On this episode, Editor in Chief Sarah Wheeler talks with Managing Editor James Kleimann about mortgage technology innovation and what he heard from attendees at the ICE Experience conference.
Related to this episode:
Technology | HousingWire
https://www.housingwire.com/tag/technology/
Enjoy the episode!
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
Related to this episode:
Technology | HousingWire
https://www.housingwire.com/tag/technology/
Enjoy the episode!
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
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00:00Welcome, everyone. My guest today is Managing Editor James Klyman to talk about mortgage
00:10technology news and information from the ICE Experience Conference. First, I want to thank
00:16our sponsor, Optimal Blue, for making this episode possible.
00:19James, welcome back to the podcast. We are in this very fancy podcast studio at ICE Experience.
00:27Unlike something we've ever seen before, we don't usually get this treatment, so it's
00:31pretty nice. But thanks for being here.
00:34Yeah, this place is literally the size of my apartment.
00:38We just had someone come in and do makeup on us. This is unprecedented. We look good.
00:44Usually my three-year-old does my makeup. So this is a little more professionalism here,
00:49which is nice.
00:50It is really nice. So let's talk about the ICE Experience so far. So you've been here
00:54since Sunday. I got here yesterday. Lots of sessions, mostly for users kind of thing,
01:02so not really open to the media, a lot of them. But it has given us a lot of time to
01:06talk to people, which is one of the things we like to do at conferences, is really find
01:10out what are people thinking about? What are their concerns? Where do they get their news?
01:15What are they looking for? What are they looking for less of? It's just a great opportunity
01:19to get to meet the audience.
01:21Yeah, and it's interesting when you have an event like this, there's a huge variety. So
01:26often when you go to the NBA or even our own events, right? I think we're maybe a little
01:30bit more focused on either servicing or secondary or origination, typically origination or real
01:36estate or whatever. This is a lot more about the doers, the tinkerers, the people who are
01:41building the technology and they have to think so broadly about how it fits into the greater
01:47ecosystem within Encompass or MSP or whatever, right? So it's definitely a little bit different
01:53and I find that I'm not as fluent. I feel pretty comfortable going to the NBA meetings,
02:01but here I talked to a network data architect and I asked him what he does and he explains
02:06it to me and I say, I'm sorry, can you explain it like I'm four years old? I don't know what
02:11you're talking about. And so you do run into that a little bit more, but it's a pretty
02:16interesting, exciting time in this space and we're starting to see so many huge advancements
02:21that used to take five years, six years, seven years, and now they're happening in months. And
02:28I think some of the smaller tech vendors feel really well positioned when previously they
02:34would have been just fighting for survival in a lot of cases. And so it almost feels like,
02:40not that there's a paradigm shift necessarily, but I think there are a lot more interesting
02:46promising companies that are really taking a fight to the big boys. It's interesting that you
02:50say that because I felt the same thing I've met quite a few people. We have an AI summit,
02:55so one of the things I'm always doing is trying to figure out what are people doing with AI? It's
03:00so easy to say, oh yeah, we use AI in this, so to kind of cut through it and find out what people
03:06are doing and what's interesting about that, what's different about that. And I've met some
03:10different companies while I'm here, as well as talking to some of our stalwarts that we talk to
03:14all the time, but just seeing how people are doing that and what they're imagining and that the fact
03:19that they can do some of that now. Yeah. And I think we're also seeing changes in their process,
03:24I don't mean in a technological sense, but as they run businesses. And so we're starting to see
03:30maybe a broader recognition that in an industry like mortgage, that is one year volume is great
03:36because of macroeconomic factors that don't appear in the next year and volume is terrible the next
03:42year. And yet your contracts with some of the larger vendors in this space won't reflect the
03:46ups and downs of the industry, right? Or they'll be volume based and maybe a little lacking in
03:53flexibility. And so I'm talking to a lot of vendors today that are introducing monthly
03:59payment options or they're thinking differently about how to work with their customers. And
04:05a lot of them are eating the costs of having to migrate some of their code from
04:10the legacy SDK architecture over to the new API based, which is going to be the encompass standard
04:16in over a year. But still, they do have to start moving in that direction if they haven't already.
04:23Now, in some cases they can't eat it because they're too small, right? And that's just the
04:29reality of being a small business owner in a tough space like this. But we are seeing, I think, a lot
04:33more variety in just how they're running the businesses. And so that's pretty exciting. And
04:40I feel like just the vibes are better this year than they were last year. Not that people were
04:45crying and sad and, oh, woe is me or anything like that last year. But I'm seeing a lot more
04:53handshakes, a lot more deals that seem to be getting discussed. I also see a lot more people
04:57that didn't buy tickets to the ICE event, but are hanging out at all the various casinos and the
05:04bars and restaurants. It seems like the attendance is a little bit stronger this year.
05:09Anecdotally, I don't have any numbers to support that, but definitely it feels like
05:14people are more excited about the directory of the business.
05:17I would agree with that. And I think that's so welcome, right? The whole idea of survive till
05:2325. We're in 25. So if you made it, congratulations. But there's still a lot of challenges,
05:30as we know. And so last time I had you on, we talked about Rocket and UWM and some of the big
05:36lenders. Let's talk a little bit about the people that you've heard from here. What are some of the
05:41things they're saying are the challenging things about the market right now?
05:44Volume is still not very good. People might be excited, but if you're coming from,
05:51I've been at a three, and I think in a couple months I'll be at a six, maybe even a five.
05:58It's better. It's an improvement. It is absolutely, and probably enough to sustain business.
06:02You have to also bear in mind that a lot of these companies, if they haven't been bootstrapped,
06:06their investors are looking for returns. Their investors are maybe looking for an exit. They're
06:11running out of cash, right? There's a runway that they're approaching. And so volume still
06:17needs to pick up. No one's over the mountain yet, but it is encouraging. And certainly when rates
06:25for some products now, and you can get into the fives, right? The higher fives in a lot of cases.
06:30And so we should start to see more refi business. And we have seen certainly an acceleration,
06:36but it's not, again, not that anyone thinks we're going to go back to 2021, but maybe what did 2019
06:43look like? Or even 2018, which wasn't a fantastic year in the industry. You remember when that was
06:48considered a bad year? Yeah. Yeah. If only. Right. So yeah, volume is still a challenge and
06:55you have large scale, not even specific to mortgage, but the idea of AI and the idea of
07:02kind of these massive technological advancements are really exciting and promising, but they're
07:09also scary because it means a company that doesn't even exist right now could start up in a couple
07:15weeks and eat your lunch. And so I think that has pros and it has cons and how you manage the
07:25technology, not even just having the coders and the people who are able to create a really
07:29compelling product, but how you manage the business and the responsibilities of having something
07:35like AI integrated into a highly regulated, for now, economy like mortgage is daunting and you
07:44have to give it a lot of thought. I think that's true. So I've talked to a lot of people, you know,
07:49I do tech interviews on a regular basis and part of the thing that they say is like the thing that
07:55distinguishes AI from almost every other kind of thing that you've ever integrated or partnered
08:01with or whatever is that it's constantly learning and you have to constantly watch it. And so one
08:07of the things, a calculus in the past, when you think about technology is like, is it advantageous
08:13to be a first mover or should you wait? Like, you know, like, oh, let me see these guys go out and
08:18see how they do it and let it come down in price and then I'll get in, right? And it's kind of
08:24hard to say now with AI, like, is it better to be a first mover? Because if you don't have that kind of
08:30experience and watching it and knowing what happens, you know, maybe that's going to come
08:33back to bite you. On the other hand, maybe they're going to come out with something next year that was
08:37like much more plug and play or much more, like, I think that's a hard calculus right now to make.
08:43Yeah. And also when you're here at a conference like this, the assumption is that you are working
08:47within the ice ecosystem, right? Right. You know, I mean, because why else would you be here? And so
08:53you have to make sure that your technology works and you're able to adapt to the changes that
08:57happen here within the ice and usually encompass, but also MSP and they have a lot of other products
09:03and in some cases they're competing with the vendors that are in this ecosystem too, right?
09:08And so, yeah, I mean, and it's a very complicated, interesting area. And I think you have to have
09:13people that are not just product focused, but are thinking about how different elements of
09:20your business could be affected pretty massively, very quickly that just were never even something
09:25you thought about as a business owner or, you know, even a middle level executive in marketing,
09:31you know, like the game could change on Tuesday. Like, how do you deal with that? That's hard.
09:37You know, one of the things we see at our events too, is like, we decide who's going to be on stage
09:42based on like how interesting they are, what they're doing. And a lot of people like, they want
09:47to know what other people are doing, right? It's very, so one of the things they're doing here is
09:51like casing out the, you know, okay, well, who's using this? What advantage does that give them?
09:56Who's using this as part of their, you know, encompass tech bundle, whatever. And I do think
10:02it does feel like more optimistic here, but also, I mean, it's a lot of trying to figure out what's
10:08going to work for your business. And it's also competitive. Very competitive. You are jockeying
10:12against your direct rival that might be literally, you know, four footsteps away. It's true. And I
10:19mean, you can definitely see cases in which, not that people are S-talking or anything like that,
10:25or speaking ill of other companies. I haven't heard anything like that, but there is playful
10:30banter. There is a lot of, okay, here's what they're going to give you, but I can do all that
10:35and more, and I can do it more cheaply. And I'm going to give you dedicated reps to make sure that
10:40any integration is as smooth as possible, because that's another big factor. And especially when you
10:44already have a tech stack is people are often reticent to leave what they're comfortable with,
10:50what they're familiar with, even if it's annoying or difficult to use, or even if maybe their staff
10:57isn't great at utilizing it for whatever reason, it's still like the devil you know is better than
11:02the devil you don't. And so convincing other potential customers to leave your arch rival.
11:09So the stakes are high, right? I mean, you have to really have strong messaging. You have to get
11:14their attention. I can't tell you how many people just walk by and the people who are at the booths
11:19are just on their phones, not even paying attention, not getting. And then there are other
11:24people like Matt Van Fossen has an emulator for NES. So he has Mario, he has Contra, he's got all
11:31these dope video games. I saw that. When a lot of people here were like kids, and so there's a
11:35nostalgia, like you have to capture people because if he doesn't, then they can go to any other POS
11:42here. And that's a big opportunity. So I would like to see maybe a little more creativity from
11:48some of the vendors, but again, it's still a really competitive, interesting space here.
11:53Okay. So just, you know, a little bit off topic, but one thing that I love about ICE that I haven't
11:57seen anyone do, anyone else do, is the adopted dog space where you can go in there and like hold
12:03puppies. I'm just going to say, that's my favorite thing. I think they should make it more exciting
12:08and do different animals, like maybe alligators or ferrets. Can you imagine the absolute hilarity
12:18of a bunch of ferrets running around with some of these vendors?
12:20Ferrets would cause total chaos. Yes. Or like monkeys. I don't like monkeys actually.
12:26They're very strong and very scary and very volatile. I don't think that's a good idea.
12:30Okay.
12:30The alligators, I mean, maybe, you know, you just climb on top and shut their jaws, right?
12:34That's easy.
12:36Yeah. Everyone, these are ideas going forward.
12:38They're not good ideas, but these are ideas.
12:40They're not good ideas. Okay. Let's talk about the other thing that I've always gotten out of this
12:45conference is they have a very strong, you know, ICE is a giant company. They have a very strong
12:51presence in DC and they help people. They know what to do with compliance and, you know, what
12:58the government's doing, what you should be doing because of that. We're not allowed in some of
13:04those sessions, so I don't know. We'd love to be in there, but what do you hear from people as far
13:11as like, you know, every time someone stops me, right, or we talk, they're like, oh my gosh,
13:15things are so crazy because they know we're covering all those crazy things in the news.
13:19What have you gotten on that front when you talk to people?
13:22There is definitely a growing concern about how some of the agencies and some of the,
13:31you know, just the giants, the government controlled or insured giants in this space
13:36are going to handle. Let's say if there is a major shakeup economically,
13:41let's say there's a big recession or whatever, I hear definite concern about FHA loans.
13:48You know, obviously ICE has MSP. That's a big, big platform for them. They have a tremendous
13:55amount of data. They've gotten a lot better about, I think, showing their clients,
14:02here's data that maybe you should take another look at or, you know, being able to kind of
14:06provide an easy path, right. And obviously we know a little bit more about kind of the
14:12originations side of it through Encompass because I think that's maybe a little sexier than
14:16servicing a loan that might be distressed soon if it's not already. But I'm definitely hearing
14:22from people who are worried about GINI, who are worried about FHA loans and, you know,
14:27the waterfall, the last bit game is completely different than it was in early 2020, right.
14:33And so no one's really had to reckon with it yet, but we're starting to see delinquencies
14:39grow from, I think last I saw it was about 11% in FHA, and that's climbing. I've heard a lot
14:45of concern about VA as well and that VA, which has historically not been the most responsive agency
14:51in its housing programs, is now at a glacial pace in some cases, if you even get a response.
14:58And again, this is just from a couple people. I don't know definitively if that is the case
15:03for all counterparties who are working with GINI or the VA, but it's not something I heard
15:12even a month ago. I agree with you. This is something that has come up in numerous
15:16conversations I've had. And I mean, we know that there have been a lot of cuts at VA,
15:23at HUD, at FHA, GINI. But we're not exactly sure where those are. I mean, it's been hard for us to
15:31nail down exactly what jobs were those people doing, what jobs are now people are taking on
15:37multiple roles. So I did hear from someone today who was talking about how hard it is to get
15:43somebody on the phone. And I was like, I can only imagine. I haven't heard much change at Fannie or
15:50Freddie, and we know that those are still, given the stated priority of the Trump administration
15:57to remove them from conservatorship. Not that there has been a lot of specifics as to
16:02how that would happen. We haven't seen an executive order or anything like that, but
16:06I feel pretty good about saying that they're going to be very cognizant of the importance of Fannie
16:11and Freddie to the broader housing system. And if you do want to get them out of conservatorship,
16:17you can't do it while they're in chaos. You can't do that while they aren't able to answer the phone
16:22when there is a problem with DU or whatever. So I guess that's a positive, I think, given
16:30the larger existential questions about what does the future of the government's involvement in
16:36mortgage lending in America look like, but definitely something to watch for.
16:41I think one of the things that I've talked to when you bring up regulation, I think people
16:45are excited about the thought of less regulation in the sense of everyone in this industry can
16:51think of different points where some new regulation got put in that took years to,
16:56I think about TRID, years to implement, which from the outside, you'd be like,
17:01why did it take so long? But from the inside, it's just so complicated. They would cheer that.
17:07On the other hand, they've already spent all the money to be compliant. They already have
17:12everything sort of set up around that. And you have all the states ready and willing to step
17:21in. So I think everyone would think, oh, it's great if we're not going to get anything new
17:25coming down, but there's still plenty on the books. They can't burn it down, right? They can
17:31defang the regulators. They can deprioritize certain enforcement actions that may have been
17:38a priority under a prior administration, but they also need to be aware that there are risks
17:47in not signaling to the market what you plan to do and what is the line.
17:52And so you're more likely to have, I would say, smaller companies that are fighting
17:57for survival that are going to be taking shortcuts or are not going to be as diligent
18:04about risk management or even treating customers appropriately. Now we're not
18:11talking even about the medical debt stud and some of the, I think, more aggressive and
18:20broad interpretations of federal statutes as it relates to regulating some of these companies.
18:27I do think that the CFPB will still be a player and most of the people that I've spoken to here
18:36would be disappointed to hear that, even if they are. And that's probably just because
18:41it just feels like they've been run down by the CFPB so many times and the cost of manufacturing
18:46alone is so expensive and it's hard to quantify exactly, is that directly compliance related to
18:54the CFPB or is that CSPS or is that... Compliance isn't just one bucket, right? Compliance touches
19:02so many different elements of any business in this industry, but you have to think that it's
19:07at least a couple thousand dollars at minimum per loan. And then on the servicing side,
19:12probably even way more than that. You have one loan that goes bad and you're spending thousands
19:16of dollars to try to get that loan right. Right. Well, and like you said, how do you parse that
19:24out? It's like you have XYZ technology, plus this, plus that, so that you've already made
19:31that commitment and that helps keep you compliant. But how do you parse that into
19:36what the loan costs today, right? It's hard to break it out, I think. And then you still have
19:41the challenges of complying with the existing regulations that often say you need to call
19:47the person like a trillion times and text them. You need to send them custom made cartoons about
19:52their situation and then you call them on the phone. When's the last time you picked up the
19:56phone to a number you didn't know? All the time, which is a problem. Oh, because of your job. I
20:00always think maybe this could be a scoop and it's always some nonsense at best. It's usually just,
20:07no one's there. It's a job hazard for you. It is. I should get a company phone so I don't
20:11have to deal with this. I love that. Well, we're almost out of time, but anything else that you
20:17wanted to say about our time here? I think it's really, it's been a good vibe. I think that there
20:25is going to be a repositioning in how some of these vendors are competing against one another.
20:33I see a lot of really promising tech companies that I hadn't even heard of last year that I hear
20:38a lot of buzz about. And that doesn't mean that they're going to overcome the challenges that are
20:45inherent in starting. I think it would be crazy personally to try to bootstrap a company and say,
20:50I'm going to take on an OB or CoreLogic or an ICE or you name the massive company that they're
20:57up against. But people are doing it. I see more entrants coming and they're not chumps that have
21:04just a discount worse version of what the big players are offering. They're nimble,
21:09they're aggressive. They have more flexible pricing structures in some cases. They have
21:15compelling value propositions. And so I think we're going to see more of that, which means that
21:19the ICEs, the CoreLogics, the OBs, they all need to step up their games too, right? So it's going
21:25to be a net positive for the industry if everyone does it the way that they should. I love that.
21:33Well, thank you for those thoughts. Thanks for joining me. We'll talk again soon. Thanks, Sarah.