Venture Resource Blog

At this year’s Mortgage Bankers Alliance Annual Convention & Expo, the Venture Solutions team heard from some of the leaders in mortgage about their top concerns. Much of the discussion this year centered around market uncertainty and how that will continue to impact originations and servicing.

Three main areas emerged over the conference: more scattered regulatory requirements at the state level, strategies that thoughtfully consider the place of AI in mortgage, and the challenge of affordability in the current economic state. 

• We are unlikely to fall into recession, but there is great risk for ongoing and increasing inflation. The 2% target is not where we are headed. 
• Overall, we’re in an okay-to-good place where we understand the issues we need to face, but things can change quickly. We have to expect these issues to have effects at some point even if they’re not hitting as hard right now. 
• Employment and prices will reconcile within the next 6 months, but we cannot predict in which way. 
• There are two possible scenarios for the future of our fiscal problems: 
  
  • Inflation growth continues as it has, which is an unsustainable trajectory. The admin will take chaotic steps to settle down the market. 
  • AI may be a bigger deal than IT was in 1995 in accelerating productivity growth; in this case, bad news looks more manageable and controllable. 
• There’s a strong case for government involvement to create more manufacturing jobs, with the appropriate constraints, to reduce vulnerabilities in necessary industries related to national security. Support should take the form of equity positions, and the government should exert more control with an appropriate balance. 
• To solve the affordability factors outside of the industry’s control, lenders, homeowners, etc. need to be working with more local legislation or industry groups to lobby for options on taxes & insurance. 

• AI is the front door to the future where quantum computing makes the real impact on productivity in 3–5 years. 
  
  • AI learns from what you’ve already done with your data and replicates it. 
  • Quantum computing does what you should have done with the data. 
  • We will need to retrain the workforce so that it doesn’t lead to greater unemployment. Find new opportunities where people can be productive. 
• Even more important, everyone needs to have a set AI policy with training and some method of monitoring to hold employees and vendors accountable. 
• States will be enacting legislation to regulate AI usage; it’s only a matter of when. See California and Texas, which already have limits in place for AI in certain processes. 
• AI is about 80% hype and 20% reality. Technology providers like ICE are working on identifying where it actually helps with efficiency and creating a seamless experience. Since it’s still unregulated and this is a highly regulated industry, everyone should be thoughtful to protect consumer data and get it right from the start. 
• The “AI bubble” is real: Like the dot com bubble that came before, key players will survive with actually impactful products while the majority of companies will disappear because their product didn’t deliver provable value. 
• The ones who know how to communicate and make decisions and be thoughtful will be the most successful. You have to understand where human judgment is irreplaceable and where technology is best suited. 
• Despite all the hype, it’s still unproven what the real ROI is and how these tools can scale sustainably. 
• We have never been able to replicate human trust. Customers will always want to talk to a human loan officer at some point. You have to decide what level of balance between trust and convenience you are comfortable with when it comes to integrating new technology like AI. 

Potential Release of the GSEs 

• The GSEs need a thoughtful approach to release, but the noise around the big headline/capital stack is drowning out any thought of the down sides. The goal is for this process to be informed, careful, and calibrated. 
• Maintaining the “bright line” between primary and secondary lenders with a level playing field will allow the GSEs to remain focused on their mission.  

Eliminating Tri-Merge Credit Reporting Mandate 

• Rather than eliminating the tri-merge reporting model altogether, there is a middle ground where we bring in more scrutiny when a single bureau’s report is on the lower end but less on high-confidence scores. Further competition would be possible if a fourth bureau entered the market, allowing mortgage lenders to choose their three sources from among the four. 
• If the end goal is to reduce the costs of origination, credit report resellers need to make a plan for how they would offer delivery of follow-up reporting after an initial single pull requires further investigation. 
• When thinking of how to change the current score reporting model, we need to balance the increase of competition without also raising the risk to lenders and investors. 
• A credit score is a pricing signal, but there is diminishing reliance on a credit score alone with more visibility into other types of financial data like cash flow. Credit profiles are getting more complex, so we need to look at ways to take into account a holistic view of all those data points. 
• We should know more about the implementation milestones for VantageScore 4.0 next year. FICO 10T is still up in the air, but they are hoping to roll it out at the same time as VantageScore 4.0, if possible. 
• If there is going to be a radical paradigm shift with credit scores, then the whole ecosystem needs to evolve because multiple points in the mortgage originations process are predicated on credit reporting still. 

Federal vs. State Examinations 

• To mitigate the uncertainty ahead with federal regulations being pulled, there are two vital points to remember: lenders need to have a good relationship with their regulators at the federal and local level and a good compliance management system that is prepared to shift from federal to state regulators. 
• For multi-state lenders, there are going to be different state versions of exams that they need to manage. Compliance teams will have to be prepared to keep up with the various requirements. 
• Keep doing what you have been doing when it comes to adhering to fair lending protections. Future administrations may pick back up where this one left things because of the long statute of limitations. 
• Legislators are looking at stricter regulations on non-QM, so be sure that your compliance team is up on this type of loan and is tuned into the legislation changes. Invest what margin you’re gaining into preparing your compliance team. 

Trigger Leads Ban 

• MBA is working on the trigger leads ban enactment plan where institutions won’t receive a lead unless they meet one of the four exemption criteria and will commit to a firm offer of credit to the consumer:
  • Consumer opt-in to receive communications 
  • Insured depositories and credit unions 
  • The originator of the current loan 
  • The current loan servicer
• The intent of the HPPA (Homebuyers Privacy Protection Act) is more beneficial competition and relational communications from the LO or broker the consumer already knows. 

Borrower Communication Trends 

• Borrower outreach has shifted from direct mail first to more digital and automation methods. In addition to covering the generations’ preferences for different communication channels, originators and servicers should consider how the contents of their communications need to solve different consumer concerns. 
• There are opportunities within servicing to elevate the customer experience, such as bridging the gap in understanding about tax and insurance increases through methods like personalized videos explaining the customer’s escrow analysis. 

With so much uncertainty swirling in the industry, it's more important than ever to have solid relationships with other stakeholders. Maintaining open communication with regulators, technology providers, and other trusted partners will allow you to pivot as new challenges arise. Flexibility, reliability, and a strong foundation of expertise in mortgage regulatory requirements are key qualities to look for in partners that will strengthen your business resiliency as the future unfolds.

If you are interested in learning more about specific strategies to engage with borrowers effectively, streamline your multi-channel communications with automation, or simplify future change management through intelligent variability, please reach out to our team of mortgage communication experts for a personalized assessment.