10.1.26 Fourth Quarter Changes; Gateless’ Mike Brown on Automated Decisioning; Fed Chatter Abounds

Robbie Chrisman Welcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include some shifts in the industry as we approach 2027. It's a big day for Fed presidents speaking to the media, and my interview with Gateless's Mike Brown on how AI is overcoming legacy technology and operational friction to improve risk management, accelerate time to close, demonstrate ROI, and ultimately enable a scalable no-touch underwriting experience. Here, take a listen to a little preview. What are the biggest operational friction points you see when traditional mortgage lenders try to adopt real-time AI document and condition clearing? Mike Brown Uh it's honoring the automation candidly. Like it the hardest thing is to get even you can do everything up front. You can have your loan officer get approvals. About 20% of our loans will get approved for credit income and assets before a human touches it. End of the day, though, a human's going to touch it. A processor is going to look at the loan, an underwriter is going to look at the loan. Getting that person, first the loan officer, to say, hey, that income number works with the loan file. Don't touch it. It's insured. You can move on. Or you have rep and warrant eligibility or something like that. That's a challenge. And then as you go further downstream, where you look at that or down the chain in terms of like, okay, now we're going to processing, now we're going to underwriting. Before we go to closing, that underwriter is paid and has been paid to find defects. Getting them to just trust the engine is the hardest part of the of the engagement. Robbie Chrisman My fear is that regulators can't keep up. And two examples would be look at like when Mark Zuckerberg first went to capital, all these people don't even know what social media it like. How are they? Who are they to figure out how to regulate AI? Then I I mean my background to a degree is in bicycling. You talk Lance Armstrong doping scandal. The people getting paid to break the rules, the people getting paid to create these AI, they're always going to make more than the people trying to enforce the rules and regulate. So I'm like, I feel like there'll always be one step. Mike Brown And so yeah, it portends for bad things the amount, and that's the other thing because I've been asked this too a lot, which is are you using agentic AI? We use it to help develop the product, but is it in the product that I'm consuming? No. Okay, good. Why? Why are you so concerned about this? This happened three times after the um Tim Cook said the Apple iPhones are gonna be two grand. Well, we're concerned that tokens just go through the roof. Energy prices, as energy prices go up, the cost to produce AI goes up, and all of a sudden somebody's gonna turn around, they're like, oh, that was 20 bucks alone, now it's 50. And I can't live without that tool anymore because I fired all the people. So, like, that's a that's a real factor too. Um, the cost piece. It's crazy. Robbie Chrisman Thanks to this week's podcast sponsor, Gateless. Intelligent automation that gives you the competitive edge. Gateless solutions reduce costs, deliver a superior borrower experience, and mitigate risk by automating tasks and decisions historically made by people. To learn more, visit gateless.com. Welcome to the fourth quarter. Remember when, in twenty twenty four, the informal slogan for many in our business was stay alive until twenty-five. Well, twenty-seven isn't expected to be heaven. This is the month of Halloween, and suddenly residential lending is filled with tricks or treats, along with conferences of varying value. People are on the move. The job section of our commentary has been filled with transitions and promotions, and on a larger scale, the pace of company changes is picking up. Just when people are wondering if the shift into non-agency products is becoming long in the tooth, New York Life Investment Management is taking majority control of Invictus Capital Partners, the company behind Verus. The asset manager has $838 billion under management, and Verus is already having its biggest securitization year yet, with about $8.9 billion across 14 deals in 2026. Meanwhile, in agency news, keeping track of 38-year-old FHFA director Bill Pulte's tweets, impacting thousands of lenders and millions of borrowers, it's become a full-time job. He tweeted yesterday that Fannie and Freddie are hereby moving to one pricing grid with VantageScore joining the existing FICO classic pricing grid. But wait, the FHFA, Fannie and Freddie announcements that approved lenders may apply for a temporary exception to the November 2nd Uniform Appraisal Data Set or UAD 3.6 delivery deadline. A move that follows concerns MBA and its members raised with GSEs about readiness across the broader appraisal ecosystem. Unswayed by the Treasury announcing plans to purchase up to six billion dollars of bonds today. The bond market endured a steady catalyst light sell-off yesterday, driven less by fundamentals than by technical and flow-driven selling that accelerated once key yield levels broke. Economic data offered conflicting signals. The Fed's preferred inflation gauge, core PCE, undershot expectations at three point zero percent year over year. Meanwhile, personal spending surged 0.9%, ADP rose 90K, and Q2 GDP was revised sharply higher to 2.2%. Yet none of it materially altered the market's direction. Instead, yields rose again, continuing the yield curves bare steepening, with the two's ten spread finishing around forty basis points. Mortgage backed securities also weakened with prices down roughly a quarter point, and spreads mostly wider. Although fifteens and thirties outperformed and late-day recovery softened the overall damage. The current coupon rose five basis points to six point four zero percent amid elevated trading volumes. Duration rather than spread drove the session, with technical selling proving capable of sustaining itself. Today's Treasury buyback and tomorrow's payrolls report stand out as the next potential market catalysts. He's a seasoned mortgage executive, excelling at developing and executing strategies that drive significant business growth. His expertise lies in leading cross-functional teams to achieve and exceed revenue targets through innovative planning and market analysis. He brings two decades of experience in the mortgage technology space to Gateless. I think a good place to start would be the technology landscape in the industry. And there's all these companies popping up, as you know, and they think they can reinvent the wheel. There's people that have been around a long time, and maybe it's helpful for them to get a little kick in the pants from some of these new ideas. But your thoughts on the tech landscape because a couple years ago there were more vendors than lenders at conferences, and lenders were going, I don't know what company to use. And that kind of paired back. But now there's been this whole new wave with uh open source software and things like that, where companies lenders are now inundated with you should use us, you should use us. Like just thoughts on the overall tech and AI landscape of mortgage. Mike Brown I think it's detrimental because there is so many new entrants. And I'm not saying that because we're, you know, the the what you know people tell us, tell me all the time that we're the leader in our space. But what happens, right, is everybody looks at everything and has to right now, with the amount of tech that's coming out, it's gonna, it's definitely elongating and prolonging people making decisions and implementing. I think that's that's one downside of it because it's like, wait, how do I know which horse to bet on? And how do I know that the horse I'm betting on today is gonna be the one that's still running next year? And that's where I had somebody say this to me yesterday you I need to know that you're gonna be here next year. That's my number one thing, right? So that that's a big deal. We see a lot of entrants with little or no experience in our industry. Our industry is highly regulated. It's a highly uh very much a borrower-facing reputational piece for for a lender to look and say, okay, I'm gonna put agentic AI and have it talk to a prospect. What does that mean? And so you see it happening and everyone with the with the industry leaders, with the you know, the rates, uh the UWMs, the rockets, and where they're leveraging that tech and it's working. But then, you know, as you go downstream and you have this larger group of vendors attacking the mid-tiers that aren't building for themselves, you know, there's a lot of risks there. And and I get it, man. I understand how hard it is for folks to look. We attended the uh ACT Summit, which was pretty cool in in August, where you know, they put five of us on, you know, and to underwrite the same file, and everybody had a little different flavor on how they do it. And so there might be, you know, there might be a play for somebody on the front end, there might be a play to put the tech in the middle. It it just doesn't make it easy for the lender. So I would say that, you know, my opinion is the challenge we all have, and I have the same challenge because I need to understand if this new entrant is is truly doing what we can do, and can they do it, you know, 175 million times, etc.? Like I need to know that, but so does every lender because they got to make a bet. And automating is gonna be even more important now. Our market is contracting, it's gonna be harder to win deals, it's going to be harder to move faster with less people. Um, so you're gonna have to figure that out. And it's it's definitely confusing, I would say it would be a really probably the right word. Robbie Chrisman I want to talk rep and warrants a little bit. They were big in the news a couple of years ago, and I haven't heard much about them recently, but it doesn't mean that they're not there and they're not always going to be something that needs to be in minds of people in the industry. You have tools like VeraClear and Smart Underwrite, they aim to offer investor rep and warranty relief by automating document analysis and income calculations. How do you handle edge cases or the non-happy path? And I put that in quotes, and non-standard borrower documentation, because every, you know, you're trying to ensure the AI's accuracy matches strict investor standards without requiring manual human overrides. Mike Brown First, to touch on the rep and warrant eligibility, and I think the GSEs would be very open and in the same opinion in that it's it's probably one of the most underutilized tools that we have. When you look at the whole population of lenders out there, and you know, 80% of the lending is done by 20% of the lenders. The other 80% of the lenders have a lot of impediments, whether it's LOSs that have been around for 20 years, et cetera, or lack of integration or points of sales where they're not able to go and get that rep and warrant eligibility as fast and as easy. Um they're going out to the GSE websites to do it. So I think one piece is figuring out a way to get those underserved on the on the train and understanding that from an edge case perspective, you know, what we're doing at Gateless, we do a significant amount of QA and auditing. We're always looking at not just how to make uh things better, but how to handle the edge cases and how to continue to cover them. Our strategy has been go cover the 80% of the business with conventional conforming and an FHA and then move to more self-employed income. That's going to finish out our year to get all of those edgy cases out there. And then next year is going to be, you know, non-QM and VA, because that's where lenders have to go to make money from a non-QM perspective. So, really, the the answer is auditing and repetition. And that actually goes back to your first question, which when you have new entrants in the space, like do they have six people that are former underwriters that have worked at the GSEs looking at loans during the week and making sure that their system is performing? Or are you going to be, you as the lender, gonna be the beta tester and the auditor for that? Robbie Chrisman In my travels around the nation recently, obviously, cost to close a loan is a big topic. And what I'm gathering is that we will see cost close come down when closing times come down. Time is money. So it's neat to see that your platform can accelerate loan finalization by up to 10 days. I want to ask you though, in a market where interest rate volatility makes speed close critical, where do you see the next big bottleneck in the mortgage lifecycle once underwriting condition clearing is fully automated? Mike Brown I don't know that I would say a bottleneck, but appraisal is always going to be your biggest challenge in terms of if you need a human to go do something. There's a ton of entries in the appraisal space now and people that are working to make that go faster, whether you have, you know, your clear capitals, your regoras, those are folks that are out there that are facilitating orders and really trying to make things go faster in appraisal space. But I think it all comes down to if you have to have an appraiser who's 60 to 80 years old, which is you know not uncommon these days, you know, leave their house in a snowstorm to go inspect a property and it takes a couple more days. That's a thing, right? And then so that I think the regs are gonna have to catch up with the tech where borrowers can inspect or you can use you know readily available data and pictures. That's probably where I would say is that is the next piece that's going to be uh the biggest challenge. Robbie Chrisman You alluded to the tough market that we're in. Treasury yields and by extension, mortgage rates have been on this kind of inexorable climb upward. There's not necessarily relief in sight. We're seeing origination volumes fluctuate. And I think as a result of that, lenders are cautious with their tech spec. How do you quantify it, the ROI, a full process automation to convince these risk-averse mortgage executives that upgrading their tech stack now is essential rather than discretionary? Mike Brown Yeah, I mean, the market's been heading southeast for the last eight months. Like if you look at a chart, I mean, we were just looking at the other day, it's consistently going southeast. So what we're looking at is how much can we automate? How long does the task that we automate take? And we're literally, we have a financial model where we can quantify your on average four to five hundred dollars alone that we can save. It starts with operational savings, operational savings plus refi pull through rates, which are minimal right now, plus your actual speed of funds and your more profit you're going to get by moving faster. So those are the three major components that we actually can quantify today. Um, the other piece that's that we have that's very compelling is we operate on a closed loan pricing model, and we have a really slick income tool called VeriClear. And so what that means is you can run us on all of your upfronts, get income verification from us. And if the loan doesn't close, you don't have to pay for it. So that helps us from a winning perspective, and it helps our clients, you know, number one, fiscally and economically win, but also win from a borrower perspective. You know, the market went from we don't want to talk to borrowers, we want everything online, we want a point of sale that's online. We it's, you know, the the better uh CEO once said that in five years, no one is going to talk to anybody when they buy a house. That's completely inaccurate and wrong. The reality is you want to have that relationship with that borrower because everybody who's been in this game long enough knows that you need to have that relationship. So asking you for your W-2s and your pay stubs and not having to charge you 30 bucks for it or me pay 30 bucks for it is is a big deal, you know, in the event it doesn't close. So having technology where when the lenders win, we win is a big feature. Certainly is a big feature. Robbie Chrisman If only aspects of the industry like credit could follow your lead. I think we'd be in a better place. I don't want to digress too much. Let's talk about how far we are away from a true one-click or no-touch mortgage process. I mean, everybody that works in this industry knows push button get mortgage has been around for more than 10 years. It's super simple, easy. Everybody knows, right? But I say that too. Mike Brown You don't see all the people behind the scenes pushing all the other buttons. Robbie Chrisman Let me ask you, with AI models advancing rapidly beyond rule-based engines, how far are we away from a true one-click or no-touch mortgage process for the majority of borrowers? Maybe that 80% conventional conforming that you mentioned, that's a good use case. And one step further, what regulatory or technical hurdles remain the primary road? Mike Brown Well, the latter is the hard part. All of the AI agents attacking, you know, readily breaking rules is gonna slow the former up. So, like I would say unregulated, you could make a decision today. Uh we we could introduce agentic AI into our tech today and go have at it, right? The reality is there's there's regulation, there's economic responsibility. And now we have literally, you know, these agents conspired to hack. They conspired to cover up their tracks, they named themselves, they named leaders. One of them sacrificed itself for the greater good of the others. So regulation's coming hard and fast. And the challenge that we're gonna have there is it's soup to nuts. All of these regs that are coming out are gonna name not just AI, they're naming decision engines, they're naming calculators, they're naming everything that can be construed into the regs. So I think that's probably gonna start, that'll start slowing us down in terms of when we get to agentic AI. How long that takes, I don't know. It a lot of it has to do with the election in November, too. You know, we have multiple states, whether it's Paul uh from CNBA in California, you know, those guys have been advocating on one of the bills there, but then we have Denver and you have Colorado coming out with regs too. So I think the regulatory environment is going to play a huge role on how fast things move. And that's another thing that lenders have to take into account when they're when they're looking at things, like how is this gonna play with my regs? How do I prove that this works? Does this answer the bell for the GSE guidelines today? And then what happens if there's a regulation that comes out next year and I can't use this tool? You know, it's it's a lot of uncertainty there. Yeah. Robbie Chrisman And I'd be remiss if I didn't ask about what's been going on at Gateless, latest and greatest wins, roadmap. What's yours? Mike Brown No, we got some really cool stuff. Um, we're gonna be demonstrating some new stuff at MBA. We're doing the tech showcase uh on Monday afternoon. We're releasing functionality for co-mortgagers so we can run on multiple borrowers. We're releasing functionality to finish off our self-employed. We have auto approvals and write backs into the loan origination system that we can show now and that lenders have been using. And what that means very simply is it's true automation. When when the application comes in and we produce an income and an asset number, we write all of that back into the loan origination system. And there's points of sale that are picking up those approvals via webhooks. So a loan officer via their point of sale can approve a borrower at like literally at night. We have the big point of sale folks have been doing a lot of work on agentic AI on their front end to help get their loan officers clean files, and that's been responding. And we're seeing some really great results from our from our clients that are using the technologies together. Robbie Chrisman Awesome to hear. I'm uh looking forward to seeing you at MBA. Me too, man. And uh, it's always a pleasure. For now, nearly every Fed president is speaking. We kicked off today's economic calendar with initial jobless claims and at 197,000, very close to the four-week moving average, but the labor market is fine. Continuing claims is 1.7 million. Later today, brings September S&P Global U.S. manufacturing PMI, August construction spending, and September ISM Manufacturing Index. Markets will also receive remarks from the drumroll please. Richmond Fed President Barkin, Boston Fed President Collins, Kansas City Fed President Schmidt, Fed Governor Waller, Fed Governor Jefferson, Fed Governor Bowman, New York Fed President Williams, Fed Governor Cook, Dallas Fed President Logan, and just for bonus measure, European Central Bank President Lagarde. We'd be on the day with agency MBS prices nearly unchanged from Wednesday's close, the two-year yielding 4.86, and the ten-year yielding 5.29 after closing yesterday at 5.30%, up 56 basis points for the month of September. Let's wrap up with a joke and some housekeeping. A realtor and a loan officer go into a pastry shop. The realtor whisks three cookies into his pocket with lightning speed. The baker doesn't notice. The realtor says to the LO, you see how clever we are? You LOs can never beat that. The loan officer says to the realtor, watch this. Any LO is a whole lot smarter than that. He says to the baker, give me a cookie. I'll show you a magic trick. The baker gives him the cookie, which the LO promptly eats. Says to the baker, give me another cookie for my magic trick. The baker's getting suspicious, but he gives it to him. He eats this one too. He says, Give me one more cookie. The baker's angry now, but it gives him one anyway. The yellow eats this one too. Now the baker's really mad and yells, Okay, where's your famous magic trick? The LO says, look in the realtor's pocket. Thanks again to Gateless for sponsoring this week's podcasts. Gateless is intelligent automation that gives you the competitive edge. Their solutions reduce costs, deliver a superior borrower experience, and mitigate risk by automating tasks and decisions historically made by people. To learn more, visit gateless.com.