10.14.26 Credit Scoring; Owen Lee on MBA; Restrictive Financial Conditions

Robbie ChrismanWelcome to the Chrisman Commentary Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include Let's talk about credit scoring. What higher yields in the bond market are doing to financial competition. And my interview with new MBA chairman and Success Mortgage Partners Owen Lee on his involvement with the MBA, his priorities and goals as chair, and how the role will affect his professional responsibilities and his outlook on opportunities and challenges facing the mortgage industry. Normally I give you a little preview, then we do my monologue, then we go back to the normal interview, but I'll just give you the interview since I think a lot of you want to get into it. Here you go. First off, let me congratulate you on your new position of MBA chair. You're obviously no stranger to the MBA and what it is. You've been chair. Elect, you are highly involved with MBA and other organizations. Why is it so important to you? Owen LeeNumber one, I'm incredibly grateful to this industry. I am a lawyer by trade, and my first job was practicing. Well, not my first job, but my first professional job after school was working at a gigantic law firm. And that had its ups and downs, but it wasn't the lifestyle that I wanted for my wife and hopefully a family someday at that time. And it was actually my wife's idea to start a title insurance agency because she did that for David Trott, who some people listening to this podcast might remember of Trott & Trott and mortgage foreclosure and later congressional fame. And then the title insurance agency that we started, that we still have taught me about the mortgage industry. And so I've been able to be fairly successful in this industry thanks to a lot of great, great people that I get to work with every day. And I think we get to do something that's really cool. I mean, we're not doing brain surgery and we didn't cure the common cold, but we put people on the home ownership ladder. And that is still the greatest generational wealth creator in the world, not in the country, in the world. And at our company, we're about 40 to 45% first-time home buyer. And I think that's pretty cool to help get families in that position, especially for the first time. And so giving back to this industry, hopefully leaving it a little bit better than I found it, is something that's very meaningful to me. And uh it's it's why when I saw the opportunities to get involved at the MBA and to have a personal impact. And you, if you're listening to this, it's easier to make an impact than you might think it is. You just got to show up and try. So it's always been very special to me. Robbie ChrismanWhat are you looking forward to about being chair? Or maybe put another way, what can we expect from you in the position, aside from zigzagging around the country to a lot of state associations and events? Owen LeeA couple of things. I would say advocacy, affordability, and outreach. From an advocacy point of view, we have to advocate case in point credit reports. That is something that the industry has been getting punched in the face on for about four to five years. The MBA was really first in the pool of a major organization talking about that as an issue. And we still don't know exactly what the total shakeout is going to be. But I am confident now that we're on the path, especially after hearing from Director Pulte in Chicago, that we're on our way to a better spot. Quite honestly, I don't really know exactly what it's gonna look like. I don't know if it's VantageScore 4.0, I don't know if it's single file pull, I don't know if it's FICO, but sunlight is started to act as a disinfectant to this issue. So I'm thankful for that. You know, on affordability or on lowering costs, we've put together at the MBA a list of things that could be done by the administration and regulatory officials that would lower the cost of housing tomorrow that do not require a congressional act. And I think it's very important that we bring this list to light. Got to give credit to uh MBA board member James Sciascia, the FIFIrd. This was originally a brainchild that came out of a board of directors meeting, and James was the first one to speak it. So congrats to him. Things like sensible LLPA reform could lower the cost of housing tomorrow. A sensible MIP cut in the FHA insurance premium could lower the costs tomorrow. Final movement on credit reports and credit bureaus could lower the cost tomorrow. There are quite a few things on our list, and these are things that could be done in relatively short order. So you're gonna hear about that. And then, of course, our outreach to loan officers. For the first time in MBA history, we can have a relationship, a platform to have a relationship with loan officers so that loan officers can join the MBA. They are a great, great force in our industry. To the public, they really are the face of our industry. And for too long, the MBA has not had an ongoing conversation with the people on the front lines of our industry. That's gonna end in the next 12 months. Robbie ChrismanYou've had the benefit of seeing a lot of chairs come and go. And so rather than saying, who are you trying to emulate, what is being a good chair look like to you? Owen LeeBeing involved and bringing the energy. I have a little bit of a platform that I was fortunate enough to be granted by all the members of the Mortgage Bankers Association. And I take that um investiture, if you will, very seriously. And so my job when I show up is to bring the heat and to bring the energy. Maybe I'm a starting pitcher, maybe I'm a relief pitcher, you know, I don't know. But when I get in the game, I gotta bring the energy. And I think that started for me when I was MORPAC chair. You know, I teased Bill Killmer, the MBA's political director, all the time. On the day he asked me to be MORPAC chair, interest rates were two and seven eights. And I tease them all the time. You know what they were on the day I took the job, Bill? Not two and seven eights. That's that's what it was. So I learned a lot about bringing the heat in that role. And hopefully I can bring some of that to be in the chair. Robbie ChrismanWhat does it mean for your day job? How do you balance these time commitments? Owen LeeYeah, I tell you, for those of you that don't know, I am the co-founder and CEO of an independent mortgage bank called Success Mortgage Partners outside of Detroit. We have about 400 employees. We're in 45 states. And I don't really know if we're a big, small company or a small, big company. We're kind of a tweener. But I will say this there is zero chance I could do this job without the people I work with as Success Mortgage Partners. When they offered it to me, we made the decision jointly for me to take it because it's hard for a medium-sized company. I don't have the resources at our company that some of the other larger companies might have. So it's really because of like Allison Johnston, our president, Madonna Blanchard, one of my partners, Kevin Broton. It's really because of these people and all of our managers. I always get in trouble when I start to name people because I want to go further across the list. But it's done quite a change. We had to re-wrack our entire org chart in order to free up time for me to be able to do this and do it well. And it's not a responsibility we took lightly. It changed all of our lives and um zero chance I could do this job without their help. Yeah. Robbie ChrismanSo zooming back from specific initiatives that you're focused on, and you listed a couple of them. When we look at the mortgage industry as a whole, what opportunities excite you about what exists out there? And maybe put more cynically, where do you think the industry needs to improve writ large? Owen LeeI think we have to improve a couple of places. So uh number one, I would say the MBA has to improve in how we communicate to people and how we communicate to people within the industry. Sometimes I think that needs to take a fresh look. You know, people are communicating with themselves in different ways, you know, whether it's videos or podcasts or text messages, we need to break out of the email mold and get a little bit more creative because that's just not how our members are consuming information these days. In terms of the industry as a whole, I would get back to advocacy because one thing I learned during the Trigger Lead fight and a couple of things before that, a couple of pieces of legislation. I was on the MBA tax task force during Build Back Better, and we did a lot of lobbying work, is there are 535 members of Congress, Robbie, 535. I would say maybe, maybe 10% of them have some working knowledge of the mortgage industry, which means 90% of them don't. And I'm not trying to throw stones, right? They need to know about national defense and education and healthcare and agriculture and foreign relations and whether AI is gonna consume the earth in six years. I have no idea. But we need to show up to educate these people on our industry. Housing is about one-sixth of the U.S. economy. Housing and health care are the two biggest portions. We need to show up and educate members of Congress and regulators on our issues because if we don't show up, somebody else will educate them for us. And I can promise you that's gonna be a worse outcome. Robbie ChrismanSo we put all this together. The big priorities out there for MBA, what you hope to kind of look like as chair, the opportunities. When you look back in a year, what will a successful stint as chair look like for you? Owen LeeA firmer resolution on what's going to happen with credit reports, two to three victories on the things that we can do to lower the cost of housing right now without an act of Congress, and a very, very meaningful amount of loan officers who are beginning their relationship with the MBA. And we need those people and we need them on the front lines. So those are, you know, I'm gonna try and work hard with all areas. I uh I have an ongoing joke with uh Quentin Fogan. You might not know Quentin. He's uh a lot of people don't know. One third of the MBA is commercial multifamily. So it's very important that we advocate just as swiftly, just as adamantly for them. But uh Quentin and I have a running joke that I'm gonna wear the commercial jersey as well as the residential jersey. I hope all of my friends on the commercial side of the house, when John Headland takes over for me, I hope they say, you know, he brought it for us too. Robbie ChrismanWe know I'm pulling for for you. The industry's pulling for you. It should uh we're we're looking forward to it. So uh thank you very much for the time. I know you're a busy man, and uh hopefully we'll talk soon though. Owen LeeAlways a pleasure, Robbie. Thanks so much for having me. Robbie ChrismanThanks to today's podcast sponsor, nCino, the platform for agentic AI and mortgage lending. nCino is helping mortgage lenders deliver a faster, simpler path to homeownership. If you're here at MBA Annual, come find the nCino team and see how their agentic homeownership journey puts AI to work across the mortgage lifecycle, helping loan teams spend less time on manual tasks and more time serving borrowers. Visit ncino.com slash mortgage slash US to learn more and schedule a meeting while you're on site. I recently overheard someone on the phone ask what percentage of my donation will go toward public recognition that I made the donation? Clever. What percent of the industry is shifting credit policies? Yesterday the industry learned that Fairway Independent and Movement are now implementing Vantage Score 4.0, owned by Experian, Equifax, and TransUnion. The VantageScore 4.0 credit scoring model is offered through those three bureaus, as well as mortgage technology providers, including Zack’s, Calyx, and Optimal Blue. Its use in mortgage was pioneered by Fannie Mae and Freddie Mac, as well as the Federal Home Loan Banks, FHA, and the VA. Keeping up on things can be a full-time job, and I should let you know that the Chrisman Demo Day returns tomorrow, October 15th at 10 a.m. Pacific, with AI front and center. It's free to viewers, and there's a link to it on ChrismanCommentary.com. Three of the seven companies on the agenda are AI and automation tools, each taking on a different part of the loan. Watch where AI takes over a task, where it hands the file back to the person, and what that means for everyone downstream. But let me get back to credit quickly. Thousands of residential lenders are heading to the aerodromes, train stations, and freeways today, getting out of Chicago. Thirty-year rates are firmly in the mid-7s. Borrowers who opted for adjustable rate mortgages in the past are facing higher resets as their loans adjust in this higher rate environment. FHFA director Bill Pulte's credit scoring reforms are reshaping mortgage pricing by expanding VantageScore 4.0's role in Fannie Mae and Freddie Mac lending, allowing lenders to use the higher of eligible scores and potentially reducing borrowers' costs. Rocket Mortgage reports average closing savings of $1,600 while Fanny Mac has adopted bandage score across its channels. The model's inclusion of rent and utility payments may also help borrowers with limited credit histories. Beginning October 19th, Fannie Mae's mortgage-backed securities disclosures will include Fannie and Freddie's internal credit scores, giving investors new data to evaluate loan performance and risk. Supporters see greater competition, transparency, and access to credit, but critics warn that multiple scoring systems could increase lender costs, undermine consistent risk-based pricing, and create inconsistencies between mortgage pricing and private mortgage insurance requirements. A second major debate centers on replacing the traditional three-bureau credit report with a two-bureau approach, which could save borrowers' money but remains unsettled after repeated policy reversals. The Mortgage Bankers Association supports reducing the number of reports, arguing that differences among bureaus are often limited for stronger borrowers, while credit reporting industry representatives warn that fewer reports could obscure information or important information and encourage lenders to select the most favorable results. Although each reform may offer incremental benefits, their combined effect deserves scrutiny. Allowing lenders to choose higher scores, introducing alternative scoring models, and potentially reducing bureau checks could collectively weaken risk assessment, even if each change appears manageable on its own. The central challenge for FHFA is to expand competition and affordability without compromising underwriting consistency, the safety of the government-sponsored enterprises, or taxpayers' exposure to mortgage credit risk. Normally, this is where we do the interview, but you already listened to that, so I'll keep going on here. The bond market began this holiday shortened week with shorter-term yields little change yesterday, while longer-term bonds retained modest gains as rising oil prices once again dominated sentiment. September existing home sales slightly exceeded expectations of $3.99 million up 1.5% month over month, but down 2.2% year over year, though sales remained lower year over year across all four regions, and September was the slowest month for home sales so far in 2026. Meanwhile, the NFIB Small Business Optimism Index slipped to 97.9 from 98.7 in August, signaling a modest deterioration in small business sentiment. Higher bond yields obviously mean tightening financial conditions and pressure on fixed income markets, with 10-year real inflation-adjusted yields up roughly 40 basis points since early September, 30-year real yields at record highs, and mortgage rates near 7.5%. Yet, equity markets and consumer spending have remained surprisingly resilient. Has the economy become less sensitive to higher borrowing costs, or have the cumulative effects of tighter policies simply not surfaced yet? The economy may be more resilient than in past cycles, but the cumulative effects of higher borrowing costs likely haven't fully surfaced yet, particularly as consumers refinance debt, businesses roll over financing, and elevated mortgage rates continue to suppress housing activity. Delayed economic strain could eventually catch up with consumers, businesses, and financial markets, with global debt reaching $365 trillion, or 311% of GDP, persistent fiscal deficits adding pressure to long-term yields, and Fed officials still anticipating potential further tightening before inflation returns toward 2% in 2027. I won't be holding my breath. Today's economic calendar kicked off with MBA mortgage applications falling 2.7% for the week ending October 9th. No surprise there, as the 30-year fixed mortgage rate climbed to 7.5%, its highest level since November 2023 and more than a percentage point above a year earlier. Purchase applications dropped 4% week over week and 16% year over year, while refinance applications slipped 0.4% weekly and remained 56% below year-ago levels. Underscoring how elevated borrowing costs continue to suppress housing demand and refinancing activity. We've also received September CPI, which came in up 0.6%, exactly as expected after a prior reading of 0.4%. It was up 3.7% year over year, with core CPI up 0.3%, slightly higher than expected, and up 2.6% year over year. Later today brings the Fed’s October Beige Book, and after the strong consumer price data, agency MBS prices are down an eighth to a quarter versus Tuesday's close, the two years yielding 4.86, and the 10 years yielding 5.26 after closing yesterday at 5.22%. Let's wrap up with a joke and some housekeeping. Because it refuses to catch up. Thanks again to nCino for sponsoring this week's podcast. Helping mortgage lenders deliver a faster, simpler path to homeownership. If you're here at MBA Annual, come find the nCino team and see how their Agentic Homeownership journey puts AI to work across the mortgage lifecycle. Helping loan teams spend less time on manual tasks and more time serving borrowers. Visit nCino.com/slash mortgage slash US to learn more and schedule a meeting while you're on site.