Innovation in the Industry
Will Vickers, Vice President Industry Technology at Arch Mortgage Insurance Company, managing the digital channel, is no stranger to innovation. His title notwithstanding, innovation doesn’t always necessarily mean new tech. That’s among the takeaways from a conversation between Vickers and Mortgage Media’s Dave Matthews during the California MBA’s recent Mortgage Innovators Conference in San Diego.
Noting that he’s the public face of Arch’s technological capabilities, and representing not only Arch but MISMO (Mortgage Industry Standards Maintenance Organization) at vendor events, Vickers finds events like the Innovators Conference important to keep an ear to the ground. He’s always looking for new things that can help Arch’s lenders and do a little “light consulting” for them as they seek solutions.
“This is the perfect venue to keep your ear to the ground and see, especially in California, the hub of fin-tech, what’s new … these days, we’re worried about getting them (lenders) more productive and saving money to reduce the cost of manufacturing the loan. So absolutely, this is a great place for that,” Vickers said.
When it comes to innovation, Vickers noted that “We invented risk-based pricing for mortgage insurance 10 years ago,” with a solution called RateStar, which keys the most competitive MI rates to the needs of a particular borrower. The old mortgage insurance rate card had several hundred combinations of rates, while RateStar has 1.2 million rate combinations, he said.
And, recently Arch rolled out RateStar Buydown, which helps loan officers more easily and effectively qualify their borrowers and generally serve them better.
“There are frequently times where, when you put a deal together, there may be dollars left over and you pay down the closing costs, but there’s still this bucket of money and you have no place to put it,” Vickers said. “So we’ve created the ability for a loan originator to take those dollars and buy down the MI payment by basically making a one-time payment at closing. Then our systems will recalculate the ongoing monthly payment to be lower than it would have been without the buy down. So it’s very helpful for builders and loan officers that understand how to use it. You can help qualify your borrower better and utilize all the dollars instead of having them lose the benefit in the deal.”
The tools support the ability to do a quote with any variable costs that need to be factored in, either from within or without the LOS, without affecting the closing date, he assured.
According to Vickers, the process of adopting integration and data standards on a large scale has become streamlined enough to be practical in its application and is going well in his end of the industry, the mortgage insurance sphere. He said MI companies, likely more than any other vendor group, had the most success early on in adopting standards, a function of their generally having worked well with each other traditionally, as far back as the days when EDI (electronic data interchange) was emerging. That essential cooperation has continued, he said.
“There are only six MIs. Many of us have worked at each other’s companies. So we’ve known each other a long time,” he said. “But I think generally we do a good job of taking our name badges off at the door and thinking about vendors and making sure that we can all support a single standard that makes it easier for the trading partner to spend the money once and reuse their connection for multiple purposes. Meaning multiple vendors.”
He understands that it’s a little harder in, for example, the credit space, where there are so many different suppliers, than in the tighter MI space.
“I have seen the pattern over and over and over: Companies get frustrated with something, their POS, their LOS, their secondary marketing system. And many times the gut level reaction is ‘Throw it out. We need to start over,’” Vickers said.
He advised sitting down with the current vendor before moving on to something else. That’s because often the company has tried to simply recreate their old processes on the new system. So, before jumping ship, he suggests, attempting to work it out and see what needs to be adapted: “Your current vendor has the most to lose if you run away. So you should always start by saying here are my pain points.”
He encouraged companies to keep their self-hosted software up to date and occasionally do a deep dive to ascertain anything they may have missed or that can be tweaked. This may reduce manufacturing costs, speed up the closing process and reduce errors. He also warned companies against relying on tribal knowledge to train users as they may miss out on learning some of the new functions available. Be willing, and able, to re-evaluate, he noted.
“What’s interesting is new people coming into the industry, especially if they don’t know anything about mortgage, they always have great ideas,” Vickers said. “It’s easier for them sometimes to see outside of the forest the things that we just take for granted. So I think that’s fantastic.”
That’s a double-edged sword, though: Since they aren’t fully versed in the mortgage industry, they won’t necessarily fully understand the process and may gloss over things, This can result in inefficiencies when data has to be re-keyed or corrected.
The key is to know the vendor, and know you can trust them in terms of expertise and thoroughness as well as creativity, Vickers suggested.
“I think sometimes the ability to do new things introduces other problems if you don’t ask the right questions when you’re shopping,” he said. “Number one thing that I tell folks to do, find other references who are using the product, ask them what it’s like to live and breathe and eat with the vendor before you sign on the dotted line.” (And, Matthews added, talk to all those who’ve done business with the vendor, not just those whom the vendor offers as references.)
Up Next for Arch
Arch has introduced what Vickers calls “portfolio power” – particularly helpful in the non-QM lending space – that gives borrower and lender significantly more security, much sooner in the process.
“We purposely wrote the master policy agreement for the portfolio lending policy, which we call portfolio power, to give the lender day-one recession relief. And what that means is with a standard Fannie/Freddie MI policy, the borrower has to make three years of payments. And they have to be no incidents of first-party fraud. After three years, the MI can never be cancelled,” Vickers said. Whereas, “with portfolio power, the minute we issue the policy, you’re covered. There is no requirement. So we feel like it’s better for lenders that are doing a lot of self-insured business. For, say, smaller lenders or credit unions that don’t do MI at all, you can really serve your customer base bigger if you just take an extra 5%, put private MI on it, and portfolio power product.”
As the private market comes back into the non-QM lending space, Vickers says this innovation positions Arch to help support that market.
Blockchain and AI
That said, there are plenty of technological innovations out there, with some often and consistently touted as what will revolutionize the industry including AI, APIs, blockchain, and others. And there is definite potential for the application of such tech, Vickers noted, although not right away.
“My reaction to blockchain in the mortgage industry is always like, I don’t think one vendor or one product is really going to make that be a thing,” he said. “I think we’re going to have to wait for someone like a regulator of Fannie or Freddie to implement or to dictate that it be implemented. It will be huge when it’s there, but it’s one of those buzzwords …
“You go to a conference and every couple of years the collection of buzzwords change. I think we’re still in the swirl process for blockchain and API (application programming interfaces) is getting there as well. Everybody’s chasing after building APIs, which makes perfect sense,” Vickers said.
But some paint an overly sanguine and flexible picture of the possibilities. Can you imagine five or six API connections to multiple projects, he asked, and the convoluted mess you may be dealing with down the road?
To be useful, these innovations can’t be adopted piecemeal; wide-scale cooperation (and access to the widest possible pool of data) is needed, For example, a central repository of information about a particular mortgage must be available to multiple participants.
He noted that big data has the potential to add tremendous value to the industry once data becomes mature enough to help move the needle in a significant way. However, he also cautioned that we’re not there yet.
“The implementation so far in the LOS space specifically, it’s perfect,” he said. “They’re using the technology to remove human interaction and to automate repeatable tasks and turn humans into the exception processors.”