Wednesday, June 8, 2022

Mortgage – HousingWire

Mortgage – HousingWire

CHLA takes antitrust concerns about ICE/ Black Knight merger to DOJ

Posted: 08 Jun 2022 11:25 AM PDT

The planned merger between Intercontinental Exchange Inc. and Black Knight may be subject to scrutiny from the Department of Justice and the Consumer Financial Protection Bureau over antitrust concerns raised by the Community Home Lenders Association.

In its Wednesday letter to the DOJ, CHLA claimed the small and midsize independent mortgage banks it represents would be "particularly vulnerable" to market concentration — such as the large conglomerate resulting from an ICE/ Black Knight merger — in mortgage services. Unlike large lenders, which often have their own proprietary systems, it’s often not financially feasible for smaller firms to develop their own software.

A dominant services provider would diminish smaller firms' ability to negotiate the rates and terms of the services they provide, CHLA wrote. Less competition also could reduce pressure to innovate and develop new products and services, and one firm holding significant amounts of consumer data raises "myriad” concerns, the letter reads.

Intercontinental Exchange and Black Knight did not respond to requests for comment.

Mortgage underwriting has transitioned during the past few decades from a largely manual process — computations which relied on data points such as rental payments — to one that relies on software, credit scoring and related services. Servicers and lenders able to deploy efficient and sophisticated servicing, origination, and even regulatory compliance systems, are more competitive.

The gains in efficiency and scale are offset by inherent vulnerabilities of relying on third-party data and systems, and their limitations. One prominent example is the inability of the credit scoring models, now ubiquitous in mortgage underwriting and credit decisions, to score large parts of the population, especially those with little credit history.

One limitation of mortgage services software is whether they are compatible with other systems. The CHLA raised concerns that ICE/ Black Knight software would not be compatible with that of their competitors, limiting lenders' ability to switch out software and services components.

Those services and systems are also used for regulatory, pricing, training and other critical functions — not just loan originating and servicing, the CHLA wrote. Any gap in those necessary functions could pose a serious problem, giving the provider of those services serious leverage to charge "significant and unwarranted price increases upon renewal," according to CHLA.

"A smaller lender could have no practical option other than to accept the significant and unwarranted cost increases," CHLA wrote, which would be passed on to consumers. The CHLA also said independent mortgage banks now originate more than 60% of all mortgage loans and more than 90% of FHA loans, which disproportionately serves minority borrowers.

Intercontinental Exchange, the software and data parent company of ICE Mortgage Technology, will acquire Black Knight. The companies announced the $13.1 billion mega-deal in May.

In addition to the DOJ, the CHLA sent its letter to the Consumer Financial Protection Bureau, the Federal Trade Commission, the Federal Housing Administration and the Federal Housing Finance Agency. The CHLA may find a sympathetic ear in Rohit Chopra, the director of the CFPB.

Chopra has in the past raised antitrust concerns about large technology companies, through dissenting opinions during his time at the FTC.

In 2019, speaking after the House Judiciary Committee requested documents from Apple, Amazon, Google and the company formerly known as Facebook, Chopra told CNBC: “We actually have to take a hard look at whether these behemoths are killing off innovation and competition.”

The post CHLA takes antitrust concerns about ICE/ Black Knight merger to DOJ appeared first on HousingWire.

“It’s math:” How mortgage solutions companies are fighting for survival

Posted: 08 Jun 2022 10:47 AM PDT

Digital mortgage, technology
With a deadly combination of low housing inventory, reduction in refis and surging mortgage rates, consolidation in mortgage tech is expected. 

Businesses and entire industries tanked during the pandemic, but it created an ideal environment for mortgage tech companies, some of which rode the wave to banner years and historic growth. With interest rates hitting all-time lows, lenders doubled their origination volume to more than $4 trillion in both 2020 and 2021, hired more staff and ramped up investment in technology to close loans faster.

As the market has shifted, however, with mortgage rates rising in 2022 faster than forecast and lenders quickly cutting costs, some tech providers now are left vulnerable. That has led to a reckoning in the mortgage industry, which is in the midst of a rightsizing that has already resulted in layoffs at numerous firms. Layoffs at mortgage tech companies appear inevitable, along with other cost-saving measures, including diminished investments in technology.

With a deadly combination of the tight housing inventory, reduction in refis and surging mortgage rates, consolidation seems to be the natural path. 

"Rising tide raises all ships, but subsequently lowering tides drop off ships," said John Hudson, executive vice president at Mortgage Financial Services. 

"With less volume out there, it’s only a matter of numbers and math. Less loans equals less revenue across the board. You’re going to see some that'll survive and some will simply not make it. You'll be seeing a lot of mergers and acquisition activity in the mortgage tech space this year," Hudson added. 

The downturn in a highly cyclical mortgage industry is nothing new for solutions providers  with experience navigating the ups and downs in the market. And the well-prepared could ultimately benefit from current conditions if they seize the opportunity to absorb vulnerable newbies lacking sufficient capital to weather the storm. As such, a strategic merger or acquisition is emerging as one opportunity to outmaneuver the shrinking mortgage market. 

Strategic M&As

Intercontinental Exchange (ICE), the corporate parent of the New York Stock Exchange, earlier this month announced its intent to acquire Black Knight in a deal valued at $13.1 billion. The merger of the two biggest suppliers of mortgage loan software signals the potential creation of a dominant player in the mortgage tech industry. 

Of the $387.2 million in revenue Black Knight made in the first quarter of this year, 57% came from the servicing software and about 66% of ICE's first quarter revenue of $1.9 billion came from its origination technology, according to their earnings reports.  

"From a client perspective, a fully integrated soup-to-nuts digital offering for mortgage origination and servicing should significantly reduce the cost of originating and servicing a mortgage," according to an analyst who spoke on the condition of anonymity. 

Executives from each company have suggested the businesses are complementary — ICE focuses on tech solutions for originators and Black Knight’s business model is dependent on servicers and the secondary market. 

The deal isn't expected to close until 2023 as executives must persuade regulators the acquisition doesn’t hinder competition. 

Several mortgage analysts said smaller mortgage tech providers will be challenged by the giant ICE-Black Knight conglomerate during a market downturn in which revenues are plummeting, a number of smaller competitors, such as loan origination system (LOS) provider LendingPad, see an opportunity to push an alternative product to lenders.

"There’s been a fair amount of discontent among lenders with loan origination systems," said Dan Smith, vice president of sales and strategy at LendingPad. Focused on customer support and offering the latest tech stack that is easily configurable for lenders, LendingPad doubled in sales volume in a little over a year, said Smith, who declined to share specific numbers. 

In July, LendingPad plans on rolling out ComplyIO, an automated compliance engine that scans data to see if a loan that is near closing complies with all the state and federal rules and regulations. The company said it will be offered both as part of an LOS and a standalone product.

A handful of vendors made strategic acquisitions and acquisitions for capitalization in the fall of 2021.

Seattle-based proptech firm Porch Group acquired point-of-sales software company Floify for $90 million in October and North Carolina-based publicly traded fintech firm nCino bought mortgage tech vendor SimpleNexus in a $1.2 billion deal the next month. 

At the time, Porch said Floify's brand would remain intact and investments were planned to help make the homebuying and moving process easier. The firm's software —  which it says streamlines the loan origination process by allowing document sharing and communication between loan officers and real estate agents —  helped to close more than 77,000 mortgage applications per month, according to Porch. 

nCino noted SimpleNexus operates a "per-seat subscription-based revenue model, enabling the company to generate financial results that are more predictable, recurring and not based on mortgage transaction volumes."

"I think they were looking toward the future," said Tammy Richards, CEO of LendArch, a mortgage tech consulting firm.

Period of 'spend nothing' 

It’s hard to assess how private mortgage tech companies are performing in a shrinking mortgage market, but layoffs suggest difficult days.

Tomo, a fintech startup that aims to be a “PayPal for the mortgage industry," laid off 44 employees, almost a third of its employees in late May. 

Founded in October 2020 by former Zillow executives who envisioned a way to accelerate the mortgage approval process, the Tomo notched a valuation of $640 million after raising $40 million in Series A funding in March.

Tomo wasn’t immune to the rapid rise in interest rates despite its focus on the purchase mortgage sector.

"We are dialing back our market expansion plans and will focus on building tech enabled mortgage experiences that deliver faster, less costly and less stressful experiences for homebuyers and the real estate agents that serve them in our existing footprint," said Greg Schwartz, chief executive officer at Tomo, said in a LinkedIn post announcing the layoffs. 

​​Publicly traded Blend Labs, which debuted on the New York Stock Exchange in July 2021, also announced its intention to issue pink slips to 200 workers, about 10% of its workforce, by the second quarter in 2022. 

Blend has attracted a bevy of investors who were impressed by its market position. The company powers mortgage applications on the websites of major lenders such as Wells Fargo and U.S. Bank.

But the firm, which hasn’t turned a profit since going public, reported increased operational losses of $69.7 million in the first quarter of 2022. Blend brought in more than $71 million in the first three months of 2022, but more than half of its revenue came from title insurance and settlement services provider Title 365 in the challenging origination environment. 

Co-founder Nima Ghamsari believes Blend will weather the storm. Blend is focused on long-term growth, investment in technology and diversifying its revenue model. But some analysts, speaking on the condition of anonymity, said the layoff announcement was a clear sign Blend and other tech firms are struggling in the downmarket.

"My own view is that those folks have a better shot at long term survival simply because they can tap capital elsewhere to help survive," said Brian Hale, CEO at Mortgage Advisory Partners. "Companies that come into this down trough, who were not as well capitalized, could either be consolidated or could be eliminated."

New tech companies, often products of the refi-boom that attracted loans with low rates, may find it harder to raise money. 

"They had a massive ability to attract loans with low prices, low rates, which equals low revenue," Hale said. "They had no second act when the dance stopped." 

Jerry Halbrook, chief executive officer at Volly and former president of the origination technologies division for Black Knight Financial Services, agrees: "I think the bigger worry is really with the new entrants which haven’t really gone through a lot of cycles." Halbrook said. "I suspect the ever-rising valuation of fintech companies is over for a while."

It would be a mistake to pull back from platform investments, experts said, but some smaller tech firms have already given up on them.

"Inside every one of those small companies right now, it's going to be a period of 'spend nothing' until we know how deep the water is," said Hale, of Mortgage Advisory Partners. 

It's all about that niche

It's the well-capitalized players like Blend and Roostify that have a better chance of surviving, some mortgage tech analysts said. 

Roostify, the digital platform for mortgage lenders that competes with Blend, raised $32 million in venture funding in January 2021, bringing its total funding to $65 million. 

The cash injection helps the company provide tech to about 200 lending institutions on its platform, including two of its investors, J.P. Morgan Chase and Santander Bank (the latter of which recently exited the mortgage business). According to Roostify, the company handles $50 billion in loan volume every month. 

Although it's not yet profitable, the artificial intelligence and machine learning capabilities embedded into Roostify's point-of-sale system platform make it competitive, Roostify CEO Rajesh Bhat told HousingWire. 

For example, its product Roostify Beyond gives instant feedback to applicants who upload incorrect or illegible documents, without having to talk to the lending team directly, ultimately helping lenders process mortgage applications with greater speed, Bhat said. 

"We believe this is fairly differentiated (from other companies' products) and really focused on the collaboration between the loan officer, the processor and the consumer. So it's like middle-office, later stage workflow. It is predicated on having robust integrations with the loan origination systems."

Small solutions providers offering unique services and products in a shrinking mortgage market are also well-positioned to survive. 

Dru Brents, chief executive officer of PreApps 1003, says its mobile responsive, all-in-one platform BrokerPlus provides a niche for broker companies. 

"As far as I know, we are the only single login mobile responsive, all-in-one platform that includes the customer relationship management system, E-signatures, point-of-sale system, loan origination system and the pricing engine," Brents said.

Companies sign on to use BrokerPlus because it can replace multiple systems in a streamlined, cost-saving platform, he said.

"They are eliminating multiple tech stacks and they’re using our platform, so it saves them money. It’s really meeting the needs of every piece of technology that a broker would need," he said. 

Since the company launched in 2015, PreApp1003 has "thousands of paid subscribers" and continues to see "significant growth," although Brents would not cite specific numbers.

"We’ve never received investments. We’ve always been self-funded. We build and we test."

Reaping investments

Despite myriad products rolled out during the two-year refi boom, the level of adoption remains low throughout the industry.

“I’m not so sure that’s a bad thing. The market really needs to absorb what’s already been built in terms of new technology,” said Volly's Halbrook. 

Many mortgage analysts and consultants noted new tech is needed to build modern, efficient and automated processes.

"Our whole industry right now is yearning for a new model, [a] more automated approach, including our customers who are going to be those Gen Zers, who were born with phones in their hands, and are going to really deserve and want an automated approach," said Richards, from LendArch.

Loan officers say the products that will last leverage technology that provides value to customers without a lot of effort. 

That technology includes a marketing platform that automates valuation model technology, and an application platform to which applicants can upload mortgage documents to speed up the loan process. 

"But those companies that haven’t invested in tech are going to have a hard time through this market," Richards said. "Because if you have implemented your tech properly, you should be receiving efficiencies and expanded capacity, that reduces your cost."

The post “It’s math:” How mortgage solutions companies are fighting for survival appeared first on HousingWire.

Better.com and Vishal Garg violated securities and labor laws, former exec says

Posted: 08 Jun 2022 10:09 AM PDT

A former top executive at Better.com claims the digital nonbank lender and its chief executive officer and founder, Vishal Garg, violated securities and labor laws as the company plans to go public via a merger with a blank check company. 

Sarah Pierce, former executive vice president for customer experience, sales and operations, filed a lawsuit on Monday in the federal court in the Southern District of New York, including Better Holdco, Garg and the general counsel Nicholas Calamari as defendants. 

She included multiple claims in the suit, such as violation of labor laws, defamation, and breach of fiduciary duty. She is asking for around $200 million in compensatory damages, punitive damages and civil penalties, interests and other costs. 

A Better.com's lawyer said the claims are without merit. “The company is confident in our financial and accounting practices, and we will vigorously defend this lawsuit.” The Wall Street Journal first reported on the case.  

Pierce worked for Better.com for over five years, reporting directly to Garg from September 2020 through February 2022. She allegedly complained to executives and the board of directors about the CEO’s "misleading" statements without success.  

On one occasion, after firing 900 employees via Zoom and receiving a mountain of bad media coverage in December 2021, Garg supposedly stated to the board of directors and investors that the company would report a profit by the end of Q1 2022.  

However, Pierce and other senior leaders explicitly stated that it was impossible. In partnership with the finance department, she prepared a detailed report showing the company could not achieve profitability until, at the earliest, the third quarter of 2022.

On another occasion, Better.com allegedly misled investors in a May 2021 document that stated 30% of the direct-to-consumer funded loans in 2020 came through internet traffic converted without paid marketing efforts. 

According to Pierce, the correct share was only 12%. She allegedly raised concerns about the misrepresentation to Garg and Calamari but claimed they ignored her. 

Better.com is a private company but announced in May 2021 plans to go public valued at $7.7 billion via a merger with the blank check company Aurora Acquisition Corp, sponsored by Novatar Capital. The transaction was expected to happen in Q4 2021. 

But the company is struggling to cope with the rising mortgage rate landscape, the decrease in refinancings, and the need to invest in new products amid fierce competition. 

In November 2021, Better and Aurora entered into a new agreement, including a $750 million bridge financing from venture capital fund SoftBank. The companies did not provide a new date to close the transaction. 

Since then, Better.com’s performance has deteriorated. According to an amended S-4 filed by Aurora with the Securities and Exchange Commission (SEC) in April, the company posted a loss of $303.8 million in 2021, a contrast to its profitable nonbank peers. 

Consequently, Better.com has announced layoffs involving more than 4,000 employees since December. Garg gained infamy when he laid off 900 employees in a Zoom meeting in December. In early March, the company cut 3,000 additional jobs, part of them in India. In April, the company instituted a third layoff. 

According to the lawsuit, for several months before the layoffs, Garg directed top executives to hire hundreds of additional staff, despite the challenging landscape for mortgage companies, because “President Biden will die of COVID.”  

The former executive said Garg ignored the California Worker Adjustment and Retraining Notification Act, which requires a 60 days notice for compensation to terminated employees. 

In the lawsuit, Pierce claimed the CEO and the company retaliated against her, blaming the company’s deteriorating financial situation on her incompetence, putting her on unexplained administrative leave, and shutting off her access to computer and email. 

According to Pierce, Garg wrote an email to the board of directors saying the “metrics of the company are a black box,” and the company would seek to replace her by hiring a “seasoned operator who can help manage and drive performance across business functions.” 

Her employment was terminated on February 4, 2022, without reason, severance or benefit, she claimed. Pierce also filed a complaint alleging retaliation with the Occupational Safety and Health Administration. 

The post Better.com and Vishal Garg violated securities and labor laws, former exec says appeared first on HousingWire.

VanDyk Mortgage to expand servicing operations using Black Knight system

Posted: 08 Jun 2022 09:20 AM PDT

VanDyk Mortgage Corporation has signed a contract to use Black Knight‘s MSP system to expand its servicing operations, the company announced Wednesday.

Black Knight, which provides integrated technology, services, data and analytics to the mortgage lending, servicing and real estate industries, has contracts providing its MSP servicing system to companies, such as multi-channel fintech platform Lower and Iowa Bankers Mortgage Corporation.

Black Knight’s MSP loan servicing system is a single, comprehensive platform used by servicers to support a range of loan products including first mortgages and home equity loans, and lines of credit on a single system.

“Replacing our current technology with the MSP servicing system offers us the scalability, robust automation, strong compliance tools and flexibility we need moving forward into the future,” Jeanie Nivison, chief operating officer at VanDyk Mortgage, said in a statement. 

As rising interest rates affect origination volumes, many servicers are focusing on customer retention strategies. Black Knight representatives said its MSP system is integrated with tools that can help servicers boost retention, including Black Knight’s “customer service solution.” 

To enhance its operations and provide better service, VanDyk Mortgage Corporation also will use Black Knight’s servicing digital and loss mitigation solutions, as well as its “actionable intelligence platform.”

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In the rapid-fire, volatile mortgage marketplace, lenders need technologies to help them remain nimble and successfully navigate constant change. Advanced product, pricing and eligibility technology creates efficiencies and helps lenders compete in a fast-paced market.

Presented by: Black Knight

Offered as a mobile app and web solution, servicing digital gives customers the power to perform tasks and access home, property and loan information on their own, according to Black Knight. 

VanDyk, established in 1987, is licensed in 43 states with more than 90 brand offices nationwide. The firm closed more than 120,000 mortgage loans over more than 30 years, according to VanDyk’s website. 

The post VanDyk Mortgage to expand servicing operations using Black Knight system appeared first on HousingWire.

Mortgage apps decline 6.5% to 22-year low

Posted: 08 Jun 2022 04:00 AM PDT

Mortgage application volume for the week ending June 3 dropped 6.5%, sliding to the lowest level in 22 years, driven by weakness in purchase and refinance applications.

Despite the recent decline in mortgage rates, they were not low enough to spur refinance activity, which led to the decline of the Mortgage Bankers Association‘s (MBA’s) Market Composite Index. The refinance index dropped 6% from the previous week and was 75% lower than the same week a year ago. According to the MBA, the seasonally adjusted purchase index fell 7% from one week earlier. 

"Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“The 30-year fixed rate increased to 5.4% after three consecutive declines. While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity. Only government refinances saw a slight increase last week,” Kan said.

Purchase mortgage rates, after hitting a 13-year high of 5.27% in May, fell for three consecutive weeks, according to the Freddie Mac PMMS. Rates last week averaged 5.09%, essentially flat from the prior week, but significantly higher than the 2.99% rate during the same period last year. 

The refinance share of mortgage activity rose to 32.2% of total applications from 31.5% from the week prior, according to the MBA. 

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"The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers," Kan added. 

In May, the inventory of homes for sale rose 8%, marking the first rebound since June 2019. Compared to May 2020, the inventory of active listings was still down 48.5%, meaning there are still only half as many homes available, according to Realtor.com's monthly report. The median national home price also climbed to an all-time high of $447,00 last month, jumping 35.4% year over year. 

The average contract interest rate for 30-year-fixed-rate mortgages with conforming loan balances ($642,000 or less) rose to 5.40% from 5.33%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,000) rose to 4.90% from 4.93%. 

The adjustable-rate mortgage (ARM) share of activity decreased to 8.2% of total applications. The Federal Housing Administration (FHA) share of all applications rose to 11.3% from 10.8% the prior week, and the Veterans Affairs (VA) loan share climbed to 11.4% from 10.2% a week earlier.

The USDA share remained unchanged at 0.5% from the prior week.

The survey, conducted since 1990, covers more than 75% of the retail residential mortgage applications.

The post Mortgage apps decline 6.5% to 22-year low appeared first on HousingWire.
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Mortgage – HousingWire

Mortgage – HousingWi...