9.13.24 Conference Hallway Topics; Candor's Ed Kourany on Industry Right-sizing; Boeing Strike Impact

To stay competitive in this market, lenders need to find efficiencies and understand their operations in a much deeper way. Richey May’s consulting, cybersecurity, business intelligence, and automation services are designed by mortgage experts to help you continue to drive growth and increase profitability. Visit https://richeymay.com to learn more about how you can 

Transcript

SPEAKER_00 0:03

Welcome to the Crispin Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Christman, live from Charlotte Douglas International Airport. What a week for me. New York City, Boston, Atlanta, Charlotte, and off to Jackson, Mississippi today to speak to the Mississippi Mortgage Bankers. Topics on today's show include chatter from recent conferences, my interview with Candor's Ed Caroni on current trends in the mortgage industry from lender employment to repurchase data and more. And is the Boeing strike going to impact GDP? Thanks to today's podcast sponsor, Richie May. To stay competitive in this market, lenders need to find efficiencies and understand their operations in a much deeper way. Richie May's consulting, cybersecurity, business intelligence, and automation services are designed by mortgage experts to help you continue to drive growth and increase profitability. Visit RichieMay.com to learn more about how you can protect your business or set up a meeting with one of Richie May's experts. I pay you to handle my loan and give me a good program with a competitive rate, not predict things you can't. At a recent event, a top originator told me that a borrower stated that I continue to see LOs of all types, as in banks, credit union, IMB, broker, direct-to-consumer, whatever, keep an eye on mortgage rates and know what they're doing, but focus on service and products, things that they or their company can control. Sure, everyone is predicting that the Federal Reserve's Open Market Committee will lower rates next week. It'll be no surprise. What will be interesting are the thoughts by the various Fed District presidents who make up the committee. Meanwhile, LOs are treating borrowers like prospects, making a difference in their clients' lives, and remembering that they are offering money, not mortgages. For today's interview, I want to welcome back to the show, Kanders Ed Currane, to talk about current trends in the mortgage industry, from lender employment to repurchase data and more. He's Chief Business Officer at Kander Technology and brings over 25 years of experience to the role, much of which you'll hear during our discussion today. Let's start with employment. Are we still over capacity? How will we properly right size? Is there more to go? I I think that companies have done a pretty good job of getting to where they need to be. And we're looking toward what's hopefully an uptick in volume into next year and beyond. And hopefully the the worst of this market cycle is behind us. You sent over a note saying employment for the mortgage industry is currently at the lowest level in over a decade. What does that mean to you? What are your takeaways from that? Should people be encouraged or discouraged? Where's uh give me some color on that?

SPEAKER_01 2:47

Yeah, absolutely. So, you know, look, the mortgage industry witnessed a dynamic shift over the last couple years. And frankly, it's going to continue, and it's characterized by fluctuating interest rates, increasing home prices, lean staffing models, trying to stay profitable, uh, growing repurchases, and you know, the continued evolution of the market challenges. And so where we're at right now is most lenders were forced to restructure teams to align with the lower volumes and minimize their losses, right? For the last, let's say six quarters in a row, very few IMBs have have seen profitability in their origination process. And so that led them to cut staff and really tighten up all their expenses. It's not just headcount, it's it's technology spend. You know, anywhere that they could try to take cost out of the model was important just to stay profitable and survive through what you know what what I think has probably been the worst uh 18 to 24 months that our industry has ever seen.

SPEAKER_00 3:57

Yeah, and that's a good way to put it because when loans were falling from the sky, it was the best we'd ever seen. But that's how market cycles work. If you're gonna have the best you've ever seen, probably the worst you've ever seen is coming on the heels of that, and that the Fed did not do a good job of basically pulling all the demand forward into a couple years. Speaking of the Fed, they're very likely to cut interest rates, or I guess it's it's fully baked in or priced in, that they're going to cut interest rates here at their meeting uh September 17th and 18th. The question is if it's going to be 25 or 50 basis points. But when it comes to the Fed cutting rates, and they they've indicated that we're they're going to start going through this uh monetary easing here. Does that equate to volumes in the mortgage industry increasing? Is there a direct correlation there? Or what do you expect as the Fed starts cutting rates here?

SPEAKER_01 4:51

Yeah, great question. So I do believe rate cuts are coming. Um, and you're right, volumes are expected to, with those rate cuts, whether it's a 25 basis point or 50 basis point, we're gonna see volumes increase by upwards of probably close to 50%. Keep in mind, right now, rates are at their lowest point since October of 2023. And that's according to an article in MBA published uh, I think the end of August. And even further, Moody's economist, um, I think his name is Mark Zandi. He actually expects rates are going to drop below 6% in the coming months. So, what's all that mean? What are we seeing? As I talk to lenders each and every day, there are and realtors, let's highlight that. One, we're seeing an increase in in locks, but more importantly, we already see a much higher sales inventory. And so people are coming off the sidelines and they want to sell their houses. So, in crit that that increase in volume, those same people that are selling are also going to be purchasing. And so as we get closer to 6% and drop below it, that's where they're expecting that that 50% increase in volumes.

SPEAKER_00 6:03

So I know I mentioned that the industry did not do a good job of right sizing or it took them longer than they should have. But now that we're looking at a potential uptick here in volumes, is the industry properly prepared for that, especially when it comes to head count? Or in your opinion, are they still unprepared uh for what could be an increase in volume here?

SPEAKER_01 6:28

Yeah, I think we're facing what I would call the perfect storm because at a time, at a time when volumes are increasing, head counts at its lowest level, to make matters worse, Freddie and Fanny have increased almost doubled their repurchase rates to historical levels. And their still primary findings are income and employment focused on income stability, variable pay, miscalculations, insufficient history. So you put all that together, right? Increasing volumes, increased repurchase rates, inadequate staffing to keep up with the model. And we're really facing the perfect storm. Now, is it a bad thing or is it a good thing? For the R industry, we need to see volumes increase. Everyone agrees that's what has to happen. But it's really about how to tackle this wave that's coming. And you have to think now's the time to rebuild differently. Um, if you think about it, scaling headcounts is expensive. It introduces quality and consistency issues, uh, introduces more repurchase exposure. And you know, putting lenders back into a process of managing the headcount cycle and profitability, they kind of get back into that never-ending challenge. And so as this wave is coming, I think now's the time to think about how to rebuild differently.

SPEAKER_00 7:49

You had mentioned repurchases earlier, and I know this has been a thorn in the side of many lenders, and it's a specialty of candidates helping lenders avoid repurchases, and that could be a whole different discussion amongst us. But when it comes to Freddie and Fanny here, repurchase rates have been close to double the historical averages with the primary findings category still income and employment. What's your takeaway from uh what's going on with repurchases? Or what I should even say, what's happening with repurchases? What's the latest there? And maybe since you've been so good at not doing a sales major, you talk about how Candor helps lenders avoid that.

SPEAKER_01 8:35

Yeah, well, and and and frankly, I think you know, I talk about the rebuilding differently. I think it's a combination, and and this is where lenders need to think differently, right? Digital mortgage technologies, automation, AI decision engines like Candor are the keys not only to lenders surviving this wave, but also future growth and future profitability. So I think it's important to talk about what the elephant in the room. These technologies aren't going to replace LOs, processors, and underwriters, but it's going to replace those individuals who don't adopt it. And that's probably the most important, I would call it, uh, barrier to success that I see in the industry is that people are afraid of the technologies, but you have to lean into them. And it's those that adopt them are going to be the most successful. And actually at the end of the day, adopting these types of technologies, you're going to accomplish more and you're actually going to have a better borrower experience. And if I could just dive down a rabbit hole, you know, one of the things, and I read an article recently, and I forgot to write down the note, but it's stuck in my head. So if you'll indulge me here, it said 66% of all borrowers say they will happily switch brands if they feel like a number, not an individual. So how important is borrower experience right now, in addition to all those other pieces, right? Headcount quality, risk, profitability. You can't forget the borrower. And so when you put it all together, when I talk about rebuilding differently, digital mortgage tech, automation AI, those things are enablers to obviously address headcount issues, add risk challenges, address profitability because you get more productivity, but also create a better borrower experience, faster response time, more time to engage and make the borrower feel like an individual and not a number. And frankly, you know, I guess this time I can say Candor is actually helping solve some of the preparedness around scale. Um, and and you know, if I if I dive a little deeper into some of the products and what they do, you know, Candor has actually evolved. I actually say we're the new Cander in the last 12 months. You know, we we just like lenders had to retrench and refocus our products over the last 12, 18 months. And we we broke it apart and realized that as important the automated decision engine is for underwriting, it's also important to move that as far forward in the process as possible so that you can have borrower decisions, uh, borrower needs list, borrower eligibility decision, pre-approval letters that can be shared, leveraging these types of technologies within minutes, like 90 seconds, 60 seconds, and not waiting days or hours. And even to the point with digital verifications now and Candr's improved processing speed, full conditional approvals, full income calc, whether it's W-2, self-employed, REO, that's possible in 15 to 20 minutes. So you have a borrower that can get a full conditional approval in less than 15 minutes. Talk about making the borrower feel like an individual, creating a personal experience. This is what technology can do, and this is how we can help reshape just the borrower experience. Meanwhile, productivity is usually improved across processors by at least 50%, underwriters by three or four X, cost to originate, cost to fulfill, come down, cost of repurchases. You know, Cander has now done 2.9 million underwrites across 600,000 funded loans across conventional and FHA and not had a defect.

SPEAKER_00 12:20

I really think that these are the two main issues out there for the industry that's good to hear Kandor's addressing both in both borrower experience and productivity. It's fantastic to hear. So before I let you go, I have a couple more questions. It seems like companies don't do a great job of preparing for what's next, whether that's lower volumes or higher volumes, and it seems that we're trending towards higher volumes. But maybe you could elaborate a little bit on what Candor's doing, uh whether they're that's I know you have a product LES and you have Candor Plus, what these products are doing to help companies scale efficiently and ultimately make them better, more efficient, and maximize their value.

SPEAKER_01 13:08

You know, lenders have in this industry historically has faced a cyclical headcount challenge. You you know, the market changes, then you scale up because you can't carry the costs. So the market changes, volumes start to rise. So you go out and you try to hire. You're competing with everybody else trying to hire, kind of following the curve. Um, so you're paying more, you're training, you're going through all this process, and it's it's kind of cyclical, right? As volumes drop, then you're trying to restructure your teams, or you try to carry the team as long as you can. And frankly, that's why we've seen so many mergers and lenders go out of business over the last 24 months. Is you know, we want we everyone cares about people. And so what we're seeing is leveraging technologies like Candor, you've got your your core team. And with a technology like Candor, where you increase the productivity what cross your LOAs, your LOs, your processors and underwriters, you can actually do two and three times as much with the same resources. So as you scale, you're not having to hire as many people. And you're in a position to meet those market fluctuations without having to go out and hire a lot of people. On the flip side, our Cander Plus, which we launched about 18 months ago, which is a full outsourced uh solution. By the way, it also has a warranty. So anything that the human or the technology does is fully warranted. We're basically standing in as a variable cost model that has infinite scale. So we have licensed resources both onshore and offshore. And we have many lenders now that are looking to us, whether it's across full retail or correspondent, delegated non-dell, pre-purchase reviews. They're looking at the Kandra Plus model where we leverage our people and our technology in a variable cost model. So you only pay for what flows through it as an as a mechanism to scale so that that core team at the lender doesn't go through the fluctuations that they've done so many times over the you know the many decades that our industry has seen.

SPEAKER_00 15:09

That's pretty cool to hear. Ed, I really appreciate you making the time for me. As always, always a pleasure talking to you. And uh hopefully we'll have you back on the podcast soon. Thank you very much, sir.

SPEAKER_01 15:18

Absolutely, Robbie. Thank you as well. Always, always uh educational for me as well.

SPEAKER_00 15:25

Mortgage-backed security in U.S. Treasury prices fell Thursday, lifting yields back to their closing levels for Monday. Up a little, down a little. And now that we have another round of consumer and producer inflation data out of the way, there is a much scheduled news of substance ahead of next week's Fed meeting and announcement. Initial jobless claims remain fairly steady, reminding us that the labor market isn't suffering a material and rapid erosion that would challenge the soft landing view. It will be interesting to see how Boeing West Coast strike impacts the economy, as 33,000 workers are on the picket line. Cynics will say, How about you put out a quality product and we'll pay you for it? But if a person isn't making money, they're not spending money. So the strike will slow things somewhat. Supply and demand figures significantly into prices and rates. And fixed income securities reach their lowest levels in immediate reaction to yesterday's $22 billion 30-year bond sale, which made for a mediocre finish to this week's otherwise strong slate of note and bond auction. Mortgage rates have slid to their lowest level since 2023 for Freddie Mac's primary mortgage market survey, turning attention to refinancing candidates. For the weekending September 12th, 30 and 15-year mortgage rates respectively slid 15 basis points and 20 basis points to 6.20% and 5.27%, 98 base points and 124 base points lower from a year ago, and 159 base points and 176 base points from last October's highs. There isn't a lot of scheduled market-moving news today. Case in point, August import and export prices generally don't shift rates. Later is the University of Michigan Consumer Sentiment Survey. After that price data, we find the two-year at 3.59 versus closing yesterday at 3.65, the 10-year at 3.65 versus yesterday's close at 3.68, and agency MBS prices better by an eight to a quarter. Let's wrap up with a joke and some housekeeping. A bunch of scrap metal dealers are all killed together in a bus accident. They end up at the Pearly Gates and are greeted by St. Peter. He says, What are you guys supposed to be? To which a big dirty guy in the crowd replies, We're scrap metal dealers. Peter says, How come there's so many of you? He says, Well, we're at a scrap metal convention and we were killed on the same bus. Peter says, This is highly unusual. I better go check with the boss. So he leaves the group waiting and goes to see God on his throne. Yes, dear lord, there are about 50 scrap metal dealers at the gate and they all want in. God says, 50? Oh no, that's way too many. Go back and pick the 10 or 12 best of the bunch and send the others away. So off St. Peter runs toward the gates, but a moment later he's standing back in front of God with a horrified look on his face. They're gone. What do you mean they're gone? says God. Where could they all go? Peter says, No, the pearly gates. They're gone. Thanks to today's podcast sponsor, Richie May. To stay competitive in this market, lenders need to find efficiencies and understand their operations in a much deeper way. Richie May's consulting, cybersecurity, business intelligence, and automation services are designed by mortgage experts to help you continue to drive growth and increase profitability. Visit Richie May.com to learn more about how you can protect your business or set up a meeting with one of Richie May's experts.com. Visit RobCrisman.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.