The political jokes are flying out there. “You’d think a guy with a mail order bride would have a little more respect for the post office!” “My name is Joe Biden and… I forgot this message.” We’re between the Democratic and Republican “conventions,” and things just keep becoming more interesting. Meanwhile, regardless of politics, lenders are doing what they do best: helping thousands upon thousands of borrowers every week while focusing on compliance, pricing, and customer service. A CEO of a lender in the Northeast wrote to me saying, “These are the best of times! My managers are focused on preventing burnout, while emails from satisfied and happy clients keep coming in, and we post them on a virtual bulletin board to help morale. Customer feedback is critical, and we thrive off of it. And I have my LOs tally up the monthly savings from people refinancing, and I tally it and send it out. We’re in a great business!”
Saturday Company Spotlight
This week we highlight Constant, a company focused on loss savings through reducing charge-offs and increasing recoveries for lenders and investors.
Tell us about your company. Constant helps mortgage lenders and investors drive loss savings by reducing charge-offs and increasing recoveries via its automated loss mitigation platform, Constant+. Its MortgageCare module offers loan modifications and other relief options in minutes, including real-time affordability analyses, via its self-service platform. The platform also automates short sale and deed-in-lieu of foreclosure workflows.
In addition to top 20 banks and RMBS managers/servicers, Constant is actively closing core banking and SOR platform providers to reach as many investors, in the shortest time possible, given the complexity of the next phase of hardship relief. Constant was founded in 2015 in Portland, Maine as a fintech lender to provide credit to homeowners making home energy and efficiency improvements. In 2019 and in anticipation of an economic slowdown, Constant built its loss mitigation platform so its customers would experience the same level of automation when seeking payment relief as they did at origination.
Things you are most proud of that don’t have to do with sales. As a fintech lender, Constant prided itself on being a responsible lender. That meant full transparency of credit terms beyond regulatory requirements, 0% and low-rate promotional products with no change to monthly payments, and omni-channel borrower engagement. The Constant+ platform is an extension of this commitment. The company’s top priority is helping investors extend loss mitigation solutions to their borrowers 24-7 through borrower-facing channels. That process includes a real-time financial assessment through borrower input and API-accessed data, a view of all relief options, and the ability to select and sign in minutes.
Constant is also a big believer in its employees. With unlimited PTO and many other benefits you’d expect from a fintech company, Constant encourages its employees to take a breather whenever they need it. This is especially important since Constant pushes features into production weekly, which means when the team isn’t on PTO, they’re working overtime. Constant is also proud of the team’s commitment to fast implementation of customer feedback.
What’s a fun fact about Constant? In early 2019, Constant’s President and COO Carissa Robb suggested the team build an automated loss mitigation platform to prepare for a recession, whenever it happened. As the former head of US loan servicing for TD Bank, she managed servicing, collections, and loss mitigation through the Great Recession. She wanted to build a system that avoided manual, paper-based processes, but because the Company’s focus was on origination, the idea of investing in anything but origination when the economy was strong was a tough sell. In the end, she won over the team. Who knew at that time the company’s business would be completely centered around this concept?
(For more information on having your firm and its charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)
Jeff Babcock, Senior Partner with the STRATMOR Group, has his finger on the pulse of mergers and acquisitions. He sent me a note this week saying, “Recently we have been receiving periodic inquiries from a variety of prospective seller IMBs asking about M&A market activity and where we think the market is going. I guess a multi-billion-dollar IPO engenders lots of excitement about valuation and possible exits. While it’s always challenging to predict the future in an inherently cyclical businesslike mortgage banking, we do have some fresh observations on the current market conditions and how it’s affecting M&A.
So should a successful mortgage banking owner/operator even consider exploring a company sale during this period of such unparalleled prosperity? Why not just ride these profits until the end of the rodeo? Realistically it’s because these high margin times will only last for a finite duration. In fact, there is a perception that the factors which drive uncertainty are gaining momentum as the current boom market matures.
The most frequently cited concern is the disparity in national market volume forecasts; the average 2021 “official forecast” from Fannie, Freddie and the MBA is $2.328 trillion, down 21 % from $2.957 trillion in 2020. We are currently at peak demand but maintaining equilibrium between origination capacity and borrower demand is tricky. If the 2020 industry capacity is approximately $3 trillion, but the consensus 2021 volume forecast is $2.3 trillion, we might experience as much as 20% excess capacity during some part of next year. In order to quantify the impact of excess capacity measured in terms of margin compression, we only have to look back to 2018 during which the industry experienced only a six percent volume drop, but IMB profit margins declined by a factor of 10x.
Then you can pile on a few more uncertainty-generating factors such as 17 % Q2 delinquencies on FHA loans, HFHA’s 50 bps refinance tax, delayed economic recovery, the upcoming election outcome and mortgage company employee burnout.
While no one factor is too concerning, the layered risk of the combined uncertainties makes a pretty compelling case for selected prospective sellers to think about their options. The optimal timing for negotiating favorable deal terms is when buyers remain optimistic that 2021 will create a strong opportunity to earn back a big chunk of an upfront premium. In the meantime, buyers continue to watch a ‘Rocket’ ride to the economic moon.
Despite all the economic disruptions in 2020 due to the coronavirus, the housing market has been a relative bright spot for the economy. The industry has seen rising mortgage applications and a multitude of other positive home building indicators. The big difference between this recession and the last one a decade ago is that housing enters this recession underbuilt rather than overbuilt. There are few vacant homes to depress home prices, a well-regulated and capitalized housing finance system continues to roll on (even with all the forbearances), and it appears millennials are finally looking to move from renting to home owning. I didn’t even mention record low interest rates or the Federal Reserve restarting quantitative easing.
Since the Fed’s quick actions in March prevented a liquidity crunch, which could have quickly become an overall solvency crisis for business and the economy, the Fed has done its best to stay on top of any economic developments and act quickly, if need be. The massive injections of liquidity the Fed has been providing are ironically a result of some of the bank’s mea culpa errors in 2018. Prior to this current recession, the Fed admittedly raised interest rates too fast, which increased mortgage rates and slightly stalled the housing market due to affordability headwinds. Last year, the Fed implicitly acknowledged the error of tightening during a period of little inflationary pressure and corrected itself. This put the institution in a place where it felt that it could aggressively ease without short-term concerns over inflation during the coronavirus pandemic.
Once a vaccine or treatment comes out and a true economic recovery takes hold, the central bank will need to determine how to roll back the pace of quantitative easing. Eventually, the growth of the Fed’s balance sheet and the size of the national debt will increase inflation, though the Fed is unlikely to raise the federal funds rate until unemployment is below 5.5 percent and inflation is consistently above 2 percent. Because that is unlikely to happen for at least a year or two, look for accommodative monetary policy that will support housing and the overall economy for the foreseeable future.
Let’s take a random look at who is doing what.
Artificial Intelligence is boosting the mortgage industry. Valkyrie Intelligence is an applied science firm that specializes in those specific fields: data science (DS), machine learning (ML), algorithm design, reinforcement learning, and deep learning. Valkyrie is doing some innovative work in the banking, mortgage, and insurance industries at the granular level. Some of the areas include predicting if a banking customer is ready to buy a home, collecting and pre-filling data needed by the customer to complete their application, sending alerts both to consumers and to the operations team regarding progress or required next steps, combing external databases to authenticate data, monitoring markets and social media to provide real-time strategic feedback, evaluating creditworthiness and fraud elimination, and providing relevant, intuitive guidance to customers. One of the most common asks for Valkyrie is to profile customers and their behavior in order to create recommendations for features and experiences. (Contact Penn Parrish for further information.)
String Real Estate announced the expansion and restructuring of its U.S. operations team which includes the addition of two individuals who transitioned to String from its parent company, SitusAMC. Brian Ferrito, Vice President of Title Operations, will be managing String’s newly structured onshore team, focusing on overall project management and customer satisfaction for secondary market title support. Kathryn Magee, Assistant Vice President of Title Operations, will be managing the title abstractor network and will also be supporting String’s India team with title search quality.
National Mortgage Insurance Corporation (National MI), a subsidiary of NMI Holdings, Inc. (NASDAQ: NMIH), announced that it is fully integrated with Cloudvirga’s digital mortgage origination platform for retail and wholesale lenders. Mutual customers now have direct access to National MI’s Rate GPS through Cloudvirga’s technology platform. Norm Fitzgerald, National MI’s chief sales officer, said, “The integration reduces the time from application to closing for loan originators, brokers and consumers. National MI continually strives to help make the mortgage process easier for both lenders and borrowers, and this fits in perfectly with that objective.” Cloudvirga’s software increases transparency, reduces the time it takes to process and close a loan, and helps reduce loan origination costs. “We are excited to be able to offer originators a seamless and digital pathway to obtain mortgage insurance information from National MI while they are structuring the most optimal loan for the consumer,” said Kyle Kamrooz, co-founder of Cloudvirga.
HomeLight, has acquired Disclosures.io, a provider of industry leading listings management technology that allows agents and brokerages to securely share property information, monitor buyer interest, and manage offers, all in one place. With this acquisition, HomeLight launches HomeLight Listing Management, available to agents nationwide. “The past decade of innovation in our industry has been focused on how to easily find a home. The next decade will undoubtedly be about the transaction and how real estate agents and their clients use technology to actually buy and sell property,” said Drew Uher, Founder and CEO of HomeLight. “Disclosures.io is on the leading edge of that movement.”
Qualia announced the launch of Qualia RON, a remote online notarization (RON) product to enable entirely digital, contactless home closings. Qualia RON will make Qualia the first and only title and escrow software platform with remote online notarization capabilities built directly into its end-to-end cloud-based software platform. Its suite of products and services aim to break down those barriers and make it easier to buy and sell homes. Qualia RON will allow title companies to directly manage and streamline the digital signing experience securely for their clients throughout the entire closing process. With Qualia’s RON solution, title companies will be able to leverage Qualia’s existing secure document sharing and e-signing features in its client communications portal, Qualia Connect.
With so many loans now in forbearance, firms are working to update forecasts and better understand the impact COVID-19 will have on the housing market. RiskSpan, a market leader in analyzing and forecasting the performance of loans and structured products, announced the integration of Intex forbearance data into its Edge platform, allowing analysts to forecast bond performance leveraging loan-level data. The move will enable the industry to analyze loans more accurately in forbearance as a result of COVID-19.
Blend’s latest capital raise brought the company’s valuation to nearly $1.7 billion. With this new capital, Blend plans to continue its momentum in 2020 to invest in solutions that help its lender customers. Since the beginning of the year, Blend has hired and onboarded more than 130 new employees.
Three politicians were in a heated discussion as to which one was the best liar. As the discussion was getting louder and louder the bartender suggested they have a liar’s contest. After agreeing to the rules the first says, “I have never told a lie.”
The second indicated that he was not capable of telling a lie.
The third won the prize as he assured the bartender that, “The other two had told the exact truth.”
Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “No One is Standing Over Anyone’s Shoulder”, focused on managing remote employees. If you have the inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is designed for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2020 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman.)