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Ask the Expert: Technology’s Role in the Climb to $1B in loans

 

June 10, 2021

Dominic Fahey Welcome to Ask the Expert, where we ask industry leaders about their unique perspective on how to navigate the most difficult challenges faced by the broader real estate and financial services ecosystem and also to give you a chance to ask the expert some of the most pressing questions on your mind. My name is Dominic Fahey, VP of Strategy at States Title, and today I’m excited to welcome Dr. Rick Roque, Corporate Vice President of Shamrock Home Loans, to talk about the topic “Technology’s Role in the Climb to $1 Billion Dollars in Loans.”.  

2009, Rick founded Menlo Company, a mortgage and technology-focused capital fundraising and M&A firm working with many of the largest retail mortgage banks in the US on their technology and growth-oriented priorities. Rick received his doctorate in finance in 2015. Most recently, Rick joined the executive management team at Shamrock Home Loans, one of the oldest, oldest mortgage banks in the US. The scope of his work is to expand their licensing and production footprint across the United States and make Shamrock one of the top mortgage originators across the country. Welcome, Rick.   

Rick Roque That’s great. I appreciate it. Thank you so much.   

Dominic Fahey A real pleasure to have you here. Tell us about your path to Shamrock and why Shamrock.  

Rick Roque So I’ve been an industry consultant working with many of the top mortgage, non-depository, and depository institutions across the United States for 11 or 12 years. And as I was sort of evolving in my career, I really wanted to focus on what I felt to be one independent mortgage bank that I think could have a very long-term sort of a difference. And in I’ve known Shamrock Home Loans for about 15 years. They’re headquartered in East Providence, Rhode Island. And between the culture, their use of technology and I think their vision for building the next generation mortgage professional in a very real sort of concrete terms is something that attracted me. And I thought, you know, this could be the next top 40 lender in the United States. And we’re progressively going to do that.  

Dominic Fahey That’s great. We’d love to hear your overall take on the current environment and any trends you’re keeping your eye on.  

Rick Roque So obviously in 2020, we’ve been in a sort of a wacky, very irregular market. You know, in 2020, covid really drove us into a very non-normal environment and, you know, doing 4.7 or so trillion in originations, it really brought us back to 2005, 2006 that time frame wherein the history of mortgage origination, we did the most loans we’d ever done. The irony at that time, we were operating at between five and seven percent interest rates. OK, we’ve been in this strange time right now. We’ve been under five percent interest rates since 2009. And of course, even, below three percent in really the last year going into the pandemic, we were hovering around four percent, something that many originators today are afraid of. They’re saying, look, rates are rising and they’re sounding the alarm bells that the market’s going to contract because rates are rising, something that I think is just a casual look at history. It’s simply such an artificial pressure.  

They’re saying, look, rates are rising and they’re sounding the alarm bells that the market’s going to contract because rates are rising, something that I think is just a casual look at history. It’s simply such an artificial pressure.

In today’s environment we’re going to we’ll do another 3, 3.25 trillion or so this year. Perhaps the market could surprise us, you know, given the demand, we’re still only hovering this year alone. We’re still over hovering around 50 percent purchase as an industry. So really rather greater than 50 percent of refi in many mortgage companies, pipelines. So when you look at that, there’s still tremendous purchase demand. And yet many pipelines are still over 50 percent refinance in this environment. So there’s a tremendous amount of capacity when refinances begin to stave off to be able to relieve that pressure and to tap into the purchase market even more so even despite inventory constraints, you see inventory constraints in the major metropolitan centers 

I think I’m not quite as pessimistic as inventory constraints. If you look into other mid-markets, tier two, tier three cities, as we might call them in research terms, you know, the Cleveland’s, the Buffalo’s, St. Louis, Missouri’s, Des Moines, Iowa, those are phenomenal, phenomenal markets. And covid has driven a lot of people out of the cities into these markets, which is creating a tremendous amount of demand. But I’m extremely bullish on the future of mortgage originations, even if rates were to go up to four, four, and a half percent, I say bring it. That will not curb the demand in real estate within the purchase market. And that’s just going to create an incredibly stable infrastructure for not just originators, but suppliers, technology vendors in other sort of critical components to that mortgage sort of process.  

I’m extremely bullish on the future of mortgage originations, even if rates were to go up to four, four, and a half percent, I say bring it. That will not curb the demand in real estate within the purchase market. And that’s just going to create an incredibly stable infrastructure for not just originators, but suppliers, technology vendors in other sort of critical components to that mortgage sort of process.

Dominic Fahey What do you see as driving us, even in a four percent rate environment to be able to reach those highs on originations?  

Rick Roque You know, there’s really the three largest growth segments within mortgage origination are single women by either by divorce or by postponing marriage. Minorities. Minority homeownership trends have lagged really inappropriately but really have lagged since even before the 2007 2008 housing crisis. The third piece is immigration. Immigration trends are in housing without any question welcomed. And I would probably add a fourth category because residential housing is a flight to quality around the world. And so you get a lot of foreign national demand for homes in this country. And those products are niche products, and they shouldn’t be niche products. I mean, in today’s environment, there truly is a mortgage for every consumer. You can be a 550 credit score consumer. You could be newly immigrated to the United States consumer. You don’t you know, there are products out there for people without Social Security numbers. There are programs for foreign nationals here on H-1B visas or people who live abroad. You know, we call them sort of the BRIC countries, you know, Brazil, Russia, India, and China. There’s a lot of wealth in these countries. And they’re parking that cash in residential real estate across the United States. So I think once the availability of these products and there’s a number of sort of mechanisms that I think state, federal, and even industry-related associations can put into place to encourage and to really help drive this adoption of these products because the products are there, like the demand is there, the products are there.  

It just the lenders, because of risk tolerances and risk thresholds are avoiding it. They’d rather go after the twenty percent down conventional whether it’s conscious or unconscious. And it’s leaving a tremendous amount of the segment that’s forcing them into renting unnecessarily. So really, those are the four areas of growth that I think are going to continue. I mean, we almost hit five trillion and 4.6, 4.7  trillion last year. 2020 in a very artificial environment. But I think even between that five to seven percent range and you know, which that’s where we’ve been since 2001. We’ve been in that seven percent and below range. And we should not as mortgage professionals and mortgage bankers be afraid of that. That’s where we’ve been. We made a lot of money in the 2000s. So we should not be afraid of the economic risks that are perceived and not real of going to that four or five percent rate threshold. But there’s a tremendous amount of inventory in demand or rather demand in the market to put families in homes.  

 Dominic Fahey Do we hit the five trillion mark? And when?  

Rick Roque Yeah, you know, I’m evaluating sort of an updated forecast. I think the associations tend to be prudently cautious and I think they focus more of their sort of cautiously pessimistic or pessimistically cautiously optimistic in their forecasts. I believe that will be right back at five trillion here within the next five years. And I’ll get calls from investment banks and technology vendors and they see the rates tick up to three percent to 3.18 to 3.25. And there’s absolutely no reason whatsoever to panic. And I have to bring them through the fact that we will be fine at four and a half percent, you know, we’ll be fine at four and a half percent. And we’re going to do a tremendous amount of mortgages. I think we’ll be at four and a half, close to five percent by 2025. With a five trillion-dollar market.   

Dominic Fahey Yeah, that’s a huge opportunity. So as the market evolves, how do you enable your organization to capture that and scale rapidly?  

Rick Roque Yeah, so technology is really the key driver in and now. I don’t want to over-exaggerate the need for technology because technology is critical, OK, but creating a human experience that educates consumers through the technology, that technological innovation is critical. There’s a lot of A.I., there’s a lot of technology being introduced to the market, but they don’t really improve the experience of the consumer. With effective use of technology, a technology that tends to replicate culture and tends to replicate the connection to the concerns that many consumers have. You got to remember the five areas that I mentioned have, rather four areas. One was single women. Women being pushed off into, you know, pushing off divorce or rather pushing off marriage, either because of divorce or because of marriage. The second piece is minorities. The third piece is immigration trends in the United States and fourth would be foreign investors. Those classes tend to be our demographics that tend to need the most education. And with the most education, you need marketing tools that are highly, highly intuitive, and highly empathetic. And in technology, inherently tends to lack empathy.  

You know, Shamrock has a unique take on that. And you have a lot of companies that drive innovation to drive efficiencies that drive cost for closed loans. I think the focus at Shamrock is really taking a very, very intimate culture and scaling that intimacy. It’s not just scaling process and procedure through the use, effective use of technology, but it’s scaling intimacy and empathy to the consumer across every market in the United States. And the trend is these larger, whether depository or non-depository institutions, tend to further away corporate headquarters or management gets to the consumer, the less empathy the consumer feels. We’re going to invert that process. What’s going to drive our growth is effective use of technology without any question. That’s a given. What’s not a given in what’s technically it would typically is not a priority is driving an intimate, empathetic relationship and dynamic.  

Most mortgage companies look at mortgage origination where you close the mortgage and that’s really the end of the relationship. To me, that’s the middle of the relationship. You work up to the climax of originating that mortgage, but really, once you close in on that loan, there’s an entirely new or even deny that loan or even cancel and postpone that loan. There’s a whole new relationship that technology is not taking advantage of. As a result, since technology doesn’t take advantage of it, and because of the near-term priorities that mortgage banks and, you know, public or private tend to be under, they tend to be so short term focused that they don’t focus on the middle to longer-term opportunity, which with every single consumer that you’re touching.   

Dominic Fahey So that’s interesting. What are some of the things that what’s that look like in what you’re doing at Shamrock, like bringing that intimacy into the process?  

Rick Roque Part of that is the human connection. There are automatic triggers that communicate with the borrower through emails, automated telephone, phone calls, automated direct mail pieces that get triggered. But how about specific phone calls from actual people, from corporate, thanking them for their business, encouraging them to keep in contact? We have two, three, and five-year sort of campaigns where we maintain a very automated but also a very connected experience that we actually do in-house. I mean for two years, we have a team that sends gift cards, that sends handwritten notes, that sends touch points with the consumer in addition to all the automated pieces that nobody really reads. The junk mail you get in the mail, you throw away. The emails that get caught in the spam. We’re sending handwritten notes to consumers and people really connect with that. There are some things that you can’t necessarily automate, and you don’t want to automate.  

I’ve consulted and had my hands on a lot of mortgage companies across the United States and very, very, very few companies, to a point of at least in my experience, nobody actually connects with the consumer on a very intimate level. It’s you’re done with the transaction and then you might monitor their credit in case. There’s a refinance opportunity down the line or monitoring their credit in case, you know, a competitor pulls their credit to do a mortgage. And then you want to get notified to kind of say, “oh, hey, Dominic, remember me? I closed your loan two years ago. That’s great. How is the family?” It’s so forced and contrived because there’s no point of contact in between. Except for when you see an opportunity to make money off them. You know, for us, we do have a slogan in house that will say, “not only does everyone deserve to live in a home that they love, but of course, it really is people over profits.” So we really focus on that personal experience, not just internally as a staff, but the personal experience that consumers have with our staff to ensure that they feel that they have a great experience regardless of the outcome.  

Dominic Fahey That’s pretty amazing. I can say as a mortgage holder or a person who pays a mortgage, I get plenty of that junk mail and I don’t think I get any personalized handwritten notes or phone calls from my servicer. So, as you reach your goal of adding a billion dollars in originations at Shamrock, how are you planning on doing so?  

Rick Roque So it becomes a very evangelistic mission to us. And I say evangelistic because you have to make this intimacy. The intimacy you have within the organization because you can’t really impart what you don’t possess yourself. And you need to have that sense of intimacy within your staff. Intimacy in how people are compensated. Intimacy in the process in order to communicate that intimacy to consumers or even prospective loan officers or prospective leaders that we hire in target markets across the United States. So, of course, it’s embracing technology. I mean, we use SimpleNexus on the point of sale side. We use Byte Software, which is a really solid loan origination system, very similar to sort of Encompass and in other solutions out there. And then we are going deep with our partners. You know, your time to execution is an operating metric, but it really is a sales metric. And that sales metric enables you to accelerate your points of contact with the consumer. When most lenders and you know, most lenders nationwide mortgages are closing in 50, 52 to 54 days. If you work for a non-depository institution, you really have to be under 30 days to be competitive.   

Now, I say go deep with specific vendors. We have to go deep. And this is sort of the Rubik’s Cube of lining up all the colors to try to have a very intimate but a very efficient close with the consumer. And that is going very deep with title partners, going very deep with your appraisal management organization, going very deep in ensuring that the consumer has effective educational resources. So they know the products available to them at 550 credit score or they know how to improve their credit score from 550 to 620 to 630, 640. There are solutions like Mortgage Coach. There are solutions like UniFi that do really a fantastic job in the marketplace in automating that sort of educational component. That coupled with that personal connection that the loan officer has with the consumer will make that difference now.  

If you’re not closing loans in under 30 days, I think you’re grossly being uncompetitive from a mortgage standpoint

If you’re not closing loans in under 30 days, I think you’re grossly being uncompetitive from a mortgage standpoint unless you’re not in a hurry as a consumer, I think you’re being deeply underserved as a consumer. But if you’re not working with your title partners or if you’re not working with your technology vendors to try to come up with innovative solutions to really tighten that so that you’re consistently closing a loan in 10, 11, 12, 14, 15 days. We’ve all been the heroes and have been able to close a loan in 13 or 14 days. OK, but those are gross outliers and exceptions to that rule. I’d like to move that distribution of outliers so that becomes the mean of the experience of the consumer. But not a lot of technology vendors are really either capitalized or have the vision to be able to execute and to be able to deliver upon that sort of service guarantee.   

Dominic Fahey Yeah, and I think I think we all have this culture of reducing cycle times and delivering the best consumer experience possible. How do you really foster that at Shamrock?   

Rick Roque Well, we look at every point of the process to try to minimize time and cut time down. And it’s a challenge because in the state of Maine, for instance, it could be three or four weeks before you get your appraisal done. In the state of Massachusetts, it could be two or three weeks before you get a title policy and the search performed in the actual underwritten policy in place. In some states and you can’t close and fund, I think North Carolina, you can’t close and fund that loan until that paper is actually recorded as a deed in your local courthouse. Can’t fund the loan. Right. So there are constraints that need to be sort of worked out. But adopting eClosings, adopting remote notary. I think the title side is RON, remote online closing. I mean, you know, in some ways and in many ways, the pandemic was a tremendous accelerator to many of the objectives we’ve been trying to accomplish in origination really since 2000. I mean, the MBA has really pushed eClosings and a paperless environment since 2000. And it took a real unique catalytic event to get state legislators and regulators and lawyers in so many of the states that control that process, pressured enough to really fall in line with that.

Dominic Fahey And we still have some road to go. There still are some states that are holding out. Hopefully this legislative season we can see a change both on a federal and state level. I know from a title company standpoint, we’d love to see a 50 state solution. Many originators that we speak to say the same.  

Rick Roque As long as it’s the right solution, 50 states, we don’t want a bad solution, 50 states.   

Dominic Fahey No, certainly not.  

[Both laugh]

Rick Roque But I will say that partnering up with the right title company or the right provider is really critical. And that space is fractured from your mom and pops to the more enterprise, sort of more technology-driven sort of title organizations. And the title piece as you come to evolve in mortgages and you start on the front end, the title piece tends to be kind of the detail that needs to get cleaned up and least understood and least known. And I’ve dug into how different title insurance providers insure and service the title agents and how they service the law firms that work with them. And it’s amazing the inefficient sort of service levels that support that end of the process. And we were working pretty closely with title companies in law firms that work with North American Title Insurance Company out on the East Coast. And I know, you know, I’ve kind of watched their evolution over the years in a very real way, in a very sort of admiring way, and how they’ve been able to sort of shorten the service levels. Because if they serve the title agents extremely well, that in turn serves our ability to close these loans extremely well and very efficiently. And the communication can sort of flow. And I’m not familiar with the details, but I know Doma acquired NATIC in some fashion. And I’ve been reading articles and how Doma has plans of accelerating that process, which is those of us on the front-end kind of watching like seats in the arena, kind of watching these technology wars play out. It’s very exciting because we’re chomping at the bit for the technology providers to step up to eliminate the turn time on appraisals, eliminate the turn time on title insurance policies, and being able to shorten that so that 12, 13, 10, 9, you know, 10 days. I mean, really kind of getting in there. So, it’s fascinating to see the evolution.  

Dominic Fahey Well, it certainly is. And from States Title soon to be Doma, I’m sure our folks, our associates at NATIC will appreciate the feedback, Rick. I do want to leave time for some audience questions. Here’s one question that came in. If there’s one thing you’d want us to take away today, what would it be?  

Rick Roque Don’t worry about mortgage rates and don’t worry about origination volume. The mortgage forecasts, I think they’re sort of intentionally muted. And, you know, I believe we’re going to be in an environment shy of any economic calamity that might drag our economy, but we’re going to be north of 3 trillion and that’s going to be here to stay.  

I believe we’re going to be in an environment shy of any economic calamity that might drag our economy, but we’re going to be north of 3 trillion and that’s going to be here to stay.

Dominic Fahey That’s good. Good to hear for sure. Here’s another one for you, Rick. If there was one opportunity to invest in only one area of the process, what do you believe would have the greatest impact on removing inefficiencies in the mortgage origination process?  

Rick Roque Title and appraisal. Almost without any doubt. Title and appraisal. I mean, I’m not sure how you do that. Those are questions. I don’t know how you solve that problem because you can throw a lot of good money into bad solutions. You know, I mean, mortgage tech is a graveyard of companies over the last 30 years. But there have been a few companies that have really, really been extremely useful and very helpful. But none of them have really had, and I say this very prejudicially from a front-end standpoint, from an origination standpoint, but none of them have really affected the process in any sort of fundamental way that has affected title and appraisal. So title and appraisal without any hesitation for sure.  

Dominic Fahey Well, I think one of the greatest impacts I can think of would be from the GSE’s and their property inspection waiver process. I imagine what you do at Shamrock, you probably try to take advantage of this as often as possible. Is that right?  

Rick Roque Of course. Of course, absolutely.  

Dominic Fahey And we’re still hoping for more from the GSE’s and FHFA to modernize appraisal and allow us to do more hybrid appraisals. Is that some of the areas you done some exploration or research on that risk?  

Rick Roque We’ll do whatever our investors will allow us to do so we can sell the loan or service it. Right. In any way that managerially mitigates the risk associated with that loan and so we’re sort of hamstrung to the investor community and the GSE’s. I mean, we’re GSE indorse as well and we are constantly looking at Fannie Mae guides and trying to make sure that we’re following. Because lenders will do kind of almost the bare minimum. You’ll get some lenders who really push the limits. But most lenders are bankers. I mean, we’re bankers by trade. Right. And bankers are known to be conservative for the most part. And I think there needs to be a real push if we are going to tap into the underserved markets that absolutely should be. If they’re going to rent a rental for eight, nine hundred dollars a month or a thousand dollars a month, they can own a home for eight, nine hundred dollars or a thousand dollars a month. And, the problem is, it’s a front-end marketing piece. It’s a back-end investor risk tolerance piece. And then it becomes a technology and a delivery piece. And all three points are kind of have failed that, which is why we haven’t really made any meaningful advances in Hispanic homeownership and in African-American homeownership and in the immigrant homeownership is just is lacking significantly.  

Dominic Fahey We as an industry have a row to hoe in that regard. Rick, thank you for your time in talking to us today. Your insights and experience are extremely valuable, and I really appreciate the time.  

Rick Roque Dominic, I appreciate the opportunity.  

Dominic Fahey Thanks so much.   

Rick Roque Thank you.  

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