Latest / Market Pulse / What’s Next for Mortgage Lending, with Freddie Mac

Transcript

What’s Next for Mortgage Lending, with Freddie Mac · Market Pulse

• Jennifer Henry (00:43): Welcome to a special edition of the Equifax market. Pulse recorded here at MBA annual 25 in Las Vegas, Nevada. We are here today to talk about what happens next with our esteemed industry leaders. I'm Jennifer Henry, managing director and Chief Strategy Officer for capital markets, and government credit at Equifax. And I'm joined here by Christina Randolph, vice President of Distribution and single family acquisitions at Freddie Mac. Welcome. Christina Randolph (01:17): Thanks for having me, Jen. Jennifer Henry (01:20): All right. So can we start by outlining how Freddie Mac is driving efficiency and resilience in the current housing finance ecosystem? Christina Randolph (01:27): Sure. So as you may have guessed right, the market's been relatively flat. And in times like this, we, we always try to find, help lenders find ways to find optimal efficiency, lowering cost and, and help them manage their risk overall. And at Freddie Mac, you know, our, our main objectives are centered around that really we, we really strive to amplify home ownership opportunities. We always look at reducing cost not just for consumers but also for lenders as well as our ecosystem partners. And I would say the, the third sort of pillar for us is of course, paramount managing and practicing risk excellence. So when we think about helping the ecosystem achieve those goals, we really tried to align our objectives and our goals with things that we, that we know can help lenders. because At the end of the day our success is attributed in part to our lender's success. So I feel like that's those two themes are, are woven throughout everything we do. We really see resilience, especially as a team sport. I think we're only as good and as successful as, as each other is. And I think it you know, relationships like this in the marketplace are so critical to achieving that success. Jennifer Henry (02:57): Great. So what does resilience specifically mean in this context for both consumers and the broader financial system? Christina Randolph (03:05): Well, so given the fact that I just mentioned right about the market, right? We've been in this business long enough, right? There's, we've experienced so many highs and so many lows. Oh, yeah. And throughout each one of those economic cycles there's always the one constant has been around managing this risk, thinking about ways to be more efficient sharper with our cost. A lot of the foundational drivers for that is, is around digitization, automation, technology, right? So you look around at, at conferences like this you know, that we've been to together many times, and there's always the foundational folks that, that are in the market. And there's been, over the years, many emerging pieces of technology. So when I think about resilience, I kind of think about it from two lenses. How do we as Freddie Mac work with and interact with the ecosystem to understand what is out there that can not only help us achieve these goals, but help our, help us help our lenders achieve these goals. Christina Randolph (04:06): And then the second thing is sort of helping them implement and adopt a lot of these tools as well as optimize the tools that they've been using for a really long time. So that way when there are downturns in the market, or there are upticks in the market, no matter what kind of volume there is, they're always ready and prepared, just like technical systems are, right. That there, there a critical need for those things to be up and have a level of uptime and reduce downtime to manage the risk, right. Of something happening during those downtimes. The same holds true for mortgage production, right? Right. And it's really critical that we maintain all these connections personally as well as through the, the techno technological ecosystem to make sure that lenders and as well as as us, can be resilient in no matter what type of economic cycle we are in. Jennifer Henry (04:59): Okay. Well, I think that those are really lofty goals, but you guys are doing a great job. Okay. So from an organizational perspective, you talked about the drive to increase loan data quality in a safe and sound manner. Why is data quality the linchpin for achieving these goals? Christina Randolph (05:22): So in addition to what we hold very dear to you know, our value propositions with lenders, like we're helping them reduce costs and find efficiency in their process we really think about and focus on loan quality a lot as, as I think many folks know. When you're selling to any investor, and especially to Freddie Mac, there's a certain level of quality and manufacturing integrity that we expect, right? And, and those are, those requirements are very clearly outlined in our selling guide. And then there's throughout the process, there are certain always, you know, questions that pop up about income calculations and integrity of data and the source of the data. So I think for us it's really important to emphasize that during, not just on the backend, right? Can the lender produce a high quality loan, and can we sort of validate that through their documented processes, but can we help them closer to the point of sale? Christina Randolph (06:35): And what I mean by that is, you know, from the second the consumer picks up the phone and decides they want to engage with a lender, do a mortgage application, they may, you know, want to buy a house, they may want to refinance their house at all of those initial steps. We as Freddie Mac field it, you know, our responsibility to help the lenders understand what tools and capabilities are available. I know we were planning to talk about loan product advisor in this conversation, but that, you know, is our flagship risk assessment tool that has been in the market for decades. And we constantly are investing in a, in that tool specifically to help lenders, right? And it was, it was meant to really help underwriters sort of automate the consumption of all of our guide policy requirements in a, in a technological package that they could see when they're running the automated underwriting system through their loan origination system. Christina Randolph (07:30): So you take that concept and you do the same thing with verifying income, verifying employment, verifying assets, right? Yeah. And to try to digitize and automate as much of that as possible in the process. So that way when you get to the end of the loan life cycle, which is closing shipping, delivery, packaging it up to an investor, when it gets to an investor and it is pulled for sampling, that loan is as clean as possible with, with little to no defects. And that's when we think about when we, we say loan quality and managing the risk it's not just about that backend. It's really moving that to the left of the process as much as possible. Jennifer Henry (08:10): Right. And I was just going to ask you about like the tools. So Loan Product Advisor is the primary tool. Yep. Do you want to talk about any of the things that you're, you're working on in there? Christina Randolph (08:21): Absolutely. So I, and I really appreciate this opportunity to come and, and talk to you and, and, you know, talk to our audience about that because as I mentioned that's a tool, you know, that we that's our flagship product, right? For risk assessment it kind of starts in LPA and, and obviously it branches out to other tools that we have to offer to the market and other ways to use that tool. But again, we, we find it really important, just like any software technology company in the market, you have to keep up with the latest and sort of greatest, not just technology, but enhancements and features that are going to bring the lender's value in their own business. And of, of course, you know, it, it is a way for us to again, measure the, the loan and the characteristics and the criteria of the loan up against our requirements for purchase eligibility to Freddie Mac. Christina Randolph (09:12): So it's important for us to invest in tools like that so we can provide that value to lenders in the way of digitizing and automating more of the process and the messages. So I'll give you an example is you know, we for a long time hadn't changed the format of the feedback certificate. So a lot of lenders and partners, you know, watching and listening to our podcast probably are very familiar with our feedback certificate and how we sort of break up the sections. And we, over the years, tried to offer very clear, actionable messages, but it's a lot of data, right? Because there's a lot of risk involved in, in mortgage loans. So we always, you know, want to make sure lenders have very clear messages and indicators about what decisions they as the lender need to make. Because it, you know, remember the lenders are the ones making the decision. Christina Randolph (10:02): We are merely offering our recommendation and our view of eligibility against our requirements. So it only benefits us to make that assessment as easy to interpret for the lenders as possible. So, things like very clear indicators, you know, is there income rep and warrant relief? Is there employment or asset rep and warrant relief? Did it receive an appraisal waiver? Do you have to take action in some other aspect of the loan? So we've, we've cleaned up a lot of the messaging over the years. And recently in our our latest LPA 6.0 release, we've actually reorganized some of the sections. So if you are a loan officer, processor and underwriter viewing the feedback certificate you can easily find what are the actionable items, and then what are the things that you just need to be aware of for the rest of the processing of the loan. Christina Randolph (10:54): And again, all of it is designed to make it easier, not only to do business with, with us for any Mac, but also to uphold, you know, very high quality standards and hopefully help the lender reduce the cost and find efficiency within their own process. And most importantly, to the lenders, they want to be able to offer their employees as well as their consumers the most painless mortgage experience there is. And we want that too, for the industry. It's what, it's what I think a lot of us who have been in the industry for a long time have been working so hard to achieve. Jennifer Henry (11:25): Yeah. Well, we've heard excellent feedback from lenders on the improvements that you've made. And, you know, we're excited about you guys continuing to enhance LPA as the industry evolves. So let's switch gears and talk some about some of the spec. Okay. So let's switch gears and discuss some specific initiatives Freddie Mac has in place. We'll start with the aim using The Work Number. Christina Randolph (11:52): Yes. So this is, this is the probably the most exciting feature of ours and, and a collaboration of ours that I'm always excited to, to talk about in the industry. So my background is, is I came from the primary market. I spent probably the first half of my career as a loan officer at a few different companies. And you know, I always sit here and think of the, the tools and the technology and the, and the capabilities that we have sort of built and collaborated on together. If I had had these as a loan officer, it would've been amazing decades ago. Yes, it would've made my life a lot easier. I would've been able to focus on building my brand, building my book of business, and focusing on customer lead retention versus having to fight with the system to get an application in to collect the pay stubs at w twos. You know, we had to do all of those things very manually. I had a binder that was the selling guide for both Fannie and Freddy that I had to look through. And I remember very specifically, whenever there was an update to a policy, you know, somebody would literally come by with a piece of paper Jennifer Henry (13:00): That we would put in our binders Christina Randolph (13:01): Piece, right? Pricing right? Rate sheets were all manual back in those days. And so to think about going from you know, not being able to answer a borrower customer for potentially two to three days about what I could offer them to fast forward to modern day, a loan officer literally has the tools on a mobile device to say whether or not click Yep, right click the button. And so when I think about that process as a whole, and you think about obviously credit is a, is a really important component of mortgage approval. And, and the whole pre-approval process, and then you typically are collecting and getting into conversations about income and employment and how much money they have for down payment, right? Right. And I remember having to fuddle through all of those manual documents. So with, with aim partnering with the Work Number, the fact that we now have a capability in the market that if I'm talking to a borrower and I'm getting consent from them to pull their credit report and credit history anyway for use in this specific mortgage application process, I can also ask them like, Hey, do you consent to me looking into your employment and income information if you provide it? Christina Randolph (14:22): So this is all, you know, con consensual, I'm not just doing it in the background. And then within mere seconds, being able to pull data of, you know, where they are employed, how long they have been there what is their monthly income, that all can then be seamlessly plugged into my loan application. Oh, and then by the way, I can automate the, the request to loan product advisor and have loan product advisor consume and ingest all of that information into our risk assessment to say, not that you loan officer have to collect pay stubs, w twos, and bank statements and tax returns, the whole, the whole shebang. But if LPA could say, you don't have to collect any documentation from this bar because we have automated, digitally verified all of this borrower's payroll information and employment information electronically, I mean, I can't believe that this is the, the stage or the phase that we're in, because I wish that I would've had these kinds of tools. It Jennifer Henry (15:28): Would've been great cus great customer experience. Christina Randolph (15:30): Yeah. And we're seeing really good success. I know that was another question, you know? Yeah. We, we had talked about wanting to kind of pull through here, we've had really great success with customers using the Work Number in their process because it all comes down to automation, right? Yeah. And digitization as much as possible and taking a lot of the manual, traditional documentation out of the process in, in, of course, a responsible, safe and sound manner. Yep. We, we, this is not I think, you know, for folks listening that are maybe not as familiar, I think the first thing that comes to mind is, you know, back in the day the no income, no asset or stated income types of loans, which were a huge amount of risk, obviously for our industry, right? This is not that, right? This is verifying data, fully automated, fully automated verification data from the source of the truth directly from truth, directly from the source. Jennifer Henry (16:17): So, you know, we didn't specifically talk about this, but I know that you guys had done a study and you talked about the impacts of utilizing, fully utilizing your AIM platform. Do you want to talk about some of the, the statistics that you guys have? Christina Randolph (16:33): Yeah, I think this is really this is, you know, they always say proof is in the pudding, right? And it's not just about us. And I think, you know, we talk about this a lot all the time. It's not about us just promoting our, you know, our tools and our capabilities out in the market. It's actually showing the value and the proof that this does save money. This does help lenders manage risk, and it does improve the overall bar experience and make it more efficient throughout the whole front end of the manufacturing process. So we have a lot of data as, as many probably know on the loans that, that we buy. So we take a look really closely at the pull through rates of some of these digital solutions out there. So, very specifically we looked at a small subset of loans, combine that with feedback from some of the lenders that are using the tools and even some that are not using the tools. Christina Randolph (17:25): And what we found is that lenders that are using these types of digital solutions at a very high rate are saving upwards of 15 to $1,700 per loan. I mean, that's huge. Amazing. When you think about that's amazing, the margins today on and the per loan cost to originate the loans. We've also found that it can save anywhere depending on how the lender operationalizes these tools, anywhere from five to eight days in cycle time, just in like that process that I talked about. Verify, just back, verify back and forth, verify going back and forth, collecting the documents. So this page is blank, I can't read this page. How much time does it save to just go to direct source data? So that's huge savings. And then the, the best part about this study is that it goes into detail about the impacts to loan quality and defects and repurchase risk. Christina Randolph (18:16): And by using these digital tools, it reduces a lender's likelihood of defects by four times. Especially when you think about, wow, four times the fact that income is probably the number one defect in our industry. I think that's huge. And I, I, and these are things that we talk to our lending customers about all the time. And one of the astounding other things in this study, I will say, and please, you know, feel free to for our listeners and our, our watchers out there to go look up the study. It's, it's under cost to originate. We've done a couple variations. But the one thing I I find astounding is that even if you're not adopting these tools at a very high rate, there's still opportunity for lenders that may not have the budget or the resources of the investment to order these, you know, reports on every single loan. Christina Randolph (19:07): Even if they're ordering these reports on a fraction, a small fraction of their business, they're still able to see a few hundred dollars worth of savings and a couple days even if it's an hour or two per loan, that that's huge. And that adds up. So when I kind of loop it back to what I started with around the efficiency play and the ebbs and flows of our volume in our industry, we're at a point now where it's, it's ripe and it's an optimal time for lenders to really look at their tech stack and understand how their process works and how their process can benefit from digital tools and solutions. Because if we ever do get into another cycle where there's Jennifer Henry (19:46): Another bubble, another refi bubble Christina Randolph (19:47): Refi bubble, or you know, rates go down or inventory goes, and there's, you know, opportunity for more purchase loans, more purchase business this is going to be a game changer for those lenders who are ready and prepared to take in that volume. Jennifer Henry (20:00): Yep. And I think from technology and an operational, but I mean, I think anybody who's listening that wants to take advantage of these solutions, who isn't fully doing so Yep. Can contact either Equifax or Freddie Mac. Yes. And we'll work together to help you take full advantage of these solutions. Christina Randolph (20:15): Yep, yep. That's what I love about the relationship is that again, we don't just, you know, put these capabilities out there and, and do fancy press releases to, to toot our own horn. They, we actually roll up our sleeves. Yeah. And we, we have often been on calls together with, with lenders even bringing their origination systems online with us as well, because I think it takes a village to kind of make sure that we are thoughtfully thinking about the process that the lenders have now. Yep. And understanding where their pain points are and, and digging into where we can kind of help them implement it and phase and roll this out in phases. Yep. And we've seen a lot of good success with that sort of hands-on collaborative approach. Jennifer Henry (20:56): Yep. And since we have so much experience working together, we do have best practices Yep. That we can leverage for all different sizes and types of lenders to make sure that we're providing them the right consulting to be able to take full advantage of these tools. So another tool, so speaking of tools and technology Yeah. One another tool that we've been talking a lot about, about is your income calculator. Yep. I wanted to give you an opportunity to talk a little bit about how that is evolving and, you know, just give us a little bit of information about that. Christina Randolph (21:29): Yeah. So most folks may know we have had an API in market for quite some time called our aim check API. So this is the ability for an integration partner, like a point of sale or a loan origination system, or a, a lender who has their own proprietary technology to connect into an early sort of preview of if the data, like for income assets or employment is how usable is it before running a full LPA requests. So it's kind of a way to give an indicator during that initial early conversation with a borrower where they may not know how they want to structure their loan, the loan officer's trying to find some options. But at minimum the consumer has signaled like, Hey, I would like you to, you know, verify as much of my information as possible Christina Randolph (22:18): because they might be ready to go in the next 30 or 60 days, especially in competitive purchase bid situations. Yep. Those consumers, those borrowers, potential borrowers, need to be ready to make an offer on a home, especially in a market like this. So this capability, this aim check capability has given lenders that that sort of ability to have an early indicator of whether or not that data will, that data will be usable within the risk assessment process. But, but what we recognized right, is that not everybody has the ability from a development and a technical resource standpoint to code or build to this aim check API themselves, right? So a co we handle this and we manage this a couple different ways. The first is really we work very closely with the, our origination ecosystem providers in the market to make sure that we implement and integrate with them and, and allow them access to the aim check API to make it available and as seamless of an integration as possible for those lenders who are on commercial platforms. But for those that are still struggling to with implementation challenges, operational challenges we wanted to create a way for them to still have access to this tool and take advantage of it without, without an integration layer. So essentially the income calculator is a website that they could go and input characteristics about the loan and the income, and then instantly have an answer back about whether that that information or that data can be used within LPA later on down the line. So it was our way to sort of meet customers where they were. We understand that there's still lenders that, you know, have challenges with implementing integrated technology and operationalizing it. So we wanted a way to make it more that same cal that same income calculation, more accessible, more accessible to those lenders who you know, need to still prioritize some of the technical pieces. Jennifer Henry (24:24): They're just not ready for it yet. Christina Randolph (24:25): Not ready for it yet, but we've seen such good success with it. That we are, it's another tool, right, in our, in our suite that we want to continue investing in. I think, and Jennifer Henry (24:38): How does the lender access it? Christina Randolph (24:40): They can go to our website and there is a page specifically for the income calculator. So as they're going through the process of in calculating a borrower's income, they can literally simultaneously to the application and just plug in all of the income information. And then we, we would give them our view of that calculation based upon, you know, the inputs that they put in. Jennifer Henry (25:01): What income types does it support today. Christina Randolph (25:05): I based over time a commission less than 25%. The basic foundational ones is what we support today. We do have plans on the roadmap to enhance that with additional income types. So you'll probably be hearing from us early next year on some of the enhancements around the income calculator. But we're really excited to again, be able to offer a way for our lending customers to have access to our view of income calculation, because again, tying that back to income being the number one defect in our industry it's another you know, way for us to increase the quality of that loan and that calculation during the actual manufacturing of the process and not later on down the line. Yeah. Jennifer Henry (25:51): Well, it's one of the things that, you know, we really love about Freddie Mac is that you guys are thinking about the entire ecosystem and not just developing tools that need to be accessed by the big lenders that you're developing solutions that are available for Yeah. Everybody in the process, no matter where they are from a technical perspective. Absolutely. So that's really great. Okay. So before we wrap up, really like to just get from your perspective as an industry leader, you know, our big question at this conference is what's next? So from your perspective, what is next? Christina Randolph (26:26): So we have no shortage of things going on in our, in our world today. I think from my perspective and, and with respect to, you know, the things that we collaborate on, I think what we are really focused on is that optimization of the tools and the technology that we roll out to the market and helping lenders achieve those goals that we talked about early on. Whether it's finding operational efficiency, lowering their costs, managing their risks. So there's so much work to do. There's only a fraction of the market today, and we talk about this a lot, that have adopted these digital tools in their process. So there's many much more opportunity, I think, not only to work with those existing clients that we have that have adopted those tools in terms of optimizing, like how they're using it. You know, if they're spending, you know, I'll make it up a thousand dollars a month on, on reports, right? But they're only seeing the benefit from half of that. Why is that? Right? Right. Jennifer Henry (27:34): And what can we do together to help them? Right? Christina Randolph (27:37): And we constantly compare notes about how we can each make our offerings and our products better then how we can make that offering better together, but where is there waste in the process? And how can we help lenders not have as much of the waste when they are adopting these tools? And then of course, there's the whole market of, of lenders that have just not adopted any of these digital tools, and they are still doing things manually, and how do we help them how do we educate them and help them see that it, it's, it's a lot easier to implement than they think it is. So it's a lot of hands-on training, education, awareness of course working with each other to identify those clients that we think would see the most benefit and be impacted more the most in a positive way. Jennifer Henry (28:23): Great. Yeah. So what do you think, if you're a listener, what is the, the single most impactful action that somebody could take today? Why we are kind of in this market lull? Yeah. I'll say to get ready for the next bubble. Christina Randolph (28:39): I'll say there's two, there's really two things. The first is around what you had touched on before is reaching out to either one of us, right? We both have really seasoned account teams, right? That have been in this business for a long time and, and really helped us sort of co-create some of these innovations together because they're the ones on the front lines hearing what the pain points are from our lenders. So, you know, that that's a lot of the input that we use to develop to, so to speak, solve some of those, those pain points in those problems. So I would say the first step is just reaching out to one of us to have that conversation and understand where we can help in, in their manufacturing process. And really the second thing is is really looking at their own process today. Christina Randolph (29:25): Because, you know, we are in the market that we are in, this is a really good time to look at from origination all the way through closing, where are my folks spending the most time? What is the most costly part of the process that we, that can be helped by automating something or using a digital tool or a, a data verification provider? I don't think you can get to the next step in automating things if you don't know where, what you're starting from. Is it taking me hours to verify income? Why, why is that? Can I cut it down to, you know, an hour or 30 minutes? What, what's the baseline? So I really encourage lenders when we start to get into these conversations about knowing at every stage of the process where their, what their time is spent, what their cost is, how many employees do, are doing what based upon their pipeline today. Christina Randolph (30:19): Because if you had to you know, double or triple that pipeline, could you do it with the same stack? Could you do it with the same technology stack and the way you're using it? We really feel like, you know, the use of data can be a force multiplier, right? Right. But you can't do that if you don't know what needs to be fixed in the process, right? Right. So I would say that's the second thing is, you know, really understand what your baseline is from a, an overall operating capacity standpoint. Yeah. Jennifer Henry (30:49): Yeah. I agree. Alright. So we just took a trip down memory lane of like our days as loan officers and kind of thought about like what things were like back then, and if we had those tools and solutions, like what our life would've been like. So let's take a look into the future five years from now, if you could, you know, just have a magic wand and make anything. So what would you like to see for our industry? Christina Randolph (31:19): I would love it if you know, we could help lenders offer a mortgage within a much more reasonable amount of time, and at the lowest possible cost to them and to the consumer as well as, again this theme of, of manufacturing the loan with the highest possible quality. So I always think of, you know, when we go and buy cars, right? Or, or finance lease cars, that process is only maybe, maybe half a day, maybe a few hours, right? Right. And I'm not proposing that that's what we do for, you know, someone's most important purchase or financial transaction of their life. Jennifer Henry (32:03): We do not want people like impulse buying house. Jennifer Henry (32:06): Of course not. Christina Randolph (32:07): But I think about how we can speed up the process and make it more efficient. And, you know, we have all of these great tools. I mean, we're at a conference, right? Where we have a lot of our great ecosystem technology partners out here. And there's a lot of opportunity to leverage, you know, tools like that, but they have to be the right tools, right? To be able to do them. It has to be a good fit. So, you know, if I, if I could, and this is just me speaking, right? If I could continue to promote anything and a desire to what I would've want to see, it's just to make this better, easier, and a much more painless process for all of us in the industry. And then when there is something new that comes out, make it easier to, to take advantage and implement those things, right? Christina Randolph (32:49): Because this industry is full of problem solvers. Every, every corner you turn, there's always an opportunity to, to make something better and to solve a problem. If we all are working together for that, that cause I think we can, I think we can achieve a, a really quick painless process in mortgage. And then we don't have to go to our you know, holiday family gatherings and hear about, you know, the awful mortgage process that they had to go through and what, what we're doing to fix that, you know? Right. So that, that would be my one hope and vision for the future. Jennifer Henry (33:23): So Right tools, right place, right time in the process. Christina Randolph (33:28): Yeah. And working consultatively to make sure that's the right fit for our lenders and, and how it can help them be more efficient. Jennifer Henry (33:36): Great. Yeah. Well, Christina, thank you for joining us at the Equifax, Equifax podcast booth at MBA annual, and we will like rerecord this part. Yeah. because I totally screwed it up, but yes. But yes, Christina, thank you for joining us at the Equifax podcast booth here at MBA annual 25, and exploring what happens next. Christina Randolph (33:58): Yeah. I really appreciate the opportunity and you know, I, I thank you for this partnership and this relationship and, and hope that we can continue to collaborate together in the future. Yeah, Jennifer Henry (34:07): Me as well. Thank you so much. Thank you. Appreciate it, .