Tax Certificates: They Are Still Important

One of the most important financial decisions that we make in a lifetime is the purchase or refinance of a home or other real property. While most all of us understand the benefits of car, life or health Insurance, title insurance is something that is rarely given much thought prior to sitting down at the closing table with an escrow officer or attorney. A title insurance policy insures that there will not be any unpaid claims or interests tied to the newly purchased property. The American Land Title Association reports that more than 30 percent of all real estate transactions have a defect in title, and while there are many ways that the title to our property can be compromised, delinquent property taxes remain one of the most problematic and costly.

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Imagine purchasing the home of your dreams, only to find out that the previous owner had failed to pay the taxes on that property for the last several years. Those taxes have inadvertently become your responsibility, as they are tied to the property. Your recourse as the new owner would be to contact the title company that issued the title policy and file a claim. In the vast majority of these cases, the insuring title company defers to the tax certificate which can provide full or partial indemnity in the case of unknown or unpaid property taxes, penalties and interest, or tax liens.

During the last 30 years, tax certificates have become an integral part of the escrow closing process as title companies have looked to third-party vendors that manage this potential liability. Through well-defined risk assessment, turning this task over to property tax experts makes all the sense in the world.

So, what is a tax certificate?

A tax certificate is a fully or partially indemnified document that reflects the current status of property taxes, penalties, interest, and any other affiliated costs due on a designated property legal description. It also provides up-to-date ownership and address information, assessed values, tax rates, exemption status, and, most importantly, any delinquencies. Additionally, a tax certificate identifies all collecting entities and their contact information allowing for quick and easy disbursement. A tax certificate does not constitute a report on the status of title, mineral interest’s taxes or leases, personal property taxes or other forms of non-ad valorem taxes.

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Tax certificates provide another level of protection to the borrower, the title company/agent and ultimately the underwriter who is insuring the transaction. In the case of tax delinquencies or liens, a sound tax certificate provides a safety net for the buyer. Generally provided by companies that specialize in property tax research, the information is vetted by professionals who have a clear understanding of taxing authority requirements and property characteristics. Hidden delinquencies, rogue property splits, special districts and agricultural rollback liabilities all play a big part in the everyday world of tax service. For a title insurer with so much at stake, the smart and obvious play is to reduce liability by employing a tax service to assume the risk.

Gathering reliable information

What was originally a completely manual process has evolved greatly over the years. While there are still some aspects of tax research that require a hands-on approach, the vast majority of tax research is now automated. The most common method of data aggregation requires the periodic purchase of assessor/appraisal tax rolls. Depending on the tax service’s requirements and the designated tax cycle, these rolls might be purchased weekly, bi-weekly, monthly or quarterly. This method has shown to be for the most part, efficient and reliable. The most common complaint regarding the roll-purchasing method is that even when obtaining rolls on a weekly, basis there can be a time gap in the information which could result in delayed or inaccurate results.

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Another method is “real-time” fulfillment. Through technological advancements, real-time research is emerging as the go-to solution in tax service fulfillment. This method provides up-to-date results with no time lag. The information is retrieved through automation at the time of order and reflects all current and delinquent taxes along with the most current appraisal account information. This provides the title company a true snapshot of the property status, effectively reducing the number of “updates” needed prior to closing by the escrow team. Real-time is especially effective during the current tax cycle, when tax bills are sent out by the assessor. It is during this frenetic time when tax payments are being received by the collector on an almost minute by minute basis. While a week old purchased roll cannot reflect the payment status, real time results can report this information up-to-the minute, once posted. The most common complaint regarding real-time fulfillment is the current limited availability in smaller, rural counties.

Tax certificates are in most cases ordered by the title company/agent at the beginning of the title examination process. Whether through escrow software automation or a stand-alone platform, the order is submitted directly to the contracted tax service. Depending upon the complexity of the research required on the subject property, the tax certificate can be returned within minutes or in some cases it could take several days to complete the examination. These cases are rare; tax certificate requests are almost always fulfilled prior to the completion of the title work.

In most states, tax certificates can be considered a pass-through cost on the closing disclosure. This passes on the fee to the seller if a purchase, and the borrower if refinance, and is inclusive in the total closing costs. Comparative to other closing preparatory items, a tax certificate is moderately priced considering the risk associated with property taxes

What happens if there’s an error on the tax certificate?

Chasing down property tax information can appear very simplistic, and in the vast majority of cases it is. However, it’s that other small percentage of orders that can morph into a serious issue before, during, or after the closing process. No matter how thorough or complete the research is errors still may occur. Depending upon the warranties represented in the agreement between the tax service and the title provider, the tax service can be liable for the missed taxes, penalties and interest, and any tax suit costs that may apply.

Title servicers understand these risks and rely on the tax service professionals to research, identify and report any threats to the transaction. Like many challenges that emerge during a title search, a property tax issue can effectively bring a transaction to its knees. Ultimately, the tax certificate provides a simple, common-sense solution for all parties involved in the transaction, and more importantly, peace of mind.

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Lending To Millennials Takes More Than Technology

At Mortgage Cadence, one of the ways that we deliver technology leadership to our lenders is by going directly to borrowers to learn about their needs, expectations, and feelings about the loan origination process. In a partnership with Accenture Research, we surveyed over 1500 borrowers that had recently obtained a mortgage. This article examines our findings of 699 18 to 34-year-olds that are associated with the often-discussed Millennial segment of the lending population, a key part of the survey. Of all our findings, I want to share three that can be applied by lenders today, using their existing technology solutions.

1.) The value of an attractive rate

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There is a lot of industry focus on lenders employing huge marketing budgets to tout a simple application process, as if that were the primary driver for applicants. However, we found that more than half (55%) of Millennial respondents said that the number one reason that they chose their lender was because the lender offered the best rate. With so much competitive pressure to focus on the borrower experience, it’s a great reminder that lenders also must deliver on tangibles that are important to borrowers, including an attractive rate.

2.) The value of an in-person loan officer

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Many lenders are focused on automating all parts of the origination process. Over 65% of Millennials in the survey met with their loan officer in-person prior to signing their closing documents. Notably, when we look more closely at younger Millennials between 18 and 24 years old, an astonishing 78% met with their loan officer in-person prior to closing. This finding dispels the common myth that Millennials are all about building virtual relationships in isolation. Considering the significance of this major purchase and contracting event, we found that the commonly held notion of Millennials shunning in-person relationships does not hold here. To extend this finding further, we found that, of those Millennials that did not meet with their loan officer prior to closing, half of them wished that they had done so.

3.) Top issues for Millennials

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When we asked Millennials about the aspect of the entire loan process that they wished was easier, 27% wanted the loan application to be easier, 29% wanted borrower document delivery to lenders improved, and 36% of respondents wished for an easier way to determine the best lender for them. Because new borrowers may not have the financial connections or familiarity with the lending process that other age groups enjoy, it follows that finding a lender that they can trust to work is a significant concern.

It’s logical for lenders to get caught-up in a focus on technology solutions that streamline an application process and origination efficiencies. However, our survey findings show us that it is just as important when considering the influx of millennials into home ownership that lenders deliver on a competitive rate, ensure that LOs are supported in their need to effectively build relationships with applicants, and that lenders sharpen their marketing messages so that applicants can easily self-identify with the lender’s target demographics.

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Delivering On The Digital Lending Experience

As I talk to lenders throughout the country and attend industry events, everyone wants to discuss digital mortgage, which is great. Unfortunately, there is a lot more people talking only about the consumer facing side of things. The shiny apps and very consumer esque experiences seem to catch our eye. While all of those things are good, let’s not forget about how we accomplish a truly digital lending experience – streamlining the entire lending process in a digital world.

For years, even decades, lenders met with clients in person, put pen to paper, and shifted documents from person to person. Now, the entire process is being streamlined across the digital landscape. As a lender, if you hesitate to deliver on the digital experience, which includes not only the streamlining of the borrower application, and loan origination process, but also all of the back-office processes, competitors will leapfrog you in obtaining highly sought after new borrowers.

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As a result, lenders must adapt accordingly or be left behind. However, regulations inundate the mortgage industry. Loan officers need to comply at every step of the loan origination process. Lenders can’t merely throw a bunch of technology at their loan officers and hope to succeed. They need technology that streamlines the loan process while complying with regulations and protecting the borrower.

That’s why mortgage expertise is so vital in providing a quality digital mortgage experience. We understand the rules and regulations because we’ve been in the industry for so long. We realize all of the in’s and out’s such as, handling fluctuating rate environments, new HMDA requirements, UCD changes and the constantly rising cost to originate. Technology should augment and improve the digital mortgage experience, not override it and threaten its integrity.

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Mortgage lenders that purchase the new online lending app from a provider that does not have deep mortgage experience to properly handle compliance are like a new shinny car that has no engine; lenders can not truly deliver on the digital mortgage without compliance. If they try, they face regulators and the potential of fines and penalties for failing to comply with industry standards.

Before the 2008 financial crisis, lenders and brokers alike-approved mortgages for just about anybody. After the fall, lenders faced strict scrutiny and were required to verify borrower information. Often this information comes from a multitude of third-party sources. While today’s technology can connect lenders to third parties with ease, mortgage experience determines which third party affiliates provide the most accurate, seamless, and secure data exchanges.

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Applying for a mortgage online leaves a lot more room for error. Digital lending solutions can pre-qualify a borrower in minutes. Thus, lenders must assure that their approval mechanisms produce quality mortgages. Assuring the production of quality mortgages takes mortgage expertise, not just tech savvy apps.

Although mortgage lenders must meet their borrower’s digital needs, the mortgage comes first. Bringing compliance, integrity, and credibility to digital lending entails better loans, happier borrowers, and more productive employees. Technology streamlines the mortgage process. Mortgage experience structures the digital lending process. It makes the digital mortgage possible.

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A Closer Look At APIs

The mortgage crisis began a decade ago, and yet additional industry regulations keep coming. The lending and servicing business sector have become more complicated to navigate. Enhancements in technology, increased demands from investors and borrowers, and the continuous introduction of new government regulations have resulted in a treadmill of change.

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This continual change in the mortgage industry has created an elephant in the room: lack of time and resources. Regardless of the organization size, adding employees isn’t always in the budget. Even if it were, adding staff shouldn’t be the only option considered when there are software technology alternatives available to gain operational efficiencies to adapt to industry changes. So how do lenders and servicers successfully capitalize on available technology to achieve these goals?

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One way to succeed is by leveraging software equipped with application programming interfaces (APIs). An API is a software-to-software interface that allows applications to talk to each other without any user knowledge or intervention. API’s can be internal and used primarily within a company or organization, or external and made available to anyone interested in developing an interface or connection to their product or service. API’s also vary in design regarding functionality. An API may be designed to query data or update a database, initiate a process, or add functionality to a software application. Sometimes it is easier to use an API than develop new functionality from scratch. There are many possible uses for an API; however, in the mortgage industry, using it to keep up with business demands is a definite benefit.

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An API that connects scheduling software to servicing software is one example of using an API to initiate a process. An API allows the scheduling and automation of programs, reports, and interfaces so servicing staff aren’t tasked with running the jobs after hours and weekends. In addition to saving time, the API reduces the potential for human error. Consumers are also likely to reap the reward of this type of API since the end result can be quicker access to statements and loan information.

An API can be used to query data and/or update a database when you process a mortgage loan application and order a credit report or credit score from a credit reporting agency. The software application in which the order is initiated is most likely a loan origination system (LOS). The LOS uses an API to send your credit request with the required information to the credit reporting agency application. Then the credit reporting agency application returns the credit report and/or score, allowing the data to be imported into the LOS’ database.

Behind the scenes, many applications are working together using APIs that are seamlessly integrated so the user doesn’t notice when software functions are handed from one application to another.

Leveraging APIs enables mortgage lenders and servicers to use multiple solutions to achieve the specific functionality desired and build a centralized database. APIs also allow users to work with their preferred vendors since the API technology enables the two applications to meet up and run seamlessly.

Efficiency and Automation Capabilities

APIs save time and reduce errors by allowing for the automation of many recurring, previously-manual tasks such as data entry or program execution; execution of programs and reports at a set date and time, with results transmitted to an investor or agency; and transmission of shared data between loan origination software and third-party vendors. To determine loan eligibility, lenders used to manually pull information, such as borrower credit scores and liabilities. Through an API, lenders can integrate their online portal or loan origination system (LOS) with credit agencies to determine loan eligibility almost instantaneously.

Enhanced Data Quality and Integrity

APIs can provide additional automation of specific programs. By sharing information between platforms, such as loan origination and servicing software, an API eliminates the need for manual data migration. Because there is less need for human intervention, data consistency and accuracy significantly increase, easing the data management process.

Furthermore, the API dictates how data is shared, ensuring full compatibility, whereas separate systems may result in incompatible data. APIs can even allow real time access to specific data within another system, even if that data is not actually stored in the other system.

If the loan origination software, borrower’s and loan originator’s online portals use internal API’s, originators can easily assist borrowers with their loan applications. Furthermore, application data can be automatically imported into the separate platforms, eliminating the need to manually re-enter this data. This same scenario provides for efficient updates to the borrower regarding their application status without having to contact the individual.

Navigating the Compliance Maze

Compliance remains one of the largest challenges for today’s mortgage industry. APIs enable lenders and servicers to meet increased requirements in the face of changing regulations. Whether changes involve adjustments to existing data formats or the reporting of new data, utilizing APIs to execute programs and transmit data or capture additional required data can result in more airtight compliance processes. LOS and servicing system integration enables the servicer to access and cite origination history, allowing you to easily research this borrower information later. This ability is crucial whether you service the loans yourself or outsource them to a third party.

Customer Benefits

Thanks to the added automation functionality, the borrower enjoys a better lending experience. APIs manage tasks that would have ultimately been a cost passed on to the customer.

Customers will also benefit from a more transparent lending and servicing experience. By using a web application that’s integrated with the LOS, the lender can provide borrowers with timely initial disclosures and status updates. On the servicing side, borrowers will also have immediate access to their loan data and statements and can conveniently make online payments 24/7.

APIs provide significant benefits both internally and externally for today’s lenders, servicers, and borrowers. The key is to leverage technology changes by choosing systems that work together seamlessly. The result is a more efficient and enhanced process for lenders, servicers and their customers.

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Home Affordability Improves In Q3

ATTOM Data Solutions released its Q3 2017 U.S. Home Affordability Index, which shows that home affordability in the third quarter improved compared to the previous quarter in 60 percent of 406 U.S. counties analyzed in the report — although affordability was still worse off than a year ago in 79 percent of those counties.

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The Q3 2017 home affordability index increased compared to the previous quarter (meaning homes were more affordable) in 243 of the 406 counties analyzed in the report (60 percent), including Los Angeles County, California; Cook County (Chicago), Illinois; Harris County (Houston), Texas; Maricopa County (Phoenix), Arizona; and San Diego County, California.

The Q3 2017 home affordability index decreased compared to the previous quarter (meaning homes were less affordable) in 163 (40 percent) of the 406 counties analyzed in the report, including Wayne County (Detroit), Michigan; Middlesex County (Boston), Massachusetts; along with three counties in the New York metro area: Suffolk, Bronx and Westchester.

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The national home affordability index was 100 in the third quarter of 2017, the lowest national affordability index since Q3 2008, when the index was 86. An index of 100 means the share of average wages needed to buy a median-priced home nationwide in Q3 2017 is on par with historic averages (see full methodology below).

“Falling interest rates in the third quarter provided enough of a cushion to counteract rising home prices in most U.S. markets and provide at least some temporary relief for the home affordability crunch,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “More sustainable relief for the affordability crunch, however, will need to be some combination of slowing home price appreciation and accelerating wage growth. Wage growth is outpacing home price growth in about half of all local markets so far this year, an indication that a more sustainable affordability pattern is taking shape in more local markets.”

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Annual wage growth outpaced annual home price appreciation in 193 of the 406 counties analyzed in the third quarter (48 percent), down from 216 counties (53 percent) in Q2 2017 and down from 205 counties (50 percent) in Q1 2017 — the first time since Q1 2012 that at least half of all markets saw wage growth outpacing home price growth.

Counties where wage growth outpaced home price growth in Q3 2017 included Cook County (Chicago), Illinois; Maricopa County (Phoenix), Arizona; Orange County, California; San Bernardino County, California; and Bexar County (San Antonio), Texas.

“With Southern California boasting some of the highest average sales prices in the country, our market is a testament to the importance of local community job growth,” said Michael Mahon, president at First Team Real Estate, covering Southern California.Los Angeles County is experiencing a sluggish job creation environment, creating an even wider gap in housing affordability. But in Orange County, where we are seeing local government partnering with business owners on growth incentives and business owner recruitment, we continue to see an economic environment where wage growth is exceeding the annual cost of housing inflation.”

Since bottoming out nationwide in Q1 2012, median home prices have risen 73 percent while average weekly wages have increased 13 percent over the same period.

Counties where home price growth in Q3 2017 outpaced annual wage growth included Los Angeles County, California; Harris County (Houston), Texas; San Diego County, California; Miami-Dade County, Florida; and Kings County (Brooklyn), New York.

Not Everything Needs To Be Digital

There is a lot of buzz around the digital mortgage, but not everything needs to be digital. What do I mean? Some marketing needs to be direct mail. In the article “How and When to Use Direct Mail as Part of Your Inbound Marketing Strategy” by Mac McAvoy, he writes that direct mail regularly gets a bad rap as an exclusively outbound-focused tactic that doesn’t keep up with the ways buyers want to consume content.

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But in the right situations, direct mail could be a crucial differentiator in a world where 78% of consumers have unsubscribed from a company’s email list because the company was sending too many emails.

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Just as a product that’s similar to a dozen competitors will struggle to take off, marketing that looks like everyone else’s simply won’t be memorable. Classic digital marketing tactics like email have become so overcrowded that approaching inbound creatively is crucial to standing out from your competition.

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The key to doing direct mail right is keeping it aligned with your inbound marketing funnel.

Never forget your main objective: you want to lead prospects back online to continue nurturing them there. Any piece of mail you send must direct prospects online to help you track them throughout the process — whether that’s including a link to a landing page or a code they can enter on your website. Plus, the more information you have about what kinds of offers they respond to, the better you can speak to their pain points and specific needs.

Prior to beginning any marketing campaign, your team should be laser-focused on your potential customers’ preferences and needs.

Your number one priority is standing out to those who are most likely to buy your product. This fundamental step shouldn’t change when you’re considering incorporating direct mail into your marketing. Inbound is all about meeting prospective customers where they are.

Given the plethora of other places to spend, it’ll be hard to justify spending on direct mail over, for example, paid content promotion on social media if your target audience is addicted to their smartphones.

However, if your potential customers are old enough to own homes or apartments and are likely to check their mailboxes often, direct mail could prove to be effective. It’s all about understanding what your audience needs.

If you’ve identified that sending a letter or postcard is an effective way to reach your particular prospects, you can begin to think about the moments in the buyer’s cycle when it’s best to reach out with the personalized touch of a physical piece of mail.

For example, a prospect finds a piece of content useful and subscribes to your blog to stay in the know. So what’s your next step?

Keep in mind that all your prospect did was subscribe to an email list. That means they’re probably still a pretty “cold” lead. If they found a blog post through organic search or because they saw a headline that looked interesting on LinkedIn, they’re not going to appreciate receiving any type of content that attempts to make a hard sell, let alone a postcard explaining your pricing.

Think about the number of coupons and offers that you’ve discovered in your mailbox, only to toss them in the recycling bin immediately. Those pieces of mail probably weren’t relevant to needs you’d expressed.

You need to make the content you’re offering via direct mail speak to the individual. That means that if at all possible, you want to segment your mailing list in the same way you’d segment an email list.

Ultimately, striking at the right time with direct mail comes down to maintaining awareness of your prospects’ stage in the buyer’s cycle. Craft the direct mail piece that stands out from the rest by showing that your company understands their leads.

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Higher Rates Did Not Deter Millennials

Summer temperatures and higher rates appeared to have little effect on the Millennial homebuying market, according to August data from the Ellie Mae Millennial Tracker. Conventional loans remained steady at 64 percent of all closed loans by this generation, while FHA mortgages stayed at 32 percent—a market share they have held since June. The average loan amount for loans closed by Millennial borrowers in August of 2017 was $185,919, a slight increase from August 2016’s average $184,113, despite the average 30-year note rate having increased to 4.211 percent from 3.706 percent last year.

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In August 2017, the average Millennial primary borrower was a 29.4-year-old who took out a Conventional loan of $185,919 to purchase a home with an average appraised value of $223,882. This average homebuyer had a FICO score of 724, which helped them get a 30-year note rate of 4.211 percent, and they closed on their home in 44 days. The majority (64 percent) of primary borrowers were male. Additionally, more than half (52 percent) of borrowers were married.

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On the West coast, the average Millennial borrower was slightly older, at 30.6 years old, taking out a loan of $314,579 on average. Average loan amounts were lower in the Midwest, with homebuyers of age 29.5 closing loans averaging $158,584 in Kansas, for example. In Hawaii, borrowers of 31.4 years took out loans averaging $396,766.

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Overall, Millennials were most likely to close loans for the purpose of purchasing a home (87 percent). Refinances accounted for 12 percent of loans closed by Millennials in August.

“Average loan amounts in August of this year were slightly higher than last year, despite higher interest rates,” said Joe Tyrrell, executive vice president of corporate strategy for Ellie Mae. “As tends to happen with tight inventories, this is a seller’s market, and many of today’s homebuyers may be faced with paying a premium for the same home they might have bought for less last year. For those who are committed to buying a home, though, slight increases in competition, costs or interest rates will likely not deter them.”

Other key findings from the August 2017 Ellie Mae Millennial Tracker include:

The top five markets where Millennial borrowers represented the highest percentage of homebuyers in August were Lima, Ohio, Batavia, N.Y., Dyersburg, Tenn., Roswell, N.M., and Kendallville, Ind.

Female homebuyers increased their purchase power, with closed loans in August averaging $189,574, up significantly year-over-year from $184,094. Males took a slightly smaller jump, averaging $196,246 in August 2017, versus $194,913 last year.

The metropolitan region with the largest percentage of female homebuyers (63 percent) was Mankato, Minn., with an average loan amount of $136,597 and average borrower FICO score of 723.

Males made up 60 percent of the Millennial market in Lima, Ohio, with loans averaging $86,845 and averaging borrower FICO scores coming in at 725.

The Ellie Mae Millennial Tracker is an interactive online tool that provides access to up-to-date demographic data about this new generation of homebuyers. It mines data from a robust sampling of approximately 80 percent of all closed mortgages dating back to 2014 that were initiated on Ellie Mae’s Encompass all-in-one mortgage management solution.

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