“I think my passion comes from the fact that we have the unbelievable privilege, being in this business, of helping people realize the American dream,” said Kristy Fercho, president of mortgage with Flagstar Bank, referring to the long-term stability that housing provides to both families and communities. It’s a passion that fuels both her professional life with Flagstar and her volunteerism with Habitat for Humanity.
“… I tell our team, ‘It’s when you can contribute to somebody getting in a home — you’re changing their lives. You’re changing their lives for generations.’”
Fercho, who joined Flagstar in 2017 after 15 years with Fannie Mae (ultimately as senior vice president, customer delivery executive) spoke with Mortgage Media’s S.A. Ibrahim at the Mortgage Bankers Association’s Independent Mortgage Bankers Conference in San Francisco. They discussed changes in the primary market; the dynamic tension between automation and personal contact; the status of the GSEs; and how to address shifting demographics among homebuyers.
Challenges of a changing market
It’s firmly a purchase market these days, Fercho noted, as rising interest rates have made refinancing less attractive to many. But there are challenges — notably the state of the housing inventory, which has been in substantial decline year, over year, month over month, trailing demand. This will be even more of a challenge as it becomes more of a purchase market, as people are looking to buy.
There’s also the challenge of competition — a lot of originators in the business who will competing for a smaller slice of the pie as the market shifts toward purchase money. “I think the rationalization of the market is really going to take place in ’19,” Fercho said.
Her company is poised to weather the change, she noted, with a 30-year commitment to the mortgage business, operating in all channels. “We’ve got size, we’ve got scale, and we’ve got, really, this long-term commitment to the customers.” The company’s focus from the beginning, she said, has been determining how to help independent mortgage bankers grow their business and be competitive. The IMBs are important, in their local nature that allows them to particularly understand their customers’ needs and offer customers choice — a big part of a robust housing market, Fercho said.
“But you know, we’re not chasing the crazy that’s happening in the market where, you know, right now, it’s a race to the bottom on pricing. And we’re not doing that. We’re a publicly traded company, we have to hold our ground in terms of where we’re pricing in the margin and return for our shareholders,” Fercho said. “So we’re not getting into that, but we believe that by really focusing on helping our customers be successful, and providing a great level of service, so they can take care of their end customer, that’s really what’s important at the end of the day — so we’re really obsessing about how to make that a better process for their end consumers.”
Addressing the tension between the desire for greater automation of the mortgage experience (essentially, moving the process online) and the desire and need on many consumers’ part for direct contact and support, Fercho sees it as more of a dynamic tension: It’s not an either/or, it’s a both/and. Both aspects need to be nurtured, she said — and improved.
“I do think we have to make both pieces work,” she said. “And I do think it’s technology AND, right? I mean it’s the human touch of a personal transaction. I mean, a home is still the largest financial purchase that most people will ever make, and so having that personal touch, to have somebody walk them through how complicated that transaction is, and how important that decision is to the life of their family and what it means for generations to come, I think is important.
“So you still need the human touch, but then technology — and we’ve all been spoiled by technology, right? I think of the Amazons, and we like the ease and convenience of technology, and I don’t think the mortgage process has moved far enough or fast enough along the process. And so I think there’s more we can do in technology — but I think it will always be the ‘and,’ with the human touch, taking into account the gravity of what substantial of a purchase this is for most families.”
And it’s not just a psychological issue — the mortgage process can be too complicated for many people to figure it out themselves without talking with a broker they trust, both Fercho and Ibrahim noted. “People don’t buy a home every month,” Ibrahim said — remembering a senior staffer at Fannie who was getting a mortgage himself and went to a broker, declaring, “I got tired of trying to figure it out myself.” He likens it to healthcare — there’s a lot of medical information online, but you still need to see the doctor.
That complicated, sometimes byzantine nature of the process is another issue that needs to be worked on, Fercho said — noting that industry professionals themselves sometimes find it challenging to navigate. “And so think about the average family, the average homeowner,” she said. “It’s way too complicated, and we have to fix that.”
Future of the GSEs
It’s an era of transition for the government-sponsored enterprises, not only with a new generation of leaders at Fannie Mae and Freddie Mac but with policymakers exploring the very future of the GSEs — whether they’re to remain in conservatorship, whether they’re to be completely privatized, whether there should be two or multiple.
Whatever happens, Fercho said, “I think you’re going to continue to see them playing a really important role in housing.” As well, whatever happens, Ibrahim added, “There has to be some level of government guarantee” — the industry needs liquidity in good times and bad.
“I think the crisis, honestly, was devastating, and I think there’s been some overreaction to the GSEs and the role they played in that, in my personal opinion,” Fercho said. “I do think if we want a 30-year, fixed rate mortgage in the US, you have to have the explicit guarantee that’s tied to the GSEs, and you have to ensure that there’s somebody in the market at all market cycles, providing that access to liquidity and affordability. And that’s what the GSEs were designed to do. And I think they play that role brilliantly.
“I think whatever the solution is, you need to be able to protect that. You need to be able to protect that liquidity in the market. And I do think that you should continue to support that.”
As it happens, Fercho said, there is an increasing recognition of that need — “a transition in the thinking.” She said Rep. Thomas Jeb Hensarling, the Republican who chaired the House Financial Services Committee until leaving Congress last month (succeeded by Maxine Waters), recently said he agrees to some form of an explicit guarantee.
“That’s a major shift in that thinking, and I think people are starting to come around and realize the roles that the GSEs are playing in the stability of housing, and I think that will continue in the future,” Fercho said. Both she and Ibrahim cite the work of Mortgage Media’s Dave Stevens, among others, in helping bring that about through communication and education.
The demographic shift
Looking at demographics both now and in the foreseeable future, one thing is clear: The growing areas of the housing market is in non-white borrowers, people of color — Latinos, certainly, as many professionals have pointed out, but also African-American and Asian borrowers. And if you look at the under-15 cohort, Ibrahim noted, this is no blip, it’s a long-term, major shift. How does the mortgage lender industry deal with this shift — and get greater non-white representation in its senior leadership, to increasingly mirror its customers?
It starts, Fercho suggested, with getting more young people in the industry, period — “we have to make a concerted effort to go out into these communities, and really help people understand that mortgage banking is a viable career option for them,” she said. Plus, seek out people who have been successful in other industries — she herself came into the industry after working with Pepsi and Baxter Healthcare, she noted. “It starts with deliberate and international focus to really start to grow the ranks,” she said.
The demographic shift is going to require some creative and intelligent rethinking, in analyzing what these buyers’ needs and expectations are.
“I think we’ll have to be more creative, for sure. … I mean, these are not traditional buyers who are the traditional bank’s consumers. And so I do think we’ll have to get more creative in terms of understanding what they need,” Fercho said. “They are equal as qualified borrowers, but they may not have traditional lines of credit, like we’re accustomed to. They may have different needs in terms of credit. And so, I do think, you know — multi-generation households are a big example that’s tied with people of color. And so I think we’re just going to have to get more creative about our lending. And I think creativity and innovation around those standards doesn’t mean lesser standards, and so part of that is really educating the industry about that, as well.”