7.28.27 Updating RESPA; PMSI’s John Walsh on Investor Reporting; Fed Framework

Robbie ChrismanWelcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include Is RESPA too complicated to change? Why it's all quiet on the Western Front ahead of the Fed announcement? And my interview with PMSI's John Walsh, on the mortgage investor reporting and accounting space. Here, take a listen, do a little preview. There's probably a lot of people on the origination side of this going, what the heck is investor reporting or accounting? Can you explain those fields for people that might not be aware? John WalshFundamentally, what investor accounting, investor reporting is, is that all the loans those originators make, uh, most of them eventually get sold, right? And those uh loans get sold to uh Fannie Mae, Freddie Mac, Ginnie Mae, or a uh private investor. And each of those different uh investors in loans have got different requirements about understanding what the cash balance is on loans, what loans have been paid off, what payments have made and been made by borrowers, uh, what the cash position of each loan is. And you know, it's frankly an enormously complex field. But it's absolutely critical uh for investors to get this information so that they can manage their investments and have confidence in our ability as an industry to continue to generate uh investments in them via mortgage loans. Robbie ChrismanI remember when I got in the industry, it was almost popular to hate your servicer or your subservicer. And the servicing space has come a long way. Can you talk about how you view the current servicing landscape and what that is evolving into? What does the future of servicing look like beyond that? John WalshI think there are two big drivers uh for servicers. And the first of those is customer satisfaction. The second of those is cost per loan. And I think servicers today uh are weighing that balance to find an optimum place for them specifically. There are clearly servicers for whom cost per loan is less important than service. There are some where it is more important, but every single servicer is trying to optimize on one of those two axes. Robbie ChrismanRESPA has served the mortgage industry for more than 50 years, and its core purpose of protecting consumers from abusive referral practices remains an important objective. The question facing the industry today is whether the framework surrounding RESPA reflects the way mortgages are actually originated in 2026. When the statute was enacted, referrals were largely personal, local, and relationship driven. Today, consumers begin their home buying journey through search engines, digital marketplaces, comparison tools, social media, and increasingly artificial intelligence. Marketing referrals and consumer influence are no longer confined to the face-to-face relationships that shaped much of the original guidance. Yet, many of the industry's compliance expectations continue to rely on interpretations developed decades ago for a marketplace that no longer exists. That disconnect leaves lenders trying to apply yesterday's guidance to technologies and business models that regulators could not have anticipated when many of those interpretations were written. Modernizing RESPA does not require abandoning its principles. Consumers should continue to receive transparent information, conflicts should conflicts of interest should remain prohibited, and bad actors should still face meaningful consequences. But those protections should be accompanied by clearer technology neutral standards that distinguish legitimate digital marketing from prohibited referrals and provide practical guidance for emerging business models, instead of relying on increasingly strained analogies to the past. Mortgage lending has always evolved alongside consumer expectations, and regulation must evolve with it if it's going to remain both effective and predictable. A modern mortgage market deserves modern guidance, not because the industry's values have changed, but because the way consumers find lenders, evaluate options, and complete transactions has fundamentally changed since RESPA first became law. Turning to markets, mortgage-backed securities in U.S. Treasuries extended Friday's rally to begin the week, as crude oil fell from above $90 to near $82 per barrel after the weekend passed without additional U.S. strikes on Iran, raising hopes that diplomatic efforts may help contain tensions. The U.S. Treasury sold $69 billion in two-year notes to good demand, though a $70 billion five-year note sale was weak. Uncertainty remains elevated following last week's global bond sell-off, with investors still sharply divided over whether the Fed will raise rates again this month. For today's interview, I wanted to welcome to the show PMSI's John Walsh to talk about the mortgage investor reporting and accounting space. He was just appointed CEO of PMSI, where he brings more than three decades of executive leadership in mortgage servicing technology, real estate analytics, and information services. He was previously CEO of Lereta, DataQuick, and Delmar Database. Maybe I should start this interview by congratulating you on your new role as CEO of PMS. I we were speaking offline a little bit and you're just over a week into this. Now it'll be a little while longer when this interview airs, but what's it been like? Maybe it's not good to ask how it compares to expectations. Maybe I should say what intrigued you about the role and the company and uh how's how's it been so far? John WalshYeah, it's a good question, Robbie. Uh first, thanks for taking the time to talk to me. Look forward to the conversation. I've known PS PMSI for about five years. Uh as a matter of fact, uh several years ago when I was at Lereta, we tried to buy it and unfortunately we're outbid. Okay. I really liked the team, Dan and Romelane, when I first met him, and uh really liked the company, especially as I started learning more through the sales process. When I retired about a year and a half ago, Dan and Romelene approached me and asked me to join the board. Um, and again, like the company, like them, said yes. Um uh completely as a surprise, um month ago or so, they and the board approached me and asked me to take over CEO. And, you know, frankly, uh I was uh not expecting this. I was very happy in retirement, traveling and surfing. Um, but I think this is too good an opportunity to pass up. To the second part of your question, what do I find particularly interesting about PMSI or what drove me to come out of retirement? Look, I've been in the mortgage banking business for about 35 years, okay, over 35 years. Uh the first third of it was as a principal in a couple of mortgage companies. Uh the latter uh two-thirds has been as a vendor uh selling, I think, everything legal to mortgage bankers. The point here was when I was actually a mortgage banker 25 plus years ago, we did everything ourselves. We did our own appraisals, we did our own taxes, we drew up our own loan docs, we followed up on um insurance, we did it all ourselves. Fast forward to where we are today, and servicing is so competitive and so difficult that most servicers have outsourced all those things I've talked about. All right. The next thing that makes, in my mind, perfect sense to outsource would be investor accounting, investor reporting. My original premise was that, hey, look, this is something you have to do right, but you don't get bonus points by doing it better than the other guys. Uh, and it makes sense for servicers to outsource that because they've got to spend all their time really focused on differentiation, right? So let's spend our time in differentiation, it's not the things that don't allow us to differentiate. I've kind of modified that view in the last 30 days, uh, you know, one after a week and a half here, and two after a couple of weeks before that, getting deeper into the company. Uh, a lot of MSRs or PMSIs, MSR investors uh really do make decisions based on how investor accounting, investor reporting uh is accomplished. So I, you know, I guess my view at this point is that there's an opportunity here both uh to reduce costs, simplify the lives of servicers, and I think there's also an opportunity to allow them to differentiate. Bottom line is I think both are phenomenal growth opportunities for PMSI. Robbie ChrismanWhat do you feel like separates good investor reporting from lesser investor reporting when we think about value add from a company? John WalshYeah, so I I think there's a couple things. One is the number of exceptions that are generated. So in investor reporting, uh, you know, kind of a mass report is sent on a uh periodic basis to the various investors, right? And then a bunch of things get kicked back. Each of those has to be followed up individually. You know, the challenge is that the LSSs don't have real technology to manage that those exceptions uh within their systems. So that ends up to be a bunch of access and excel work done by investor accounting, investor reporting uh people in the servicers. TMSI, based on you know 20 years of SME experience and 10 years of building up technology, have built up the technology so that a very high percentage of those exceptions can be responded to accurately and immediately based on technology, leaving a much smaller number for human beings to uh follow up on. Past that giant amount of work that can come off the uh tables of the uh servicers, is that in most cases, when an exception is created, it means upstream something is being done incorrectly. And what I think PMSI has excelled at, and what I've heard from their customers, is that they're uniquely good at finding out what that upstream issue is, making a recommendation to fix it, so that the amount of work in the future goes down. Robbie ChrismanI was perusing your website and the homepage mentioned building trust. Maybe beyond discussing how trust is built in these counterparty workflows, the importance of it in general in today's mortgage ecosystem. I think I think a lot of it gets talked about, at least on the the origination to borrower front, in terms of how do you build trust with borrowers. They can do a lot of their research now online. And so it's it's about being that true trusted advisor when when they come to you and ask for other advice. But there's not as much talked about when it comes to trusting your counterparties, other businesses that you're doing work with, clients, service providers, that those interest I'm I'm hoping you can speak a little bit to the importance of trust and and just what fruits it can lead to. John WalshIt's absolutely imperative. Look, I've been selling uh, as I mentioned before, solutions to mortgage bankers ever since I left mortgage banking directly 25 years ago. And the critical thing to understand is you know, if you are selling solutions to mortgage bankers on the origination side, every sale is putting their relationship with their borrower at risk. Conversely, if you are selling uh solutions on the servicing side, every sale is putting their investor or somebody else's relationship at risk. So vendor solutions are for the most many vendor solutions are absolutely critical. And uh the servicer has got to have the trust that one, you're gonna do the job right, two, you're gonna do it timely, and then undoubtedly there are going to be issues. But the critical path there is that you've got to respond quickly and accurately to resolve those issues. Now, I think that's the foundation of trust, and you know, it's absolutely critical in deciding who your vendor is. Robbie ChrismanI believe PMSI has has been in kind of the data business for more than a quarter century at this point, and and data is becoming of even more important. It feels it feels trite to say that because data has always been important. But now with technological capabilities, good data in leads to good outputs, bad data in leads to bad outputs, and that's that's becoming exacerbated or amplified with AI and other automation things. Talk about the importance of data and how you ensure good data, how what it what it means to maintain good data and uphold those standards. John WalshWell, so look, I think your premise that garbage in, garbage out is absolutely true. Of the various uh vendor companies I've run over the past 25 years, in every single case, the ability of the vendor to return an accurate and timely solution to the service originator is based on the quality of data. And that's probably more true here than it is uh at any other company that I have worked for or worked at just because of the vast quantity of data uh that we're accumulating. So, you know, we're accumulating that data from banks, from our servicers, from the investors. We have to match all of that data. And Dan and Rommelen uh have been incredibly successful uh over the past years building smart systems that can match that data, identify when that data is incorrect, build a smart system that can suggest how to fix some most of that data that's incorrect, and then leave some small percentage that has to be done manually. You're right. This really is a data business, and it's about managing all those data sets and making sure they get married up correctly. Robbie ChrismanWhether you're an investor or an MSR owner, can you talk about why you would work with a company like PMSI? What is the actual ROI versus thing, oh, we can do this in-house, we'll be fine. John WalshYeah, so I mean it's it's it's easy. There's two components. I think for the vast majority of servicers, PMSI can provide them a cost-effective solution, i.e., give them a cost that allows them to get the job done at a lower cost than they're currently spending. And that can take fundamentally two different flavors. Uh the first is a fully outsourced solution where PMSI picks up everything. And then the second is a software as a service solution where PMSI provides the same technology we use to servers, uh, to servicers so that they can do the cost with fewer people they've had in the past. In both cases, I think the uh uh the cost basis is uh lower than what most servicers are spending today. And the second point is doing the job better. That cost component that I mentioned before is largely a comparison of what customers are spending in IAIR uh versus PMSI pricing. But again, to earlier in our conversation, almost every time something comes out, it's an exception in IARIR, it means something was done wrong someplace else. And that other person is getting dragged back into fixing it as opposed to doing their core job. So look, I I think there's both a really high quality component, a really significant cost savings. And uh it's one of those things that servicers more and more are going to say, we're better off having an expert do this and go focus on what allows us to differentiate ourselves than uh doing it ourselves. Robbie ChrismanYou are no stranger to consolidation in the mortgage industry. You have gone through acquisitions, Core Logic acquired one company, ICE acquired a different company. Thoughts on the consolidation landscape in mortgage? Do you see that trend continuing, at least from a technology company perspective? Forget the origination side for a second. How do you see the consolidation landscape when it comes to the tech side? John WalshYeah, I think it's gonna continue. The very largest companies have the challenge that they're frankly not very good at innovation. So they're gonna continue to look to smaller and more innovative companies to move uh the ball forward for themselves. Past that, there are challenges for smaller companies in that you know, the large banks, the MSA product process is a real challenge. And to the extent that via uh acquisition or things like that, you can solve the MSA problem, you make life easier for everybody. And then, you know, fundamentally, you know, there continues to be a lot of innovation by smaller, newer companies in this business. And as those new firms get created, they either survive or at some point they're gonna be part of some transaction, whether it's another PE firm, whether it or MA. Robbie ChrismanI wish you the best of luck in the roles. Pleasure speaking with you, and hopefully we'll speak again soon. John WalshRobbie, I really appreciate our time and uh thank you as well. Robbie ChrismanInterest rate swaps imply roughly a 40% chance of a quarter point rate hike, even though the Federal Open Market Committee is still widely expected to leave the federal funds target rate range unchanged at 3.5% to 3.75%, which would be the fifth consecutive meeting without a policy change since December 2025. Cooler than expected, inflation and employment data support a wait and see approach, although energy prices, tariffs, AI-driven electronics costs, and labor shortages in service industries give policymakers little reason to declare victory in the fight against inflation. With forward guidance largely abandoned under Chair Warsh, both the policy statement and his press conference for clues about the Fed's evolving reaction function will be closely dissected. Rather than offering explicit guidance, officials are likely to emphasize that any September decision will remain data dependent. Warsh appears poised to shift the Fed toward a somewhat more forward-looking framework while maintaining respect for incoming economic data. And whereas recent decades emphasize transparency and detailed signaling to shape market expectations, the new leadership may allow markets to incorporate new information independently, while the Fed learns from those price signals instead of trying to steer them. A meaningful departure from the communication strategy investors have grown accustomed to. We began Tuesday with agency MBS prices roughly unchanged from Monday's close, the two-year yielding 4.30, and the 10-year yielding 4.62 after closing yesterday at 4.64%. Let's wrap up with a joke and some housekeeping. A six-year-old asks her mother, why do ducks have feathers? To which the mother responds, to cover their quacks. Thanks again to Experian Verify for sponsoring this week's podcasts. Experian Verify provides mortgage lenders with automated income, employment, identity, and asset verification solutions that help accelerate underwriting while reducing fraud risk and manual documentation.