3.19.24 The "Lock-in" Effect; Experian's Joy Mina on Income and Employment Verification; Still All About the Fed

Thanks to today's podcast sponsor, Visio Lending. Visio is the nation's premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Visio is fast, simple, and dependable when it comes to financing rental properties. They believe time is money, and strive to be upfront and consistent about their qualifications. Using a simple DSCR rather than a complicated NOI calculation, there are no tax returns or personal financial statements, and their pricing is set, so you always know your rate. Learn more, including about Visio’s top-notch broker program, at https://www.visiolending.com/. 

Transcript

SPEAKER_01 0:03

Welcome to the Crisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Christman. Topics on today's episode include the lock-in effect, my interview with Experian's join Mina on the income and employment verification landscape and the Xperian Verify solution. And it's still all about the Fed.

SPEAKER_00 0:24

Thanks to today's podcast sponsor, Visio Lending, with over two and a half billion closed loans for single family rental properties, including vacation rentals. Visio is fast, simple, and dependable when it comes to financing rental properties. They believe time is money and strive to be upfront and consistent about their qualifications. Using a simple DSCR rather than a complicated NOI calculation, there are no tax returns or personal financial statements, and their pricing is set, so you always know your rate. Learn more, including about Visio's top notch broker program, at Viziolending.com.

SPEAKER_01 1:05

One never knows what one will learn at a mortgage event. Like yesterday learning from Lender Toolkids, Alex K that Collinsville, Illinois has the largest ketchup bottle in the world. Speaking of, do you spell it C A T S U P or K-E-T-C-H-S UP? The Collinsville area produces 60% of the world's horseradish route, but I'll save that tale for another time. Later today I'll be leaving Las Vegas, flying north to Reno while President Joe Biden flies south from Reno to Vegas. And I imagine the Chow on Air Force One beats whatever Southwest is serving up Nevada or nationwide. Politics are certainly intertwined with housing, and vice versa. There's the lock-in effect produced by government induced rates, and ICE reported that first-time homebuyers made up 55% of agency purchase mortgages in 2023, the highest for many years. Meanwhile, heard in the hallways, increasing the pool of qualified first-time homebuyers without a corresponding increase in homes they'd buy is pointless. It just jacks up the starter home prices. End quote. And from someone else, quote, affordable housing initiatives are not really moving the needle. Instead of eligibility at 80% of the area median income, why do they make it 50%? End quote. For today's interview, I wanted to welcome to the show Experience Join Mina to talk about the income and employment verification landscape and the Experian Verify Solution. She's product director of commercialization at Experian Verification Solutions Division. She spent her career in software development, product management, and commercialization. She joined Experience Verifications Project when it was just an idea back in 2020 and has grown with the business to now be part of the leadership team. Credit has been a really hot topic in the mortgage industry as of late, for better or worse. But Joy, I want to start by asking you how has the landscape of income and employment verification evolved since Xperian entered the market in 2021? People might be a little surprised that uh it was so recent.

SPEAKER_02 3:16

I think sometimes we're surprised that it's so recent, to be honest. Um, but I'd say the verifications market today is very different than when Xperian first entered the space. Back then, we were hearing lenders primarily asking for more innovative solutions. They wanted more flexibility without sacrificing quality of service. Um, and they were really frustrated with increasing costs. While many of those things are still true, um, and especially true for mortgage lenders. Since then, we've seen a few key trends surface to the top. Uh first, I'd say we see lenders shifting away from using a single provider model to a multi-provider provider model. Um, gone are the days where a lender uses just one verifications provider. We see them implementing waterfalls to succeed. Um, we also see data providers, like on the flip side, um, especially payroll providers, increasing their presence in the market and being willing to engage in partnerships. Lastly, I would also say we see lenders having an increased interest in different methods of verification. So, like having the consumer upload uh documents manually or having the consumer permission access to their payroll accounts using credentials. Uh, we increasingly see those in lenders' waterfall strategies.

SPEAKER_01 4:46

As a quick follow-up, why are we seeing so many new entrants into the space? They must think there's some sort of opportunity there.

SPEAKER_02 4:54

I think there is opportunity there. Um, I think if you have lenders asking for change, then there is definitely opportunity in the market.

SPEAKER_01 5:04

Well, you mentioned waterfall strategies, and that's one of the first times that I've heard it. I'm not sure if it's a standard industry term. Can you explain what a waterfall is, how it works, and how it benefits lenders?

SPEAKER_02 5:17

Absolutely. So if we just first take a quick step back and look at verifications as a whole, there's a few different ways to complete a verification of income and employment. Those methods can include instant verification, consumer permission verification, um, or manual verification. And manual verification can be either a consumer manually uploading documents or a verifications provider conducting a research verification where they outreach to the employer. When I'm saying implementing a waterfall or a waterfall strategy, I mean a lender's implementing one or more of these methods through one or more providers. So for each verification, the lender would start with one method, like an instant verification solution. Um, and then they would go from one vendor to the next until they've exhausted all their options, and they would then move on to the next favorable method or vendor. The goal being hitting as many sources as needed to get that satisfactory response. In reality, lenders do need to implement a combination of different verifications methods, like instant provision, manual, to reach that 100% coverage rate that everyone wants. But I'd say on the flip side, by being able to leverage multiple methods and having a waterfall, lenders really maximize their chance of success. They increase their coverage across the market, they improve hit rates, they can provide consumers a seamless digital experience, and overall reduce consumer abandonment because at any point in the flow, they either can capture that information in an automated way or prompt the consumer to provide it. I would say here at Experian, we believe that the best practice for implementing a waterfall would be to lead with instant verifications, because that really has no consumer friction. And then we recommend that lenders would follow that up with a verification method that does have increased friction. For example, most mortgage lenders who use Xperian Verify have it first in their waterfall. If we Xperian have the data, we return it instantly within a couple of seconds. Otherwise, we won't charge the lender, and the lender can certainly waterfall down to another solution, whether it be another incident provider, a permissioned solution, or a manual solution.

SPEAKER_01 7:45

I want to go back quickly to your comment on flexibility. What feedback have you been hearing from lenders about the importance of flexibility?

SPEAKER_02 7:54

I think that's a fantastic question. Flexibility is critical. I would also say lenders need a desire for flexibility is a big reason Experian got into this space to begin with. Across the board, we hear lenders asking for more options and flexibility. Every single lender has different verification needs. And too often, existing products will box them into a solution that isn't really fully optimized for their needs. At Experian, we believe that flexibility is, you know, the foundation and critical and key to verifications. And when I say flexibility, I'm referring to offering lenders choices. That would be choices of multiple integration methods, choices for different report outputs, choices to have the solutions across different price points, and a range of custom filters. We consistently have heard and continue to hear lenders asking for flexibility and innovation in this industry. And frankly, we believe they deserve it. So I say, for example, if we just take a deeper look into those custom features and filters I described, having features that can be tailored to a lender's unique needs is critical to allow them to define what success is. Success or a hit looks a little bit different for each lender for what they're looking for. So by having a range of custom options, Experian allows a lender to determine how wide to cast that net so they don't have to pay for data they can't use or don't need. And we believe lenders should be able to make those types of decisions and outline what they need and what they're willing to pay for. At the end of the day, managing costs is top of mind for every mortgage lender. And I think having flexibility around these types of product options is critical to allowing lenders to streamline their processes, reducing their costs and optimizing their business in this really difficult time in the market.

SPEAKER_01 10:09

I appreciate you taking us through that because I was going to ask how it worked in practice, but you covered all of it. So let's let's close by talking about Experian's own evolution since entering the market. And as I mentioned, Experian entered the market in 2021. What has Experian been focused on?

SPEAKER_02 10:25

Robbie, I love this question. Thank you so much for asking. I absolutely adore talking about Experience verifications journey. Um, so we entered the space, as I mentioned, because our clients, lenders, asked us to. Um and since then, Experian continues to focus on what our clients are asking for and what matters most to them. And I'll tell you, we have been really busy. Um, in the past three years, we've really focused on growing our data assets. We've doubled our active record counts. We continue to focus on integrations with top CRA partners and the industry's top LOS technology providers. Um, we support income validation programs from the GSEs, Danny and Freddie. And I'd say lastly, we've scaled our business to the point that in just three years, the top 50% of mortgage lenders use Xperian Verify. So that's a bit of what we've been up to for the past three years, but I'm really confident that the next three years we'll be just as busy, if not more, as we continue to scale our portfolio. A few years ago, Xperian didn't have a verifications business at all. Uh now I would argue, and certainly I am biased, that the verifications business is comprised of the most passionate group of professionals who genuinely love innovating, solving clients' needs, and building verification solutions. Looking ahead, I'm certain that the best things are yet to come for our business. I would absolutely love to, Robbie. I'd love to close out by leaving you with our team motto, um, which is hashtag verifications is life. I have verifications is life t-shirt. Like it, it is in our DNA and we love it.

SPEAKER_01 12:15

Well, congratulations on all the success thus far in such a short time. And uh I wish you success moving forward. Joy, I really appreciate this. I think uh Experian does a lot more than what people think in terms of just credit reports. So it's great to shed light on this. Thank you very much.

SPEAKER_02 12:31

Thank you, Robbie. Thank you for having me.

SPEAKER_01 12:37

A week that will be rife with central bank policy announcements began with a slow retreat in the bond markets and traders pairing back their expectations that the Fed will start cutting rates by June. Expectedly, this week will be dominated by the Federal Open Market Committee decision tomorrow, where no change in the Fed funds rate, which sits at a range of 5.25 to 5.5%, is expected. But we will get a set of fresh economic forecasts along with a new dot plot. The first Fed rate cut is now forecast to come in mid-summer, and Fed funds futures are now roughly in line with the December dot plot, which forecasts three rate cuts this year. Thank goodness. As recently as the end of January, investors were counting on six cuts in 2024. The Fed has made it clear that policy is restrained and that its presidents don't want to become too restrictive. But there is a risk that the Fed will sound too hawkish during this meeting, which could push bond yields higher. While inflation sits above the Fed's 2% target, it has been trending positively. However, mortgage rates have remained high, currently above 7%. With the unemployment rate rising and average hourly earnings growth decelerating, the Fed still believes inflation is likely to cool further in coming months. Remember that aside from the FOMC, this week is packed with lots of mortgage-related economic data, including the NAHB housing market index yesterday, where we saw home builder sentiment jump to an eight-month high in March, fueled by limited resale inventory and lower mortgage rates. A measure of expected sales in the next six months rose to the highest since June. We received building permits and housing starts today, and existing home sales on Friday. Today's domestic economic calendar is headlined with February housing starts and building permits, which are expected to come in at 1.45 million starts and 1.50 million permits versus 1.331 million starts and 1.489 million permits in January. Later today brings Red Book same store sales for the weekending March 16th, and Treasury then announces the auction size for short duration bills before auctioning $75 billion of 42-day CMBs, $46 billion of one-year bills, and $13 billion of reopened 20-year bonds. Ahead of the start of the Fed meeting, we begin the day with Asian CMBS prices slightly better than yesterday, and the tenure yielding 4.33 after closing yesterday at 4.34%. Let's wrap up with a joke and some housekeeping. One day at Area 51 outside of Las Vegas, a radar tech spots a single engine plane on final approach to the Secret Air Force Base. The plane touches down and is immediately surrounded by armed guards. The plane's impounded and the pilot is whisked off for questioning. The pilot claims that he'd been flying from Denver to Vegas, gotten lost, and nearly run out of fuel, so he put his plane down at the first runway he saw. After extensive background checks that go nearly all night, it's proven that the pilot isn't a spy and he's set to be released the following morning. Before he's allowed to leave, he's given the you didn't see anything talk, and is told that under absolutely no circumstances is he allowed to tell anyone where he was or what he saw. The Air Force fuels up the man's plane, gives him a proper heading to get back to Las Vegas, and sends him on his way. Later that day, the man's plane is again spotted getting ready to land at Area 51. This time there are two people on the plane. When the plane touches down, it's immediately surrounded by guards again. As soon as it comes to a stop, the man hops out and yells, Do whatever you want to me, but somebody has to tell my wife where I was last night.

SPEAKER_00 16:19

Thanks to today's podcast sponsor, Visio Lending, with over two and a half billion close loans for single family rental properties, including vacation rentals. Visio is fast, simple, and dependable when it comes to financing rental properties. They believe time is money and strive to be upfront and consistent about their qualifications. Using a simple DSCR rather than a complicated NOI calculation, there are no tax returns or personal financial statements, and their pricing is set, so you always know your rate. Learn more, including about Visio's top notch broker program, at Visiolending.com. If you have any questions about the podcast or sponsoring opportunities, send me an email at Robby at RobCrisman.com. Visit RobCrisman dot com for more information on our industry partners, access to archived commentaries, and how to subscribe to the daily mortgage news and commentary. To listen to or download past episodes of this podcast, search mortgage news on any platform you get your podcast from.