Lykken on Lending

In our SPECIAL EPISODE this week we have David H Stevens, CMB, CEO – Mountain Lake Consulting, Inc. here to discuss the ICE/Black Knight Merger, and how it will affect everyone concerned.

Want to know more about David H Stevens?

David H. Stevens CMB, (Dave) is the CEO of Mountain Lake Consulting, Inc. Dave is a 38-year veteran of the Mortgage Banking industry.

Dave previously served as the President and CEO of Mortgage Bankers Association (MBA) and prior to this role, Dave served as the US Assistant Secretary of Housing and Federal Housing Commissioner at HUD (US Department of Housing and Urban Development). Dave has served a variety of key industry leadership roles prior to his work in Washington including as President and Chief Operating Officer of the Long & Foster Real Estate Companies, Inc., Executive Vice President of Wholesale Lending at Wells Fargo Home Mortgage, and Senior Vice President in charge of Single-Family Lending at Freddie Mac, and Group Senior Vice President at World Savings Bank. Dave currently sits on the Board of real estate investment trust Dynex, Inc.

Dave works on advisory projects in real estate finance and provides technical and strategic consultation to financial institutions and intermediaries.

In 2018 David was named Mortgage Professional Of The Year by National Mortgage Professional Magazine, has been named one of Bloomberg’s 50 most powerful people in real estate, and Inman’s 100 top most influential leaders. He received the Founders Award from NAHREP in 2013. David is often cited in the media having appeared on CNBC, PBS, and Bloomberg TV and quoted in major media. He has testified before the US Senate and House of Representatives multiple times and continues to influence policymakers in Washington.

Dave received his CMB (Certified Mortgage Banker) designation in 2015 and holds a BA in Political Science from the University of Colorado at Boulder.

Opinion: The risk of ICE, Black Knight deal is in the data

LYKKEN ON LEADERSHIP PODCAST-David Stevens, CEO of MBA

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SPECIAL EPISODE: ICE/Black Knight Merger

Folks, I’m excited to have someone who really doesn’t need much of an explanation in this industry. David Stevens is joining us, CMB. Formerly, David was the CEO of the Mortgage Bankers Association of America. He did so much for our industry during his legacy. He’s also served and been in the White House during the Obama administration. He has done so much. I encourage you to take the time to go read that profile and reach out to David. Most importantly, David is here. He’s overcome quite a bit of health challenges. David, I want to start right there. Give our audience a good report. We talked about this earlier. You’re doing great. Let our audience know about it.

It’s good to be with you, David. As everybody knows, I’ve been battling cancer since 2016, when I announced it. It’s the kind of cancer that’s not curable, but I have an amazing team at Johns Hopkins. They’ve been able to play Whac-A-Mole with this deadly disease over the years. I far extended my life expectancy based on my health. I think we got a long run ahead of amazing developments that have occurred in the cancer field across all types of cancers, minus no exceptions. It’s good to be with everybody here. Thanks to everybody who’s been so supportive in the past, including you, with your thoughts and prayers. I appreciate you.

You have both thoughts and prayers. We have been with you and Mary and your whole family as you have gone through this. You are now CEO of Mountain Lake Consulting. You are continuing to be a leader in our industry. You published a really interesting article that caught my attention. It was in the back of my mind as I went, “I wonder if anyone’s going to comment on this.” I’ve got thoughts on this, but I wasn’t sure. You articulated so well a position in the marketplace. Let’s get right into that.

What we’re talking about, readers is the merger between ICE, the old Ellie Mae platform, Empower and Black Knight. That is a merger that has a number of us wondering, “What could this mean?” You are our consumer advocate, probably more so than anything else. You’ve been a strong consumer and housing advocate. Why do you think this could present some challenges and harm consumers?

I’ve been saying for years that the mortgage industry is one that hasn’t been Ubered or Amazoned, as it were. For the most part, Uber took out the taxi cab industry, and Amazon wiped out a lot of just traditional retail in America. I’m not saying they didn’t produce outcomes we all take advantage of. That’s the reality. What makes the mortgage industry unique is, as one person described it, it’s a very fractured industry.

What makes the mortgage industry unique is it's a very fractured industry. Share on X

We have thousands of lenders. We have hundreds of vendors of different types that support these thousands of lenders, all of which allow us to be more competitive for consumers. Even while rates are rising, we all know that margins are extraordinarily tight. The only reason is that our fractured industry is competing like heck to bring the best rate and terms to their customer and provide the best technology and best resources.

ICE is a huge company. I’m not sure if anybody knows of the Intercontinental Exchange. Maybe when you went through the airport and traded in your dollars for Euros on your last trip to Europe, that booth, whatever airport across the country, was probably an ICE booth, or that they own a New York Stock Exchange or other exchanges. Years ago, when I was on the board of MERS, I was involved as a board member in selling that company to ICE. That’s when their first real entry into the mortgage space began.

I’d say, just be careful of this one gang because ICE is a really good company, but what they may do is conglomerate so many of the technology platforms, the two biggest LOS systems in America now, which is Encompass, which they owned from the Ellie Mae platform, and Empower, which is in the Black Knight platform, plus Black Knight servicing platform along with Optimal Blue, which they will become owners of, along with MERs, which they’ve already acquired.

There’s the challenge of creating a monopoly, but they wouldn’t quite be a monopoly. They’d have about 70% overall market share of data that flows through the mortgage markets, but they could create barriers to entry for NewCos, for a new dynamic, let’s call it the better app as it were, that might come forward and be able to break into our space simply because they’re not owned by this new conglomeration and between all of the companies that would be collectively owned by ICE, theoretically. I’m not saying they would do this, but I could say, theoretically, we got to use our vendors or nothing else. Whether our vendors are great or not, that’s the challenge we end up facing.

 

At a very high level, that’s it. We could be creating by default the first real monopoly in the mortgage space at such a level that the amount of data, consumer data and loan data, that ICE would have flowing through their systems would be bigger than either Freddie Mac or Fannie Mae, which nowadays are the biggest owners of borrower data independently. Collectively, they’re about the same size as the ICE’s next step would be, but ICE would have all of that data within their possession going forward. The downstream potential effects are significant. These are additional considerations, which I haven’t mentioned yet, but they need to be considered.

You bring up the data one, which is a significant one. He who controls the data, especially when we have so much power in technology, got a real dominant position in the marketplace. We already saw that with Black Knight. Now, you combine these two? Exponentially more of a threat, I believe. I want to go to the cost origination because when we look at how mortgage software is growing as a line item and the cost there, we saw the MBA published statistics that now, in the first quarter of 2022, we saw the cost originating loan has risen to $10,637 from $9,470. Certainly, this is a drop because of production and some fixed costs that are built into that. We understand that. Significantly, the cost of technology and the amount of technology necessary to be competitive now is a major factor. I love your thoughts on this whole topic.

This is one where ICE is probably going to make the argument and say, “We’re so good at what we do. We can make the market more efficient.” That may be the case. I don’t know if they will or they won’t. But one thing’s for certain. I’ve had many CEOs of mortgage banking companies reach out to me and say, “I have in the past used Empower and Black Knight as competing bids, as competitive offers.”

In other words, if Encompass wasn’t keeping up to speed, I’d threaten to go to the Black Knights Empower platform, and that’s not always feasible. We all know smaller independent mortgage bankers tend to be wedded to Encompass. Regional banks and larger independent mortgage bankers need more customization, and they tend to use Empower. In the middle, there’s a large number of institutions that literally do have a credible threat of being able to go to a competitive bid from one or the other. That could theoretically go away.

Someone described utilities as maybe the industry needs a technology utility. It was raised to me by a regulator before. My response was utilities control all your pricing, whether it be an electrical utility or any other utility you deal with that involves your home. I live on a lake where there’s only one real Wi-Fi provider, and their service levels and pricing would not compete if I were up in my Washington, DC, home, where I have multiple providers being able to compete.

It’s the reality that once you control that much power in the marketplace, your obligation to remain competitive, both in technology efficiencies and upgrades, as well as pricing competitiveness, would go away. Imagine if, in this contraction in the marketplace, there are only 2 or 3 lenders, Wells Fargo and Rocket Mortgage and whatever else, just a couple of them. The margin compression would be nowhere as severe as we’re seeing now.

For better or for worse, you may not like the margin compression you’re basing, but consumers, on a relative basis, they’re getting better rates than they would if everything was consolidated under 1 or 2 institutions. In this case, the power of the collective combination of all of these technology platforms could create opportunities for the new parent company, ICE, to produce greater margins and perhaps not be obligated to be as efficient in service upgrades.

The power of the collective combination of all of these technology platforms could create opportunities for the new parent company, ICE, to produce greater margins and perhaps not be obligated to be as efficient in service upgrades. Share on X

There’s a sideline to this, David. I remember when I ran the single-family business at Freddie Mac. This was pre-conservatorship. We gave our best pricing and the most attention to our biggest customers. At the time, Wells Fargo was my biggest customer. They got the best deal. I can’t imagine a time going forward where ICE is getting bombarded by lenders of all shapes and sizes saying, “I need my system to do this or that.”

The internal change management staff within the new conglomeration is going to have to focus on their priority order of changes. My assumption would be that they’re going to first focus on the ones that will affect the most volume, most likely their largest customers. These are the kind of things that come out of the creation of a big, almost monopoly-like conglomeration of companies.

No matter how good ICE is now, they’ve never had to manage operationally the kind of high-touch manpower required company that will be needed to deal with Black Knights platforms on top of what they’ve already swallowed with the Ellie Mae stuff. I’m just not sure this is actually expertise of theirs when in the past, they’ve owned indexes and trading platforms, which are not hugely human-intensive.

It’s a great question. You touched on large banks, Wells Fargo specifically, when you were at Freddie Mac. Talk about the latest MBA report about technology costs for large banks.

All I’m going to highlight on the cost of technology is, David, I know you talk about this on this show, and with the clients you work with, institutions with legacy technology platforms frankly change harder and slower. Oftentimes with large banks, technology changes are competing with the broader changes required in a financial institution.

If J.P. Morgan Mortgage needs some development in their mortgage systems because they’re older and more antiquated than what new code and new platforms are providing in the marketplace, and they want to remain competitive, they probably have to run through a decision-making process that involves the overall chief technology officer or CIO of the bank of the overall investment bank that makes a decision in terms of prioritization.

That can often mean that technology changes and costs can vary significantly depending on where you are in this space. Put another way, look at a mortgage broker or a small independent mortgage banker using Encompass now. You may hate your technology costs, but frankly, they may be more efficient for outsourcing so much of it to a third party. It just varies on where you are in the customization, the size and shape of your company, where you are from the aging of your systems, and what’s needed in order to remain current. So these are all just variables.

I do highlight, David, in looking at the release on technology’s overall cost to originate north of the ten-thousand-dollar number we saw from the MBA to your point, it didn’t include the right size into the marketplace that we’re going through. We should see how that evolves over time, but there’s no doubt about it that technology is not only never increasing cost, it will be an increasing cost for years to come because that’s just the nature of how we do commerce in America, not just in the mortgage space, but in every business that operates in the United States nowadays.

We look at the cost originate loan now, and we know a lot of that cost is getting passed on to the consumers. If this continues in the trajectory, it’s fair to assume this will, in fact, be passed on to consumers. What are the consequences of that? What does that look like?

The consequences are that depending on who you are in the space and your relationship with the new conglomeration, the fee structure could ultimately be different. Frankly, it’s going to be harder for this new conglomeration to be able to customize and modify options for smaller institutions. I worry about mid to smaller independent mortgage bankers, community banks in this country, credit unions, and more that just don’t have the aggregate negotiation power of some of these very few big dogs who think they will garner the most attention.

 

All of that cost will run not only to your respective P&Ls as lenders, but somehow you’re going to have to manage that in your pricing. If it prices some out of the market over others, it means that margins that are already tight will become even tighter for some, maybe less tight for others going forward. I’m not certain ICE is going to do this. They haven’t said anything directly. They haven’t stated their future plans.

Likewise, none of the regulatory discussions to date in terms of approving this merger, I don’t think have come to the point where they would say, “Conditional upon this purchase, you must agree to the following.” Frankly, I don’t think they would. One last point that I would suggest is companies don’t buy other companies just to simply keep things the way they are. They want to create efficiencies to create more market opportunities or to perhaps lock out competition going forward.

We’ve seen that. Companies will buy competitors simply just to put them out of business in certain sectors of this economy. I had even seen it in the mortgage markets. Companies will buy another company because there are complementary footprints or complementary platforms that they can help to leverage what they’ve got and grow even larger. In almost every case, companies buy companies to reduce overhead expenses and reduce redundancies.

That’s a difficult discussion when you consider that both the Encompass platform and the Empower and the servicing platforms of Black Knight, while they may have some similarities, they’re extraordinarily different, and they have very different feedback that I get from users. ICE would simply buy these guys and keep them as is. The service levels you’re getting, at worst, remain the same. I’m just not certain what happens there. It’s a big thing to swallow.

I know I’m talking a lot here, David, but I would highlight that ICE is a good company at what they’ve done, but they have never bought fit into this side of the market, which is very human-contact intensive. We both know that Encompass, more importantly, the Black Knight servicing platform has a lot of customer contact obligations. It’s very human manpower-intensive. It has an extraordinary regulatory intervention. I’m not sure ICE is ready for this. They’ve grown so much in the mortgage space.

They merged a few short years ago when I was on their board, and they weren’t even in our market. Now, look at them, they’re just like mushroomed, and they’re about to do the biggest acquisition, making them an intermediary in the market that could be good or bad. At the end of the day, as I say in my op-ed, be careful because you’re going to get what you get. If you sit there and just watch this on the sidelines and do not start paying close attention to it or raising questions and concerns, you’re accountable for the outcome.

If you sit there and just watch this on the sidelines and do not start paying close attention to it or raising questions and concerns, you're accountable for the outcome. Share on X

You raise a good point. Regulators don’t have multiple mortgage and technology companies to help navigate Everest Markets. How will this limit their ability to preserve systematic and consumer safety?

It’s a great question. If you look at the CFPB, and I know that the bureau has been talking to a lot of folks on this subject, the drawback is the bureau has no role in approving or not approving this merger. They can make statements about it and would not be surprised if Director Chopra makes a statement because he tends to make statements about a lot of things.

He’s socially active, for sure.

One of the interesting paradigms here is the Black Knight servicing platform is the biggest platform used by servicers in the country. It’s got its strengths and weaknesses, no doubt, like any other platform. They also take on a lot of representations and warranties that now there isn’t a competing bid per se that can come in through the same fulsome experience and also relieve current lender servicers from all of that regulatory risk that comes with the bureau’s requirements under the national servicing standards rule.

The way the bureau will then enforce this is it will ultimately look at the next market correction, which may or may not be upon us. It will be nothing like the Great Recession, but we’re probably going through a slowdown here, which will increase defaults, at least at some level. In that kind of scenario, the pressure on testing the servicer’s ability or the sub-servicer’s ability in America now to service the marketplace and meet all the standards required will be the way they test how this all is working.

The second point in the bureau, what they have is the consumer complaint database, which honestly, as we all know, we raised a lot of concerns about. I did, personally. I was at the MBA when it first rolled out. No actions have really come out of that database other than periodically they publish a hierarchy of where the complaints are, but nothing seems to come of it.

However, going forward, I would expect that when you conglomerate this much activity under one parent company, that likely regulatory scrutiny will only increase, and the regulators themselves will find the need to add the expertise to be able to look at them much closer. We’ll have to see how that would play out if this goes forward.

You look at 80% of all the complaints into CFPB as on the servicing side of the business. That’s the number. Is that still holding true?

Yes. It should be. Originators, especially through the last couple of years prior to this sharp interest rate rise, were basically approving 2.5% to 3% loans over and over again for millions of Americans. That’s always a good feeling. My payment got lowered, etc. Servicing is where the friction occurs. I couldn’t get a pay-off statement. I couldn’t deal with my loan. I couldn’t find that information about my loan.

I can’t make my payments. I lost my job temporarily during the forbearance piece. It was very lumpy. As we all remember, in March 2020, when the forbearance rules went into effect after Congress passed the first law that went into effect on April 1, we didn’t even have rules from the GSC about how to service customers. So I would’ve expected complaints to go up pretty dramatically. In this case, this is a very different scenario.

My gut tells me that no matter how good a company ICE is, they’re not the only good company in our business. We do really well with competition. Take, for example, a competing company, the number one lender in America in 2021, Rocket Mortgage. They’ve been an incredible company. They’ve grown dramatically. They have relatively new technology. They’ve created such efficiencies, but would the market be served if they were the only company without competition?

The answer is clear. We all know the answer. No matter how good you are as a platform, your capabilities and competitive attributes will wear over time. No lender in America has held the same market share position over the long term. In fact, there’s a great chart that the MBA published in a HousingWire piece showing how the market share of the top twenty has changed in the last twenty years, going in five-year increments. It’s a whole entirely new list.

Staying competitive requires you to keep that ax sharp, the classic sales tool. I work harder to keep my ax sharper, so I’m better than my peers. In this case, if you create this kind of massive conglomeration, you might limit or reduce the appetite for private equity in others to build new technology platforms because they may believe, “I can’t get a foot in that door. It’s already overly consumed by this massive mega-firm.” Put another way, is there a competitor to Amazon now? Not really. It’s hard to break into the space.

 

Now, Amazon does a good job. Will that be the case ten years from now? I don’t know. In the mortgage market, we’re not just talking about buying food, dog food, or toys on the internet. We’re talking about making the most important investment that American citizen makes ever, like the purchase of their home. The tension to always be on the cutting edge and be the best is the only way you stay alive in this business. That’s why we ought to be thinking about what happens in this particular scenario.

That’s such a great point. You think about Quicken. I have so much respect for Dan Gilbert and the guy Bill Emerson. Talk about top executives who have anticipated things that are great students of the industry. Are they excellent at what they do because they have a monopoly, or are they excellent because they had to compete and take market share from other market leaders? The point that you’re trying to raise here is a great question.

I don’t know that any of us have the answer yet, but it certainly causes us to think about the importance of even when you have talented executives like Dan and Bill, are they that good? Yes. Are they that good because they had to go out and compete as they have? Keeping our competitive markets is just so critical. I want to turn and talk about decentralization and centralization. The mortgage industry operates in a very decentralized state and consists of thousands of lenders, banks, community banks, and independent mortgage bankers. Can you explain how all compete for loans in a nation of borrowers who benefit from the resulting competition?

I think I’m preaching to the choir in this case.

On this, yes, you are, but it’s good to hear you.

I love the selling approaches that various institutions make. “Brokers are better.” That’s a line that’s come out over the last few years. “Brokers are great. Independent mortgage bankers are great. Credit unions are great. Community banks are great. Large independent mortgage bankers that are service retained are great. Banks are great. Regionals. Nationals.”

They all have their place.

They all have niches. They all approach the market a little differently, and no one covers the whole market. Some only do confederate conforming or govvy and don’t have very good jumbo. Some have great jumbo, but they don’t want to be in the FHA program. Some won’t do reverse. Some won’t do reno in a construction firm. All of this only exaggerates the point that you only had 1 or 2 players, but you can’t force them to do it all. That may only, in the end, if they shrink it.

Like the CFPB, on their consumer pages on their website about how to get a mortgage, the first thing they talked about was to shop at 2 to 3 different institutions. That’s important. I use a guy who is not even the best trade all the time. I use this guy because it’s painless for me. I set my priority. Price was not my priority. Service was my priority. At the same time, there were other home buyers or borrowers out there who were on the edge of qualification.

They need that best price, or they need a jumbo loan. The institution they’re doing business with frankly doesn’t have access to good jumbo execution, or they need an FHA loan, and frankly, that institution they’re dealing with hates FHA and puts overlays on top of it. They don’t know this. Consumers are not aware of what lenders’ preferences are, their capabilities are, and how they do it. In some centers, you do it only online or talk to a person through a centralized customer service platform.

Others are local. They develop relationships with realtors, and they know the communities that they’re dealing with. Those have differences. When you’re talking about a purchase that is hundreds of thousands of dollars or millions depending on where you sit in the food chain of home buying and the mortgage is respective of that, I honestly believe that without competition, we would be doing a major disservice to the American home buyer.

Our industry right sizes. We’ve got really big during the refinance boom. It’s going to shrink, and it is shrinky now. I promise you it’s going to shrink by the time we’re done by about 30% from where it was at the peak during the refi boom the last couple of years to where we’re going to be the next couple of years. It has to. That will be organic through mergers and acquisitions and reductions and more. That’s a good thing. It will level out, but the competition will still be there. It will still be fierce. Those who are members of credit unions want all their accounts in one place.

Our industry right-sizes. Share on X

I could go on and on about why you chose a different institution in the marketplace. I just think that the nation and our industry are served by this massive competition far better than concentration. I don’t think concentration would serve the mortgage market well because even though it’s a lot more homogenized than it was before the Great Recession of ’08 when we had all these strange products in the marketplace, it is still very disparate in terms of how various institutions approach the market and where each institution is better or worse. There’s always someone who’s better at something than that one’s worse in. These are things that point me in the direction of more competition and less concentration, and all of that benefits the American consumer.

You’re bringing out some great points. I was encouraged by your percentage of 30%. I have been saying and hearing many others saying that we can see a reduction of the number of companies of all mortgage lending by a substantially larger number than that. It’s you being the leader and having a unique perspective. With that 30%, I hope you’re right.

I’m just taking the forecast from Fratantoni and Fannie and Freddie and looking at what they think the market’s going to attract, and they’re all expecting around a 30% contraction from 2021 to 2022 and staying at that level for the next couple of years. It could be worse. In a piece by Mark Zandi, the economist from Moody’s, I read it, and he says, “If rates go up to 7%, that changes the baseline forecast.”

I assume the reduction will be in manpower, not necessarily in the number of institutions. We will have a contraction in the number of institutions. In some cases, institutions that got really big over the last couple of years will simply shrink back to being the size they were before the refi boom hit. It doesn’t mean they’ll go away. We’ll have a lot of mergers and acquisitions. We’ll lose a lot of companies, or they’ll come together in terms of new mergers. We’re already seeing this with some of the bigger non-bank institutions particularly. In terms of overall headcount, we should see that contract match or mirror the contraction in the marketplace.

If this merger between ICE and Black Knight is in fact, approved, explain what would the combined entity have. When we look at the immensity of this, it’s pretty interesting.

A lot of smart people are working on specifically sizing the market. Here’s where we roughly sit. It would have about 65 %, 63 % maybe, of the total loan origination platforms in the country in terms of what’s originated. I’m not going to name companies that don’t use Black Knight, but there are a lot of very large banks and large non-banks that have purely made their own platforms and made their own in-house origination systems.

Without naming them, you know who they are, but they have those. There’s more few and far between than the regional banks and other large IMBs that use either Black Knight’s model or Empower with customization. That’s what Empower does, or have jumped on the LMA trade when they were smaller, and they got really big using Encompass and continue doing so. That’s about north of 60% is what the folks I talked to are looking at in the LOS space.

When you look at servicing spaces north of 70%, maybe 73% to 75% in terms of the Empower servicing platform, collectively, that will say more than 2/3, rounding up towards 3/4, it’s big. As I said before, you could say that’s going to be good. It will take out a lot of the fractured nature of our industry. I honestly spent a lot of time before this merger was even announced looking and talking to executives who are building new technology platforms and have private equity funding them that have the anticipation of entering some of the spaces that these companies provide now. I look forward to that. I’d love to see a new LOS provider come into the space that the IMBs primarily use now from Encompass and compete with them and be good at it, maybe better at it, and switch to that.

It’s a competitive nature. What competition brings to all of us is we step up our game as a result of that. How is the ICE acquisition of Black Knight different than other mergers we’ve seen? Is it the fact that we really start to see a potential of a monopoly per se? Is that it?

That’s it. The biggest question you have to ask yourselves if you’re reading this is, “Am I comfortable with a monopoly in this space?” It won’t be exactly a monopoly because they don’t own the entire market. Let me give you one example. In the past, pre-acquisition by ICE, I don’t know what the Encompass platform does now, but Encompass had everything attached to it that were products or associations they had created.

They had a hedging system. They had a dock system. They had all sorts of other tech providers attached to their platform that they preferred that you use, but you weren’t obligated to do so. Likewise, in the Empower platform, there’s a lot of customization that goes on there. I wonder, once ICE makes this acquisition, they have investors that they have to say, “This is a pay-off. This is why we did it. This is the value proposition.” I would just assume that one of them is, “Once you own it all, you use our vendors, or the price goes up pretty significantly for everything else.”

Not just my LOS per unit transaction, but maybe whatever servicing went through my servicing platform or however you may use Optimal Blue, or who knows what comes next. There is the opportunity for the owner of an almost monopoly to set prices. I want to give you all a concept. There are market makers and market takers or price makers or price takers in the marketplace. I heard an interview with a large wholesale executive not so long ago.

 

When asked about how his company was going to remain competitive in the wholesale market, he said, “At the end of the day, during this contraction, we can’t be price makers.” United Wholesale is the price maker. We have to be price takers at some level because they have so much market share. Price takers are part of a lot of markets. They come and go, but I believe at the end of the day, this conglomeration of technology would be a price maker. The industry would be price takers because you’d lose a major competitive bid in reality.

Being a price taker is an awkward place to be in the market. Think of the GSCs during COVID. They added a refi fee. They were price makers. They added it for no reason. It had no logic, but we had no choice. We took it. They’ve added the second home and a 2-to-4 fee. Everybody complained, but we’re price takers. We’re not price makers because there isn’t a competing market for that product. I will tell you that the friction for technology providers to come into the space, that bar is higher.

You would think when second homes got priced the way they were, that would have made an opportunity for Redwood or some PLS market to get into the space and say, “I can get a bid that’s going to compete.” It hasn’t happened yet, but there will be attempts there because the capital markets are so efficient and quick when credit spreads are right and all the other conditions apply.

In this case, creating technology is highly concentrated in terms of money investment upfront with no return for a long time before you see any light at the end of the tunnel to get adoption. This is a very different story we’re talking about in this arena. I know the folks at ICE very well. I have great respect for them, and I know they aren’t happy with how I’m using my voice in this space. I’m not saying I’m right.

I said it in my article. I’m just saying to be really careful as an industry. You need to make your own decision here, not have me or anybody else makes it for you. If you’re concerned, you need to talk to your trade association, state association, or national association. I know they’ll be wary about saying anything. ICE is probably a member of these institutions.

Be really careful as an industry. You need to make your own decision here, not have me or anybody else make it for you. Share on X

Whether it’s the Independent Community Bankers Association, the ICBA, the ABA, whatever, credit union, CUNA or whoever, or MBA state associations, your regulators need to know, and your members of Congress need to know. I promise you, as business owners, particularly, I read what your show covers, don’t underestimate how important your voice is and how important it is to use it now, and ask those questions because you aren’t going to get a second chance as soon as this moves forward.

That’s such a good point. One of the things you did while you were at the MBA is created the Mortgage Action Alliance App. It created an opportunity for all the voices in the industry, whether a member of the MBA or not, putting in a plug for the Mortgage Action Alliance. You need to download that app and have your voice heard. It’s such an effective tool. Thank you for creating that for the entire industry, not just for the MBA members. That was such a significant thing you did.

I look at the landscape, and everyone says, “They just acquired this.” You think they bought MERS. They’re buying up these companies. Where do they stop? Where does this go? What happens if this has been acquired? It goes to this one point that you’re raising. It’s an intelligent discussion. I also respect the people at ICE.

I’ve met and interviewed them here on the show. I look at their vision, and they have a great motive. They want to bring efficiencies and talk all the right stuff, but there’s all this other side, the consequential things that could happen. You’ve done a good job of articulating it. Is there anything we’ve left on the table that we need to talk about in this area?

The last point I would make to the question you just raised is data. Data’s important because I know in the past, at least one of the companies involved in this discussion has actually challenged some originators that own the MSR, but these loans are being serviced by the Black Knight platform as to who owns the data. That’s an unfortunate debate. All of you know or should know that Black Knight’s already being sued for being a monopoly for their servicing platform nowadays.

That loss is going on before this acquisition. The challenge is ICE is not in the origination space now, but they’ve grown so dramatically. Make no mistake about it, guys. Many of you don’t even know who ICE is, but they’ve grown dramatically in our industry since the acquisition of MERS. It’s been phenomenal. They are really good and will always be able to put the best spin on what’s going to come out of this, greater efficiencies, and lower overall expenses. Maybe it’s aspirational, and maybe it’s real. We don’t know.

Maybe it’s argumentative to try to get people not to object to a merger of this size. I will say this and suggest it to you. In the next refi way, which there will be one, some years down the road, whenever the Fed gets done with what they’re doing, the economy starts slowing, and the Fed starts stepping back in, and general market conditions start driving rates slow again, we will have a refi wave. Maybe taking 6% loans and putting them into fours, but it will be a way, even if it’s a mini way. The collective ICE platform would be in a better position than any entity in the United States. They have all the origination data because it came in through their LOS system.

They have all the performance data because they have the servicing platform. They’ll have all of the servicer records. They know where that loan’s being serviced because they have MERS. There’s no question as to where the servicer record is located, or the trustee is. All of that information is in one place. What would stop them from merely flicking the switch, especially if earnings are pressed, but it didn’t give the bang for the buck their investors wanted? We don’t know. They want to prove this thing.

What’s going to change them from simply notifying all the people on their platform who are in the money and have their performance experience? They’ll have more data on their platform than any individual servicing or servicer in the United States will have, in the conglomerate, more data specifically. We all know that when there’s a refi wave, BB&T, Truist, or Fifth Third contacts their clients, etc., they’re protecting their servicing portfolio.

ICE will have more data collectively than any individual servicer in America. There’s nothing necessarily blocking the door for them simply saying, “I’m going to retain loans. Sorry, originators.” How do I appease an angry origination? I’ll pay you 50 basis points. I’ll send you a check or something. Who knows what happens down the road? Now, everybody’s going to say at ICE, “We would never do that.” Leadership changes. Obligations change. Requirements change.

 

All I’m saying is the power of data is enormous. Any loan rep knows what the power of data did for them during the refi boom. You had that data, you had your lists, and you knew exactly who to send to when they were in the money. That simple data element made you some extraordinarily profitable years. The amount of data these guys will have trumps anything you’ve ever had. I’m just suggesting.

It’s not a rhetorical question. It’s certainly a suggestion. You’ve always been someone who’s a strong advocate for consumer housing advocate, a first-time ownership advocate, building a strong housing sustainable system. You’re raising a question that we all need to ask. I’m certain we know we can anticipate what we’ll get out of ICE. They’re good at responding to these things. I want to go to one thing as we wrap this up.

You mentioned the Uberizing of the mortgage lending industry. David, you have 38 years in this industry. I’ve got 48. I believe I got ten years on you. Looking at this, we have so much complexities. That’s exactly the point you were just making. We have so many different participants, regulations, all this. It’s been very difficult for me to anticipate or see.

I’ve always been saying it could happen, but I just really see it because of how complex our industry is, especially with the regulatory environment and all the competing interests. It’s going to be very difficult to Uberize, to create a completely new experience unless something significant changes. The point and the question go back to the year op-ed. Is this that one thing that could in fact Uberize it?

It’s a great question. I think about the difference between Uber, for example, Uber was a new code. I think it was created to watch the movie. It’s a good one, by the way. Uber knew when you’re first to market, you got to move really fast because competition is going to come in. They came very quickly, and Lyft then came nipping on their heels. You can watch the movie to see the rest of how that turns out. There are still basically only two of them in the United States.

The mortgage market already exists. It’s already very fractured at the point of sale. I’m not entirely sure that fractured experience is at the point of sale, meaning there are all sorts of companies and different loan officer types, business models, and more at the point of sale. Here are two ways our industry gets Ubered, both of which are driven by technology. One is that the younger Millennials are coming in, and we now have older Millennials who are in peak home-buying season.

We have the younger ones coming up behind them, and the children of Generation X and older Millennials coming up behind them, are they going to need to be handheld by a loan officer through the process? Will we really need that entity? Will they be so comfortable with technology in ways that we’re not even there yet now that this gets done by talking to your watch, and you’re just done? To some computers, it is taking that information, like when you call a call center, “How may I help you? Do you need a new mortgage?” “Yes.” “What’s the amount? Give me the end, and you’re done.” That kind of thing, will that happen? Probably in 10, 15, or 20 years. I don’t know when, but it will be technology driven. Technology is such a force. It’s one that Dan Gilbert figured out long ago when he developed Quicken because that’s the one that works first, and others have followed. The other area is here. It’s all in the operation side of the business that has never been Ubered.

We still operate in a very inefficient model where we have to collect tax returns from our borrowers. We meet them at the coffee house and just hand them to me, fax them to me, scan them, or whatever. For whatever reason, we can’t 4506 before the transaction has that be enough. We don’t have immediate access to deposit information. We don’t have immediate access to income information.

I know a lot of vendors are on the verge of that, but it hasn’t been endorsed enough by regulators to have this be pushed so that ADP and all the others will provide this data. Once that switches hits, it will change everything. We’re on the verge of that. Even the MBA just put out a statement on electronic closings. I can’t believe we’re still arguing about these. At the end of the day, while not here yet, it will be technology.

I just don’t want us all short of saying this is an Uberification on the technology side of your LOS and your servicing systems in a way that could have a huge impact, particularly if ICE figures out the next best app on the LOS platforms to get the data needed in a way that no individual or smaller institution has the investment capital or wait in the financial system to aggregate. Let’s be real. When ICE is done here, they’re extraordinarily well known on Wall Street. They’re really well-known in Washington, DC.

They’re very smart. They have all the relationships, far more than almost any entity I can think of in the mortgage banking space, with policymakers and investment capital in the mortgage financing sphere. Their ability to affect that change even further once this is complete could have a major significance to the pace at which we ultimately disrupt the entire cycle of how a loan is originated.

I know a lot of people would applaud that. A lot of folks will tell me, “Why do we have to pay that much?” There’s a big class action lawsuit going on against realtors now of their commission structure. Nobody likes the fact that people have to get paid to do their work. These are jobs we do. We all get paid. In many cases, those lawyers get paid a lot of money. Why do we need lawyers?

In this case, you get what you get when you disrupt the market. We got what we got when we disrupted Uber. I’m born in New York City. Folks that had eagles that they had bought to drive cabs for hundreds of thousands of dollars, those eagles’ costs were worthless after this was over. That’s a scenario that says, “How will that disruption affect my business? It has nothing to do with taxi cabs.” I can see how it would happen. The question is, can you? That’s something you have to just think through.

You get what you get when you disrupt the market. Share on X

There are many good points you’ve raised in this interview. Thank you so much for your time. I’d encourage all of our audience to get on the interview we did with David Stevens a number of years ago when he was still at the MBA. It still gets downloaded a lot, David, because you are iconic and have been such an important part of the industry and the landscape. Thank you so much for being here.

As have you, David.

I guess the gray hair indicates that. We’re passionate about what we’re doing. At this point, it’s more about success. We’ve achieved that. It’s now the significance of making an impact. You’re doing that so well. Tell us a little bit about what you are doing with your company, Mountain Lake Consulting Infomercial.

You can reach me at Dave@MountainLakeConsulting.com. I have a variety of clients, some lenders, some technology providers, and some NewCos coming into the marketplace. I provide consulting advice to them, everything from business and commercial expertise in the industry to market expertise, as well as policy advisement about maneuvering inside the Washington DC Beltway. It’s been a lot of fun, but it keeps me busy. I really enjoy it. Our team is doing a great job, and our client base has been great. We have a lot of multiyear clients in our group. I’m enjoying it all, David.

We’re so grateful that you’re still involved. What a precious family you have, so blessed. We’re so grateful to have you on the show. Thank you, sir. Appreciate your time.

Thanks, David. Same to you.

 

Important Links

• David Stevens
• Opinion: The risk of ICE, Black Knight deal is in the data – Article
• Mortgage Action Alliance App – Apple Store
• David Stevens – Previous Episode
• Dave@MountainLakeConsulting.com