As Executive for Public Policy and Industry Relations at data and analytics company CoreLogic, Pete Carroll is particularly well positioned to observe current and potential legislation and regulations affecting analytics firms like his, the mortgage industry and the greater housing and financial-services industries. At the MBA’s recent National Secondary Market Conference & Expo, Carroll spoke with Mortgage Media’s Dave Matthews about several areas of interest — notably, data privacy, the state of the GSE’s, and the promise of technological developments.
A varied career path brought Carroll to CoreLogic. After graduating from college to become a management consultant, he co-founded a startup during the dot-com era called Overture Technologies, focused on bringing successful automated underwriting innovations into the nonconforming mortgage space. He worked at that for 11 years (along with a financial aid and student loan business) through the financial crisis, exiting in 2011, feeling his next chapter was public service. He ended up being recruited onto the Consumer Financial Protection Bureau, where he spent three years working on Dodd-Frank Title XIV mortgage rulemakings. After that came a year with Wells Fargo and three with Quicken Loans, helping both navigate the regulatory environment. Then came the opportunity with CoreLogic — “which I’d always admired as a gold standard for data and analytics, particularly in the housing finance space,” he said. “And given this kind of newfound interest in public policy, it just seemed like a really good fit.”
At CoreLogic, he said, “I’ve personally been very impressed by the depth and breadth of real property information that the company has assembled. CoreLogic is investing heavily in a 360-degree view of real property. The way I like to put it is, anything you’d want to know about any parcels, any structures or any units in that structure, chances are we can tell you about it.”
Some key developments in financial services, and Carroll’s observations:
It’s a new era in terms of a potential regulatory regime, as assorted states — notably California — look to the EU model of regulations giving consumers much more control over how their data is stored and used. CoreLogic has operations internationally, including in Spain and the U.K., so he’s seen the EU model first-hand.
“I believe that what the banks on Wall Street experienced last decade, Silicon Valley may be experiencing or gearing up to experience now,” Carroll said. “And to me it just underscores the challenge, importance and responsibility that comes with managing sensitive data. And when you’re talking about loan, property, and borrower financial information, you’re talking about the most sensitive information out there.” He said cybersecurity and anti-fraud initiatives are a top priority for CoreLogic, and they continue to make large investments to ensure consumer information is protected.
What we’re seeing in California is a movement toward a concept of consumers’ having a private right of action around data, so they have an ability to take a company to court if it misuses or does not adequately safeguard their data, Carroll said — themes he expects to see continue to emerge on the state levels and potentially on the federal level. But with challenge can move innovation, he noted: “I’ve seen some tremendous collaborations develop in the industry. I’m a Board member of MISMO, which is standardizing and helping ensure the quality of data across the mortgage markets, as well as the Financial Data Exchange, which is figuring out how to securely transmit consumer financial information in the mortgage ecosystem and elsewhere.”
The Status of the GSEs
Carroll sees the GSEs, Fannie Mae and Freddie Mac, as having developed some positive innovation, including technological innovation, during conservatorship — particularly with day-one certainty programs. He’s seen a ratcheting up of data quality, a providing of assurance in the quality of information being transmitted from lenders to the GSEs, an increased clarity of manufacturing loans to specification. He said this increase in quality and integrity of information has allowed the GSEs to develop some breathtaking innovations regarding such areas as digitally verifying income/assets and property inspection waivers.
Regardless of the disposition of “GSE reform” discussions, it’s important to make sure those innovations are preserved, while eliminating any regulatory or other barriers that artificially prevent other lenders/investors from adopting their own capabilities, Carroll said
The Role of Data
Throughout the industry, Matthews noted, a lot of information is collected and used for very specific things, on a small scale. He asked: Could that scale be increased?
Sure, Carroll said, noting that day-one certainty programs have been sort of a clinic in this area — once you have solid data quality, he said, you can build out very reliable data marts and data warehouses, allowing you to do some sophisticated analytics — like, he noted, the types that could drive a property inspection waiver.
“It’s proving to be a case study of the market innovation benefits of big data he said. “And I think it’s going to be interesting to see how we can take those learnings and start applying them into other sectors like AI and machine learning.”
Tech Potentials and Solutions
Which segues into the next topic of their conversation, the ways in which technology is transforming and can continue to transform the mortgage and financial services industries. Critical mass is finally being reached on digital mortgages, they noted.
There’s been a move toward automation of the client experience on the front end — digitally verified income and assets, etc. — for some time, Carroll noted, but moving the mortgage closing process into a digital framework has proven elusive. At Quicken, he gained an appreciation for everything that goes into trying to get to an electronic close — you need a reliable multi-party audio-video feed, for which bandwidth hasn’t always been readily available. But the times are changing, especially with the onset of 5G.
“It’s the electronic close, which is still the last mile here,” Carroll said. “as well as innovation around appraisal, title, and other processes. But at least from the consumer/client experience, we’re nearly at the point where the entire experience can be truly online.” There are a lot of ducks to get in a row, he cautioned: “You have a sophisticated set of state law issues.” You need a notary public available to witness and authenticate the deal, for instance — and figuring out how notary publics can be consistently engaged in this framework will be the key in getting over that final hurdle, Carroll noted. And are we seeing a lot of progress on e-notarization? “Absolutely.”
So, with digital mortgage and with access to the data in the mortgage for use in decision-making comes a need for data validation and transparency — and Blockchain may be a solution there. It’s well suited to, for example, securitization and servicing, Carroll said.
“… in the financial crisis I think one of the things we learned is that when there’s multiple counterparties to a deal, you have a lot of data passing from one centralized database to another. You’ve just got a lot of room for data corruption as it moves through the ecosystem,” Carroll said. But with Blockchain, it’s all right there on one block, but a block that is distributed over many computing nodes, eliminating the risk of a single point of failure.
With, Matthews added, the transparency to see, if there’s a change in data, when and where it was made and who changed it. He sees a potential opportunity to bundle the entire transaction, from the point the realtor lists the property all the way through securitization and on. Carroll doesn’t disagree, but said it’ll take a lot of collaboration to make that happen.
At CoreLogic, AI and machine learning are being used to help build out a complete, 360 degree real-property record with numerous data sources, Carroll said: “When you start applying these approaches, you find that you can really broaden the amount of and increase the integrity of the information.” He sees potential with credit access, with digitally accessing direct deposit and checking accounts to pull together a fuller picture of borrowers’ cash flow and residual income left over for monthly living expenses.
“So, now lenders can evolve to underwriting the family financial statement in the sense that you’ve got a profit and loss picture, a cashflow picture, and a balance sheet picture. Now you have a great assessment of their ability to repay. And that is another area where one could say optimistically you can draw on all sorts of data to contribute to that type of thinking,” he said.
It opens opportunities in affordable housing as well, he said, allowing for a total picture not just of the borrowers and the properties in question but of the neighborhood those properties are in, allowing for a more sophisticated risk analysis and the possibility for making available more affordable housing supply and lending opportunity. But such activity can also be a double-edged sword. Referring to journalist Ta-Nehisi Coates’ contention in an acclaimed Atlantic piece that federal policy has been a major contributor to housing discrimination over the years, he said these mechanisms must also be deployed to help ensure that history never repeats itself.