Getting Ahead of the Cycle

This piece by RealKey CEO Christopher Hussain originally appeared in the January 2022 edition of MReport magazine. Read it in full at themreport.com.

In mid-November, the New York Times asked in a headline, “Will Real Estate Ever Be Normal Again?” Home prices continue to soar in cities around the United States, and despite a record rise in the Consumer Price Index in October and reports of goods and employee shortages nationwide, the U.S. Federal Reserve Bank has signaled it will keep the benchmark interest rate low to support the still young economic recovery. However, the economy may force the bank to act much sooner. If inflation is transitory, the Fed might be able to continue its near-zero interest rate policy, which will support current trends, but we don’t know that inflation will fade.

Tabling the conversation about rates being linked to inflation, there are other factors that may contribute to a continuation, or delay, in relation to our current housing bubble (let’s not pretend we’re not in a bubble). A projected COVID-19 baby boom could keep families on the move, looking for more and better places to live. However, if commodity prices remain high and the Fed raises rates sooner than most expect, the party could end in a hurry. We all have our opinions about what will happen. The market has the final say.

While the timing is unknown, a residential real estate market correction looms. Lower home prices and higher interest rates will reduce the volume of new purchase loans and refinances, forcing the industry to contract. Loan processors and underwriters will be particularly hard hit. If history repeats, mortgage lenders and brokers will invest in sales and marketing to keep volume up, ignoring the need for investment in loan processing and underwriting operations in advance of the next upturn.

Looking beyond the looming downturn, as the mortgage originations sector recovers and begins another cycle, the industry will struggle to keep up with growing demand from a new set of lower rates and/or increasing home prices. The homebuyer’s experience will suffer as closing times lengthen and stress mounts, as we saw when rates bottomed, and loan applications spiked during the pandemic. This is an outcome that lenders and brokers should have seen coming, given previous experience.

As the originator of more than $2 billion in residential real estate loans across all 50 states during the 2010-11 recovery in U.S. real estate markets, I’ve felt these acute pain points, deal by deal.

Real Estate Is Slow to Change
The mortgage industry is slow to change and resistant to disruption. The way we shop for clothes, furniture, and food is radically different from the standard practices a decade or two ago. Imagine yourself in 2003, choosing your groceries on your phone and setting up a delivery time. In those days, you probably still carried around a plastic card granting you the right to rent DVDs from a physical store on your way home from work.

Surprisingly, the homebuying and financing experience hasn’t changed much at all. Financing terms are determined, as ever, by a borrower’s ability to establish credit, capacity to pay, and the value of collateral. Some lenders are better than others. However, their rates and fees are higher than other lenders with less technology. The top two lenders in the industry leveraging heavy investments in technology, Quicken Loans/RocketPro and United Wholesale Mortgage (UWM), have less than middle-priced rates. So, why are they the leaders in the space? Customers generally don’t expect the mortgage closing process to be pleasant, straightforward, or fast. Most people will only go through the process a few times in their lives, so they have a narrow frame of reference.

The industry adage is that the average adult will own fewer than three homes in their lifetimes, generally purchased during early adulthood (a starter home), midlife (the upgrade), and near retirement (the leisure abode). A homeowner might also refinance their mortgage multiple times during a falling-rate environment, but today’s homebuyers are not likely to see lower rates ahead. Let that sink in … we will likely never see rates this low again. Feel free to get rid of the word “likely.”

The situation is unpleasant for mortgage loan officers as well. In good times, they are overworked and pressured to push financings through despite being saddled with antiquated technology, manual processes, and frequent errors made by those submitting and reviewing documentation. The best loan officers own their own brokerages or work for well-funded franchise brokerages that treat them well. Many burn out and move into other industries. Others work long hours during boom periods and find themselves out of work when the economy turns, never to return to an industry which could benefit from their experiences.

Read the rest of the article in full at themreport.com.

How Digital Mortgage Processing Can Keep the Industry Afloat

This article, by RealKey CEO Christopher Hussain, appears in the April 2021 issue of MReport, available here, and on their website here.

We’ve all been talking for months about the housing bubble we’re in. There has been a record number of home sales and refinances due to both unprecedented low interest rates and the ongoing movement of individuals and families leaving metropolitan areas for more affordable suburbs. At the same time, the global pandemic has taken a significant toll on millions of people who have either lost their job or had their income reduced.  

While home sales have been soaring in many parts of the country, the number of homeowners behind on their mortgage has doubled since the beginning of the pandemic. According to the CFPB, 6% of mortgages were delinquent in December 2020, up from 3% in March 2020. Of these, 2.1 million borrowers were more than three months behind on payment, an increase of over 250% since March 2020. Combined, these households are estimated to owe almost $90 billion in deferred principal, interest, taxes, and insurance payments. 

Additionally, one in five renters is behind on rent. As a result, both President Biden and the FHFA have extended moratoriums on single-family foreclosures and real estate-owned (REO) evictions through the end of June. The FHFA has also stated that people who have mortgages backed by Fannie Mae or Freddie Mac can apply for a three-month extension of COVID-19 forbearance. This means borrowers can potentially be in forbearance for up to 18 months.  

While these actions can certainly help many homeowners and renters, there are legal challenges underway to determine whether these moratoriums are constitutional, and within the federal government’s power to enforce. Even if they do remain in place, there are restrictions, and not everyone who needs help will qualify. Still, others may find the terms and financial assistance not worth their time and may opt to bypass these options altogether. Furthermore, even with the extensions granted, June is just around the corner. Yes, the U.S. economy is gradually rebounding, but millions of Americans are still out of work and are struggling to make ends meet. It won’t be long before millions of homeowners, as well as renters, will be expected to resume their monthly housing payments, and may also find themselves owing a lot of money in back payments. Because of this, I unfortunately believe that we will soon begin to see a flood of foreclosures hit the market.  

Preparing for the Flood 

Nobody wants to see renters evicted or homeowners going into foreclosure. However, the truth is that property owners and banks can’t afford to keep granting deferrals and taking the hit on their bottom lines. At some point, they will stop being flexible. At the same time, banks want to work with people as much as they can and avoid taking measures that will erode their customers’ credit. Logically, when an individual’s credit is good, banks can offer them more services. Overall, more consumers having strong credit is good for the economy—and good for lending institutions. So, while banks and lenders are trying to preserve their financial positions, they also want to help their borrowers. In order to accomplish both goals, they are likely going to start enforcing stricter requirements for documentation and proof of hardship. 

As those who are still affected by the pandemic attempt to qualify for refinancing into new loans with lower monthly payments or take cash out from their equity to make ends meet, they may not all be eligible. Lenders and processors will be flooded with paperwork as they try to accommodate customers’ needs for refinancing or other potential modifications should a refinance not be approvable. Imagine having to capture and review all of the required documents, identify what additional paperwork is needed, and communicate with and request information from thousands of individuals, their employers, creditors, and financial institutions.   

The situation is reminiscent of the housing crisis of 2008-2012, when there were tremendous volumes of loan modifications and people were hiring attorneys and specially licensed mortgage loan originators (MLOs) to document and argue their hardships. The entire process often took months to complete, with significant back–and–forth between lenders, borrowers, and anyone they hired to represent them. This extensive back–and–forth further exacerbated the hardships people were already trying to avoid and/or relieve by working with their lenders. Similarly, with the tsunami that is coming, consumers and lenders can’t afford to have these processes take months. They need it to be handled properly the first time around. In essence, what the mortgage industry needs are greater efficiencies, more automation of the document collection and review process, and streamlined methods of communication between all parties involved. 

Automated Digital Mortgage Processing Can Help 

Efforts to streamline mortgage processing through technology already provide some relief from the burdensome amount of paperwork involved in the mortgage lending process. However, existing systems have gaps and limitations—and with the onslaught at our gates, loan originators, underwriters, and lenders will still need greater efficiencies through automated document collection and review. While Point of Sale (POS) systems require tax returns and bank statements as initial documentation for submitting to underwriting, they lack the intelligence and foresight to ask for the needed letters of explanation or supporting documentation. Additionally, Loan Origination Systems (LOS) have numerous integrations and can capture data from submitted documents and other sources, but they don’t automatically trigger the request for specific documents as needed or help get the items from all the parties involved. 

Hand–in–hand with the document collection process is communication—another area where significant improvements can be made. Current systems focus on communicating with the lender and consumer only. But to streamline the process, it’s important to bring all parties involved into a single place where everyone can communicate, and to have a single point of truth for the transaction and documents involved. Any party in the process should be able to get immediate feedback without having to wait for overwhelmed originators, processors, and underwriters to review items (each of which has differing levels of experience).   

Without automation to facilitate document gathering, intelligence to detect what’s missing, and a portal for centralized communication among all parties, one missing form or piece of data can stop the entire process. This creates added delays and frustration in an already cumbersome process. Ultimately, what’s needed is a system that focuses on the documents rather than the application, because the application is where most of the misinformation and inefficiencies start.  

Find out the three ways that technology can significantly streamline mortgage loan processing to help MLOs effectively meet the increasing demands for loan modifications, while also improving the customer experience in the full article, available in the April 2021 issue of MReport, here, and on their website here.

Striving for the Holy Grail of Loan Processing

An effective tech platform reduces pain points for all mortgage stakeholders

By Christopher Hussain, CEO, RealKey

Featured in the February 2021 Residential Edition of Scotsman Guide, Hussain writes on the time suck that is the current process for stakeholders in mortgage processing and what can be done to right that ship. Below is a preview of the full article, which can be found here.

When it comes to the mortgage process, homebuyers and loan originators sometimes describe their transactions as trauma-inducing in nature. The breadth and depth of information — and infinite documentation — required is enough to make anyone severely stressed.

What’s more, the complex and time-consuming nature of the process severely limits an originator’s ability to scale their business beyond the closing of a handful of loans each month. To provide their clients with a world-class experience, they are forced to work long hours, leaving little time for the people and activities they love.

Christopher Hussain CEO & Founder of RealKey

Restrictions related to the COVID-19 pandemic have injected even more limitations and complexities into the process. With the dramatic growth in borrower demand spurred by record-low interest rates, originators and their lender partners are overwhelmed. This trickles down to clients, leaving everyone frustrated and exhausted.

Need to streamline

In November 2020, the average mortgage closing process took 55 days, or 10 days longer than a year earlier, according to Ellie Mae. This was due in part to overwhelming demand for new purchase loans and refinancing activity. This time is mainly spent chasing down and processing the documents required from borrowers and other collaborators.

Multiply the inefficiencies in the process with the sheer number of players involved in each transaction and it’s no wonder everyone is frazzled by the end. To say mortgage processing is due for a digital transformation is an understatement. Efforts to streamline mortgage processing through technology have provided some relief. Existing systems, however, have gaps and limitations.

For example, a point-of-sale system may require a tax return as an initial document but typically lacks the intelligence to ask for the necessary letters of explanation and supporting documentation. Additionally, a loan origination system can have numerous integrations, so while it can capture data from submitted documents and other sources, it may not automatically trigger requests for the correct documents from all of the parties involved.

Timely feedback

Communication is another area in need of significant improvement. Current systems generally focus only on communications between the lender, originator and consumer. To streamline the process, it’s important to bring all parties involved into a central gathering place to share the required documents and other transactional details.

Any party in the process should be able to get immediate feedback without having to wait for overwhelmed processors and underwriters — each of which have differing levels of experience — to review items. These are gaping holes that are complex and difficult to solve. Lenders are not in a position to decipher the issues regarding third-party document collections, reviews or communications. These ancillary parties do not want a portal for every lender. They want a neutral platform with a world-class and intuitive solution.

Without automation to facilitate document gathering, intelligence to detect what’s missing and a portal for centralized communications among all parties, one missing form or data point can stop the entire process. This creates added delays and frustration. Enough is enough — it’s time for a change.

Ultimately, what’s needed is a system that focuses on documentation rather than the application itself, since this is where much of the inefficiencies start. Technology can significantly streamline mortgage processing in several ways, helping originators to effectively double the number of loans they close each month, improve client satisfaction and have more time to enjoy life.

Read the rest of the article in the February 2021 Residential Edition of Scotsman Guide, found here.