April 2020 Issue

HOUSINGWIRE MAGAZINE ❱ APRIL 2020

APPRAISER VOICE For appraisers to get the representation they need, they must have a united voice.

P. 34

VALUATION SOLUTIONS Seven companies leveraging tech to deliver accurate valuations.

HOUSINGWIRE MAGAZINE ❱ APRIL 2020

P.40

Zoning: the answer to the affordable housing crisis?

Without Your North Star, the Night Sky Can be Difficult to Navigate

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Find out the why behind the daily news cycle.

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HOUSINGWIRE APRIL 2020

EDITORIAL GENERAL MANAGER Diego Sanchez MORTGAGE EDITOR Ben Lane EDITOR AT LARGE Kathleen Howley REPORTER Julia Falcon DIGITAL PRODUCER Alcynna Lloyd CONTRIBUTORS Melissa Klimkiewicz, Brandy Hood, Sara Ruvic, Adam Johnston, Julian Hebron AUDIENCE DEVELOPMENT DIGITAL EDITOR Maleesa Smith DIGITAL CONTENT STRATEGIST Alyssa Stringer CONTENT SOLUTIONS MANAGING EDITOR Sarah Wheeler COMMUNITY EDITOR Brena Nath ASSOCIATE MAGAZINE EDITOR Kelsey Ramírez ASSOCIATE CONTENT EDITOR Jessica Davis CREATIVE MAGAZINE DESIGNER Emily Carpenter

SALES VICE PRESIDENT, SALES Jennifer Watson Laws jlaws@housingwire.com NATIONAL SALES DIRECTOR, REAL ESTATE Mark Adams, madams@housingwire.com CALIFORNIA Christi Humphries chumphries@housingwire.com CENTRAL Chris Anderson canderson@housingwire.com SOUTHEAST Tamara Wren twren@housingwire.com GREAT LAKES Lorena Leggett lleggett@housingwire.com NORTHEAST Vernesa Merdanovic vmerdanovic@housingwire.com BUSINESS DEVELOPMENT Lindsley Harris lharris@housingwire.com BUSINESS DEVELOPMENT, REAL ESTATE Amanda Luzsicza, aluzsicza@housingwire.com

CORPORATE PRESIDENT AND CEO Clayton Collins

MARKETING MANAGER Caren Karris

CHIEF PRODUCT OFFICER Diego Sanchez

MARKETING COORDINATORS

CONTROLLER, Andrew Key

Katie Galbraith, Brooke Combs

CLIENT SUCCESS MANAGER Haley Hess clientsuccess@housingwire.com AD OPERATIONS COORDINATOR Matthew Stafford CLIENT SUCCESS COORDINATORS Talia Quigley, Layne Powers

4 HOUSINGWIRE ❱ APRIL 2020

EDITOR’S NOTE

A trillion-dollar experiment AMERICA has a housing shortage – no doubt about it. Fred-

quantified by recent sale prices of nearby comparable homes.

die Mac says the housing market is missing 3.3 million homes.

What will those comps say if an area’s zoning is changed

Many of the builders wiped out during the financial crisis

and apartment buildings are erected in a neighborhood of

never got back in the game, and the immigrant workers who

single-family homes? Welcome to the experiment.

made up about a quarter of their crews haven’t all returned.

To read more about the changing landscape for zoning laws

Plus, there’s a shortage of buildable lots in some areas of the

and what that could mean for home values and for afford-

country, and a maze of regulations addressing safety issues

able housing, turn to page 28.

and climate change that make it difficult for homebuilders to keep up with household formation.

But is the answer overturning single-family zoning?

Perhaps, in some areas of the country, the answer is yes.

Keep in mind it’s a multi-trillion-dollar experiment because no one knows what impact it will have on property values if multifamily structures can be plunked down amid suburban houses. As we have the debate on how to help more families find a place to live, let’s remember that for most people in America’s battered middle-class, their home is their largest financial asset. What’s it worth? As always, the measure of a home’s value is what a reasonable buyer would pay for it,

Kathleen Howley Editor at Large @KK_Howley

Tweets From The Streets Refinanced my mortgage five days in a row. I get a free six inch sub on the next one.

65

140

2.1K

@ReformedBroker

The information contained within should not be construed as a recommendation for any course of action regarding legal, financial or accounting matters. All written materials are disseminated with the understanding that the publisher is not engaged in rendering legal advice or other professional services. HW Media does not guarantee the accuracy of information provided, and is not liable for any damages, losses or other detriment that may result from the use of these materials. © 2020 by HW Media, LLC • All rights reserved

HOUSINGWIRE ❱ APRIL 2020 5

BEHIND THE SCEN

We might have found the perfect area, but in order to get the perfect shot it required us to look at things from a completely different angle.

NES

Read more on page 28

APRIL ’20 FEATURES

28 IS ZONING THE ANSWER TO THE AFFORDABLE HOUSING CRISIS? States are increasingly moving away from single-family zoning laws. Here’s why, and what that could mean for the market.

By Kathleen Howley

34

40

APPRAISER REPRESENTATION

VALUATION REPORTS

The appraiser voice is currently fragmented, but to get things done they will need to unify. Appraisers talk about what they can do to see better representation of their industry.

Lenders and appraisal management companies seek to strike the balance between comprehensive reviews and efficiency while remaining cost-effective.

By Kelsey Ramírez

By HW Content Solutions

8 HOUSINGWIRE ❱ APRIL 2020

CONTENTS APRIL

24

14 THE LINEUP 12 PEOPLE MOVERS Impac Mortgage hired 30-year veteran Brian Robinett as its chief production officer.

14 EVENT CALENDAR The only advocacy event that focuses solely on real estate finance is coming up in April.

15 ON THE SHELF John Bolton releases his memoir on what went on during his service to three U.S. presidents.

17 UNIQUE SOLUTIONS Austin Niemiec of Quicken Loans Mortgage Services helps lenders prepare for a refi boom.

18 A LIST For the first time ever, Generation Z claimed market share in the housing market.

19 TAKE 5 Chris Heller’s guilty pleasure is vegan chocolate mousse, and he starts ever day at 5 a.m.

20 LOCAL INTEL On the local front, Zillow obtained a New York state residential brokerage license.

THE LINEUP

VIEWPOINTS

22 STARTUP PROFILE

24 FLOOD INSURANCE

iBuy launched to create what it calls a true iBuyer experience for homebuyers.

Can private flood insurance help keep homeowners from going underwater?

23 HOT OR NOT

26 EXPECTATIONS

FICO scores hit record highs while Fannie and Freddie IPOs are coming later than planned.

Loan officers are positioned to help homebuyers manage expectations for appraisals.

HOUSINGWIRE ❱ APRIL 2020 9

CONTENTS APRIL

BACK DEPARTMENTS

65

50 TRADE DESK Trade associations write to their members with updates on the housing industry.

54 MORTGAGE Buy versus build? The choice has become increasingly clear for many companies.

58 OPENHOUSE Here is how real estate agents are using iBuyers to grow their business.

62 FINTECH Here’s a crash course on the two categories of fintech and the top companies in each.

66 POLITICS & MONEY Ed DeMarco explains why we need a level playing field for private capital.

70 CFPB WATCH Is it time to have a discussion on LO comp as the CFPB considers changes?

BACK DEPARTMENTS 74 Q&A 1 Black Knight’s Daniel Kenshalo explains why frontloading is the next step for digital mortgages.

75 Q&A 2 Senior Associate Attorney Marie O’Brien says lenders should keep their focus on compliance.

76 KUDOS Why education comes before mortgages, and what some companies are doing to prove it.

78 PARTING SHOT

78 10 HOUSINGWIRE ❱ APRIL 2020

70 77

LIVE

and and

in Orange County, CA

VIRTUAL

EVERYWHERE June 11–12, 2020

HousingWire's third annual engage.marketing summit

Register at housingwire.com/engage

Brian Robinett Impac Mortgage

12 HOUSINGWIRE ❱ APRIL 2020

CRANDALL

BANIKARIM CORLEY

WILCOX GRIER

R

eali brought on Christian Coleman as its chief real estate officer. Prior to joining Reali, Coleman served as a vice president of agent development. Coleman brings more than 25 years of experience in the real estate industry to the role through various leadership positions at ZipRealty, Lennar Homes and Evergreen Realty (now Evergreen Realty HomeSmart).

DIMONT named former chief revenue officer Laura MacIntyre as its new CEO. Before joining DIMONT as chief revenue officer more than two years ago, MacIntyre served as director of sales for DocMagic.

Fidelity National Financial hired John Magness as its executive vice president, and executive vice president of Alamo Title Company.

Magness brings over three decades of experience from the title insurance and real estate industries.

Compass brought on Sara Patterson as its new chief people officer.

Patterson was vice president of

FRASER

COLEMAN GRASSI

Impac Mortgage hired Brian Robinett as its chief production officer.

Robinett joined the company with more than 30 years of experience in the industry. Most recently, Robinett was the head of HSBC’s mortgage direct business, where he expanded an origination platform.

human resources at Walmart for almost two years. Prior to Walmart, Patterson was chief people officer at Bonobos, a menswear site Walmart bought in 2017 for $310 million.

Home Point Financial named Ginger Wilcox its first chief experience officer. Wilcox will be working with the organization to drive innovation and accelerate the company’s growth. Prior to joining Home Point Financial, Wilcox was the senior vice president at mortgage software company Capsilon.

EasyKnock appointed J. Taylor Crandall to its board of directors, effective immediately. Prior to his appointment, Crandall was a founding member and chairman emeritus of private equity firm Oak Hill Capital, where he has been since the company's 1986 inception.

Neighborhood social network Nextdoor brought on Maryam Banikarim as its head of marketing.

Baninkarim has more than 25 years of marketing experience, managing

global brands and international teams. Prior to joining Nextdoor, Banikarim served as the global chief marketing officer of Hyatt Hotels.

Guaranteed Rate named former U.S. Department of Housing and Urban Development Principal Deputy General Counsel Joseph Grassi as its chief risk officer. Grassi brings several decades of experience to the company.

Freddie Mac elected Mark Grier to its Board of Directors. Prior to joining Freddie Mac, Grier served as the vice chairman and a member of the Board of Directors of Prudential Financial leading up to his retirement in 2019.

Built Technologies appointed Jim Fraser to lead its commercial real estate construction finance practice. Fraser has more than 30 years of experience in financial services, with an emphasis in construction lending and real estate development.

Before Built, Fraser was executive vice president of commercial lending at Axos Bank.

Donna Corley has been running Freddie Mac’s single-family business on an interim basis since David Lowman stepped down in October, but the government-sponsored enterprise is now removing the interim from Corley’s title. Freddie Mac named Corley executive vice president and head of the company’s single-family business.

Zillow Mortgage brought on Jonathan Lee as its senior director of mortgage sales. Previously, Lee was vice president of sales at loanDepot.

GO DIGITAL FROM START TO FINISH ALL THE KEYS TO A HASSLE-FREE MORTGAGE EXPERIENCE Our tools and technology make the mortgage process faster and simpler for you and your borrowers. At UWM, making the loan process simple and rewarding is our commitment to each of our independent broker partners. That’s why, in addition to unsurpassed turn times and some of the lowest rates around, we also offer the speed and convenience of a totally digital mortgage experience. Start with Blink, our no-cost mortgage portal that enables borrowers to complete applications on their time while freeing up yours. Our Doc-less process combines e-sign technology with systems that securely and automatically verify income, assets and tax returns, so you don’t have to ask your borrowers to chase down physical documents. With Processor Assist, just check a box in EASE and we handle ordering, emailing and calling for title work, homeowners insurance and more. And, with Virtual E-Closing, you can give your borrowers the option to close when and where they want without wet-signing a single document. From beginning to end, no other lender gives you the digital options that UWM does. See how simple and efficient UWM can make your loan process at UMW.com.

YOU + UWM = YOUNITED | 80 0.981.8898 | UWM.COM

This information is provided to mortgage and real estate professionals only and is not intended nor is it authorized for consumer distribution. NMLS #3038

EVENT CALENDAR

As of press time these conferences were still scheduled. But this is a fluid environment

AMERICAN MORTGAGE CONFERENCE MAY 4 - 6, 2020 Host: American Bankers Association Location: Francis Marion Hotel, Charleston South Carolina Cost: $675 - $2,075 On the agenda: The American Mortgage Conference brings together experts in the financial services industry, real estate bankers, policymakers and stakeholders to discuss issues relevant to the mortgage industry and take a look at the current political landscape. The conference schedule features sessions on an economic outlook for the mortgage market, leveraging affordable housing funds to support homeownership, and housing finance reform and ending the GSE’s conservatorship.

ABA.com

CHARLESTON

MBA NATIONAL ADVOCACY CONFERENCE 2020 APRIL 21 - 22, 2020 Host: Mortgage Bankers Association Location: Renaissance Washington, D.C. Cost: $350 - $800 On the agenda: The MBA National Advocacy Conference is the largest and only advocacy event that focuses solely on real estate finance, giving individuals and the industry as a whole a platform to influence positive change. The schedule includes breakout session briefings and legislative updates on commercial/multifamily and residential housing. Bob Woodward, two-time Pulitzer Prize-winning journalist and associate editor of The Washington Post, will be a featured speaker.

MBA.org

WASHINGTON, D.C. There’s no shortage of museums to visit in Washington, D.C. The Smithsonian National Portrait Gallery displays paintings, photographs and sculptures of influential American icons, including the only complete collection of presidential portraits outside of the White House. If you prefer a starry sky to an art gallery, there’s also the Air and Space Museum, which features an Apollo lunar module among its many flight-related artifacts.

Si.edu 14 HOUSINGWIRE ❱ APRIL 2020

The Charleston City Market is one of the nation’s oldest public markets, boasting more than 300 craftsmen and entrepreneurs selling locally made art, food, furniture and other goods. The market features more than 50 resident Gullah artisans creating sweetgrass basketry, a historic handicraft of African origin that continues to be valued today.

TheCharlestoncitymarket.com

ON THE SHELF The Room Where it Happened: A White House Memoir

BY JOHN BOLTON

HousingWire’s top stories delivered to your inbox every day.

SIMON & SCHUSTER

John Bolton served as national security advisor to President Donald Trump for 519 days. A seasoned public servant who had previously worked for Presidents Ronald Reagan, George H.W. Bush and George W. Bush, Bolton brought to the administration 30 years of experience in international issues and held a reputation for tough, blunt talk. In his memoir released March 17, Bolton offers a substantive and factual account of his time in the room where it happened.

Leadership Strategy and Tactics: Field Manual

BY JOCKO WILLINK ST. MARTIN’S PUBLISHING GROUP

Leadership Strategy and Tactics explains how to take leadership theory, quickly translate that theory into strategy, and put it into action at a tactical level. It answers questions such as what if you are promoted into a new position leading your former peers?

What if you don’t get selected for the leadership position you wanted? How do you overcome imposter syndrome, when you aren’t sure you should be leading? In the military, a field manual provides instructions in simple, clear, step-by-step language to help soldiers complete their mission – this book takes that same approach.

Find the right fit for you.

GET ON THE LIST:

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QL® MORTGAGE SERVICES

STRONGER TOGETHER Bill Thams QLMS Account Executive

Lindsey Peterson Marketing Coordinator Loan Pronto Charlotte, NC

Call (888) 762-5035 QLMortgageServices.com/StrongerTogether Equal Housing Lender. Licensed in all 50 states. NMLS #3030 16 HOUSINGWIRE ❱ APRIL 2020

The key to capitalizing on a refi boom is preparation and great partnerships

AUSTIN NIEMIEC Quicken Loans Mortgage Services

Austin Niemiec is the executive vice president of Quicken Loans Mortgage Services (QLMS). He has led QLMS through meteoric growth, doubling the number of partners over the last year and closing more loan volume in 2019 than in the previous five years combined. Niemiec oversees an everexpanding team of account executives based in Detroit and Charlotte who work directly with QLMS’ thousands of partner mortgage brokers, regional banks and credit unions. Niemiec joined Quicken Loans in 2009 as a mortgage banker, where he learned the various needs of homeowners and mortgage brokers through his work with thousands of clients.

HousingWire: According to the MBA, mortgage application numbers were at an 11-year high in January, leading some to say spring homebuying season began early this year. How does an early kickoff to homebuying season affect brokers’ ability to prepare for a higher volume of purchases?

Austin Niemiec: It’s a beautiful problem to have!

With interest rates at a 3-year low, it is critical loan officers capitalize on their clients’ refinance opportunity while it’s here. Recent reports have said more than 11 million Americans can reduce their mortgage’s interest rate by 0.75% if they refinance today.

To have a successful We are obsessed with delivering 2020, brokers need to push the real and tanbrokers speed to certainty. With gible savings clients Quicken Loans being the largest can achieve with their help. lender in the country, QLMS is That said, elite loan able to tap into that expertise to officers should always provide some of the fastest initial be building scale and efficiency to capitalize underwrites in America. on the purchase market during a refi boom.

The key is preparation and great partnerships. Here at QLMS, we take pride in helping brokers do both.

HW: What are brokers doing to partner with Realtors during this important time of year?

AN: The key is differentiation – be innovative. The focus on real estate agent relationships has never

been as big a focus as it is now. Being a professional, responding to your real estate partners with urgency and having unique tools to help them win more business is critical in this space. Brokers are not only selling their services to clients; they need to be networking with Realtors to ensure leads are constantly flowing through their doors.

One of the many tools we provide our Pinnacle Partners, that also helps Realtors, is Fresh Start.

Brokers get access to a team of credit consultants who can assist clients who don’t qualify for a purchase and, after developing a customized strategy tailored for the client’s success, turn them into a qualified buyer. Agents love it, and it allows brokers to separate themselves from the competition! The best part is that it’s free.

HW: How does partnering with QLMS help lenders get ready for purchase season?

AN: We are obsessed with delivering brokers speed to certainty. With Quicken Loans being the largest lender in the country, QLMS is able to tap into that expertise to provide some of the fastest initial underwrites in America. We also partner to create award-winning technology, like “The Answer,” to ensure brokers are pros 24/7/365.

Agents are looking for their clients to be able to close fast. Partnering with QLMS puts more tools in the toolbelt of brokers to help deliver top-notch results, ultimately providing the best experience for American families and real estate agents all across the nation. This is one of many ways we are Stronger Together with our partners.

HOUSINGWIRE ❱ APRIL 2020 17

 THE 

A-LIST ORIGINATION SHARE BY GENERATION

Z:

M

2%

E ILL N

ALS: NI

GEN

We know Millennials have made their way through the housing market – now Gen Z is, too. In fact, according to realtor.com’s Generational Report, Gen Z has already caught up to the Silent Generation in origination share. Meanwhile, Millennials are increasing their hold on the mortgage market. By the end of the fourth quarter of 2019, the market saw several generational shifts. Below is the origination share each generation holds in the market, which adds up to 101% due to rounding.

48%

GEN

:

17%

32%

BA

N ILE T

ATION

NE R E G

2% :

S 18 HOUSINGWIRE ❱ APRIL 2020

XE RS :

BO Y B

E RS M O

Chris Heller OJO Labs chief real estate officer

Currently chief real estate officer of OJO Labs, Chris Heller brings deep expertise having held influential industry positions including CEO of mellohome and former CEO of Keller Williams Realty International. Heller earned his real estate license when he was 20 years old and went from Rookie of the Year in 1989 to the No. 1 Keller Williams associate in all of North America, his team selling more than 100 homes per year for nearly three decades. Learn more about Heller as he answers these five personal questions:

1. My morning routine looks like… up at 5:00, affirmations and off to the gym. Strength training and cardio. Home to make smoothie and at office by 7:45.

2. My guilty pleasure is…vegan Chocolate Mousse.

3. The best thing about Saturdays is…the whole day is mine, exercise, read, errands, bike rides etc.

4. My workout playlist includes…Alt Rock bands.

5. The book I can’t stop recommending is…The Psychology of Winning: Ten Qualities of a Total Winner.

HOUSINGWIRE ❱ APRIL 2020 19

LOCAL INTEL

By Brena Nath

California

Los Angeles California is infamous for being one of the most unaffordable states, but even within the state, there can only be one area that can take the title of being the least affordable housing market in the nation. Taking the title away from a fellow Golden State city, Los Angeles officially surpassed San Francisco as the least affordable market in 2019, a title San Francisco held the past two years.

20 HOUSINGWIRE â?ą APRIL 2020

Washington

The start of this year began the implementation of California’s Consumer Privacy Act. The newly installed act, effective Jan 1, focuses on data privacy for California consumers and is causing other states to consider similar initiatives. At the same time, this has lit a fire under companies that do business in all 50 states to push for standards that are consistent across the board.

Massachusetts Cyber security efforts are ramping up across the country, with more and more states beginning to add IT security questions to their exams conducted by the MA Division of Banks. As they start to take a pulse on where efforts stand, some of the questions can include “Have you performed a risk assessment of security risks to systems containing personal information and the potential damage those risks can cause?”; “Do you have a comprehensive written information security program?”; and “What security measures have you put in place to prevent cyber attacks?” Massachusetts is one of the latest states to join this bandwagon.

New York Washington is at the top of the list of states that are increasing servicing oversight on loss mitigation practices and foreclosure fairness laws. The new wave of oversight requires extreme level of detail, with Washington being a great example of having various state-specific rules that are unique to properties located in Washington. The state also actively enforces a unique regulation specific to residential loan servicing, which forbids certain activities servicers can outsource outside the U.S.

As Zillow wasn’t already big enough, the online real estate search engine is making massive moves to expand parts of its existing business. The company announced in early 2020 that it obtained a New York state residential brokerage license and an address in Manhattan’s Flatiron neighborhood. The decision is part of a strategic plan to have licenses in all 50 states by the end of this year.

HOUSINGWIRE ❱ APRIL 2020 21

STARTUP PROFILE

iBuy was launched buy Cofounders Julian Chavez and Christopher Rubaie with the plan to create a unique iBuyer experience. The company allows consumers to send offers directly to the seller through an online platform for any property available in a specific market. Consumers fill out some key details such as the purchase price or inspection period length, and iBuy puts together the offer to send. The platform can be used across many real estate transactions including residential and commercial sales and rentals and business sales. Through iBuy, consumers fill out a digital mortgage application that is instantly sent to lenders to find a deal for the borrower. The entire transaction is completed online.

Things To Know Attempting to Disrupt: How real estate transactions are performed Launch Date: July 7, 2019 Funding: Revenue from real estate transactions. No outside funding has been sought. Initial investment made by Founder and CEO Julian Chavez.

Location: South and Central Florida ibuysfl.com

Fronts cost of minor repairs

Zero cost to buyers

Real estate agent guides buyer after offer acceptance

The disruptor score, unique score and launch size were determined through interviews with and editorial research on the company.

3

7

UNIQUE SCORE:

1

LAUNCH SIZE: FUNDING:

HIGH

LOW

DISRUPTOR SCORE:

UNDISCLOSED

22 HOUSINGWIRE â?ą APRIL 2020

Pre-Seed

Seed

A

B

C

Hot SIZZLE? Not FIZZLE? 1 1 WHY THE

WHY THE

FICO SCORES



The average U.S. FICO score hit a record high of 703 in 2019, driven by Americans in their 30s, as a strong labor market helped people to pay their bills on time.

The share of Americans with FICO scores above 700 rose to 59%, the largest ever, Experian said in a report.

The improvement was driven by Millennials getting their financial lives in order as the oldest members of the cohort approach the age of 40. The average age Americans achieved a FICO Score of 700 was the youngest ever: 54. Nine years ago, the average age was 62, the report said.



2



3

FANNIE, FREDDIE IPOS





2



3

TIME TO SELL While homebuying season came early this year, Zillow says homes listed in May generally sell for more than other times during the year. The Mortgage Bankers Association said January was the strongest January for purchase mortgage applications in 11 years. Even so, as the weather heats up, American home shoppers continue to come out of their winter hibernation to look for new digs. And families with kids, which make up a large percentage of homebuyers, are more likely to be eager to buy, sell or move over the summer to not interrupt their child’s school experience.

MORTGAGES BEFORE MARRIAGE According to a new report from the National Association of Realtors, the first-time homebuyer composition is now mirroring the change in marriage rates. In the 1960s, more than seven in 10 American homeowners were married. Two decades later, in the 1980s, a peak of 75% of first-time homebuyers entering the market were married couples. Today, only 53% of first-time homebuyers are married. According to American Housing Surveys, 35% of first-time homebuyers in 2017 had never been married, compared to 23% twenty years prior.

It looks like those waiting with bated breath for the looming public offering of the government’s shares in Fannie Mae and Freddie Mac will have to wait until next year, at least. Federal Housing Finance Agency Director Mark Calabria told members of the Credit Union National Association that he now expects the offering of stock in Fannie and Freddie to take place in 2021. Calabria reiterated his previous sentiments that publicly offering stock in the government-sponsored enterprises will only happen when the companies have a sufficient financial base.

WELLS FARGO Once again, Wells Fargo will be paying for its misdeeds. Earlier this year, Wells Fargo revealed that it had set aside more than $3 billion to pay for a looming settlement over the bank’s fake account scandal, and now, the other shoe has dropped. The Department of Justice and Securities Exchange Commission announced that Wells Fargo will pay that $3 billion to settle three separate investigations into the bank’s practices that led to 5,000 Wells Fargo employees opening 2 million fake accounts in order to receive sales bonuses.

THE HOMEBUYING PROCESS Purchasing a home can be one of the most stressful financial transactions most people ever make, causing about a third of buyers to lose sleep. That’s according to a new survey from Seattle real estate startup Flyhomes asking 1,000 people about the stress of homebuying. About 15% of respondents said they were reduced to tears during the process while 20% got in a fight with their spouse or partner because of the stress. Almost two-thirds of the buyers said purchasing a property “was more stressful than they expected,” the Flyhomes report said.

HOUSINGWIRE ❱ APRIL 2020 23

VIEWPOINTS

By Melissa Klimkiewicz, Brandy Hood and Sara Ruvic

Will private flood insurance keep mortgages from going underwater?

New rules present challenges for lenders

Spoiler: We aren’t certain whether private flood insurance will help homes retain their value, but we do know that the new flood insurance rules are presenting surprising challenges for lenders.

For years, homeowners in high flood-risk areas have relied on subsidized flood insurance that the federal government offers through the National Flood Insurance Program. Until recently, private flood insurance was essentially nonexistent for residential properties.

Then, Congress mandated that federally regulated lenders accept private flood insurance (in certain situations) to satisfy the mandatory flood insurance requirements that apply to their loans and private insurers began offering private policies more broadly.

Meanwhile, the Federal Emergency Management Agency has been working to update its risk rating system to align premiums with flood risk and to modernize 24 HOUSINGWIRE ❱ APRIL 2020

its flood maps to ensure accurate identification of flood risks. These reforms may substantially increase premiums and the number of homes that require flood insurance, which, in turn, threatens property values. Indeed, the U.S. Department of Housing and Urban Development published a study in 2019 that found “robust evidence of large price reductions for properties that were drawn into the flood zone of the new FEMA flood maps.” Further, a 2015 study found that each $500 increase in flood insurance premiums resulted in a $10,000 decrease in home values.

Some believe that expanding private flood insurance may mitigate these effects on property values. It’s not clear whether this will be the case.

Historically, many federally regulated lenders feared that examiners would find private flood insurance policies unsatisfactory. But the changes that the federal banking regulators (Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, Farm Credit Administration and National Credit Union Administration) put in place last year address these issues by encouraging and, in some cases, requiring lenders to accept private flood insurance policies.

Proponents of the new rules believe private policies will offer additional choice that may be less expensive than NFIP coverage, particularly after FEMA has updated the NFIP ratings.

Opponents of the rules believe expansion of private flood insurance is unlikely to benefit property owners and could be disastrous for the NFIP, which may end up insuring the riskiest properties while private insurers opt to cover only the less

Melissa Klimkiewicz is a partner, Brandy Hood is counsel, and Sara Ruvic is a regulatory attorney at Buckley, where they advise clients on mandatory flood insurance requirements as well as developing flood insurance policies and procedures, and responding to examination requests and threatened enforcement actions.

risky ones. Regardless of the pros and cons, lenders must adjust their policies and procedures to align with the changes.

THE NEW PRIVATE FLOOD INSURANCE RULE Since July 1, 2019, the federal banking agencies have required regulated lenders (generally banks and credit unions) to accept flood insurance policies that meet a specific definition and have permitted acceptance of some other policies. These new regulations have turned out to be more complicated to implement than expected.

And investors have imposed their own requirements that expand on and occasionally conflict with the new regulations, which has only exacerbated the challenges. The result is potential long-term risks for lenders, notwithstanding care in implementing the new rules. Lenders who have not done so should carefully review their practices for full compliance with the new rule and all investor requirements.

MANDATORY ACCEPTANCE Under the federal banking regulators’ new regulations, a lender must accept a private flood insurance policy if it satisfies the statutory definition by meeting the following requirements: • Issued by a licensed or approved insurance company • Provides coverage that is “at least as broad as” the coverage provided under a standard flood insurance policy issued under the NFIP • Includes: • A requirement for the insurer to give 45 days’ notice to the borrower and the regulated lending institution prior to cancellation or nonrenewal • Information regarding the availability of coverage under the NFIP • A mortgagee interest clause similar to the clause in an SFIP • A limitation provision that the insured must file suit not later than one year after the date of a written denial of a claim under the policy • Contains cancellation provisionthat are as restrictive as an SFIP

Because evaluating whether a particular private flood insurance policy meets those requirements can be cumbersome and imprecise, the federal banking regulators’ regulations allow regulated lending institutions to rely on “compliance aids” to determine whether a policy meets the statutory definition. Specifically, a regulated lending institution may assume that a policy containing the following language is sufficient: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”

In theory, this should be a useful shortcut, but private flood insurance policies rarely, if ever, include this precise language.

DISCRETIONARY ACCEPTANCE Regulated lending institutions have discretion to accept private flood insurance policies that do not meet the statutory definition if the policies: • Provide the minimum amount of required coverage • Are issued by a licensed or approved insurance company • Cover both the mortgagor and the mortgagee as loss payees • Provide adequate protection of the designated loan, consistent with general safety and soundness principles. The lender must document its conclusion regarding sufficiency of the protection of the loan in writing.

Some regulated lending institutions rely on these criteria to avoid the complex analysis required under the mandatory acceptance requirements.

In doing so, lenders must be mindful to always accept a policy that satisfies the mandatory acceptance requirements, regardless of whether the policy includes the compliance-aid language.

UNRESOLVED CHALLENGES The new private flood insurance rules have created a unique set of challenges that lenders have yet to fully resolve, which

include, among others: • Fannie Mae and Freddie Mac rules do not appear to permit lenders to rely on the compliance-aid provision, and generally require that a private policy mirror an NFIP policy. This limits a regulated lending institution’s ability to invoke the discretionary acceptance criteria for loans sold to the GSEs. In addition, the GSEs’ rules require that private policy carriers meet certain ratings requirements that the federal banking regulators have not imposed. Because regulated lending institutions must accept policies that meet the definition of “private flood insurance” regardless of the GSEs’ ratings requirements, policies that lenders are required to accept under the banking agencies’ rules may not be saleable to the GSEs. • Despite ongoing discussions indicating that FHA will issue rules allowing private policies, it has not done so to date, and FHA programs currently prohibit acceptance of private flood insurance policies.

• While it would seem reasonable to conclude that a private policy meets the definition of private flood insurance if the policy contains language similar to the compliance-aid provision, this may not always be the case. Indeed, some key coverage distinctions may exist between private policies and NFIP policies, even when the private policies assert that they are at least as broad as an NFIP policy. For example, some private policies define coverage limits differently than NFIP policies, or exclude mold damage (which NFIP policies cover) from their coverage. Existing federal banking regulator guidance does not address when these differences cause private policies to provide inadequate coverage.

The bottom line is this: Whether private flood insurance will have a meaningful impact on home values is yet to be determined.

But the new rules around private flood insurance are certainly presenting challenges for lenders.

HOUSINGWIRE ❱ APRIL 2020 25

VIEWPOINTS

By Adam Johnston

Loan officers can manage expectations between borrowers and appraisers Tips to achieving higher customer satisfaction an advocate for any party to the transaction, including the borrower, seller, real estate agent, loan officer, underwriter and lender. Appraisers must follow standards of practice and are accountable for supporting their opinions and conclusions.

These things require the appraiser to collect relevant data, analyze the data, form opinions and conclusions based on the analysis and report the results in a manner that is credible.

An appraisal performed for a mortgage loan can be a stressful experience for borrowers and loan officers alike. For both, the appraisal can positively or negatively affect their loan outcome. Delivering a successful borrower experience includes managing expectations, anticipating challenges and reacting effectively. Let’s explore some areas where these items interact with real estate appraisals.

BORROWER VERSUS LOAN OFFICER VERSUS APPRAISER From the borrower’s perspective, the appraisal may impact them in several ways, including: potentially affirming their purchase decision; possibly serving as a negotiating instrument for contract revisions; contributing to the termination of a house purchase; contributing to increased/ decreased loan or down payment costs; impacting cash-out amounts; or affirming market driven equity changes. Although this list is certainly not all-inclusive, it illustrates reasons why borrowers may be emotionally and financially impacted by the results of a property appraisal. Furthermore, in the case of a refinance, it can be unsettling for the borrower to accommodate an appraiser wandering through the interior of the borrower’s home, taking pictures 26 HOUSINGWIRE ❱ APRIL 2020

and jotting down notes.

From the loan officer’s perspective, the appraisal is understood to be an important part of the lending process. Nevertheless, the loan officer can be impacted by the appraisal due to initial uncertainty about the appraisal results such as the amount of appraised value or previously unknown property conditions. Also, since loan officers work closely with the borrowers, appraisal delays, appraisal-related loan term changes, repair requirements and associated complications can result in challenges delivering a positive borrower experience.

From the appraiser’s perspective, they are being hired to provide an independent, objective and supported analysis of the property, market and market value.

Appraisers are prohibited from acting as

MENTALLY PREPARE THE BORROWER FOR THE APPRAISAL To avoid confusion and enhance the borrower experience, it’s helpful for loan officers to manage expectations with the borrower regarding the appraisal.

For a purchase transaction, the borrower won’t typically interact with the appraiser, but they may have anxiety while awaiting the appraisal and, once completed, will receive a copy of the appraisal. As such, a loan officer may have success discussing the following points with the borrower: • The appraiser tells it like it is – Identify that the appraiser is an independent, objective, licensed professional and is not working as an advocate for the lender or anyone else. Explain that the appraiser is going to visit the property, analyze market data and provide an appraisal report that will be a key part of the underwriting process.

• The appraiser provides an opinion of market value not price – Explain that the appraised value is the appraiser’s opinion of value and it may differ from the contract price. If lower than the contract price, there are some potential options available to the borrower, including renegotiating the contract price or having underwriting staff provide additional information to the appraiser for consideration. Assure the borrower

Adam Johnston is director of operations and chief appraiser for Genworth Financial’s U.S. mortgage insurance business. In addition to his 25 years of appraisal experience, Johnston is a designated member of the Appraisal Institute, with the PMP, SRA and AI-RRS designations.

that most appraisals confirm the reasonableness of the contract price and everything goes smoothly.

• The appraisal may uncover important information for the borrower – Explain to the borrower that the appraisal represents a second set of eyes on the property and may reveal information that is useful to the borrower prior to purchasing the home.

For a refinance transaction, the borrower will likely have direct communication with the appraiser such as setting the inspection time and meeting the appraiser for the inspection. As such, spending time explaining the appraisal process to the borrower will help avoid confusion, anxiety and encourage a good borrower experience. The following are a few points the loan officer may want to convey to the borrower: • The appraiser tells it like it is – As with a purchase transaction, identify that the appraiser is an independent, objective licensed professional and is not working as an advocate for the lender or anyone else.

Explain that the appraiser is going to visit the property, analyze market data and provide an appraisal report that will be a key part of the underwriting process.

• The appraisal inspection is straightforward – The appraiser will walk through the house, take some interior and exterior pictures, make a sketch of the layout, take some notes about the condition, quality and features, take exterior measurements and possibly look in the attic and crawl space. Remind the borrower that the appraisal inspection is not the same as a home inspection and will often take 20 to 45 minutes. The appraiser is not the “dirt police” and will not judge them for dirty dishes in the sink or some toys left on the floor of a child’s bedroom.

• The appraisal is more than an inspection – It’s not uncommon for borrowers to feel slighted when the appraisal fee is costly, and they only see the appraiser for 20 to 45 minutes. Remind the borrower that the appraisal inspection is typically the shortest part of the appraisal process

and the inspection is followed by many hours of field work, data gathering, data analysis and report writing.

• Prepare a list for the appraiser – Let the borrower know that they should consider putting together a list of features, updates, renovations and other key information about their property for the appraiser. Even if the appraiser is likely to notice these items independently, it helps when the borrower knows it’s okay to provide such information to the appraiser.

Also, by giving the borrower ample time to prepare the list, it may reduce the stress and potential intimidation they might feel when the appraiser is on-site.

• The appraisal report is not the end – Remind the borrower that the underwriter or authorized staff at the lender can go back to the appraiser with questions or supply additional relevant data in the event that there are concerns with the appraisal.

• Get a read on the value before the appraisal – For the loan officer, there are some data sources available to you which may assist in setting expectations with the borrower regarding market value.

Accessing the following types of data sources in advance of the appraisal may help anticipate potential friction points with the borrower: • Automated valuation tools – There are numerous free automated valuation tools available on the internet. These AVMs typically rely on the use of public record data about the subject property along with home sale data to estimate the value of the property.

Often, these AVMs use regression analysis to adjust sales and emulate some of the sales comparison that an appraiser does. After inputting the property address, the model estimated value/probable sale price is shown. Keep in mind that AVMs typically operate on limited data about the subject and sales and may have limited coverage and reliability. However, they offer a quick and inexpensive way

•

•

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to check the borrower’s estimate of value or the contract price.

Tax assessor websites – You can often search for comparable sales using county tax assessor websites. Look up the subject property and search for property sales in the neighborhood that are similar in size, age, and lot size to the subject.

While rudimentary, this approach can be useful.

Property listing websites – You can often search for competing listings using free property listing websites. Similar to searching for sales on the tax assessor website, current listings can help you assess the competition to the subject and assist in figuring out a possible value range.

Commercial AVMs – There are commercial AVMs in the market today. These AVMs cost money when you run a property address, but they are typically more accurate and reliable than free AVMs. Put a Bow on It – After the appraisal inspection is complete, it may help to touch base with the borrower to assess their experience. This may enable the loan officer to head off discontent and address concerns.

Although most appraisers are professional and competent, unfortunately there are instances where an appraiser behaves in an unprofessional manner. The borrower may conceal this experience until their loan is negatively affected by the outcome of the appraisal. At that point, it’s difficult to recover since time has passed, an appraisal is inhouse, and the appraiser will need to be paid. By soliciting feedback from the borrower immediately after the appraisal inspection, you can assess whether things went well – and if they didn’t – address concerns before they are perceived as retribution for an appraisal report that did not meet the borrower’s expectations.

HOUSINGWIRE ❱ APRIL 2020 27

ZONING

Is the answer to the affordable housing crisis?

States move away from single-family zoning laws

By Kathleen Howley

28 HOUSINGWIRE â?ą APRIL 2020

HOUSINGWIRE ❱ APRIL 2020 29

People in suburban towns in the Northwest U.S. have new reasons to wish good health and long life to their neighbors.

A bill introduced this year in the Washington State legislature would ban single-family zoning across the state, requiring towns with more than 15,000 people to allow duplexes, triplexes, quadplexes, stacked flats, townhouses and courtyard apartments in areas currently zoned for single-family residential.

It doesn’t require the construction of multifamily units. Instead, it allows developers to buy a house in an area containing only single-family homes and replace it with an apartment building. The neighbors won’t be able to do anything to stop it.

It’s similar to a bill signed into law in neighboring Oregon last year that bans single-family zoning and gives local governments until the end of 2020 to come up with plans to implement it.

“It’s going to be an interesting experiment,” said Bonnie Hastings, an appraiser in Portland, Oregon, who said her neighbors are worried. “It will be fascinating to see what property values do in these situations.”

In other words, if a developer puts apartments in the middle of a single-family neighborhood, will it make the surrounding homes less desirable, and thus less valuable?

It’s a nearly $30 trillion experiment, if it were to expand across the nation. That’s the combined value of single-family homes in the U.S., based on the U.S. Census Bureau estimate of 95 million houses and National Association of Realtor data on average single-family home prices.

A critical shortage of housing inventory and a lack of affordable homes is pushing some lawmakers to consider extreme measures that just a few years ago would have amounted to real estate heresy.

But these are extreme times. Homelessness has surged in some areas of the country, particularly in states where housing is the most expensive, like on the West Coast.

“One thing that really doesn’t help property value is when you have a homeless camp down the street from you, and that is happening more and more,” Hastings said.

Zoning was put on the radar last year when President Donald Trump signed an executive order establishing a White House Council on Eliminating Regulatory Barriers to Affordable Housing.

Such regulations include: “overly restrictive zoning and growth management controls; rent controls; cum-

30 HOUSINGWIRE ❱ APRIL 2020

bersome building and rehabilitation codes; excessive energy and water efficiency mandates; unreasonable maximum-density allowances; historic preservation requirements; overly burdensome wetland or environmental regulations; outdated manufactured-housing regulations and restrictions; undue parking requirements; cumbersome and time-consuming permitting and review procedures; tax policies that discourage investment or reinvestment; overly complex labor requirements; and inordinate impact or developer fees,” according to the executive order signed in June 2019.

THE AFFORDABLE HOUSING SHORTAGE

But regulations, which maintain safety standards and, in some states, address climate change or earthquake issues, aren’t the only culprit when it comes to the housing shortage.

U.S. homebuilders are still on the sideline after the worst housing crash since the Great Depression began in 2007. Today, median home prices have recovered “We are and then some – home prices are about 15% above the still unbubble peak in 2006, according to the S&P CoreLogic derbuildCase-Shiller National Home Price Index. ing due to But construction has failed to keep up with household supply-side formation. constraints “We are still underbuilding due to supply-side conlike labor straints like labor and land availability,” said Robert and land availability” Dietz, National Association of Home Builders chief economist.

One reason is: Smaller builders that put up most of America’s new homes haven’t gotten back in the game.

Many of them were wiped out in the financial crisis.

Another big reason is a dearth of construction workers, according to Federal Reserve Governor Michelle Bowman, one of the people who votes on the central bank’s monetary policy.

It’s an industry that in the past has relied heavily on immigrant labor, with various measures putting the foreign-born share of workers at a quarter of the labor force. Some of those workers left the U.S. when the construction industry crashed over a decade ago and never came back. Others have been scared away by current immigration policies.

“The ratio of job vacancies to unemployment in the construction industry – a measure of labor market strength – shot up to historic highs at the end of 2018, and it has remained near those levels,” Bowman said in a speech in Kansas City, Missouri, earlier this year.

“These indicators confirm what I have been hearing from

construction industry employers during my visits to different parts of the country – it’s extremely difficult to find and hire workers, skilled or otherwise.”

The lack of new supply has become the housing market’s “chokepoint,” said Lawrence Yun, chief economist of the National Association of Realtors.

“We have an acute housing shortage,” Yun said.

“Consequently, people’s rents and home prices are rising faster than income growth, and have been for years.”

Help is on the way. Most major housing forecasters, including NAR, predict single-family housing starts this year will be near 1 million, the highest since 2007.

But, that’s not going to be enough to solve the housing shortage. Since 2001, 17.6 million single-family homes were built, while 20.2 million households have been formed. This means that there has been a cumulative supply shortage of 2.6 million units, according to realtor.com.

INDUSTRY LOOKS TO ZONING TO SOLVE AFFORDABLE HOUSING

When families invest their life savings to buy a home, the expectation until now has been the government would provide a measure of stability for the neighborhood it sits in using zoning regulations.

For most middle-class families, their home is their largest financial asset. The growth in value expected for the property is a big part of their retirement planning, and it may even be part of their plans to educate their children. Some families tap equity using junior mortgages to fund tuition payments when it’s time to send their kids to college.

A property’s zoning is one of the fundamentals concerned family and friends lecture newbie buyers to check before sinking most of their net worth into a home.

If your neighbor opens a car repair business in his driveway, your home will not be as desirable when it’s time to sell.

And, while single-family zoning bans don’t allow such commercial uses, permitting apartment buildings in areas formerly reserved for houses will create dramatic increases in density, which might detract from a property’s value.

“We’re all going to be hit the same,” said Hastings, the West Coast appraiser. “If an apartment building goes up next door, a home often will sell for less. But if we’re all in the same situation, if all our lots have that potential, we’re going to be equally affected.”

A home’s value usually is measured in comparable sales – meaning, what similar homes in the area recently sold for, excluding transactions that weren’t armslength. And the mantra you’ll hear about measuring real estate value is: a home is worth what a reasonable buyer

“There has been a cumulative supply shortage of 2.6 million units.”

will pay.

When it’s time to sell, and potential buyers are coming to look at your home and see a newly built apartment building sticking out like a sore thumb next door, will your property sell for less?

It’s not a given, said NAR’s Yun. And, if there is a reduction in value, it will probably just be temporary, he said.

“If there is a dip, it will be easily overcome with an increase of demand within a few years as the neighborhood becomes more vibrant and more walkable,” he said. “Initially, people will be concerned about more residents moving into neighborhoods, and there will be concerns that maybe neighborhood values will take a hit, but given the housing shortage, real estate prices are rising.”

Home prices have increased consistently since 2012, according to the S&P CoreLogic Case-Shiller National Home Price Index. Low mortgage rates and a shortage of homes on the market have supported price gains by boosting competition.

In other words, while no one knows for sure what will happen to the value of houses in areas where single-family zoning is suddenly banned, it may be a good time to find out.

“This time is the perfect opportunity to address the housing shortage,” said Yun. “I think people will understand that because of the housing shortage there is a greater demand for people wanting three- or fourunit buildings, and it could raise overall values in a neighborhood.”

Ultimately, though, it’s up to local governments, he said.

“Locals should consider all the alternative ways to boost housing supply, including zoning relaxation, and perhaps single-family to multifamilies, if the locals desire,” Yun said.

There could be greater profitability for home sellers – whether longtime owners or real estate investors – if they are allowed to increase density. It’s something real estate flippers have been doing in cities for years: Buy a single-family home in neighborhoods that already allow multifamilies and convert it into condominiums.

The individual units sell at a lower price point, but the combined dollar volume is higher.

For example, take a four-bedroom home in Portland, Oregon, that lists at $500,000. If you put $120,000 into renovating it into a pair of two-bedroom condominiums that sell for $375,000 each, you could walk away with $130,000 after paying for the conversion.

THE HISTORY OF ZONING

Zoning dates to the 1910s when some of America’s largest cities began enacting laws to control development by HOUSINGWIRE ❱ APRIL 2020 31

Zoning was intended as an inducement for people to invest their money in an undiversified asset – a home.

32 HOUSINGWIRE â?ą APRIL 2020

designating areas for specific uses. Builders wanted to be able to assure potential renters or homebuyers that a factory or a gas storage tank wouldn’t be built next door.

The main zoning categories were: Residential, business, and industrial. As time went on, those broad categories were given further restrictions, such as whether multifamily or single-family homes could be built in residential zones.

America’s love affair with single-family zoning began after the troops came home from World War II. The government provided both the means and opportunity for explosive growth of suburbia.

The “means” was low-cost mortgages for veterans, part of the Servicemen’s Readjustment Act of 1944, commonly known as the G.I. Bill. The “opportunity” was highways that connected cities with open land where tracts of homes could be built.

When Gen. Dwight D. Eisenhower became president in 1953, he worked for the passage of the Federal Aid Highway Act that created a network of new highways across the U.S. For “Ike,” as he was known, it was a national security issue – he could more easily move troops around the country if needed. For builders, it was an opportunity to open new markets in suburbia.

Between 1950 and 1960, builders constructed 11 million single-family homes, a record that has never been beaten, according to Census data.

William Levitt, owner of Levitt & Sons, was one of the most prolific builders. In 1947, he began selling single-family homes built on potato fields on New York’s Long Island. He created an assembly line system that had the capacity to build a house in a single day, with each worker repeating a single task. Eventually, he built seven towns.

It was during that time, as America was frantically building to accommodate vets returning from the war, when wide swaths of residential neighborhoods were designated as single-family.

It was common to “grandfather” existing structures, meaning a two-unit building in a single-family zone would be designated as legally non-conforming and exempt from compliance.

Zoning was intended as an inducement for people to invest their money in an undiversified asset – a home.

For most American families, their residence is also their largest financial asset. Zoning was a promise of stability from the government.

Buyers were plunking down their life savings on a house in a neighborhood full of other single-family homes – sometimes on quiet streets chosen so their kids

could bike or play without heavy car traffic – and they wanted it to stay that way.

Some communities passed zoning laws that were racist. In addition to some individual property deeds banning ownership by non-whites into perpetuity, there were cases where cities and towns tried to segregate races into designated neighborhoods, even though a 1917 Supreme Court ruling said such laws interfered with the property rights of owners.

The legality of all types of racial discrimination in housing ended when President Lyndon Johnson signed the Civil Rights Act of 1968, which contained a section that became known as the Fair Housing Act. Today, some say racism still exists in zoning, though it’s less obvious. They say exclusionary zoning that keeps affordable housing out of some areas through land use and building code requirements has a racial component. One example would be a suburban town that has a two-acre requirement, or more, to build a single-family home.

Critics reason that because of long-standing bars to achievement, such as inequality in school systems and systemic racism in business that prevent career advancement, those economic hurdles have a disproportionate impact on non-whites.

Massachusetts came up with a solution to income-exclusionary zoning in 2008 when it tweaked an old law to give it more teeth. The name of the 1969 law is the Comprehensive Permit Act, but it’s known as “40B” for its chapter in the Massachusetts General Laws.

Under 40B, if less than 10% of a community’s housing qualifies as affordable – meaning it could be purchased or rented by a household making up to 80% of the median income of the area – developers can override zoning and build multifamily units as long as a designated portion are affordable.

That got towns very interested in making sure there were affordable options for people who wanted to live in their communities.

The law remains controversial, and in 2010 there was an unsuccessful attempt to repeal it using a ballot question. But for now, affordable housing advocates count it as a win in their drive to provide homes for families.

It’s an example of how some states have come up with measures short of single-family zoning bans to address affordable housing issues.

Whether statewide bans spread beyond the West Coast, or more incremental approaches win the day, will determine the fate of America’s single-family neighborhoods.

HOUSINGWIRE ❱ APRIL 2020 33

The

fragmented voice of the

appraisal industry Appraisers reach for more representation —

34 HOUSINGWIRE ❱ APRIL 2020

By Kelsey Ramirez

HOUSINGWIRE ❱ APRIL 2020 35

Very few

expected the housing market to crash as the market boomed forward in 2007. But it did. And every sector of the housing industry had its role to play in the crisis that followed. Appraisers are no exception.

Many appraisers during that time found themselves giving in to pressure from lenders to ensure that homes were appraised at inflated values so that the sale would go through. When the market crashed, home prices plummeted and artificially inflated values made that drop even more catastrophic.

The government came down hard with regulations after it bailed out Fannie Mae and Freddie Mac and realized major reform was needed. Passing laws like the Dodd-Frank Act, it doubled down on regulating the industry.

But while all groups felt the impact of the regulations, they did not all feel it equally. For appraisers, one factor played a key role in the heat they received following the crisis – their representation.

Over the years, many appraisers have claimed they received the brunt of much of the blame for the financial crisis and from the Consumer Financial Protection Bureau and from other outlets of the housing industry.

And one reason appraisers claim they receive what they say is more than their fair share of the blame is the lack of representation they receive in Washington, D.C. Compared to lenders who are represented by the Mortgage Bankers Association or real estate agents represented by the National Association of Realtors, appraisers have a much smaller voice. And what’s more, that voice is fragmented.

A FRAGMENTED VOICE There is no single clear trade group that represents appraisers. There are actually many trade groups that represent appraisers at both the local and national level. Some of those groups include the Appraisal Institute, the Appraisal Foundation, the American Society of Appraisers, the National Association of Real Estate Appraisers and many more. Even NAR has its own division that works specifically with appraisers.

But in this case, more representation doesn’t mean better. In fact, it divides the voice of appraisers across the U.S. It also divides membership numbers and funding possibilities, giving each association fewer resources to work with.

36 HOUSINGWIRE ❱ APRIL 2020

“THERE’S NO ONE UNIFIED VOICE FOR APPRAISERS”

And this lack of a unified voice, according to one professional, is detrimental to the profession. Ryan Lundquist, a certified residential Appraiser in the Sacramento area, said he has yet to see unification among trade associations. Lundquist currently sits on the Strategic Planning and Finance Committee through the Sacramento Association of Realtors and is a board member of the Real Estate Appraisers Association of Sacramento.

“There’s no one unified voice for appraisers,” Lundquist said. “There are some voices, and I really appreciate what they’re trying to do, but one of the things that’s crippling to the profession is the lack of one main voice and one main advocate to stand up and be strong for the profession. And that’s just not something that I’m seeing happen.”

Lundquist also explained that it is difficult for the industry to truly feel like they are part of the trade groups available to appraisers, saying membership barriers keep many appraisers out.

“We have a few trade groups and a lot of appraisers don’t feel connected to those groups,” he said. “And part of the problem is that you have to be a member of that organization or earn a designation, in order to belong to that group – it’s easy to not feel connected there.”

Another appraiser explained that the real estate appraisal profession is frequently represented in Washington, D.C. by the Appraisal Institute and the Appraisal Foundation who adequately represent appraiser interests.

However, members of Congress often put more weight on what other lobbyists say due to their unfamiliarity with the profession.

“I suspect this lack of familiarity stems from the relatively modest lobby of the Appraisal Institute and Appraisal Foundation, both of which pale in comparison to the size and endeavors of Realtors, national lending institutions, data companies, etc. ,” Enlow Appraisal Certified Appraiser Brady Enlow said.

“It is evident appraisers do not have the vast breadth of national recognition or the influential voice of these powerful interest groups,” he continued.

But the reason for this lower lobby effort comes down to one main factor – numbers.

The Appraisal Institute explained that in the U.S., there are about 78,000 licensed appraisers, and 17,000 of those are members of the Appraisal Institute.

By contrast, NAR boasts 1.36 million members.

That not only gives it more resources, but also more weight with politicians due to the strong voting population behind it.

“We don’t have the political capital and we don’t have the monetary capital that the National Association of Realtors has, so we are always picking the most important things that we believe we can impact on for the benefit of the appraisal profession,” Appraisal Institute President Jeff Sherman said.

Another appraiser pointed out that one option is to partner with larger organizations such as NAR to push appraiser interests. Francois Gregoire, president of Gregoire and Gregoire and state certified residential real estate appraiser, explained that NAR has its own appraisal committee called the Real Property Evaluation Committee, which he chaired twice.

Gregoire explained that appraisers don’t always get what they want from NAR since the group is just one part of the trade association.

“However, when the appraiser members of NAR are able to convince the NAR board of directors that a particular appraisal-related policy is worthwhile, NAR treats the appraisers very well, and they don’t put us at the back of the bus,” Gregoire said. “They advance our public policy issues.”

But he agreed that the size of the appraisal industry remains a hinderance to seeing more change in Washington, D.C. And having a larger partner changes that dynamic.

“When the appraisers have NAR on their side, the chances of something meaningful happening are certainly a lot higher than when corporations were just doing it on their own,” Gregoire said.

CURRENT ISSUES Of course, that’s not to say that trade associations aren’t making headway on key, meaningful issues.

“A recent congressional subcommittee meeting of the House Committee on Financial Services on Housing, Community Development and Insurance entitled ‘What’s Your Home Worth? A Review of the Appraisal’ comes to mind,” Enlow said. “Appraisers were well represented by the interest groups in question.”

Another example is the lobbying against the recent passage of the final rule that raised the appraisal threshold from $250,000 to $400,000.

The Appraisal Institute continues to lobby and meet with key players on this issue.

“Well, this decision decreases the number of appraisals that are required for residential loans, and we really strongly disagree with the regulator’s decision to increasing this threshold,” Sherman said. “We have spoken in opposition to this in a number of different ways. We led a coalition last year that sent a comment letter to them; we’ve met with members of Congress, and the Consumer Financial Protection Bureau; and we also met with the Senate Banking Committee’s Ranking Member Sherrod Brown and his staff on these issues.”

And Sherman pointed out that despite the smaller size of the appraisal population, the Appraisal Institute is still sought out for advice and guidance on key issues by legislative bodies and even entities such as Freddie Mac, which called on the trade group to educate appraisers on its next-generation manufactured housing initiative. But for many appraisers, that isn’t enough.

When asked if he felt appraisers are getting enough representation in Washington, D.C., Lundquist’s answer was simple: “No.” WHAT APPRAISERS CAN DO In 2018 Anthony Casa, who was president of Garden State Home Loans at the time, started making noise about practices hurting mortgage brokers that he thought needed to brought to light. This movement was called “Brokers Rallying Against ‘Whole-tail’ Lenders’ or BRAWL. And apparently many brokers agreed with him, because the movement spread like wildfire.

“I didn’t start BRAWL thinking it would be a full-fledged movement,” Casa said later. “I just wanted to do something to draw attention to the negative things that lenders were doing, and make it stop.”

Casa may not have meant to start a movement, but he did. And it grew. Eventually it led the way to a whole new trade association: Association of Independent Mortgage Experts. This association started off providing guidance, education and tools to mortgage brokers, but now it’s going beyond that. In 2019, AIME announced it will also begin lobbying efforts. AIME has a larger population of brokers than the appraisal industry. It also has access to large companies which will to be generous in funding. Even with the higher number of mortgage brokers, it is still nowhere near the millions of real estate agents NAR has behind it, yet AIME has still made significant changes just since it arose about two years ago.

“IT IS EVIDENT APPRAISERS DO NOT HAVE THE VAST BREADTH OF NATIONAL RECOGNITION OR THE INFLUENTIAL VOICE OF THESE POWERFUL INTEREST GROUPS.”

HOUSINGWIRE ❱ APRIL 2020 37

Appraisers will not be able to unite their voice if each individual doesn’t decide to come together and join a cause.

“Individual appraisers could join their state coalition, they can join local associations, they can support the national organizations that are saying something, and even if appraisers don’t necessarily agree with everything an organization stands for, I still think it’s important to at least stand with someone or some organization,” Lundquist said.

He went on to explain that complaints without action do nothing.

“Complaining without feet does very little,” he said. “It’s important to have critique, but at some point we have to also show support and hopefully find a unified voice to advocate for certain issues and to speak against things that happen to the profession.”

Another appraiser agreed that those in the profession need to step up, and said they can do so by increasing education and awareness.

“I believe that individual appraisers can unify our voice and increase levels of representation in D.C. by simply raising awareness about the profession,” Enlow said. “Every person should know what an appraisal is and how they affect society, from the purchase of a single-family home all the way up to the U.S. economy as a whole.”

“If people realize the core of the appraisal profession is to promote and preserve public trust, the single line item of a closing statement mentality that is so common may begin to change,” he said.

Gregoire explained that appraisers can partner with others with a larger impact, such as NAR, in order to increase their influence.

“What can appraisers do? Appraisers have been asking that question ever since I’ve been appraising since 1977,” he said. “And their basic problem is the size of the group. It’s just their size is so small they don’t have the clout to have any real impact politically. “It’s not like you hear politicians that are running for office say, ‘I need the support of the appraisers.’”

THE FUTURE OF THE APPRAISER With so many changes at stake for appraisers, 38 HOUSINGWIRE ❱ APRIL 2020

WHEN ASKED IF HE FELT APPRAISERS ARE GETTING ENOUGH REPRESENTATION IN WASHINGTON, D.C., LUNDQUIST’S ANSWER WAS SIMPLE: “NO.”

they now more than ever need to unify their voice.

With the rise of technology and valuation tools and the move toward faster, easier, more digitized mortgages, the appraisal industry needs to innovate and evolve to the changing times, and come together to fight for what they want with a unified voice.

Appraisers must also unite to secure the future of talent recruiment among their profession. Today, many would-be appraisers struggle with high levels of education and training requirements. And seasoned appraisers struggle to hire and train that new talent due to regulations preventing them from handing off any real assignments. Once again, the industry must unite behind the issue.

The Appraisal Institute explained it is very interested in the topic and is currently working with the Standards Board at the Appraisal Foundation about reevaluating the requirements.

“They’ve been investigating the idea of classroom based experience rather than having to go work for another appraiser for 30 months, or whatever the requirement is, to be able to go to a classroom on an intensive basis and acquire experience through appropriate classroom techniques,” Sherman said of the Appraisal Foundation. “So they’re thinking about that.”

“We’ve actually provided them some ideas about how we think we can help with that,” he continued. “I think the profession would benefit by some classroom experience, whether that’s 50% of the requirements or whatever the percentage is, it would definitely help to ease that particular bottleneck that exists today.”

But in order for any of these changes to reach fulfillment, or if there is hope for a better future for the appraisal industry, individual appraisers will need to unite.They need to get involved, enlist allies, educate the public and come together under one united front for the good of the industry.

As it stands today, the appraiser voice is fragmented. It’s time for appraisers to step up and unite, create a vision, create a voice, and see it fulfilled.

HOUSINGWIRE ❱ APRIL 2020 39

Valuatio Class Valuation............51 Computershare...........52 CoreLogic......................53 EXOS Technologies...54 HouseCanary...............55 Radian............................56 ValueLink.......................57

40 HOUSINGWIRE â?ą APRIL 2020

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on Tech Special Reports

Lenders and appraisal management companies seek to strike the balance between comprehensive reviews and efficiency while remaining cost-effective. To accomplish this requires a precise blend of expertise and technology, which is why we’re highlighting these seven companies in our Valuation Tech Solutions. These companies are leveraging technology – including AI – to deliver accurate, efficient valuations.

HOUSINGWIRE ❱ APRIL 2020 41

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CLASS VALUATION classvaluation.com

THE EXECUTIVES:

JOHN FRAAS, CEO John Fraas is responsible for overseeing day-to-day operations and aiding in the execution of the company’s strategic plans.

SCOT ROSE, Chief Innovation Officer In his role, Scot Rose partners with industry stakeholders and the Class executive team to modernize the appraisal and collateral risk process.

TIM STAUDENMAIER, Chief Digital Officer A s Chief Digital O f ficer, Tim Staudenmaier is responsible for digital strategy supporting products and solutions.

42 HOUSINGWIRE ❱ APRIL 2020

Class Valuation solutions modernize appraisals using mobile technology and machine learning

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he word “innovation” has rarely been used when referencing appraisal management companies. Class Valuation plans to change that by delivering technology that improves upon an already stellar customer service record, provides lender and investor certainty, and enhances the experience of all users along the way.

At a time when so many are competing to bring the industry modernization, Class Valuation has delivered a holistic digital solution that will change the future of the profession.

The introduction of Property Fingerprint and Class INtelligence combines unbiased comprehensive property data collection, enhanced quality control and other performance factors connecting the feedback loop and providing for end-to-end improvements and efficiencies.

“Industry stakeholders have been pleading for innovation and improvement from our profession,” said Scot Rose, chief innovation officer at Class Valuation.

“Class Valuation is leveraging advanced technologies to answer their call. Whether an investor, lender, appraiser or a consumer, we will improve the experience and bolster the confidence of all stakeholders in the process.”

Class Valuation’s Property Fingerprint combines mobile technology and machine learning to generate virtual tours, detailed floorplans and enhanced property data to ensure greater transparency, granularity, consistency and credibility.

User validations are integrated, ensuring accuracy and reduced QC revisions. Property deficiencies cannot be concealed, photo capture is automated and the potential for fraud is practically eliminated. All while significantly reducing overall cycle-times.

Class reports that appraisers have embraced the technology with open arms, as it standardizes the inspection and provides a higher level of service to their clients.

Lenders and secondary market participants have been impressed with the improved quality of appraisal reports and the keen insight into property characteristics that augment collateral risk mitigation.

“Appraisers and lenders currently use antiquated processes that haven’t been significantly updated in years,” said Tim Staudenmaier, chief digital officer at Class Valuation. “Property Fingerprint streamlines the appraisal workflow while improving quality, consistency, reliability and data.”

Class INtelligence was developed in 2018 and implemented into the Quality Control (QC) process. Class INtelligence deploys advanced algorithms and analytics on system data to assess data accuracy and appraiser competency as well as validate against industry guidelines and regulations.

For the lending community, this means assurance that not only is each order vetted by their QC team, but the data is further analyzed

by Class INtelligence to expedite order assignment and ensure each one gets into the correct hands based on appraiser performance, property complexity and geographic criteria.

These advancements firmly place Class Valuation at the forefront of innovation in the mortgage space, but this Detroit, Michiganbased appraisal management company has not forgotten its core values, rooted in providing an exemplary experience for all.

“While Class is busy helping to lead our industry into the future, we are laser-focused on exceeding our outstanding track record of best-in-class customer service,” CEO John Fraas said.

Class Valuation is a company to watch in 2020, as they lead the way in modernizing the appraisal industry well into the future.

To learn more about partnering with this trailblazing organization, contact info@ classvaluation.com.

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Computershare Valuation Services improves quality control of valuation photo reviews with AI and machine learning

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omputershare Valuation Services’ robust suite of products and services includes appraisals, evaluations, hybrid appraisals, broker price opinions, reconciliations and reviews, inspections, data and analytics, and more.

The company delivers innovative industry leading solutions by relying on industry-accepted best practices as well as cutting-edge technology.

Computershare’s appraisal product suite includes AppraisalXpress, desktop appraisal with exterior site inspection by a local inspector, AppraisalX, which is a desktop appraisal with exterior or interior site inspection by a local real estate professional, and AppraisalXPro, a desktop appraisal with site inspection by a local appraiser.

The company also offers an Appraisal Review Suite, including Investment Property Analysis (IPA), Appraisal Risk Analysis (ARA), and are looking into adding an Appraisal Risk Analysis with Inspection (ARAView).

The appraisal review suite of products gives users transparency of collateral throughout the loan’s lifespan.

One of Computershare’s soon to be released additions to its suite of valuation solutions is the use of artificial intelligence (AI) and machine learning (ML) in the review of photos within its reports.

Traditionally, the photos included in valuation reports are reviewed for quality by a human reviewer.

While this provides a basic level of quality control oversight, the use of AI for photo review enhances quality and provides a scalable solution, far past what any human reviewer can provide.

Using AI to review valuation report photos allows Computershare’s technology to do things such as identify whether a photo has been used in previous reports, detect if the photo is

an original versus a photo of a photo, and take note of deferred maintenance, among other tasks that allow the solutions to deliver high quality valuation reports.

“The use of AI technology will significantly impact the valuations industry across all market segments,” said Tony Pistilli, senior vice president and chief appraiser at Computershare. “For example, in mortgage servicing, the technology can be used to identify any deferred maintenance, even down to small details like whether the lawn needs to be mowed.”

Implementing AI and ML technolog y across its suite of valuation products allows Computershare to deliver higher quality and more consistency in its valuation products, leading to reduced risk for lenders, servicers and investors who use its products.

Computershare is also in the late stages of development with several other products, including EvaluationX, Valuation Credibility Analysis (VCA), Collateral Underwriter Review (CURE), Hybrid Broker Price Opinion (BPO) and Regulatory Compliance Review (RCR).

Computershare valuation products provide a higher quality valuation the first time, meaning lenders and investors can make decisions with confidence, leading to faster turn times overall and reducing risk in the process after the loan has closed or sold.

“Computershare offers the counterparty strength of a risk-aware organization that provides the certainty that our clients need. Along with providing high-quality valuation products and services, we put an emphasis on the client experience and making it easy to do business with us,” said Chris McLain, senior vice president of valuation services.

“The combination of a large, financially stable company along with the client experience and high-touch approach is something our clients love.”

COMPUTERSHARE VALUATION SERVICES computershareLoanservices.com

THE EXECUTIVES:

CHRIS MCLAIN, SVP, Valuation Services Chris McLain co-heads the valuation business at Computershare Loan Services, where he oversees all business-related functions. He is a valuation industry expert who has held various roles in the industry during the last 15-plus years. McLain is a graduate of the University of Florida and an Army veteran.

TONY PISTILLI, SVP, Chief Appraiser Tony Pistilli co-heads the valuation business, where he oversees all valuation operations and compliance, and valuation strategy and innovation functions. He has 30-plus years of experience in appraising and lending and is an AQB Certified USPAP instructor.

He also holds a certified residential appraiser’s license.

HOUSINGWIRE ❱ APRIL 2020 43

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CORELOGIC corelogic.com

THE EXECUTIVES:

VICKI CHENAULT, Executive of Collateral Valuation Services Vicki Chenault transitioned into her current role at CoreLogic after leading enterprise-wide strategy and transformation initiatives.

SAGE NICHOLS, Executive of Client and Business Development Sage Nichols is responsible for generating organic revenue growth through leadership of the collateral platform technology sales team at CoreLogic.

SHAWN TELFORD, Senior Leader, Product Management Shawn Telford leads the product management team as they create industry-leading collateral management and valuation technology for lenders.

44 HOUSINGWIRE ❱ APRIL 2020

CoreLogic appraisal review solutions automate and streamline complex data verification processes

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enders and appraisal management companies often struggle with inefficient workflow management. The manual workload of appraisal reviews takes a significant amount of time, which limits the number of appraisals a lender can review in any given day – ultimately pushing closing dates further out.

With automated review solutions supported by a robust collateral database, CoreLogic provides an innovative, risk-based review engine that results in a comprehensive review of each appraisal. The solution is focused on providing an efficient, streamlined process to manage appraisal reviews and to add quality control to the process with the least amount of friction possible.

CoreLogic automated appraisal review solutions are scalable and offer fast analysis, upto-date compliance assessment and insights based on the industry’s largest collection of public records, local listings and pending sales data.

The solution leverages automation technology to perform a complex data verification process more quickly than a human would be able to do manually.

Here’s how the automatic appraisal review process works: 1. A quality control checklist is configured based on the client’s needs.

2. Rules can be made appraiser-facing so that key issues are identified and resolved by the appraiser before the report is even delivered to the lender or AMC. 3. A more comprehensive rule set runs automatically once the report has been delivered and the reviewer can take a closer look at any issues that have been flagged.

The solution provides up to 97% checklist

automation. This leaves the reviewer free to focus on issues that have been flagged, such as missing information, appraisal issues and potential data inaccuracies, all resulting in a comprehensive review with lower risk.

In addition, the appraiser-facing rules help address redundant mistakes in the report.

Rules can be changed at any point to support scalable processes, with options including customizable rule sets to ensure investor needs are met.

The solution even prevents the appraiser from delivering the report until key issues are solved.

Standard GSE rules can also be incorporated to support regulatory compliance.

“By automating the appraisal review, lenders and AMCs are able to complete the review process on a higher number of appraisals in a reduced amount of time, allowing the lender or AMC to take on a higher order volume successfully without the delays inherent in a cumbersome, manual process,” said Shawn Telford, senior leader of product management. “The appraisal review solutions resolve the burden of trying to overcome high loan volumes during peak times.”

The appraisal review solutions can be accessed using the CoreLogic collateral management platform and one is also available via direct integration. Guidance is provided during implementation to help streamline the quality control process.

“The automated review solutions allow lenders and AMCs to largely customize the complex quality control process, tailoring the results to the needs of their business practices,” said Sage Nichols, executive of client and business development. “By leveraging our technology, clients can reduce their overall appraisal review times, increase the number of loans managed at any given time and decrease expensive overhead costs.”

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EXOS Valuations app allows consumers to schedule their own appraisal appointment using appraisers’ real-time availability

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enders are always looking for shorter cycle times and a better customer experience from their vendor partners, as well as assurance their valuations are handled by licensed and experienced appraisers. Servicers want to work with partners who leverage data and experience to offer solutions that can predict issues, prescribe better outcomes and mitigate financial loss. And throughout the entire mortgage process, consumers expect speed and convenience.

EXOS Technologies, developed by and for ServiceLink, offers a suite of advanced digital solutions to serve real estate lenders, servicers, investors and consumers. Its solutions, which include EXOS Valuations and EXOS One Marketplace, use technology to enable more efficient mortgage services – allowing customers to streamline their processes, improve their decision-making and engage more directly with their borrowers.

With EXOS Valuations, the industry’s first consumer appraisal scheduling app, after the appraisal is ordered from ServiceLink or another vendor, consumers can schedule their own appraisal appointment from their mobile or desktop device, using real time availability of the appraisers on the EXOS platform.

In addition, the consumer receives instant confirmation of their appointment time and information about their appraiser, and an opportunity to learn more about the process itself. On average, use of this app shortens the appraisal process by days.

Most lenders and POS providers focus on pre-qualification and the credit decision when it comes to the digital experience, with a more old-fashioned interaction following the post-credit decision. The EXOS consumer scheduling app was designed to tech-enable a previously manual service, giving consumers a better digital experience by making valuation scheduling more convenient.

“For many lenders, appraisal cycle times have been and continue to be a bottleneck in the origination process. The traditional process of leaving messages, playing phone tag and exchanging emails and texts just to schedule the appraisal appointment adds days and in some cases weeks to application-to-closing times,” said Phillip King, vice president, principal product manager, EXOS Valuations. “EXOS reduces cycle times, creates better transparency into processes and improves client and customer experiences.”

EXOS One Marketplace complements a servicer’s core operating system and process.

Using machine learning and artificial intelligence, EXOS One Marketplace provides a range of property data and valuation analytics that enables users to select the best disposition path for defaulted properties.

“EXOS One Marketplace combines everything a servicer needs in order to make an informed decision about how to disposition an asset without conducting an in-person appraisal, and also provides the opportunity to order services within the platform itself,” said Bryan Bellacosa, first vice president, product management and information technology, ServiceLink.

“The platform is designed to streamline ordering, reduce losses and help servicers and investors select the best possible outcome for properties in default.”

The platform integrates and automates the various components of the default decisioning process, capturing critical information about a property’s ownership/title status, its current physical condition, geographical and neighborhood data, valuation and the likely financial outcome from the disposition path selected.

EXOS One Marketplace gives servicers a new level of visibility into all aspects of the default process, allowing servicers to efficiently manage their assets.

EXOS TECHNOLOGIES, A SERVICELINK COMPANY svclnk.com

THE EXECUTIVES:

BRYAN BELLACOSA, First Vice President, Product Management and Information Technology, ServiceLink Bryan Bellacosa has been with ServiceLink for 18 years. He was the principal architect of the new cloudbased technology platform EXOS One Marketplace. Bellacosa leads a team of 50 software engineers, business analysts and quality assurance professionals that supports the company’s default services line of business.

PHILLIP KING, Vice President, Principal Product Manager, EXOS Valuations Phillip King has been with ServiceLink for 11 years and has 20 years of valuations leadership experience. In his current role, he is the subject matter expert for EXOS Valuations.

HOUSINGWIRE ❱ APRIL 2020 45

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HOUSECANARY, INC. housecanary.com

THE EXECUTIVES:

JEREMY SICKLICK, CEO and Cofounder As chairman, chief executive officer and cofounder, Jeremy Sicklick drives HouseCanary’s vision, strategy and growth.

JEFF SOMERS, President and COO Jeff Somers is responsible for day-today operations, along with planning and executing key priorities with the executive team.

CHRIS STROUD, Chief of Research and Cofounder Chris Stroud leads the research team in creating accurate predictive analytics through machine learning, dynamic modeling and cloud computing.

46 HOUSINGWIRE ❱ APRIL 2020

With deep contextual data, HouseCanary helps lenders accelerate the underwriting process for a faster valuation turnaround

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anual underwriting processes cost lenders valuable time and money, which reduces bottom lines, harms competitiveness and negatively affects the customer experience – as well as slowing time to close.

HouseCanary saw that lenders needed faster, more efficient and higher-confidence valuation solutions that would align with major financial sources – that’s why they developed Agile Evaluation and Agile Evaluation Certified, their hybrid and insured valuation products.

These valuation products lead the industry in speed and accuracy and reduce friction for all participants in real estate transactions.

“What makes HouseCanary different is our data,” CEO and Cofounder Jeremy Sicklick said.

“HouseCanary is recognized as one of the most accurate automated valuations at 2.2% accuracy for 106 million properties.

“In addition, as a 50-state brokerage we have access to the best and most recent property information. Our models use the latest in artificial intelligence and machine learning to drive ever-improving accuracy and image recognition,” he added.

Agile Evaluation and Agile Evaluation Certified are designed to replace outdated traditional valuations with a comprehensive report delivered in just days. The products comply with Inter-Agency Guidelines (IAG) for an inspection-informed evaluation, and Agile Evaluation is now accepted by major hard-money lenders.

Agile Evaluation and Agile Evaluation Certified valuation reports deliver all the necessary value conclusions, market context and risk data that lenders want, as well as a third-party onsite inspection report and property photos.

The solutions pair HouseCanary’s highest-confidence automated valuation model

(AVM) with a third-party onsite property inspection.

Proprietary machine learning technology delivers condition-informed values and deep contextual data.

Agile Evaluation Certified goes a step further by providing a warranty that transfers risk to a large third-party insurer.

Lenders can use Agile Evaluation Certified to quickly pre-approve properties, significantly transferring the risk of overvaluation to a third party, which improves customer experience while increasing pull-through.

Both Agile Evaluation and Agile Evaluation Certified have rapid turnaround times that allow lenders to accelerate their underwriting process, arriving at an efficient, accepted property valuation more quickly and with higher confidence.

This, in turn, improves the borrowing experience for loan customers, building loyalty and raising net promoter scores in a competitive lending market.

The AVM behind HouseCanary’s valuation products achieved top results among AVM providers tested by Fitch Ratings Inc. in 2019.

HouseCanary is trusted by seven of the top 10 buyers of residential real estate loans, seven of the top 10 bulge bracket investment banks and four of the top five single-family rental investor owner operators.

“Many mortgages don’t require a full appraisal, and our lenders now have the ability to leverage HouseCanary’s various valuation tools inside our platform,” said one enterprise client.

“HouseCanary provides something of value from the loan originator to the borrower, helping to educate borrowers and making the relationship stickier,” the client said. “It significantly reduces risk for originators, and it dramatically improves the customer experience.”

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Radian Home Price Index provides an in-depth view of housing market trends to allow lenders to make decisions confidently

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housands of lenders, investors and other industry players rely on home price indices for vital insights on housing market trends – yet there are some limitations to legacy indices that diminish their value at micro-market levels.

The Radian Home Price Index (HPI), provided by Red Bell Real Estate, LLC, a Radian company, is an answer to an industry-wide need for a more accurate, timely and granular view of patterns and trends in the U.S. housing market.

Available within days of month’s end, Radian HPI provides a complete view of trends in real estate markets across the entire U.S. housing stock weeks sooner than other indices.

The Radian HPI evaluates nearly 70 million individual properties every month, providing a density of information that allows consumers, businesses and government entities to analyze housing markets at micro-market levels without concern of volatility or thinness of data.

In contrast, most legacy indices only measure repeat sales, which represent a small fraction of the U.S. housing stock with only 400,000 unique monthly observations.

Radian HPI is based upon proprietary valuation modeling, which leverages multiple advanced methodologies driven by artificial intelligence and machine learning.

The index can be accessed via a cloud-based data visualization platform, which provides monthly updates to more than 100,000 unique indices.

The library of indices is created from the intersections of property attributes and geography, across nine different geographic dimensions, from the national level down to ZIP codes.

“The Radian HPI is based on data that comprehensively captures the housing market, making the development of granular indices possible without sacrificing stability or accuracy,” Radian CEO Rick Thornberry said.

With a highly flexible engine, custom index creation and portfolio surveillance have never been easier.

Using Radian HPI, lenders can research market trends, create tracking portfolios for benchmarking, enhance appraisal and BPO quality controls, price large portfolios, and evaluate risk management and governance activities quickly and comprehensively.

Investors who use the index are able to replicate their investment strategy with custom indices, forecast home prices at granular levels, evaluate risk and opportunities in target markets and inform listing or purchase decisions with confidence.

“The Radian HPI is an excellent example of leveraging proprietary analytics to power new products and services for our customers and the broader housing markets,” Thornberry said.

“Many have commented that, based on the granularity of the data, the Radian HPI is the most comprehensive and useful library of indices they have seen in the market.”

Using proprietary and unique data, the Radian family of companies provides traditional and automated solutions for assessing the value of a home, including valuable trending information and analytics to facilitate the selling or buying decision.

Its all-encompassing valuation product suite includes the Radian Home Price Index, automated valuation models (AVM), an interactive valuation tool, hybrid appraisal products, broker price opinions (BPOs) and appraisals.

RADIAN radian.com

THE EXECUTIVES:

STEVE GAENZLER, SVP, Data and Analytics At Radian, Steve Gaenzler is developing tools for the next generation of automated and augmented valuations.

KATIE BREWER, SVP, Valuation Operations Katie Brewer ensures the quality, performance and delivery of Radian’s valuation services.

MICHAEL DZIUBA, SVP, Valuation Sales Michael Dziuba helps Radian’s clients reimagine their valuation strategies, incorporating the best-in-class products and services Radian has to offer.

HOUSINGWIRE ❱ APRIL 2020 47

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VALUELINK SOFTWARE valuelinksoftware.com

THE EXECUTIVES:

FARRUKH OMAR, COO Farrukh Omar oversees all aspects of operations, including product development, technolog y and infrastructure.

AQIL AHMED, SVP Operations As senior vice president of operations, Aqil Ahmed oversees the day-to-day operations and manages the sales and operations teams.

BILL OMAR, SVP Client Relations As the senior vice president of client relations, Bill Omar oversees the company’s support and onboarding teams.

48 HOUSINGWIRE ❱ APRIL 2020

ValueLink drives efficiency in the valuation process through a combination of automation, AI and data analytics

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aluations are one of the most important parts of the loan process, and often the most time-consuming as well.

Appraisals that contain errors or aren’t delivered on time can cause delayed closings or, in some cases, result in the loan falling through altogether.

In an increasingly digital world, customer expectations are on the rise.

Streamlining the mortgage application process and reducing the time to close have become paramount.

The industry is ripe for disruption and ValueLink, a 2020 Tech100 award-winning company, is at the cusp of driving the next wave of innovation.

ValueLink offers customized valuation management solutions designed for lenders, appraisal management companies (AMCs) and appraisers. The solutions are designed to simplify order management by automating the process and reducing the touchpoints between various stakeholders, while ensuring regulatory compliance.

Seamless integrations with the leading LOS platforms ensure that lenders can work in systems they are already familiar with, while Connect acts as a unified platform for valuation professionals who can respond to client requirements in real-time using the mobile apps.

With a network of 100-plus AMCs already using the ValueLink platform to manage their entire order workflow, lenders can engage them within minutes and start sending out orders.

Automation is the key driver for efficiency and ValueLink ensures that lenders can customize the platform to completely automate the valuation workflow.

Each step requires minimal human intervention and orders can be automatically assigned to the best vendor based on availability and geographic competence.

Follow-ups are automated using the

SmartAssist engine that also provides workflows designed to identify when to escalate an order and get a human involved.

“Our direct integrations with the leading LOS platforms provide lenders real-time visibility into the valuation process and the powerful reporting and analytics tools put important data at their fingertips.” said Aqil Ahmed, senior vice president of operations at ValueLink.

Underwriters can take full control of their review process using the proprietary CrossCheck tool and augment it with integrated offerings from partners.

Real-time data validation ensures underwriters spend minimal time doing stare-and-compare reviews.

Built-in data analytics tools make it easy to take a deep dive into the order data and make faster decisions.

Dissect the valuation data by geography, vendors or workflow stage and quickly identify what needs improvement.

The reporting engine allows building real-time reports that can be scheduled for automated delivery.

The available APIs allow controlling order workflows from proprietary systems and use the data in ways best suited to your organization.

ValueLink has built the most powerful portfolio of valuation management tools and tied them together with industry-leading platforms to bring a unified and frictionless experience to the valuation process.

With innovation at its core, the company will continue to drive progress in the valuation space.

“Our company has been driving valuation innovation for a decade now and moving forward we will be utilizing AI and machine learning to speed up the valuation process while reducing costs and increasing operational efficiencies for our customers,” added Farrukh Omar, chief operating officer at ValueLink Software.

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TRADE DESK

Trade associations from across the housing industry are on the front lines of issues that lenders, real estate agents and everyone in between face every day. In these letters, they give their members an inside look at what they are working on, and the most important issues facing each industry today.

ALTA.............................51 MBA .............................51 AIME ............................52 NAHB ...........................52

50 HOUSINGWIRE â?ą APRIL 2020

CEO American Land Title Association

American Land Title Association

Diane Tomb

ALTA members, With the passage of the California Consumer Privacy Act and many other states considering consumer privacy laws, the need for a national data privacy standard is now.

The current patchwork of state privacy laws creates inconsistent data protection as well as bewilderment for consumers and businesses trying — and sometimes failing — to understand the myriad statutes and compliance obligations. Enacting one federal data privacy standard would help eliminate confusion and uncertainty.

Title and settlement industry professionals handle homebuyers’ personal information, from social security numbers to bank accounts, every day; without a unifying standard, they are left scrambling to follow the privacy regulations of multiple states.

Earlier this year, ALTA released its data privacy principles, which recommend developing one national standard to help protect consumers’ private information

MBA members, As you may know, the Mortgage Bankers Association has a robust research department that puts out numerous forecasts, industry data and benchmarking reports and analysis of the real estate finance market. In mid-February, we released our National Delinquency Survey, which found that the mortgage delinquency rate in the final quarter of 2019 fell to its lowest level since the current survey series began in 1979. Further, the foreclosure inventory rate was at its lowest level since 1985.

This happened for a variety of reasons. Of course, the healthy economy (low joblessness and strong wage growth) plays a big part. But we shouldn’t overlook the impact of the post-crisis rules that govern mortgage lending. It is no mistake that the quality of home loans being issued today is better than at any time in recent memory.

As much as we in the industry sometimes nitpick at

uniformly and consistently. Protecting consumers has always been a priority for the title and settlement industry. Since 2013, ALTA’s Best Practices have included requirements for a written privacy and information security program to protect non-public information.

ALTA’s data privacy principles recognize the need for businesses to share certain personal information necessary for transactions and consider the impact on small businesses regarding the cost of compliance versus the risk of consumer harm. They also identify the distressing lack of uniform data breach notification legislation.

The federal data privacy conversation is incredibly important. ALTA members will be on Capitol Hill during ALTA Advocacy Summit May 11-13, to discuss this issue with legislators. We hope these principles provide a guidepost to develop one standard that simplifies compliance and eliminates confusion.

Qualified Mortgage and the ability-to-repay requirements, it is impossible to argue that they haven’t had the intended impact of preventing another meltdown.

The Dodd-Frank rules have all but guaranteed that the risky products that caused the crisis will never return to the market in any meaningful volume.

This is a point we at MBA are constantly hammering home to policymakers. Preventing another crisis should be top of mind for everyone, but having the appropriate context is important to ensure that regulatory and policymaking activity does not prevent qualified borrowers from having access to affordable mortgages

Mortgage Bankers Association

Mike Fratantoni

Chief Economist Mortgage Bankers Association HOUSINGWIRE ❱ APRIL 2020 51

Anthony Casa

Chairman Association of Independent Mortgage Experts

Independent Mortgage Experts

TRADE DESK AIME members, There are many legislative issues that affect independent mortgage professionals and the Association of Independent Mortgage Experts is prioritizing resolutions for the most impactful issues that mortgage brokers and consumers face today, including amending the Fair Credit Reporting Act. One of the issues I’m focused on is banning the industry practice known as “trigger leads,” which is when consumer information is collected by national credit bureaus after a mortgage loan inquiry is generated and the information is then sold to mortgage lending companies without consumer knowledge or consent.

AIME believes that consumer privacy is paramount to the mortgage process and shouldn’t be compromised by the predatory marketing practices of some mortgage lenders. When personally

NAHB members, The National Association of Home Builders strives to protect the American Dream of housing opportunity for all. We also work to advance the successes of our members who build communities, create jobs and strengthen our economy.

As NAHB chairman, one of my highest priorities is to help more Americans obtain housing that meets their needs at a price they can afford.

To combat the nation’s housing affordability crisis, we need to cut through red tape in the development process, revise outdated zoning policies and reduce excessively burdensome regulations that increase the cost of building a new home.

More than 18 million low- and moderate-income households pay more than 50% of their income on housing. That’s why it is so important that policymakers understand how regulatory barriers affect the price of housing.

We need to also fight back against NIMBYism, or the “not

in my backyard” philosophy that counters affordable housing development.

Smart growth strategies that anticipate growth, encourage more compact development, preserve open space and protect environmentally sensitive areas can help assuage residents’ concerns.

Developing the workforce of the future to address the hundreds of thousands of unfilled jobs in construction is another piece of the puzzle. These are good-paying, rewarding jobs.

Keeping the home building industry strong means keeping our economy strong.

Working together we can address the challenges that face our industry and our nation.

National Association of Home Builders 52 HOUSINGWIRE ❱ APRIL 2020

identifiable information is sold, borrowers may be targeted with deceptive advertisements that inadequately explain important mortgage information, like fixed or adjusted rates and hidden fees.

Homebuyers seeking loans and homeowners shopping for refinancing options are tasked with making very important financial decisions and rather than be influenced by marketing materials from unknown lenders, they should always seek the advice of a local independent mortgage professional who can offer expert guidance based on their unbiased knowledge of lender guidelines.

With enough support in the U.S. House of Representatives, the Fair Credit Reporting Act can be amended to ban this practice, further allowing the broker community to act as fiduciaries and trusted advisors for mortgage borrowers across the country.

Dean Mon

Chairman National Association of Home Builders

What does it take to recruit and retain top talent?

Access HousingWire’s first-ever engage.talent summit on demand housingwire.com/engage

Become an HW+ member: housingwire.com/membership

54 HOUSINGWIRE ❱ APRIL 2020

Mortgage

Buy vs. build? The choice has become clear for many companies COMPANIES ARE CHOOSING TO BUY INSTEAD OF BUILD THEMSELVES

BY BEN LANE

“IF you build it, he will come.” That classic line comes from the baseball movie “Field of Dreams.” The line, spoken by the ghost of Shoeless Joe Jackson, is meant to convince Kevin Costner’s character, Ray Kinsella, to uproot his corn field and build a baseball diamond so the 1919 Chicago White Sox baseball team can return to the land of the living and play baseball again.

That same philosophy of “if you build it, they will come” has long applied to companies in the housing business, as the goal was to build up an unbeatable tech solution and watch the customers roll in.

But these days, that’s not really the case anymore. It’s no longer “if you build it, they will come,” it’s “if you build it, they will buy it.”

And the “they” in that sentence is other companies, especially big ones.

Whether it comes to a tech solution or expansion opportunity, at this point, bigger companies are choosing to buy rather than build themselves.

The reasons likely vary for each company and each acquisition, but in each case, the acquiring company felt it was a more prudent move to buy a company or a piece of tech rather than spend the time and money to develop it itself.

That approach does have its advantages. For example, it dramatically speeds up the development time of a particular technology. But acquiring a company or a tech is usually a costlier endeavor than it would be to build.

Case in point, Visa’s acquisition of Plaid, a technology platform that connects various applications with users’ bank accounts and has a growing presence in the mortgage space.

The credit card giant announced in January that it planned to buy Plaid for a total purchase consideration of $5.3 billion.

Plaid’s products allow consumers to share their financial information with thousands of apps and services, including Acorns, Betterment, Chime, Transferwise and Venmo.

And instead of building its own platform for connecting to peoHOUSINGWIRE ❱ APRIL 2020 55

the company will improve its ability to provide lenders with “endple’s bank accounts, Visa chose to buy one.

“We are extremely excited about our acquisition of Plaid and to-end digital mortgage and settlement services.”

Even tech companies are buying other tech companies or tech how it enhances the growth trajectory of our business,” said Al Kelly, CEO and chairman of Visa. “Plaid is a leader in the solutions rather than attempting to create their own solutions.

Take Black Knight for example, which recently bought Quicken fast-growing fintech world with best-in-class capabilities and talent. The acquisition, combined with our many fintech efforts Loans “Cyclops” mortgage servicing customer relationship manalready underway, will position Visa to deliver even more value agement software.

Specifically, Black Knight purchased the source code for for developers, financial institutions and consumers.”

Visa said it views the acquisition as an entry into new business- Quicken Loans’ “Cyclops” CRM software, which it plans to integrate into its own servicing software and expand its offerings. es and complementary to its existing businesses.

“The Cyclops software provides a number of tools Quicken “First, Plaid’s fintech-centric business opens new market opportunities for Visa both in the U.S. and internationally,” the Loans uses to meet the needs of today’s mortgage consumers,” company said in a release. “Second, the combination of Visa and Black Knight said in a statement. “This software suite will serve Plaid provides the opportunity to deliver enhanced payment ca- as the foundation for a highly advanced customer service solution pabilities and related value-added services to fintech developers. that Black Knight will be offering to clients of its industry-leading Finally, the acquisition will enable Visa to work more closely with MSP servicing system.”

Once integrated into Black Knight’s offerings, the Cyclops fintechs through all stages of their development and drive growth software allows Black Knight in Visa’s core business.” to provide “highly personalKelly added that the “comized information about loans, bination of Visa and Plaid will homes and neighborhoods.” put us at the epicenter of the finOne example the company tech world, expanding our total “Even tech companies are buying provides: “By accessing the addressable market and accelother tech companies or tech soluhome’s value, a customer sererating our long-term revenue tions rather than attempting to vice professional can present growth trajectory.” refinance and home equity opVisa isn’t the only company create their own solutions.” portunities to borrowers.” choosing to buy rather than According to the companies, build. the new software will provide First American, one of the consumers with a tailored exnation’s largest title insurance companies, said in February that it reached an agreement to buy perience, therefore enhancing the overall lending process.

Another company in the acquiring business was Sagent Docutech for $350 million.

Docutech, a document, eSign, eClosing and compliance tech- Lending Solutions, the mortgage servicing joint venture of Fiserv nology provider, is one of the top tech companies in the housing and Warburg Pincus, which moved to acquire ISGN, a mortgage industry. The company’s digital document technology is used by technology provider.

According to Sagent, the acquisition of ISGN will allow the comBlack Knight, Ellie Mae, Fiserv, CoreLogic, Blend, Tavant, Floify, Maxwell, Roostify and more than 175 lenders, just to name a few. pany to increase its mortgage servicing and technology offerings.

ISGN’s mortgage servicing solutions include LoanDynamix, For First American, the acquisition is all about the move toward Tempo, LoanMomentum, and Gators. fully digital mortgages and mortgage closings.

“The acquisition of ISGN broadens the solutions offered by “The acquisition of Docutech reflects our steadfast commitment to invest in and grow our core business. Moreover, it demonstrates Sagent, including Tempo, a default solution and further supports our dedication to improving the home-buying experience for con- Sagent’s long-term growth strategy reflecting the company’s dedsumers and driving the digital transformation of the real estate ication to enhancing its comprehensive capabilities within the mortgage and consumer lending market,” Sagent said in a release. settlement process,” said First American CEO Dennis Gilmore.

Covius Holdings, the technology solutions provider former“We’re excited to soon welcome to First American the people of Docutech, a highly respected leader in the document technology ly known as LenderLive, took a similar path when it acquired solutions industry,” Gilmore added. “Together, we will accelerate Clayton Services, which provides loan due diligence and credit risk management surveillance services, from Radian Group earthe evolution of real estate closings.”

In a release, First American said that by acquiring Docutech, lier this year.

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Mortgage

According to details provided by Intuit, Credit Karma currently As part of the deal, approximately 550 Clayton employees, primarily in the company’s Tampa and Denver locations, will be has more than 100 million members, more than half of which joining Covius, along with Clayton’s senior due diligence and are under 44.

Credit Karma offers its members products that can be used to surveillance management teams.

For Covius, the deal allows the company to expand its offerings. monitor and improve their credit, prepare and file their income Just like Radian, Covius, a 2020 HW Tech100 winner, has been taxes, monitor their identities, and track and manage vehicle information and financing solutions. expanding in the last few years.

As for why it plans to shell out $7.1 billion to acquire Credit Last year, Covius acquired a sizable chunk of Chronos Solutions, buying Chronos’ credit, flood, income and tax verification ser- Karma, Intuit said that it plans to use the company to “create a vices; government services; REO management and disposition; personalized financial assistant” that will help consumers better online foreclosure auction; and homeowners association track- manage their money.

One of the pieces of that plan involves matching consumers with ing units.

And in 2018, the company acquired reQuire Holdings, a group pre-approved offers on mortgages, personal loans, credit cards of technology-enabled companies that provide compliance, qual- and more using a combination of consumer financial data that ity assurance and valuation solutions for both the residential and both Credit Karma and Intuit will have access to going forward.

That feature is likely built somewhat on the technology of commercial real estate markets.

The company later sold off its mortgage fulfillment and second- Approved, the digital mortgage platform that Credit Karma acary marketing division, LenderLive Network, to Computershare quired in 2018.

At the time, Approved Founder and CEO Andy Taylor said that Loan Services.

Approved will help Credit Karma build a “digital mortgage expeAnd then, Covius moved to acquire Clayton Services.

“Clayton is one of the most recognized brands in capital markets rience” for its members.

“Our mission is to power prosperity around the world with a bold and mortgage securitization. This transaction will significantly expand the offerings and presence of Covius in those sectors,” goal of doubling the household savings rate for customers on our Covius Chairman and CEO Rob Clements said. “Clayton will be a platform,” said Sasan Goodarzi, CEO of Intuit.

“We wake up every day trying to help consumers make ends core business for Covius. We intend to invest the capital and resources to grow Clayton’s market share and build the technology meet,” Goodarzi added. “By joining forces with Credit Karma, required by the increasingly digital processes of the origination we can create a personalized financial assistant that will help consumers find the right financial products, put more money in and secondary markets.”

But the biggest deal of all was revealed in late February, when their pockets and provide insights and advice, enabling them to Intuit, which already owns TurboTax, QuickBooks, and Mint, an- buy the home they’ve always dreamed about, pay for education and take the vacation they’ve always wanted.” nounced that it plans to buy Credit Karma for $7.1 billion.

In each of these cases, the acquiring company made the deciCredit Karma is a personal finance company that provides its members with products and services to manage their finances sion that it would be some combination of faster/more efficient/ and connects those members to financial services providers, cheaper/easier to buy instead of build. Time will if each of them credit cards, personal loans, mortgages, automotive financing, are right, but one thing is for certain, these won’t be the last big acquisitions this year. and student loan refinancing.

58 HOUSINGWIRE ❱ APRIL 2020

OpenHouse POWERED BY

How real estate agents are using iBuyers to grow their business LEVERAGING THEIR EXPERTISE TO EMPOWER CONSUMERS

BY SARAH WHEELER

IF you want a front-row seat to the ways iBuyers can disrupt a real estate market, Phoenix provides a pretty good case study. Both Opendoor and OfferPad chose the Phoenix MSA to launch their iBuying business, and Zillow Offers jumped in soon after. Phoenix now has at least 17 different companies offering cash to homeowners, all attracted to the homogeneous nature of Phoenix’s housing stock.

In 2019, iBuyers were responsible for 5% to 6% of the total number of houses sold in Phoenix — about 1,000 houses a month. But in some areas, the percentage was much higher. In the Pecan Creek neighborhood, for example, iBuyers purchased 13.7% of the homes for sale last year.

But Phoenix was just the start.

The crux of iBuying is the ability to accurately predict what homes are worth based on automated valuations, which require a fairly large number of houses of similar size and amenities. iBuyers are typically looking for houses built after 1960 with

an average worth of $200,000 to $400,000, which is why cities in the south and southwest — ringed with suburban bedroom communities — are seeing the most iBuying activity. iBuyers are now concentrated in about 20 metro areas, with cities in Arizona, North Carolina, Georgia, Texas and Florida leading the pack.

Redfin (itself an iBuyer) started tracking iBuyers in 2019 and released its first quarterly report in December, which showed that Raleigh, North Carolina, had pulled ahead of Phoenix to become the top iBuyer market in the nation.

In the third quarter of 2019, 6.8% of homes sold in Raleigh were bought by iBuyers, a big jump from 3.8% in 2018. Other top markets were Phoenix at 5.1%, Atlanta at 4.4% and Charlotte, N.C. at 4.3%.

2020 could be a breakout year for iBuyers in several growing markets. Houston saw the biggest increase in Redfin’s report, going from 0.1% of sales in 2018 to 3.8% in 2019, and Jacksonville, Fla. wasn’t far behind, jumping from 0% to 3% in a year. Denver HOUSINGWIRE ❱ APRIL 2020 59

is also hot, with The Denver Post reporting that in the first half of 2019 Opendoor had purchased more than 200 homes and sold more than 80 of those in the Mile-High City. In Dallas, Zillow Offers bought almost 900 houses and sold 400 in just the first quarter last year. iBuyers range from the biggest players — Zillow, Opendoor, Offerpad, Knock and Redfin — down to local individual operators. But unlike cash buyers of the past, today’s biggest iBuyers are armed with property and consumer data that lets them market directly to homeowners, potentially undercutting the traditional role of the real estate agent.

But real estate agents don’t have to sit idly by and watch their business being siphoned off. In fact, the presence of so many iBuyers gives agents an incredible opportunity if they’re prepared to capitalize on it.

SERIOUS LEMONADE Dan Noma, owner of Venture REI in Phoenix, recognized that the influx of iBuyers into his market could be disruptive, but focused on finding a way to leverage his team’s expertise.

“Just like every other agent, when iBuyers came in, I thought, ‘This is a threat, they’re going to take my job,’” Noma said. “But then I got to meet them and realized they just wanted to buy houses.”

“I explain it to other agents this way: if you’re from Phoenix and I had a buyer who had a billion dollars to spend, and they’re going to buy houses, rehab and then sell them, would you take

60 HOUSINGWIRE ❱ APRIL 2020

that referral? Any agent would say yes. Well, you’ve got that buyer!

Now everybody has access to the biggest buyers in the country.”

Noma has taken full advantage of the opportunity, deploying an iBuyer strategy that has seen Venture REI business skyrocket. Over the last two years, Noma’s team has closed about 3,500 transactions a year. And that’s just in the Phoenix area.

Many agents would want to keep that strategy a secret, but Noma took the opposite tack. Noma teamed up with Kenny Klaus, another Arizona top originator, to launch an online certification course that trains agents in iBuying and grants them the iReal Estate Pro Certification.

Noma’s iBuying strategy flips the script for agents. Instead of acting like cash offers don’t exist and trying to conduct business as usual, agents become the experts who bring the opportunity to homeowners, rather than letting iBuyers approach them first.

Instead of contacting homeowners with a comparative market analysis, Noma’s Venture REI team contacts homeowners to let them know there are potential cash offers for the house, even if it’s not currently for sale.

If the homeowner is interested, they sign a two-day right to solicit so that the agent can contact the institutional investors on the consumer’s behalf. Then the agent is able to find out which iBuyers would make offers and what the terms are. Out of the 17 iBuyers in Phoenix, the agent might get five or six offers and be able to walk the homeowner through the pros and cons of each.

“The worst thing that happens is we get a consumer that ends up in our database. The best case is they list their house in retail.

OpenHouse

tion. This is what the iBuyers In between those two, maybe bring — they are giving conwe facilitate a sale to an iBuyer. sumers much more certainty,” In any case, we are empower“In everything else we do as conNoma said. ing agents to give a consumer sumers — buying a car, ordering on “iBuyers are marketing dithe best experience possible,” rectly to consumers, so there Noma said.

Amazon — we are in full control. We is no reason for agents to hide Noma’s team sorts the cash are able to instantly look at options from it. If they haven’t driven offers by comparing the numand make a decision, except in the past an Opendoor billboard the ber of days to closing, or hidsame day I’m talking to them, den fees, and shows the conreal estate transaction. This is what it would be surprising. So, we sumer the difference between the iBuyers bring — they are giving are talking about the elephant a cash offer and a retail offer. consumers much more certainty,” in the room, and actually using Depending on what’s most imit to empower them.” portant to a consumer — conveBuilding relationships by nience or equity — agents can providing this valuable knowledge can lead to even more busirecommend the right path.

“We’ve eliminated the one-step listing process — it’s a two-step ness, Noma said, as the person who just sold their house — whethlisting process,” Noma said. “We educate buyers right out of the er through a retail listing or to an iBuyer — is now in the market gate, then come back 24 to 72 hours later with all the available for a new house. Most often these consumers won’t be offering options. That could include a refi, which they may not have even cash, and now that they will be competing with iBuyers for their been thinking of. Then the agent becomes the advisor and it’s not dream house, an agent with iBuying expertise offers value in a whole new way. just a transactional relationship.”

“The way I think about iBuyers is — you have a buyer! You’re Noma said about 70% of the time, buyers are choosing to do a not just sitting around hoping for a buyer — these guys want to retail listing, but they still appreciate the transparency.

“In everything else we do as consumers — buying a car, ordering buy houses,” Noma said. “Once agents get that, they understand on Amazon — we are in full control. We are able to instantly look that there is a ton of opportunity in aligning themselves with at options and make a decision, except in the real estate transac- these guys.”

HOUSINGWIRE ❱ APRIL 2020 61

Fintech

62 HOUSINGWIRE ❱ APRIL 2020

Fintech

Do you know the 2 categories of fintech?

HERE’S A CRASH COURSE ON THE TWO CATEGORIES OF FINTECH AND THE TOP COMPANIES IN EACH

BY JULIAN HEBRON

WE say fintech in housing and banking like those in Hollywood say Kimye. But unlike the shorthand for power-couple Kim Kardashian and Kanye West, fintech is more than shorthand for financial technology.

Let’s make sure we understand fintech’s definition and two distinct categories so we can make better decisions for our companies and careers.

Before we do fintech’s two definitions, here’s a quick history.

The term “fintech” landed in Merriam Webster Dictionary and Oxford English Dictionary in 2018, but it was coined in the 1980s.

Back then, Peter Knight of The Sunday Times in London was editor of a business newsletter called Fintech.

But the term fintech didn’t go mainstream as a moniker until earlier in this current economic expansion cycle. Fintech started sticking as two crops of companies came up in the pre- and post-crisis years.

Propser, LendingClub and SoFi started the digital, phonefirst personal and student loan wave in 2005, 2006 and 2011, respectively.

Wealthfront, Betterment, Personal Capital and Robinhood started the digital, phone-first investing and stock trading wave in 2008, 2008, 2009 and 2013, respectively.

Fintech became cemented as these companies matured into known players valued at a combined $16.5 billion.

Also cementing fintech as a phrase and concept was the rise of software companies powering banks and lenders.

Examples with meaningful mortgage market share include Ellie Mae (founded in 1997), Finicity (1999), Black Knight (2008), FormFree (2008), Total Expert (2012), Blend (2012) and Plaid (2013). It’s worth noting that Black Knight has a longer history and wasn’t called by its current name until 2017, and that Ellie Mae has been particularly active in fintech M&A throughout these post-crisis years.

This history helps us understand why fintech must be defined in two categories.

FINTECH CATEGORY 1: FINANCIAL SERVICES PROVIDERS The first fintech category is digital native consumer-direct banks, HOUSINGWIRE ❱ APRIL 2020 63

Fintech This is absolutely necessary lenders, wealth managers, inas customers increasingly exsurance and other finance pect banking and lending to be companies. as easy as ordering same-day Today, there’s a whole new Pringles from Amazon before crop of these fintech compaToday, there’s a whole new crop of binging on Netflix. nies that are also referred to as these fintech companies that are The consumer-direct fintechs challenger banks, neobanks or also referred to as challenger banks, get this, and these newer B2B simply startup banks. fintechs are now enabling exIn addition to the names neobanks or simply startup banks. isting banks and lenders to above, the new crop of consumdeliver on it. er-direct fintechs includes playE xa mples here i nclude ers like Varo (1 million customNestReady, Home Captain, Ojo, ers), Monzo (3 million), Chime Homebot, Sales Boomerang and ComeHome by HouseCanary, all (5 million), MoneyLion (5.7 million) and Revolut (8 million).

These companies mostly start with a single budgeting, saving, founded in 2012 or later.

All of these B2B fintechs discussed above will continue reshapborrowing or investing product, and are now expanding into other banking products since proving their customer acquisition ing the lending and banking space in 2020 and beyond. and engagement power.

Closer to housing, Figure is another consumer-direct fintech example. It began with home equity lending, and is now expanding into first mortgages and student loans. Figure has already raised $225 million since founding in 2018, and has a valuation of $1.2 billion.

While no company in the original or new crops of consumer-direct fintechs has attained mortgage dominance, SoFi remains active in mortgages, plus Wealthfront and Varo got more vocal about mortgage ambitions in the fourth quarter of 2019.

FINTECH CATEGORY 2: FINANCIAL SERVICES SOFTWARE PROVIDERS The second fintech category is business-to-business software, tools and tech platforms to power banks, lenders, wealth managers, insurance and other finance companies.

Likewise, today there’s a new crop of these B2B fintechs powering consumer finance companies in addition to the list in our history section above.

For example, the entire mortgage point-of-sale concept was created recently with companies like SimpleNexus, Roostify, Blend, Cloudvirga and Maxwell created in 2011, 2012, 2012, 2016 and 2016, respectively.

The mortgage-specific CRMs date back to 2003 and 2004 with the founding of Top of Mind and Volly, respectively. And since its founding in 2012, Total Expert helped evolve this segment from just CRM into a full marketing operating system that can serve all of consumer finance beyond just mortgage with automation and modern digital tactics.

More recently, a new crop of B2B fintechs is rising to help banks and lenders with customer incubation, conversion and engagement.

64 HOUSINGWIRE ❱ APRIL 2020

Fintech

WHAT KIND OF FINTECHS ARE THE LEAD AGGREGATORS? But let’s not forget about the lead aggregators, which are evolving so fast that some are still B2B fintechs and some have become consumer-direct fintechs.

Zillow was founded in 2004 and caught on immediately as we all snooped on our friends’ and families’ home prices.

Until last year, they made all their money selling leads (the hundreds of millions of us on the site) to lenders and Realtors.

Then Zillow became the Netflix of homes by buying, selling and financing homes directly.

They went from B2B to consumer direct. Their B2B segment is still a huge contributor to its $9.4 billion market cap, but it’s now a hybrid fintech model.

Will Credit Karma go the same way?

They have a valuation of around $4 billion and 100 million members monitoring credit. They refer members to banks and lenders when requested.

But Credit Karma also recently added a Credit Karma Savings account. This is the same playbook as the consumer-direct fintechs noted above.

CONSUMERS AND FINTECH PROS ALL WIN TOGETHER Through third quarter of 2019, U.S. venture capital equity funding in both consumer-direct and B2B fintech categories was $12.9 billion over 513 deals according to CB Insights.

That’s already past the $12.5 billion in funding from all of 2018.

So while the economic cycle is mature, the fintech push is still very strong. Customers win as consumer-direct fintechs push innovation ever-faster.

The B2B fintechs then bring this same innovation to existing banks and lenders. So, it’s even easier for customers if their existing banks and lenders can just add the cool tech.

And as long as we can keep up, the fintech race is great for our careers.

HOUSINGWIRE ❱ APRIL 2020 65

66 HOUSINGWIRE ❱ APRIL 2020

Politics and Money

Ed DeMarco on why we need a level playing field for private capital Q&A WITH THE FORMER FHFA DIRECTOR SHOWS HE IS STILL ON A MISSION TO REFORM THE GSES

BY SARAH WHEELER

IN 2012, HousingWire recognized Ed DeMarco as its Person of the Year for his work as the acting director of the Federal Housing Finance Agency. In that pivotal year, the FHFA hired new executives at Fannie Mae and Freddie Mac, revamped the executive compensation structure, set a framework for a single securitization platform, announced a plan to begin credit risk transfer, launched an REO-to-rental bulk sales pilot at Fannie Mae and released guidance on HARP 2.0. And by the end of that year, both GSEs reported a profit.

It was also just one of many years that DeMarco spent a considerable amount of time testifying before Congressional committees. By today’s standards of hyper-partisanship, the Washington, D.C. of 2012 might seem like a slightly kinder, gentler place to do business, but I doubt it felt that way to DeMarco. His work was both hailed and assailed by various housing factions, and the

stakes of the FHFA’s decisions couldn’t be higher DeMarco is now the president of the Housing Policy Council, a trade association dedicated to many of the same goals that marked DeMarco’s time at FHFA: restoring the private market, modernizing the government agencies involved in housing finance, reformulating Fannie Mae and Freddie Mac, developing a sustainable approach to expanding affordable housing opportunities and cultivating a market environment that encourages and enables responsible innovation.

We recently caught up with DeMarco at HousingWire’s Dallas office, where he recorded a podcast on the status of GSE conservatorship and sat down for a wide-ranging interview with HousingWire reporters and editors. It’s clear that DeMarco’s passion for a level playing field for private capital is burning brighter than ever.

Below is our conversation, lightly edited for clarity and length: HOUSINGWIRE ❱ APRIL 2020 67

HousingWire: Tell us about the vision behind the Housing Policy Council.

ED DEMARCO: I joined the Housing Policy Council two and a half years ago from the Milken Institute. We have about 30 members and the common theme among our members is that they are all significant players in the ecosystem: banks and nonbanks, all the mortgage insurance companies, title companies, data and tech companies, and settlement service providers. We don’t deal with every mortgage issue that comes down the pike, we are organized around having safe, sound and efficient markets.

HW: What are some of the specific issues you focus on?

ED: One example is restoring the private label market. Last year, I penned an op-ed in American Banker in which I outlined three administrative steps that regulators could take to advance the ball in that direction. One addressed the QM rule, and the benefit Fannie and Freddie receive through that. Another is Regulation AB II [Asset Backed Securities Disclosure and Regulation]. And a third is democratizing all the data Fannie and Freddie have, all the loan data and borrower data. If you want to bring private capital back into the market, you need to have the information to assess the risk appropriately. This is a tremendous area of focus for us.

In October, SEC Chairman Clayton put out an open request for comment on AB II and we are hard at work responding to that.

Since they finalized the rule, there hasn’t been a single publicly registered private label securitization. The rule requires an enormous number of data fields to be reported — 270! The intent was supposed to be investor protection, but if those data fields cannot be defined, or if you can’t interpret the requirements, then issuers cannot vouch for compliance with the rule. So, the securities never get issued.

I would point out that pre-conservatorship, Fannie didn’t do loan-level disclosures and Freddie did very little. They have to do some now, but short of a private market, let’s get the GSEs to the same standard as others.

If you want to rely on private capital rather than taxpayers and see stability in the marketplace, it’s important that you make sure the market knows what it’s investing in. Investors deserve to have transparent, consistent disclosures.

HW: Some fintech companies and platforms are gathering huge amounts of loan data and borrower data — how does that information play into what investors need to know?

ED: From the angle of what makes the market work, the information that is necessary has to be available to everybody. Otherwise, it can lead to distortions in the marketplace. I think there is much more information out there today than there was 12 years ago, and lots of new firms out there to figure it out. They have certainly 68 HOUSINGWIRE ❱ APRIL 2020

advanced the ball, but fundamentally, if you are doing an MBS, there ought to be consistency and transparency on the data on the underlying loans so everybody is seeing the same thing.

HW: When the HPC is evaluating the health of the market — what are you measuring?

ED: We look at: Are we getting outcomes that improve the transparency and competitive nature of the playing field? One example is capital requirements. In the pre-crisis days, there was an extraordinary misalignment of capital requirements across bank and GSE regulations.

When FHFA came out with its capital proposal in 2018, there was still a significant gap between bank regulators and FHFA. If FHFA is right in its risk assessments, then the mortgage capital requirements in bank regulations are excessive. If the bank regulators are closer to the actual risk, then FHFA’s proposal was inadequate. And the FHFA and bank regulators don’t treat counterparty risk and systemic risk the same way.

Another outcome is we think disclosure standards should be comparable. We have an $11 trillion single-family mortgage market — that should not be going through just one channel or entity. We are looking for a more level playing field that allows for different executions but the disclosure requirements to investors should be comparable across channels.

On the common securitization platform, the infrastructure for securitizations could stand separate from intermediate credit risk.

That could also facilitate the disclosure standardization.

A level playing field also requires respecting the various channels for making and servicing mortgages. Both banks and nonbanks are quite cognizant of the expectations on them by regulators regarding their financial soundness and liquidity. HPC member lenders that are not commercial banks are aware of the discussion out there on nonbanks. They are quite determined to ensure their resiliency to withstand future storms. Many are former bankers and they know what the banks’ prudential framework looks like. Among our council, we don’t treat this as a bank/ nonbank issue but a counterparty strength issue. The market deserves to have a sense of soundness. The largest entities have different charters, different benefits and requirements but the housing finance system needs them competing with each other, acting responsibly in the marketplace, and ensuring their financial soundness.

HW: What is the proper leverage ratio for the publicly traded Fannie and Freddie?

ED: It’s more than what FHFA proposed in that initial proposal.

The framework for having a granular capital charge based on the fundamental risk characteristic of mortgage is a perfectly appropriate standard to use. But what’s not appropriate is to have

Politics and Money

in reserve, or set up a matchone set of rules for Fannie “Potential homebuyers haven’t forgoting fund where the borrower and Freddie and another has skin in the game, or a for banks. There needs to ten the lessons of 12 years ago. They borrower reserve fund that be comparability in how we have legitimate concerns about getting taps equity in the house, or think about operational risk, into the market.” Ed DeMarco a structure that has a built-in systemic risk and counterbuffer that can help families. party risk. The FHFA proWe need more thinking like posal of 2018 was very pro that in terms of affordable housing. cyclical and there needs to be a countercyclical element to it.

Potential homebuyers haven’t forgotten the lessons of 12 years HW: Minority homeownership is still a challenge. What encour- ago. They have legitimate concerns about getting into the market.

I think that certainly the past discriminatory practices that ages you as you look at what’s being done to boost minority were built into mortgage policy created racial wealth disparities homeownership?

ED: In the last year or so there seems to be a lot more attention that are still a barrier and a challenge. How do we identify the being paid to housing supply issues. That’s where I would start households or communities in need of support and try to deliver any conversation about housing affordability — for rental housing that support, as opposed to the system we’ve had? Versus, what do we charge this group of borrowers for the risk? Finally, our and affordable single family housing.

Supply issues are about permitting, land use, zoning, and also current system subsidizes taking on debt, when the goal is wealth about labor costs. There’s a lack of appreciation that many mar- building. If the goal is to help families build real wealth, then kets have a shortage of semi-skilled labor that’s important for why are we allowing them to take on more leverage rather than focusing more on building and maintaining equity? construction.

On the financing side, this is where I see a tremendous opportunity for housing finance reform to actually try something different. HW: Where will that kind of leadership come from?

I find it curious that on the one hand, people, including many ED: I think it has to come from the private sector. One of the things members of Congress, decry access to credit and housing afford- I’m most excited about is the engagement the industry is having ability issues and yet they want to maintain the approach that around this. The HPC is in the middle of this, but we’re not the we take with the GSEs, that this be done with subsidization for only ones. In the last year you see industry advocates and housing Fannie and Freddie, based on the credit quality of the borrower. advocates sitting at the table together having some really thoughtFor whatever merit that approach had in terms of what the bar- ful discussions. Rather than looking to Congress, we can try to riers were to homeownership in the past, we should be looking solve it for ourselves. We can work together and come up with at families today and asking what barriers they are facing now. I ideas and solutions to present to congress. We’ve had some very expect we will find things like saving for a down payment, and im- productive discussions and sincere interest on all sides to come proving financial literacy to understand, not only just a mortgage, together and solve this. but the family balance sheet are meaningful hurdles. Financial literacy is a huge issue, but there’s an opportunity here, in encour- HW: It’s interesting that you think this will be led by the private sector, given all your years in public service. aging homeownership, to also improve financial literacy.

Another big hurdle is that family income has gotten a lot more ED: The curious thing about housing finance reform is that there is volatile than it was a generation or two generations ago yet finan- virtually universal agreement on the principles and components cial reserves are very small for many families. People have multi- of reform. When it comes to major legislative reform proposals ple jobs or rely upon multiple earners to repay a mortgage. So, if and the principles of reform, both sides have a ton in common we want to get people in mortgages and make it more sustainable, about wanting to get taxpayers’ risk exposure way down, on we need to be thinking harder about the shock absorbers families bringing in private capital, for government guarantees on MBS, have access to when they hit that bump in the road, when their for the common securitization infrastructure.

But with the political environment we’re in now, it is so hard to income gets disrupted for, say, six months.

The bigger picture should take into account those kinds of get bipartisan support. It’s not impossible, you can certainly get disruptions. When it comes to affordability, do I really think the bipartisan agreement on difficult, important issues like this, but barrier is 25 bps on interest? No. Instead, there should be a way when you can get industry and advocacy groups to come together, to structure the mortgage and build into the process buffers that that helps a lot with the constraints that our lawmakers operate can help families weather the storm. It might be to put money under.

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CFPB Watch

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CFPB Watch

The questionable fate of loan originator compensation DOES LO COMP MERIT DISCUSSION AS THE CFPB CONSIDERS CHANGES?

BY KELSEY RAMÍREZ IT’S been a long day and inputting the compensation for a particular mortgage loan originator is the last thing on the to-do list before a lender can close up shop for the day and head home.

The MLO enters 1.5% into the system. It’s ready to send.

Wait – that wasn’t right. The lender looks back through the records and sees this MLO should be getting comped at 2%, but somehow the compensation has been entered wrong. And to make matters worse, this was the third loan where comp was entered wrong.

The scenario above is not unheard of – it’s not even uncommon – in the lending world. The unfortunate truth, however, is that little can be done to rectify it once the mistake has been made.

That’s because mortgage loan originator compensation rules are strictly regulated by the Consumer Financial Protection Bureau.

The housing industry is actively calling for a change to these regulations, asking the bureau to allow mortgage loan originators more freedom when it comes to changing their compensation.

CFPB RESTRICTS LO COMP On Jan. 10, 2014, a new rule from the CFPB went into effect that would greatly restrict the flexibility of LO comp. The Mortgage

Loan Originator Compensation Requirements under the Truth in Lending Act from the CFPB states: “The final rule implements requirements and restrictions imposed by the Dodd-Frank Act concerning loan originator compensation; qualifications of, and registration or licensing of loan originators; compliance procedures for depository institutions; mandatory arbitration; and the financing of single-premium credit insurance. The final rule revises or provides additional commentary on Regulation Z’s restrictions on loan originator compensation, including application of these restrictions to prohibitions on dual compensation and compensation based on a term of a transaction or a proxy for a term of a transaction, and to recordkeeping requirements. The final rule also establishes tests for when loan originators can be compensated through certain profits-based compensation arrangements.”

The goal of the rule is to protect consumers from predatory MLOs who could potentially place them into mortgages that aren’t the best fit for them.

“This final rule is designed primarily to protect consumers by reducing incentives for loan originators to steer consumers into loans with particular terms and by ensuring that loan originators HOUSINGWIRE ❱ APRIL 2020 71

CFPB Watch CFPB CONSIDERS LO COMP CHANGES are adequately qualified,” the CFPB stated.

The rule had other restrictions such as monitoring how MLOs At the end of 2019, the CFPB announced it was considering some are paid and restricting an MLO’s ability to change their comp in changes to the LO comp rule. Despite their requests in the letter, the announced changes weren’t everything they asked for. order to remain competitive or even to correct a mistake.

The bureau called some parts of the LO comp rule “unnecessarSince the rule went into effect six years ago, the impacts from the restrictions haven’t always been in favor of the consumer. For ily restrictive,” proposing two changes to the rule.

“In particular, the bureau plans to examine whether to permit example, borrowers might have to switch lenders in the middle of the process if a lender decides the loan isn’t profitable enough. adjustments to a loan originator’s compensation in connection The rule prohibits MLOs from taking a cut to their comp, which with originating state housing finance authority loans in order to facilitate the origination of also means the loan could such loans,” the CFPB stated end up being more expenin its semiannual regulatory sive for a consumer.

“This final rule is designed primariagenda. “The bureau also In response, many in the plans to examine whether to housing industry were upset ly to protect consumers by reducing permit creditors to decrease with the rule, and when incentives for loan originators to steer a loan originator’s compenPresident Donald Trump consumers into loans with particular sation due to the loan origiand his administration took nator’s error in order to proover, those in the industry terms and by ensuring that loan origvide clearer rules of the road raised their concerns. Late inators are adequately qualified,” the for regulated entities.” in October 2018, nearly CFPB stated.

But examining these rules 250 senior executives came and considering changes is together from the nation’s far different than implementlargest mortgage companies to voice their concerns on MLO comp. The executives stated their ing the changes. In fact, one compliance expert says the CFPB is case in a letter to the CFPB, asking the bureau to ease the current unlikely to implement any new changes.

Laura LaRaia, First Guaranty Mortgage Corp. chief legal offirestrictions and allow MLOs to voluntarily reduce their comp in cer and general counsel, speculated that the CFPB is unlikely order to remain competitive. to implement both proposed changes it laid out, but if it does do one of the two, the bureau is more likely to permit LO comp adjustments for housing finance authority loans because these housing finance authority loans tend to help lower income borrowers become homeowners.

LIKELIHOOD OF CHANGES TO LO COMP In the example at the beginning of this article, it’s easy for lenders to look for ways to compensate the MLO through a bonus or other forms of compensation. Requests often come in from a higher level to determine how the lender can make the situation right for the MLO, but given the tight regulations, there is often nothing that can be done. LaRaia warns that doing the wrong thing, even for the right reasons, can have dire consequences.

“Because the MLO Compensation rule was created in part to curb the discretion used by MLOs and lenders for loan level compensation adjustments, now MLOs and lenders have no discretion for any compensation adjustment, even if it were in the borrower’s favor,” LaRaia said. “It doesn’t do you any good to do the wrong thing for the right reason. And people don’t understand that fact.”

She said people will try to explain that they’re doing the right thing for a borrower, for their broker or whoever the affected party 72 HOUSINGWIRE ❱ APRIL 2020

CFPB Watch

is, but what lenders should take into consideration is that if it violates the rule, it doesn’t matter if it’s the right thing to do because it is potentially a violation of the rule as it is written.

“In some situations, to help the borrower close on his/her home loan, the MLO or the lender would want to lower the loan level compensation amount, but the rule as it stands today does not permit MLOs nor lenders to lower the compensation amount on a loan level basis except for a few instances,” LaRaia said. “No matter how right it feels, even if everybody would agree that it’s the right thing to do, you can’t do it because the action would be a potential violation of the rule. We come up against that a lot.”

What’s even harder to explain from a compliance perspective is that the lender can’t change comp in order to benefit a borrower.

“We’d like to do the right thing for the borrower in many cases, but you can’t because that’s a violation,” LaRaia said. “And that’s really hard to make people understand.”

TOP LOAN ORIGINATORS TALK LO COMP While LO comp is a major topic of conversation at the compliance level or even at a lender level, the nation’s top MLOs don’t often

share this same sentiment.

Vice President of lending at Guaranteed Rate Shant Banosian, the top producing loan originator in the U.S., explained he doesn’t focus much on LO comp discussions. In a panel at HousingWire’s engage.talent conference that included Sean Johnson, loanDepot producing branch manager, and Jennifer Micklos, Movement Mortgage branch leader, the originators explained LO comp is not one of the things they want to hear about when recruiters are trying to win them over.

When asked after the panel if Banosian would change the LO comp rule, he explained that he is not looking to change the rule as it is now.

But where top MLOs like Banosian may not be interested in reforming the system, lenders clearly want to see a change. More freedom would allow MLOs to correct mistakes, perhaps be more competitive in the market and do right by the borrower. While the freedom could allow lenders the capability to do the right thing, it could also open more doors for lenders to take advantage of borrowers and put them into high paying loans simply to make a profit.

HOUSINGWIRE ❱ APRIL 2020 73

Q&A Daniel Kenshalo Vice President of Data, Black Knight

Front-loading is the next big step for digital mortgages Lenders work through adoption of predictive analytics For the last few years, there’s been a revolution underway in the mortgage business, as the industry moved closer to a fully digital mortgage, but new data suggests that the digital mortgage is becoming an industry-wide reality.

The digital mortgage has come a long way over the past few years, but one expert says the next big step will be front-loading the origination and funding processes using predictive algorithms that are supported by rich, connected datasets.

Previously one of the main hurdles was the use and acceptance of electronic promissory notes, also called eNotes. An eNote is an electronic version of the promissory note, the record of the obligation to repay the mortgage. But now as eNotes gain more acceptance, the focus has shifted to the next big step.

Daniel Kenshalo, Black Knight vice president of data science and a 2019 HousingWire Rising Star, discussed the importance of data in the next phase of the digital mortgage.

As a Rising Star, Kenshalo became a leader at a very young age. His accomplishments continue to drive the housing industry forward.

The secret to becoming a Rising Star?

“I give credit to the support of a high-performing team and knowledgeable help from across Black Knight, as well as service to others in the community and a little luck,” Kenshalo said.

HousingWire: How do you think data can be used to advance the digital mortgage as we know it?

Daniel Kenshalo: More “connected” data – meaning consumer banking data that is merged and connected with loan performance data, home sales data and assessor and recorder data – will be used to predictively identify potential bottlenecks in the mortgage application, origination and closing processes.

This connected data will be readily available through application programming interfaces that promote fast, easy integration into legacy and new cloud-based systems.

Specific uses of the “connected” data include analytics that reduce assessment risk and pre-validate candidate qualification for an even wider array of homes. A buyer-seller-proper74 HOUSINGWIRE ❱ APRIL 2020

ty predictive matching analytic is one specific use enabled by connected data.

HW: Do you think the housing industry currently has a firm grasp on the use and importance of data, and knows how to use it to create a better mortgage experience for all parties?

DK: I think significant investments have been made that reflect the importance of data in a smooth mortgage process, but there is still work to be completed.

Analytic platforms specifically designed for mortgage data and enablement of custom analytics will become more prevalent and adopted throughout the industry.

HW: What do you see as the “next big step” for digital mortgages?

DK: Significant horsepower and investments have been used to identify, prospect and pre-qualify prospective buyers, but I believe the next big step for digital mortgages will be more “front-loading” of the origination and funding processes enabled by predictive algorithms supported by rich, connected datasets.

For example, currently, a person pre-qualifies for a mortgage amount and makes an offer on a home, and if the offer is accepted, then the actual mortgage/underwriting process begins.

Access to more computational power, robust data and predictive analytics could allow this process to be “front-loaded” for a number of properties that a buyer is likely to make offers on, so that when a buyer “clicks” online to purchase a property, only the funding and final filings with the county recorder are left to complete.

Q&A Marie O’Brien Associate Attorney, AGMB Mortgage Compliance Practice Senior

Lenders should think twice about scaling back compliance 2020 could bring major shifts in regulation Under President Donald Trump, the regulatory environment changed drastically. But now as we near the 2020 election, change could once again be on the horizon.

Marie O’Brien, a 2019 HousingWire Rising Star who serves as director of compliance for mortgage quality management and research and senior associate in the compliance department of Abrams Garfinkel Margolis Bergson, sat down to discuss the changing regulatory environment.

HW: With the new approach to regulation under Trump, what do you see as the greatest compliance risk for lenders today?

Marie O’Brien: One concern is that lenders may scale their compliance efforts and resources back under a false sense of security that the industry is not being regulated as much.

I think this creates significant compliance risk as state regulators have not shown any indication of deregulation in this area On the contrary, many state regulators are more aggressive than ever in their examination and enforcement activities.

Some states have even created their own “mini CFPBs” and/ or additional divisions solely dedicated to consumer protection.

With many lenders licensed in a number of states, compliance risk increases as the number of state-specific regulations and regulators increase.

HW: Are lenders concerned about the possible change in leadership after this year’s election, and what it could mean for compliance?

MO: Certainly, and for good reason – change in and of itself brings with it a number of concerns.

In this case, however, there are candidates with drastically different views than the current administration.

Depending on who we have in office in the year to come, we could see very big changes in regulation from a federal perspective.

As an example, there has been relatively little enforcement in relation to fair lending issues recently. With a change in leadership and access to expanded HMDA data, fair lending and predatory lending practices may become a major focal point for enforcement actions.

HW: How can lenders best prepare for the uncertainty surrounding the regulatory environment?

MO: Control what you can control. Lenders must continue working towards developing and maintaining a strong and effective compliance management system.

This starts with the basics – written policies and procedures, ongoing training, monitoring and corrective action and complaint management.

Importantly, lenders must customize their CMS. This means taking the time to read your policies and procedures and making sure they accurately reflect how the business operates. It also means tailoring training material to reflect your procedures, applicable regulations and your employees’ roles and responsibilities with regard to compliance.

Further, although the majority of lenders maintain a quality control program for reviewing individual loan transactions, many do not maintain any type of overall monitoring or internal audit program. Internal audits are essential for identifying and mitigating risk throughout an organization, as they look at various areas of the company – i.e. credit, operations, compliance, information technology and security, finance, corporate governance, etc.

Identified vulnerabilities and inefficient or noncompliant practices must be addressed and/or corrected. Lenders should also be reviewing their data for potential issues and/or problematic trends. This includes, but is not necessarily limited to, reviewing HMDA data, complaints, pricing exceptions, withdrawal rates, disclosure discrepancies, etc. Again, identified issues and problematic trends should be remediated.

HOUSINGWIRE ❱ APRIL 2020 75

Kudos Why education comes before mortgages INVESTING IN THE FUTURE GENERATION TO GROW HOMEOWNERSHIP HW+ KUDOS SPOTLIGHTS THE COMPANIES IN THE INDUSTRY THAT ARE USING THEIR PLATFORM TO EMPOWER AND TRANSFORM THEIR LOCAL COMMUNITIES

The American dream of homeownership comes to a screeching half if the journey there is met with apathetic support.

Recalling his own path to spearheading this dream for many Americans, Movement Mortgage CEO Casey Crawford recalls growing up outside of Washington, D.C. in the early 90s when the city was infamously dubbed the “murder capital of the country” due to its high crime rate.

His dad had a hardware store in one of the poorest parts of Washington D.C., and when he went to work with his dad, Crawford would also hang out with his friends who lived by the store.

“I saw the unbelievable challenges of growing up as a poor youth in an urban context,” he said. “Even going into college, I really had a tough time imagining how some of my friends would have made it out of that environment.”

Now, as the CEO of one of the nation’s top 10 retail lenders, Crawford has used his story and experience growing up not only to start Movement Mortgage, but also to create the Movement Foundation, which is funded through the mortgage company’s profits. The foundation is designed to partner with others to reinvest in communities, and it was from this mission that Charlotte, N.C.-based Movement School was started.

There are countless statistics around the impact that education has on a child’s future. According to ChildFund International, one in six Americans live at or below the poverty level, and 30% of children raised in poverty do not finish high school. Going a step further, ChildFund stated that people who do not earn a high school diploma by age 20 are seven times more likely to be persistently poor between ages 25 and 30.

The dream of homeownership becomes a distant thought if the basic foundation of education and health aren’t there as a child is growing up.

“One of the great gifts we have as mortgage companies is that we’re profitable, and so we take that powerful resource of profit and pour it back in to love some of the most vulnerable children in our country,” Crawford said.

As Crawford noted, the mortgage industry does present a lot of opportunities for lenders. It’s more than a trillion-dollar industry. The annual originations forecast from the Mortgage Bankers Association predicted that total mortgage originations would reach 76 HOUSINGWIRE ❱ APRIL 2020

around $1.89 trillion in 2020.

Despite the tight competition to secure a piece of that trilliondollar pie, many lenders in the space are using their position to make an impact in their community and give back.

Crawford added that the challenges children face are too big to be solved by any one institution or any one group. “But with teamwork, where you’re really working together with state and federal governments, hospital systems, local school boards, housing authorities and the communities that you’re trying to serve, then you can actually move the needle in significant ways,” he said.

At the end of January, Movement Mortgage also announced it experienced a record-breaking year of business growth in 2018, unveiling a $22 million investment to support the expansion of Movement School. The first Movement School campus opened in West Charlotte in 2017, with the second campus in East Charlotte slated to open this year. Beyond these first two campuses, Movement School is also actively working to open two additional campuses in the Charlotte metro area. Movement School is a network of public, tuition-free charter schools serving students and families in North Carolina. Movement School is just the first building block in helping foster a momentum toward change in these communities.

As important as education is, a child’s health is just as important, with ChildFund stating that children who grow up poor in the U.S. are more likely to be in poor health. Movement School is working to change the entire trajectory for students living in poverty by using the school to create community hubs for change.

“The school building itself can actually act as a beachhead for different organizations who are meeting some of the different needs that the urban poor face,” Crawford said. “There are a lot of good folks who are all doing great work in a lot of disparate areas of our

Kudos

city, but when you think about bringing them together under one roof, I think there’s real power and synergy in doing that.”

“When you start taking care of housing, education, healthcare and a lot of these big persistent problems that the urban poor face, you’re giving people a context to thrive,” he said. “Kids are unbelievably gifted and unbelievably capable. We just need to give them a context and environment where they can use all those gifts to their fullest to break some of these generational cycles and issues of poverty.”

Every organization has the power to ignite great change, as Crawford stated, they just need to figure out what that change looks like for them. Crawford spotlighted Amazon as an example of leading change. In an article by Thomas Franck in CNBC, he shared how more than 340 Amazon employees risked termination earlier this year after signing a Medium post published by advocacy group Amazon Employees for Climate Justice. While the group still advocates for more change from Amazon Founder and CEO Jeff Bezos, their efforts did lead to the creation of a new Earth Fund that Bezos pledged $10 billion to in order to start. The fund will issue grants to combat the effects of climate change.

Whether it’s pouring back into schools, the environment or something else, in the words of Crawford, “Our purpose has to be greater than profit.”

And Movement isnt’ the only lender giving back to schools.

Guild Mortgage, which is based in San Diego, is one of those lenders helping drive change in schools, recently announcing it donated $110,000 each to the Monarch School and Urban Corps of San Diego County. The Monarch School serves students in San Diego and has grown to a K-12 school dedicated to educating homeless youth, while the Urban Corps of San Diego County provides a work-learning program that allows youth to finish high school while earning a paycheck. They also donated $110,000 to Home Start, which provides services to women and children living in poverty.

“We have been fortunate to have key sponsors and people throughout the community join us in supporting the important work being done by the Monarch School, Urban Corps of San Diego County and Home Start,” said Mary Ann McGarry, president and CEO of Guild Mortgage. The lender’s annual charity golf tournament and dinner social has gained the support of leading financial institutions like BNY Mellon, Texas Capital Bank and JPMorgan Chase.

HOUSINGWIRE ❱ APRIL 2020 77

PARTING SHOT

❱ ED DEMARCO VISITS HOUSINGWIRE

Photo by Alyssa Stringer

Former head of the Federal Housing Finance Agency Ed DeMarco recently visited HousingWire, where he talked to the team about the current state of affairs for Fannie Mae and Freddie Mac. He said the housing industry shouldn’t underestimate FHFA Director Mark Calabria, saying if anyone is equipped to remove the GSEs from their conservatorship, it would be Calabria, who has brought energy and focus to the issue. See a Q&A with DeMarco, starting on page 66.

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