10.30.26 Shifting Clocks, Shifting Priorities; ACI Worldwide’s Tom Warsop on Payments; FOMC Framework

obbie ChrismanWelcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include progress in Washington, DC, how we're moving to less Fed meetings next year under Fed Chair Warsh, and my interview with ACI Worldwide's Tom Warsop on how real-time payments and richer payment data could make mortgage funding faster, more certain, and more efficient. Here, take a listen to a little preview. Robbie ChrismanWhen we think about a seamless payment experience of the future for borrowers, for lenders, what does that look like in practice? Tom WarsopI was describing the way ISO 20022 works. And I mean, uh that that sounds super nerdy to talk about numbers and ISO numbers, but the real point is this is a payment format that is absolutely consistent. And what it allows is you can send not just payment information, but other information as well, pretty much any kind of information you want that is related to that payment. So I think that when we talk about seamless, what I absolutely envision, and it won't be long, is you're gonna have everything a lender and everything a borrower and everything a broker needs contained in a single set of messages that relate to that ultimately the payment transaction, but it's gonna be way more than the payment information. It's gonna be all the information about the asset that's being transferred, the loan itself, and here are the requirements that you have to fulfill. And once that's done, payment happens, it's immediate. And so that's gonna change a lot about the way that the workflow works. But you know, you asked specifically what does a seamless payment experience look like? I mean, seamless is the right word. It's gonna be once all that information is there, it just happens and it happens so fast you don't even know that it happened. Now, that does mean, as we talked about before, you have to have the checks and balances to verify and validate that that the sender is who they say they are, and who the recipient is who they say they are, and that those are the right endpoints for that transaction. Once that's done, it's gonna happen immediately, and it's gonna feel like you know, it's gonna feel a little bit like magic. Robbie ChrismanThanks to today's podcast sponsor, FICO. As the industry's most predictive credit score, FICO Score 10T combines proven performance with deeper insight into borrower behavior to help support a stronger and more resilient housing finance system. To learn more, visit FICO.com. Looking at averages in the continental United States, not Alaska or Hawaii, the difference between the amount of daylight on the first day of summer and the first day of winter is five and a half hours, cushioned by adjusting our timepieces. As much of the nation prepares to fall back this Sunday, talk again has come up about Congress eliminating the practice. Despite being passed in the House and pressure from President Trump, several senators are holding up legislation that would eliminate changing the clocks. Supporters argue that ending the time change would mean less hassle and provide more daylight during the afternoon when Americans are most active. Except for me, because that's my nap time. Opponents say commuters in some states wouldn't see the sun in winter until after 9 a.m., and sunrise in the summer would be at 4 or 5 a.m. Good luck with that one. U.S. Treasuries, and along with them, agency mortgage-backed securities rallied across the curve yesterday, easing quarterly inflation momentum, reduced expected Fed tightening, outweighing strong growth and labor data. Stronger than expected, Q3 GDP growth of 3.4%, and a decline in annualized core PCE inflation to 2.5% evidenced resilient economic activity, alongside cooling underlying inflation momentum. But September's personal income and outlays report painted a less favorable inflation picture, with headline PCE rising to 3.6% year over year and core PCE to 3.1%. Consumer spending outpaced income growth and historically low jobless claims demonstrated continued labor market strength. Yields ultimately stabilized near recent lows following a decent seven-year treasury auction. The implied probability of a 25 basis point December rate hike fell to 78% from 85% on Wednesday. Yes, Chair Warsh's firm stated emphasis on stated commitment to the 2% inflation target reinforced the tightening bias. But never forget, the man loves to screech like a hawk and vote like a dove. Yet the decision ultimately hinges on whether incoming employment data and market conditions justify further restraint. Put another way, this Warsh-led Fed will keep delaying action. In addition, Warsh stated that the Fed would only engage in six rate-setting meetings next year instead of the usual eight. Beyond the Fed, midterm election outcomes and geopolitical risks, particularly potential escalation involving Iran, add uncertainty to the fiscal policy outlook, treasury supply, and yields. For today's interview, I wanted to welcome to the show ACI Worldwide's Tom Warsop to talk about how real-time payments and richer payment data could make mortgage funding faster, more certain, and more efficient. He's president and chief executive officer of ACI Worldwide, which leads global payments, modernization with secure, scalable solutions that transform banking, merchant payments, and bill and billing payments. ACI develops transformative software solutions to simplify complex payment challenges faced by businesses and institutions around the world. Robbie ChrismanAnd setting the stage here, when we when we thought about money movement as it pertains to banks and lenders historically, what did that mean? And I guess now with this added layer of advanced technology, what does it mean in the modern sense? Tom WarsopI think you get, you know, if I think about it from the perspective of what are the advantages of some of the use of new technology, new payment types, new payment rails, I think about it in three three buckets. The the stakeholders get better certainty, higher speed, and more effective and efficient experiences, payment, payment experience in particular. And so what I mean by those three things is from a certainty perspective, the historically most loans of any type, but most mortgages are fulfilled, funded using a wire transfer, because that has historically been the most practical way to ensure that you get money quickly and that it's uh essentially irrevocable. And that was really pretty much the only choice for a long time. And now that just isn't the case. You have actually several choices, but if if I stick to real-time payments, so so FedNow or the clearinghouses, real-time payment rails, you can get those same benefits of virtually instantaneous payment and irrevocability at a lower cost. So that's one, you get certainty and it costs less. Number two, speed. I mean, a wire typically takes 15 to 30 minutes, is probably pretty normal. Maybe it happens faster sometimes. A real-time payment, a FedNow or an RTP payment is literally seconds, maybe even less. And so you get that speed that everybody's interested in. And then effectiveness is or yeah, I I could I could choose either effectiveness or efficiency, but I'm gonna choose effectiveness. And one of the kind of interesting things is the emerging payment standard, ISO 20022, allows you to send both the payment information and other information, including things like an invoice, if that's what the money's coming from. In this case, it wouldn't be an invoice. But for example, you could send proof that the title has been transferred or proof that the title searches are complete. Whatever's important to the payer or uh to the to the person who's releasing um that asset, you can do it all at the same time in the same transaction, the same payment type. And so that creates tremendous opportunities for efficiency. So if I sum all that up, what it what I'm saying is that because of changes in technology and and not just technology, but also the standards around these types of large payments, what we're now able to do is operate with more speed, even more benefits to all stakeholders in the payment, including um that certainty point that I made. And you can really streamline the workflow so that you have all in one glance, so to speak, you've got all the information you need to know whether uh the payment is there and whether all of the requirements have been fulfilled. So you can actually close a transaction faster. Robbie ChrismanIn a technical sense, what has changed with the infrastructure, the underlying infrastructure to allow for the speed of payments? Tom WarsopThe world is moving to real-time payments. So if I if I go back way back in history, you know, in the uh way before any of our times, the uh the only practical means of transferring value was cash a long, long time ago. And then over the years, many different payment types have emerged. And you know, now there are there's a plethora of ways to pay. But um, as I was saying before, the the prevailing way of settling a transaction uh like a mortgage was through a wire, because that is the only practical way that you could you could guarantee that receipt of funds and do it fast. So the what's happened over the last 10 years of roughly speaking, is there was there's a completely different type of payment, these instant payments, real-time payments that call different things in different parts of the world. They were they were literally invented from scratch, and new rails, new uh new pathways through uh the payments ecosystem have been created over those last 10 years or so. And it was something that you could not have done more than a few years ago. And in the US, you couldn't have done until three or four years ago. But now you have again a from scratch payment type, it doesn't go through the the networks that that existed before. And the infrastructure is actually relatively simple. If you talk about from a purely technical perspective, the machines are not the thing. The thing is it's a standard payment format that's that ISO 20022. So it's set up the the uh you had to have the format set up to the payment type. And then you built connections uh with a between payers and payees going through some sort of a central infrastructure. In the United States, that's either the Federal Reserve or the clearinghouse. And so they are facilitating a very rapid exchange of messages, which is what all payments are, it's just a message. And so they facilitate a very rapid exchange of those messages. The ISO 20022 allows you to prove that the the uh obligations are fulfilled and therefore you can you can transfer that money. So it's it's not really the technology so much, it's the fact that we created these rails from scratch, we created the standards from scratch, and then the the technology came along with it. Robbie ChrismanObviously, there's a podcast for residential mortgage professionals. When they think about what this means for them in a practical sense, where does your head go? And obviously, banks and other lending institutions, the use cases uh would probably be similar, even if it's outside of residential lending. Tom WarsopYeah, I mean, I can see, I think ultimately it should facilitate faster closing of transactions and faster funding of mortgages. Because when you think about that payment format that I was describing, the fact that you can send information along with the request for payment or the payment, it will create the opportunity to have much faster, more streamlined workflows. And so today, you know, I I don't know what the average close time is across the board, but my personal experience is it's 30, 45 days. I can absolutely see that this should accelerate that timeline. I don't know exactly what it'll be, but I think it could have a substantial impact on the time it takes to actually get everything done, get a mortgage closed, and get a get a transaction closed. I think that's to me, that's the big opportunity here. And if I'm a mortgage lender, that's pretty appealing to me because the the faster I can get a transaction done, I think the better. Robbie ChrismanYeah, there's a lot of talk in the mortgage industry about how do we drive down the cost to originate. And time is money. So the longer things close alone, the more money that's going to cost you. Good absolutely. Let's bring the human aspect into this. We spoke a little bit offline or exchanged emails, and obviously this aids with efficiency, but it can also help with decision making. And I'm wondering what you mean by that and also kind of where you think human oversight and control still fit into the picture here with things moving so rapidly. Because you know, a lot of the time, a lot of wire fraud in mortgages happen happens because things move too quickly and someone doesn't check something. Tom WarsopI I know exactly what you mean. I I I think of it slightly differently, but you get to the same place. Yeah, I think what faster payments and and these different workflows, what it requires from a from a fraud prevention perspective is that all of the checks and balances obviously have to be done up front because if you execute a payment that takes seconds or milliseconds and is irrevocable, obviously you're dumb. If the payment occurs, you're done. So you got to do the checks up front. And the good news is that the various instant payment or real-time payment schemes around the world, they all have fraud detection and prevention built in from the get-go. So there are very sophisticated mechanisms to detect and prevent uh bad actors from hijacking the scenario. Now, you you asked about the human in the loop, you asked about humans, and now they're other inclusion. I am an absolute proponent of humans in the loop for all automation. Now, what I mean by that is not that you know humans will be involved in every single step. I believe that the right way to attack these opportunities is you automate the execution of repeatable things. So, for example, once all of those checks and balances I was just describing have been completed and there is a sufficient level of certainty that the two parties are who they say they are and that money needs to flow, automate that. Get that actual movement of the money done. When we're talking about making sure that that validation has been done, in the vast majority of cases, there will be a human verifying that the appropriate checks were done, that it was done correctly. Because we're talking about generally quite large amounts of money moving. So taking a couple of seconds or a minute to validate those, the payee, the payer and the information, that's well, well worth it. So automate the things that are predictable, that are repeated, that happen every time. And those things that are really important to validate that everything is right. Make sure a human looks at those because that's still the best way that I know of to make sure you do it right. Robbie ChrismanI don't want to belabor the point too much, but thoughts on what lenders can do today or should do today to prepare for some of these changes when it comes to payments? Tom WarsopYeah, I mean, my suggestion is think about if there were no restrictions on if technology was not a barrier, if speed of payment were not a barrier, how would you like the process of closing a transaction and funding a mortgage? How would you like that to work? Think about that right now because it's not all possible today, but you need to be thinking about how how would I change my business? How would I take advantage of these things? Because what I can tell you is it's going to the time it takes, the overhead associated with the funding process and the validation that the requirements have been met, that is going to trend to zero over the years. It won't get to zero, but it's going to get smaller and smaller. So, as a as a lender, I want to make sure I'm ready to take advantage of those things as they come. So I'm going to think about what should my workflow look like? What should my business look like? How should my people be trained? How do I need to think about taking advantage of these new opportunities? I need to be thinking about that now, even if all of those things are not available today. Robbie ChrismanAnd I'd be remiss if I didn't ask you about what you're working on over at ACI Worldwide. Obviously, a lot of stuff between banking, merchant payments, bill payments, fraud management, so on and so forth. But uh, and the website is aciworldwide.com. Clue the people in a little bit about some of the neat things y'all are working on over there. Tom WarsopYeah, absolutely. So we're one of the largest payment software providers in the world, and our our software handles trillions of dollars, that's trillions with a T of payments every single day, including lots and lots of payments connected to mortgages. We also are one of the largest bill payment providers. So we we actually move the money when uh when a consumer is paying a bill, including a monthly mortgage payment or an auto loan payment, a tuition bill, you you name it, we we do it. And what what we've done is we've created we've created a platform uh which we call ACI Kinetic. And what kinetic does is it, by the way, it's ISO 20022. There's that nerdy uh numbering scheme again, but it's it's native to that uh to that payment type. So what it what that does is we've created a platform that allows any type of payment to be handled in the same technology with the same workflows, with the same payment standards, and allows uh super efficient handling of payments for any type of uh any type of payment and any type of use case. Robbie ChrismanVery cool. I wish you the best of luck in those endeavors. I very much appreciate you making the time to talk to me today. It'll certainly be interesting to see how this evolves. Thank you very much, sir. Tom WarsopThanks a lot. Hope you enjoyed the Halloween. Robbie ChrismanToday's economic calendar is already underway with the Q3 Employment Cost Index. That's not going to move markets much later today, brings October Chicago PMI and remarks from San Francisco Fed President Daly. We begin the day with agency MBS prices a quarter better than yesterday's close. The two-year yielding 4.58%, and the 10-year yielding 4.92% after closing yesterday at 4.99%. Let's wrap up with a joke and some housekeeping. A Scotsman goes to a Halloween party with a girl on his back. The host asks him, and what are you? Ah, I'm a snail. And who's that on your back? That's Michelle. Michelle, get it? Thanks again to FICO for sponsoring this week's podcasts. As the industry's most predictive credit score, the FICO Score 10T combines proven performance with deeper insight into borrower behavior to help support a stronger and more resilient housing finance system. To learn more, visit FICO.com.