen’s question in terms of people understanding documentation. An important idea around technology that lenders need to understand is the idea of technical debt. I don’t know if you’re familiar with the term.

I was thinking about that. Tell us what it is.

It’s basically the time and money it’s going to take you to fix something instead of fixing it now. For example, your show. Let’s put it up on this application. It works well here. We know that’s not our long-term solution. At some point, I’m going to have to copy over all of our existing episodes and put this on another platform, but I don’t need to worry about that now. That’s David’s problem. I’ll deal with it another day. The ten hours that’s going to take you to do that, that’s ten hours of technical debt. You’re going to have to spend down the road fixing something.

Now you think of your system and Allen, I don’t know how you think of this concept with the people you work with, but it happens all the time because they know there are shortcomings to their system or they have to fix something down the road. Having the understanding of what is that technical debt that we’re carrying and how much time is it going to take us to fix something. Like anything else, an ounce of prevention is worth a pound of cure.

That’s great. It’s funny I’m going to have vendors upset with me for saying this, but when all of our lenders listen and you talk to your vendors, you do want to ask them about the technical debt. Depending on the answer you get, it is critical because there are technology solutions that support an amount of technical debt wrapped inside. They’re either working on a new version, which you need to know about, which is okay to know about it or you need to understand if your workflow falls within what they have.

Allen, have you heard of the term technical debt?

It’s one of those terms like a Halloween scare. We close our eyes and run.

That’s one thing you don’t want to think about or probably shouldn’t be asking anyone on the technology side of your business. Allen, you brought this up. In so many cases, they know the limitations of their current software or LOS. They know that once we switch over, we can do all these things. Now that project is getting bigger and bigger, and probably less likely to do because like everyone else, they say, “We’ll do this project when we have the time.” They’re either too busy and don’t have the time or they feel like things aren’t busy enough and then you don’t have to money. It’s always firefighting your fire prevention.

I got a text from one of our audience who’s tuning into this live and said, “I’m a CTO here at our company and I think I’m pretty good. I hadn’t heard of the term technical debt, but this is a great conversation. It’s a great point. It’s something I need to be thinking about. We can kick the can down the road or effectively, create a debt of what we have to go down and fix. How big is that? How is that snowballing?” That’s an excellent point. We get so caught up in being busy that we don’t focus on these things, which is talking about what to build or adapt as far as related to tech strategies. Where should we let our focus be when you’re talking about tech strategies?

You have to look at your process at the end of the day. That’s going to be a little bit different for everyone. If I were going in and someone said, “Jim, make us run more smoothly.” That was proof, for one reason or another, of my job. Right now, I’m a small part of the process with the disclosure, but if I had to go in and look at a lender across the board, I would map out that process of what’s that journey like from a time when these comes in, whether it be a purchase or refinance, until that lead is closed. What systems are they using? How much are people spending to do different things? How are our files opened? What type of work is done on files that don’t close? That spillage is a big part of this industry as well?

You have to start with a big-picture view, and then there are probably going to be some easy chip-away areas there. When I was in the title business, for example, cancellations, we looked at our cancellations and 80% came from the same clients. Now you implement something where you go, “Anytime they get an order, let’s confirm that, or let’s wait a minute. Let’s not open that up.” That’s a very easy way of saving yourself some time. The good thing is when you map things out and look at it as an overall system, you’re going to find some easy wins early on.

Mortgage Industry: When you map things out and look at it as an overall system, you will find some easy wins early on.

That’s good. Allen, what are your thoughts on that? Add to it or embellish on that a little bit.

I have the exact same opinion. It’s very well said. It’s not plugging it and going. I remember the old Windows 95. We’re far beyond that now. It does require some thought process leadership, as well as orchestration. Those are all important parts. In general, as a lender, if you’re implementing technology, you have to map it out and have the right people to champion and support it. You will be successful with it, that’s for sure, but it doesn’t happen by itself.

It’s fascinating that some of the questions are coming from our audience. “We’re looking at building some software.” This person has to be saying, “I think this is the worst thing we can do. It is a slippery slope people going down. It’s an interesting discussion on that.” If someone walks up to you and generally says, “It’s worth thinking about building something,” what’s your response to that?

It depends. You have to see what it is. How much time and money is it going to save you? How long does it take to build? Also, to my point earlier, how well does it connect with everything else? There could be a lot of efficiencies you gain by building your own LLS. You look at all of the partner integrations you need to have and now you’re building those with them in a different way as opposed to systems that are much more plug-and-play.

It’s a good point. I want to shift it. What’s one thing mortgage businesses should do to prepare themselves for a tighter regulatory environment?

That’s definitely something that’s been a lot of concern lately. I saw a smaller lender in Connecticut get signed by the CFPB for a myriad of infractions, including fair lending. That’s something that LodeStar will be focusing on quite a bit with a new service we rolled out called Mortgage Sentinel, which is a secret shopping service for the mortgage industry. What we do is we monitor client conversations to be able to proactively see if your loan officers are doing the things that they should be doing on both a compliant nature, as well as things that help you operationally. To get back to your question in terms of how they should think about compliance, the wrong way to think about compliance is, “The administration changed, let’s start doing this.”

In so many different things in this industry, the right thing to do and the thing to do that helps your business are the same. If you are looking at things from a compliant nature, let’s look at how is that going to increase the amount of loans we close. How is that going to make our own officers, our staff, and our customers happy? When you look at compliance, things can feel like you’re checking a list off the box, but a good compliance structure is leading to a more effective business. That’s the things that we see, especially when we conduct calls with lenders.

Some loan officers will get on the phone. They start quoting your rate, loan amount, fees, and all of this information without even hearing your credit score. Quite frankly, we ask people questions like, “How long does it take for me to close on this loan?” Say it’s 60 days on a purchase right now is the average. Allen was talking about this earlier. We have one officer saying we can quote and get you close to twenty days. Maybe that’s not in compliance but it’s certainly going to cause some issues for your operations team. It’s making sure that those expectations are set correctly throughout the process.

That’s one thing that we’re looking at because as I mentioned before about the human element, this is the largest transaction of someone’s life. Generally, I don’t think we’re going to get to a point where more loan officer robots are having that part of the conversation. Once you submit a loan application, they’ll probably be off and running. In my opinion, it’s always going to come down to a borrower talking to a loan officer in person on the phone or maybe even via chat.

More questions are coming in. One of them is you mentioned that you’re kicking off a new service. They wanted a little more background or more specifics on that. What is that doing? How does that work?

The service is Mortgage Sentinel. You can find out more about it at MortgageSentinel.net or contact me, Jim Paulino, via LinkedIn or any other method. What we do is we go in and conduct shops as we call them. We would call as potential borrowers to your loan officers. They wouldn’t know what’s happening. What we’ve done is work with your team ahead of that process to make sure that we have a profile set up. We’re going to be calling for a purchase loan in Montgomery County, Maryland with this credit score, with this demographic in terms of, are we married? What’s our age? Where are we calling from? We can test all of that. What you can do is you can go in and see how all of your staff responds to a different scenario.

Are they calling? Are they treating people the same regardless of where they calling from, what their credit score is, what loan amount they’re seeking, and how they sound on the phone? All of these aspects are important, not just for compliance but being able to have a business that runs successfully by things that we’re able to test and help you with. Often, we see that lenders do some of this proactively. You had mentioned NPS earlier. I know there are other survey products, but those are a little bit self-selecting in my opinion because they only talk to the people who already decided to work with you. What you’re not seeing is the people who you lose out on and the time that fallout rate costs you.

NPS is a Net Promoter Score. It’s very interesting and you’re launching a new podcast. Let’s make sure we spend a few moments as we wrap up the episode on that. It’s LodeStar Lending Leaders. I like that. What’s the best way for people to learn more about your new upcoming podcast?

I promote this pretty heavily on LinkedIn. You go find me, Jim Paolino. Also, LodeStar’s Lending Leaders, whether it’s on Spotify, Apple Podcasts, or Anchor. You can always email me at [email protected] for any questions you have, whether it be where to find information or to talk to us or anything like that. We’re always happy to have conversations. The more we talk to people in the industry, the better people can implement these solutions that work. That’s always my goal. As I said, this is my way of recreating all of those conference interactions that I miss right now.

That’s why our show is going up in listenership so dramatically. We’re having so many new listeners. I’m wondering if it is because of the conference. We missed that opportunity to talk and listen to others talk about the industry. That’s what the show is doing. Since you are launching a new podcast, anything I could do to help promote it? I would love to have you on again, Jim, to talk more about all that you’re doing from a technology standpoint and what you’re seeing in your podcast. Thank you so much, Jim, for joining us.

It’s a real privilege and honor to have you. I wish you the best on your podcast. We can’t have enough podcasts out there. There’s so much to cover and I’m thrilled that you’re going to be joining the ranks of the podcasters of us trying to help the industry. I appreciate it. Folks, we’ve had our special guest, Jim Paolino, Founder and CEO of LodeStar Software Solutions. Check out the new podcast that he’s launching and be sure to support him. I appreciate him doing this. Folks, it’s good to have you with us. Next episode, we’re going to have Brent Chandler of FormFree joining us. It’s going to be an interesting discussion. Brent and I were talking about the upcoming interview.

Some of the things Brent is doing are folks are so cutting edge. You’re going to want to check it out. Our conversation will be a better way to assess the ability to pay. It’s a great topic. Special thank you goes out to our sponsors, Finastra, as well as the Community Mortgage Lenders of America, Indecomm, Insellerate, Mobility, and Modex. Check out all of our sponsors on our sponsorship page. I appreciate you as our audience being here each and every week and telling others about the show. Have a great week, everybody. I look forward to having you back here next episode.

Important Links

• LodeStar Software Solutions
• IndustrySyndicate.com
• Lenders One
• The Mortgage Collaborative
• Indecomm
• Insellerate
• Knowledge Coop
• MobilityRE
• Modex
• LodeStar’s Lending Leaders
• Mortgage Sentinel
• Jim Paulino – LinkedIn
• LodeStar’s Lending Leaders – Spotify
• Apple Podcasts – LodeStar’s Lending Leaders