All of the headlines these days touch on the new rules coming out of the Consumer Finance Protection Bureau. Lenders are asking: How do I comply? Will my compliance strategy be enough for the CFPB to leave me alone? How much should I rely on my technology vendor when it comes to compliance? Will I be ready in time? Can I originate non-QM loans? And if I do originate non-QM loans will I be able to sell them or will I have to portfolio them? And the list goes on and on. So, 2014 is surely starting with a bang. As a result, we at PROGRESS in Lending have brought together Barbara Perino (left) and Rebecca Walzak to look back at 2013 and ahead to what’s coming in 2014. Together these two women have over 50 years of lending experience. Here’s how they see our industry evolving:
Q: Explain how you first got in the mortgage industry.
REBECCA WALZAK: Accidentally. I had no background in finance or anything. I was tired of teaching and I was looking for something to do. I applied for a job in a mortgage company and 35 years later I’m still here.
BARBARA PERINO: I had recently relocated to California in 1990, and went on to apply for a job as an office manager for this brand new startup. The company was the first in the space to do appraisal review. I was hired employee No. 5. In two years we grew to 450 people and I evolved with them. I started off as office manager, went on to facilities administrator and ended up as regional sales manager. And at the same time I went to school and got certification in mortgage banking. Today I do coaching and some consulting.
Q: How has the industry changed over the years in your view?
BARBARA PERINO: I believe that it’s cyclical like a lot of different industries. I think what showed up—that happened in the 1990s and actually back in the 80s and again in the 2000s—is that greed and ambition, combined with opportunity, took over people’s thinking and created some avenues for them to do well financially for themselves and for companies, but they never took the time to step back and regroup. They missed the bigger picture.
REBECCA WALZAK: After 35 years a lot has changed. Technology, for example is everything these days. When I started technology was an electric typewriter, but today everything we do is impacted or involved in technology. From a business perspective, when I started mortgage companies themselves were small, and not very well known. Most of the banking done was done through S&Ls and portfolio runs. Once the securitization market opened up, the industry grew tremendously. It was at that point that we went from a Mom and Pop business to a huge industry that amounts to a critical part of the world economy.
Q: You both come from very different backgrounds, yet you collaborate each and every month to create a joint article with a lot of great ideas. How does that relationship work and why is it something that you think you do so well?
BARBARA PERINO: It works because, No. 1, we live three miles from each other and we’ve known each other for 16 years or more. We are very aligned in our personalities and we communicate well. We talk every month about what the topic could be that would be of benefit to others and then we figure out who’s going to be the lead in writing it, and then the other person takes a secondary role as far as editing the article. The idea usually comes out of either a conference or having a conversation with somebody or an article shows up that we feel that we need to respond to.
REBECCA WALZAK: Barbara’s specialty is coaching so she’s always focused on the people. I’ll offer up an idea from an organizational perspective or a news perspective and then she’ll come back and say, “Oh but what about the people involved in this?” From there our conversation as to what we’re going to write about really seesaws back and forth to decide if we want the article to be more people focused or more process focused. Barbara is really strong on leadership issues. We’ve had some of our more engaged conversations discussing what’s a good leader and how much of a leader’s time should be focused on people versus focused on the business attributes of the organization. We look at both sides of the coin.
Q: In looking back at 2013, what do you think were the high and low points? And looking ahead at 2014, what are your expectations?
REBECCA WALZAK: 2013 was a year of change. There was business being conducted, and because of the low interest rates the refi business continued to boom. But the focus was on the new CFPB requirements that go into effect this month. The industry had to take a real hard look at what it is we’re charging in totality and what kind of individual fees we’re charging because of the new rules. I think we have to take a look at how we manage these rules. In all this we have to remember that the meltdown was perpetrated by people that were totally focused on making as much money as they could. Well, those people are gone.
The good guys are left over, they’re struggling with these punitive measures and they’re trying to figure out how to go forward. In a lot of ways 2013 was a transitional year, but now we know what the regulations are. So, the industry is evaluating all its options to comply.
Going forward, I see a steady rising of the tide. The first few months of this year are really going to be a struggle, because people are going to be really focused on deciding who they are as a company. They’ll be asking themselves: How am I going to make these regulations work? Is this strategy going to work for me? But the CFPB has given us six months to work things through. Lenders are going to find that the adjustment becomes easier and easier and by the end of this year, we’re going to look back and say, “We had a good year.” I’m fairly upbeat about 2014.
BARBARA PERINO: I do believe that 2013 was a big year of change, as well. The high points of 2013 were the new technologies being developed and some new products. Correspondent lending came back in 2013. In terms of wholesale lending, as a new secondary market starts to put its toe into the water, wholesale will grow too. Also, there were a lot of mergers and acquisitions in 2013. Some companies just struggled and couldn’t stay in business.
There were also some low points in 2013. Some lenders were somewhat greedy or just sloppy in their lending practices, it affected them and they were fined. I see those types of lenders going away. Going into 2014, I agree that the first few months after the CFPB rules take effect will be a challenge. Let’s face it, there’s still some clarity needed around the rules from the agencies around what they really expect. People are in a grey area right now. I also think 2014 will be filled with mergers and acquisitions. Those that can manage change well will succeed. Lenders and vendors are going to have to take these new regulations to heart and understand that there is no more room for sloppy lending. I am excited. I think 2014 is going to be a good year.
REBECCA WALZAK: We are definitely going to see some shakeout in 2014 because there will be lenders who just can’t handle the change. Some lenders entered the market during the boom period and they are struggling because they don’t understand what constitutes good risk. They haven’t been trained about how to evaluate an appraisal and how to fully underwrite. There’s much more demand for what people call old-time underwriters who understood the whole underwriting process from front to back.
Q: As we talk about the new regulatory burden, do you think it’s actually facilitating innovation or do you think it’s hindering innovation?
REBECCA WALZAK: I don’t think it’s hindering or incenting innovation. We’re just going back to the way things used to be done. What frustrates me from both a process and a technology perspective is that we appear to be trying to just use technology to implement some of the processes that we’ve always had in place. I think technology has a much greater role and there’s a much greater opportunity for lenders to grow this year if we were to look outside of the way we do things today and say, “Oh, you know, there’s a better way to do it.”
Here’s a good example of what I mean: We’re seeing companies use OCR technology to look at data to meet new pre-funding quality control requirements. That’s great, but now lenders are manually handling data and images of documents. Lenders are not taking advantage of the huge amount of data that’s out there that could tell them so much about their business.
BARBARA PERINO: I don’t like the word burden. I see the new rules as the new normal. I don’t think the new rules are hindering innovation. There are some in our industry that are resistant to change, but they will have to adapt. Coming out of this I see a huge opportunity to innovate. Creative people will see this as an opportunity.
Q: The new rules are geared at creating a more consumer-focused mortgage space. Is that what’s happening?
REBECCA WALZAK: Only if the consumers do their part. Here’s what I mean: We’ve got new disclosures and the single point of contact, but when do we as lenders give out these disclosures and just because they’re simple to read doesn’t mean that borrowers will read them. And just because borrowers now have a single point of contact that doesn’t mean they’re going to call that single point of contact and ask questions when they don’t understand something. The regulators and the mortgage companies have fulfilled their half of the bargain by introducing and complying with these new rules, but I wonder if borrowers will take advantage of what’s been done on their behalf.
BARBARA PERINO: Clearly the point of everything coming out of Washington is to create a more consumer-focused mortgage industry. Now there are opportunities for lenders to innovate and technology vendors to innovate by creating a better process that makes it easier for borrowers to understand the mortgage flow. Borrowers are not going to read pages and pages of documents. But I think there’s opportunity for a technology company to create something for borrowers to get more educated about the best way to get a mortgage. For any of this to work you are going to need that education piece. You can’t just throw new rules at lenders and new documents at borrowers and expect everything to be simple and understandable.
REBECCA WALZAK: It would be wonderful if we had a national class about lending. We should have a class telling borrowers how to read the new disclosures and what to look for. That would be wonderful but part of the problem is that borrowers get a mortgage so infrequently that they still rely on the loan officer or the Realtor to guide them through the process.
BARBARA PERINO: Along those lines, we should also be better training and educating our loan officers and Realtors to be trusted advisors to borrowers. There are a lot of documents that borrowers have to go through so loan officers and Realtors should sympathize and help borrowers out.
Q: Lastly, describe what you think the mortgage lender of the future needs to be and do.
BARBARA PERINO: Lenders need to be open to change. These new rules are more borrower focused and that message needs to trickle down to everyone in a given lending institution. It shouldn’t just be about the leadership team, it should be about getting the whole company onboard. To do that lenders have to figure out what changes they need to implement in order to ensure compliance and better their process. From there, the lender of the future needs to clearly articulate and implement those changes throughout.
REBECCA WALZAK: In order for lenders to be successful, the leadership needs to stop acting like production managers. You need to have total structure and total control. The lender of the future also needs to look for new technology and do a better job of implementing it. If you’re going to be successful, you have to keep improving. Those lenders that continue to run their businesses like small Mom and Pops won’t cut it. You need a broader view to be successful. Our industry is going through a maturation process. Our industry used to be comprised of small Mom and Pops, but now we’re bigger. We’re a significant part of the world economy so we need to start acting like a true industry with a world view.
rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak, a leader in operational risk management programs in all areas of the consumer lending industry. In addition to consulting experience in mortgage banking, student lending and other types of consumer lending, she has hands on practical experience in these organizations as well as having held numerous positions from top to bottom of the consumer lending industry over the past 25 years.
Rebecca Walzak thinks:
1. Processing a loan will become similar to manufacturing a car or any other product.
2. Lenders will become more aware and knowledgeable about incorporating technology into their operational process.
3. Borrowers will prefer to interact with companies that can easily access and articulate valuable information.
Barbara Perino is a Certified Professional Co-Active Coach guiding her clients who are executive leaders and their staff. Barbara has been trained through The Coach Training Institute (CTI) located in San Rafael, CA. She completed a Coaching Certification Program through CTI and the International Coaching Federation (ICF). Prior to becoming a coach, Barbara was a 16-year veteran of the residential mortgage industry in a national sales management capacity for property valuation and residential mortgage service providers.
Barbara Perino thinks:
1. The dust will settle by spring around what is really expected from the CFPB. We’ll get total clarity.
2. There will be more mergers and acquisitions among both technology companies and mortgage companies alike.
3. The independent mortgage bankers will have a stronger presence in the industry. It won’t be just about the big five banks.