7.21.26 Modern RESPA; Climative’s Winston Morton on Tappable Equity; Rate Reasoning

Robbie ChrismanWelcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topic on today's episode includes the modern applicability of RESPA. There's no reason for rates to drop, right? In my interview with Climative's Winston Morton on turning homeowner demand for energy and resilience upgrades into qualified financing opportunities. Here, take a listen to a little preview. For lenders out there, can you talk you make the connection about how this deepens customer relationships? Because everybody out there right now in the mortgage lending space is trying to create loyal customers, is trying to retain customers, recapture customers, those sorts of things. Winston MortonSo obviously there's there's capital that's required from the banks, and there's an interest rate that everybody's interested in. But at the end of the day, this value-added service that banks can provide to the homeowners provides not only a benefit of an interest rate, it also provides a benefit of how it impacts your day-to-day life, right? So this comfort, cost, or resilience components. So I would say the life cycle of a customer, you might have customers that are starting out early in the homeownership phase, and they're more about accumulating wealth and making lifestyle decisions. And then you'll get customers that are close to retiring and they're more about cash and conservation and they're more interested in managing their expenses. So this kind of information provides a financial institution much more personal insight and impact on how you impact that customer's journey. Robbie ChrismanFrom application to underwriting, JazzX is a new operating model that helps you scale growth, boost productivity, and transform how your team performs. It's the first true end-to-end AI platform built for mortgage. To learn more, visit jazzx.ai. People who say that residential lending and the state or federal governments aren't intertwined have to look no further than the CFPB. There's not many people that are fans of the CFPB, probably because of the Enforcement Arms politically based pendulum, but the CFPB's new office space fits 550 people. There are 1,100 employees currently. They'll get down to that somehow, right? Theoretically, only Congress can actually shut down the CFPB. In the Senate, that's 60 or more votes. The CFPB is still functioning and has a regulatory agenda, which doesn't include RESPA. 1974's RESPA could be too tough to eliminate, especially Section A, the anti-kickback provision, and no one wants to come out against that. Is RESPA an answer to what we talked about when we didn't have the Fed to wonder about? Despite a limited dose of data and small slate of news yesterday, uncertainty grew over the Federal Reserve's policy path and the near-term outlook for rates. Rising oil prices have renewed inflation concerns, pushing treasury yields higher and leaving mortgages looking less appetizing to investors. Yields on tenure and third-year treasuries are within 10 basis points of their respective 2026 highs from early May. The two-year yield is also 10 basis points from its 2026 high, which was notched just last week. Money market funds managing more than $8 trillion have concentrated on very short duration securities, preserving the flexibility to reinvest at higher yields should inflation or Fed policy turn more restrictive. Putting a bow on yesterday, hawkish rhetoric from Fed chair Warsh and an uptick in treasury supply squashed any chance of a meaningful rally in the bond market. Agency mortgage backed securities have continued to drift modestly weaker, with the broad MBS index losing excess return despite relatively stable treasury yields and historically subdued volatility. Fannie Mae 20-year and 15-year securities continue to outperform, while valuations suggest agency MBS remain modestly cheap relative to both treasuries and investment grade corporates, particularly the Ginnie Mae 30-year and Fannie Mae 15-year pools. Select higher coupon, newer vintage specified pools have been offering attractive relative value. Mortgage rates have edged higher and duration has remained stable. Renewed geopolitical tensions surrounding the Strait of Hormuz warrant caution as they could reignite volatility and pressure fixed income markets. For today's interview, I wanted to welcome to the show Climative's Winston Morton to talk about turning homeowner demand for energy and resilience upgrades into qualified financing opportunities. He leads Climative with over 25 years of success in the telecommunications and utility industries. He's currently chief executive officer, and Climative announced the U.S. launch of its digital consumer engagement platform for banks, retail mortgage lenders, and fintechs, helping lenders turn homeowner demand for energy and resilience upgrades into qualified financing opportunities. U.S. homeowners are sitting on roughly $35 trillion in home equity, and lenders face a trillion dollar untapped market of upgrade-ready borrowers. But many homeowners still do not know which upgrades to prioritize, what they will cost, or how to finance them. Climative helps bridge that gap by giving lenders a digital way to engage customers earlier and guide them through high-impact home improvements. The platform uses property level energy and climate risk data to deliver personalized upgrade recommendations, estimated savings, and financing pathways through a co-branded digital experience. Let's talk about the opportunity out there of untapped home equity, because that's, I think, is where climate saw a real opportunity. But but obviously the HELOC space has come about uh in the the this most recent market cycle in terms of prominence or people becoming except accepting that that's a nice way to utilize money versus a credit card or a personal loan or something like that. But climative, the whole point is is giving lenders a digital way to engage customers earlier and guide them through high impact home improvements, partly which is tied into equity. It's your company, it's not my company. Can you explain the the background behind all this, please? Winston MortonYeah, sure. Thanks, Robbie. So yeah, so climate provides you know that property intelligence for for lending and insurance and utilities and other government programs in the market, and particularly in the financial sector, it's unlocked two areas in in the financial world, or maybe three. One is unlocking the potential retrofit potential or improvement potential on that particular asset. And when a bank unlocks the retrofit potential in an asset, it generally sees three benefits to the bank. Number one, the value of the asset goes up. So if you provide like retrofit loans to your consumers, your asset value increases. So a loan-to-value improves. Number one. Number two, you're putting new money in the market. So it creates a net new loan opportunity for that customer and creates a better customer relationship. Number three, it improves the cash flow of that property. And so we see retrofitted properties having an improved or reduced default rate because cash flow is becoming a bigger deal these days. It's not just a credit score that we're looking at. We're looking at a lot more cash flow metrics when we do some of these loans. So, you know, we don't talk necessarily about, you know, the climate impact or the emissions impact of a particular retrofit. We talk specifically about the impact of that wallet share in that consumer's situation. And we all know insurance rates are going up dramatically. We all know electricity and fuel costs are going up dramatically, and lots of things in that consumer world growing up has is increasing dramatically. So you've got a static credit score that and an asset value that a bank makes a decision on. Well, that asset value has a lot to do with the efficiency and the comfort and the security of that home in the future. So these are metrics that can be helped to kind of create better outcomes in a banking portfolio, and it's a net new product opportunity. So it's, you know, it's kind of a climate or or resilience aware loan strategy that kind of has two or three bottom line benefits to the bank. Robbie ChrismanIn addition to banks, because you mentioned banks a couple times there, you're also working with retail mortgage lenders. And obviously there's a similar symbiotic relationship. But but when it comes to retail mortgage lending, can you talk about how you interact with them there? Winston MortonYeah. So kind of at loan origination or even before loan origination, the concept of activating the customer is really important. In other words, provide an easy, streamlined way for that customer to understand their options to make that particular home, you know, more affordable from a cash flow perspective, more comfortable from a livability perspective, and safer, more resilient from a resilience perspective. So when a customer's educated or activated in that manner, they're likely to understand what capital requirements they come to when they do it alone origination, whether that's just part of a mortgage origination or whether it's a HELOC or an independent retrofit program. Robbie ChrismanThere's property level energy data, there's climate risk data. And we're not we're not talking climate change, but can we talk about how personalized recommendations are derived from all this data out there? And what a time to be utilizing data, because obviously with AI, the better data you have as an input, the better outputs you're going to get to be able to actually provide meaningful value to people. So can you talk about how you take data from the input and create a personalized recommendation? Winston MortonYeah, there's a lot of data available in in very specific verticals. So, you know, from a resilience data perspective, there's flood and fire or storm risk data available in a given jurisdiction. There's energy data available either at market or at the customer level. And what we do, Robbie, is we spend more time on what that data can be used to activate. In other words, you know, there's been lots and lots of scoring of flatter fire risks out there, but it doesn't necessarily provide the end user an easy way to take action. And so what we do is we provide kind of a holistic view for that homeowner to go back to this concept that, you know, affordability is top of mind, comfort is top of mind when you're living in a market that has potentially colder or hotter winters or summers, and then resilience, you know, am I appropriately insured? Am I at risk in the in the market? And one of the things that we try to do is say, well, if you improve your home, can we have very direct impacts on one or more of those categories? Maybe I can cover off a retrofit that improves my affordability and it improves my resilience. Or can I impact my resilience and my comfort at the same time? And that's what customers are quite interested in is to say, what's this look like from a what how does it impact me? Customers respond to that much better. And then they wrap that into the ask from a mortgage or a retrofit uh financing perspective. So I would say, Robbie, we take multiple silos of data and we put it in terms that the cut the customer can understand and activate rather than here's a flood score, good luck. Right. And so I think rather than scaring customers, we're saying here's a here's a pathway to improve your building over time. And the other thing is it's always a point in time, and oftentimes it's life circumstance driven. In other words, I'm getting close to retirement. I'm worried about my costs continuing to increase in my home, whether that's energy or insurance, and I'm going to be on a fixed income. So, what can I do right now to keep that costs at a you know an affordable place as you know, as I move into my retirement? Robbie ChrismanWhether it's qualitative or quantitative, thoughts on just how much more loan production this can lead to? Obviously, the like I start said at the beginning of the interview, the the home equity space is really hot right now. And so I would assume products like this are driving loan adoption among customers. Winston MortonYep. Well, there's close to a trillion dollars worth of unrealized retrofits in the North American market. So we have a very large pent-up demand of improvements to be done in our building stock. Our building stock's aging, and you know, our circumstances of energy costs and weather events are continually increasing, which just drives cost into the into the model. So it's a very large market. You we get into billions of dollars of retrofit add-on potential financing here. And if obviously there's pure play uh retrofit financing solutions out there. Uh, we believe the banks and in general are in a really amazing place to have that conversation with their existing customers. Robbie ChrismanAnd you just announced your US launch. Maybe I'll close by asking you what you have learned from this product internationally, or what do you and or and or what do you feel like the the American market is missing about products like these that maybe the international market understands better? Winston MortonSome markets are already very climate regulated and climate aware. And really, at the end of the day, this isn't necessarily a climate product, it's a risk product. And so the American market, I think, is more focused on how do we both add value to our customer journey as well as reduce risk in the market. So I would say, Robbie, that the risk is just starting to get built into that conversation in the US market. And I think this resiliency component and then activation of customers, other than just getting that mortgage rate and you know, and the and the loan to value, we're starting to see that, you know, this advisor advisory or advice that comes out in the conversation with the customer is really, really important to drive that that benefit. So I'd say that's you know, in the US market, we focus mostly on, you know, obviously revenue potential, but also impact with the with the customer. Robbie ChrismanIs the US market properly pricing climate risk? Obviously, it's getting it seems like it's getting better, but where is it still failing? Where do you feel like it's doing a good job when it comes to pricing some of the climate risk in? Winston MortonOh, I think it's very early days still. So I think we're gonna see things like you know, non-insured uh events or underinsured events show up in the in the capital stack. Um, we're just seeing a lot of this show up in the in the market as we uh as we kind of enter the market. So you know, I think we're quite early in the days of this of this resilience in the financial system in the capital stack. And you know, we can treat it as a as a risk and reporting problem, or we can treat it as you know, uh opportunity in the market to reduce that risk, both on the client and on the banking side. Robbie ChrismanVery well put. Winston, I really enjoyed this, man. Uh, I wish you the best of luck with the launch. And uh yes, it's early doors, as they would say in in England, and so we'll we'll see how things evolve over here. Very much appreciate the time. Thank you. Winston MortonAll right. Thanks, Robbie. Robbie ChrismanAssuming Red Book same store sales won't be a market mover when they release today, with no data of note on today's economic calendar. We begin the day with agency MBS prices unchanged from Monday's close, the two-year yielding 4.21, and the ten-year yielding four point six zero after closing Monday at four point six zero percent. Let's wrap up with a joke and some housekeeping. A retired banker went to a psychiatrist. He began for thirty years. I worked in a bank as a teller. Every day I'd serve dozens of customers. I love my job and never missed a day. Last month I retired. Since then, every time I pass a bank, I have a huge craving to enter and take out money. Even if I pass an ATM, I have to stop and take out some cash. I've got thousands of dollars in cash at home, yet every day I feel desperate to go to the bank and take out more. What's wrong with me? To which the psychiatrist replied, It sounds like you're having withdrawal symptoms. Thanks again to Jazz X for sponsoring this week's podcasts. JazzX is the first true end to end AI platform built for mortgage and from application underwriting. It's a new operating model that helps you scale growth, boost productivity, and transform how your team performs. To learn more, visit jazzx.ai.