Sep. 28: Disasters... the new norm? Fairway reacts to Helene; Opinion about signing bonuses; Saturday Spotlight: Wilqo

“Why did the Dalai Lama go to Las Vegas? Because he loves Tibet.” Tomorrow I head to Las Vegas for the ACUMA event, and I highly doubt that I will see the Lama. (How that guy can keep a straight face during this scene is beyond me.) If I want a basic cheeseburger at Gordon Ramsay in Lost Wages, it’ll set me back about $18, way above average burger prices… but those have been going up as well. The average price of a fast food restaurant burger in the second quarter of 2024 was $8.41, up 16 percent over the past five years… not horrendous, but nothing to ignore. At McDonald’s, the average Big Mac was $5.29, up 21 percent over the same period. In general, it’s not looking great for the long-term future of burgers as a cheap food, given that the price of beef is harder to bring down and keep under control than the price of, say, poultry. Certainly, food costs figure into the consumer price and personal consumption expenditure monthly figures.

Saturday Spotlight: Wilqo

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“Redesigning mortgages from scratch.”

In 3-5 sentences, describe your company (when was it founded and why, what it does, where, recent growth and plans for near-term future growth).

The founders of Docutech (Ty Jenkins) and Optimal Blue (Larry Huff and Dr. Ivan Darius) along with the former head of sales from ICE/EllieMae (Jeff Benjamin) formed Wilqo in mid-2020 to finally fix the problems faced by mortgage bankers.

Our Production Optimization Platform (POP) combines the functionality of a POS + LOS + Business Intelligence + Task Management + Automation + more, that allows multiple people to simultaneously work on a loan (including the borrower) from any device. Activities get divided into atomic tasks that are either completed automatically or assigned to the most affordable and capable resource. The result: everyone’s experience is better, costly errors are avoided, compliance is maintained, loans close faster, and lenders generate higher margins.

Tell us how your company maintains its culture in a work-from-home environment, or how you plan on bringing employees back into the office, if applicable.

Wilqo is an “all remote” organization. Our 50+ team members work standard U.S. hours so people can easily interact over video calls and messaging. Nearly every person has at least one meeting each day, so no one feels like they are working on a deserted island, and managers provide clear deliverable targets each week with frequent check-ins on progress.

Between regular All Hands meeting to provide detailed updates on our core objectives and ad hoc communications, we also hold organized remote games and challenges to bring some not-work-related fun to people’s days. We also periodically bring people together for in-person meetings to build on our developing relationships.

Things you are most proud of that don’t have to do with sales.

CHARLIE has been built and designed based on the combined experience of our team in the mortgage space (underwriters, loan officers, C-level executives, etc.) along with direct input from progressive lenders excited to help shape our solution.

Virtually 100% of the hundreds of lenders who have seen our platform agree that our approach is what the mortgage industry needs to evolve. To set out to solve a huge problem faced by an industry, and then get the unanimous feedback that we are indeed doing that … that makes us proud.

 Fun fact about your company.

Wilqo comes from the aviation world which is an abbreviation for “willing to comply.” We spell our Wilqo with a “q” because we do things differently than everyone else.

Is there anything else you’d like to share along these lines?

We understand that moving off an antiquated LOS/POS to our modern POP will require a lender to make big changes, and that change can be scary. But we also know that you can’t repeat what you do and expect different outcomes.

We are excited to go on this evolutionary journey with lenders who have the courage to finally say “enough is enough” and we are confident we can make that transition as easy as possible.

(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.) 

Disasters and catastrophes: someone has to pay

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Unlike earthquakes, hurricanes can be predicted several days in advance. Yet dozens of people died (for various reasons) from Helene. Hundreds of thousands, if not millions of properties were impacted, once again straining the inventory of available homes for sale. And insurance companies will take it on the chin. What gives?

Kingsley Greenland, CFA, Director of Mortgage Risk Analytics at Verisk, writes, “Catastrophe modeling predates 1992 hurricane Andrew, but that event was a turning point. It’s a common start date for the acceptance of the models because the catastrophe vendors at the time suggested losses would be much higher than what the insurers expected.

“Insurance companies prior to Andrew were relying on scarce historical data, where catastrophe models allow for ‘synthetic data’ of plausible, low frequency high severity weather events that wouldn’t be in the historical record. Historical data works when it’s available in high volume and frequency (loan performance, auto insurance, sports, security prices, etc.), but not great for tail risk.

“You’re never going to have enough 100/200/500-year floods, hurricanes, and wildfires in your historical data to fully quantify the likelihood of loss, so you need to model it with synthetic catalogues events to create a stochastic loss distribution. Here’s a fun article from Karen Clark on the subject. She is the founder of my current shop (FKA Applied Insurance Research/AIR). She’s at her own boutique now.”

A few months ago, I attended a session on Catastrophe and Climate Risk Modeling. It is something that every lender and servicer should be aware of, since it will, if it hasn’t already, impact the pricing of loans and servicing across the nation. As a quick aside, there is a difference between climate and catastrophes when it comes to evaluating the risk. Modeling the financial impact of climate change is relatively new whereas catastrophe modeling began being developed in 1992.

Investors, loan servicers, insurance companies and others are looking at this subject in terms of “what may happen” versus “what has happened.” Climate change can drive longer term changes versus the instant damage that can occur in a catastrophe. Over history insurance companies have tended to focus on modeling catastrophes. And every homeowner, and LO, has seen insurance rates increase, if policies can even be set in place. Insurance companies have continued to be ahead of lenders and servicers in evaluating risk over time (one can think of insurance like a 1-year ARM that re-adjusts based on changes in interest rates every year) as they monetize perils. They can react more quickly.

Insurance premiums, like mortgage rates, are a combination of many factors, not the least of which are the probability of an event, assessing the risk on a given asset, the risk of damage, and the cost of repairs. For example, the Lahaina fire in Hawai’i was not anticipated in terms of the combination of factors: non-native species combined with high winds combined with old wooden structures built very close to one another. And now, where will the labor and materials come from to rebuild, and does the community want to rebuild what was there in terms of no regard for zoning? The wildfires in California in recent years have eliminated 25,000 structures… how do insurance companies model that? Or do they just stop issuing policies?

Have building codes kept pace with climate or catastrophe risk? In coastal areas, have barriers been built? What are flood control measures like? In fire-prone areas, how have forest management techniques changed, if at all? Do zoning regulations incorporate disasters of any sort… What is density like? Many major U.S. cities are located in coastal areas... People are going to live and establish communities where they want to be.

On the good news front, seven new insurance carriers have been added in Florida! With that, a given amount of risk is being spread out over more companies, lowering the per-company potential cost. But is insurance available and affordable for Florida residents? (And don’t look to the CFPB for help… that bureau does not regulate insurance matters directly.)

Lenders and services should be analyzing how risk will be calculated and reported. How is the industry valuing the impact, potential or actual, of climate change or catastrophes? What is the strain on borrowers, and what are the potential changes in loan-to-value or overall debt service amounts? How do servicers model risk and pass this quantitative information onto MSR (mortgage servicing rights) values? How is this information being reported, if at all, to the parties involved, and how is this information being used?

The questions continue. How will borrowers with different types of loans react? Will delinquencies and defaults vary based on Agency, non-QM, bond loans, and so on? As noted above, people are where they are for a reason. But different states have different hazard zones that insurance companies have developed less tolerance for ignoring.

Companies servicing mortgages, although there are economies of scale, have seen the cost of servicing going higher. If a disaster occurs, is the cost of servicing a loan greater than the income earned by servicing that loan? If so, there is a negative net present value: how do you value servicing when income is less than the expenses?

The catastrophe models used by insurance companies and loan servicers must be dynamic. How are yours, if you have them, updated? The scope of a given disaster is rarely priced into the value of a pool of loans, or even one loan. In California, for example, the lack of supply is masking the potential climate price hit. (Put another way, what buyers want to live in areas prone to earthquakes or forest fires, yet prices do not reflect it.)

If all this is making your head ache, it should. Servicers are probably not calculating MSR values based on state and area code and flood zone and zip code. But in the future, there is no reason not to, as the data exists. The amount of capital that needs to be held by banks, credit unions, and other servicers will matter even more given the climate risk to the assets. One can expect Freddie Mac, Fannie Mae, and investors to focus on this, as no servicer wants to buy assets from geographic areas or property types that were “bid back” by others.

Interestingly, given the constant change, historical records almost don’t matter. Hurricane or tornado patterns from 1960 don’t matter in 2024. Lenders, and borrowers, should expect more comprehensive disclosures to incorporate more granular climate and catastrophe information. And affordable housing advocates are quick to point out that there are higher costs to certain segments of the population as many are in low-lying areas. Stay tuned! (For more information on modeling risk, contact Kingsley Greenland, Director of Mortgage Risk Analytics at Verisk.)

Dr. Elliot Eisenberg writes, “In 2013 and 2014, the number of weather/climate disasters exceeding $1 billion inflation-adjusted was 10. In 2017, the number hit 19, in 2020 it was 22, and after declining to 20 in 2021 and 18 in 2022, the number reached a record 28 in 2023. The years 2020-2023 have been four of the worst five years with 2017 also in the top five. A home insurance rate respite seems unlikely.”

Yesterday Fairway Independent Mortgage Corp. reacted to Helene’s impact on its borrowers, with CEO Steve Jacobson posting, “Because of the devastation of Hurricane Helene and the obvious delays in closings; Fairway will do the following for clients expecting to close today: pay for 2 nights in a hotel, pay for extra storage for the weekend, and pay for dinners for the sale time period. We will pay off receipts provided next week. Would hope all our competitors would follow and do the same. After all, we are all here to help and to serve others. We all know, we can all be humbled in seconds. We are all in an amazing industry; and there are many quality companies and Teams in our industry. This is a great opportunity for us to come together for the greater good.” Thank you, Steve & Fairway.

The ramifications of signing bonuses

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STRATMOR’s current blog deals with LO and regional manager comp plans. NFM’s Greg Sher recently had some observations about comp. “The signing bonus era has created a vicious cycle in the mortgage industry, and the consequences are unraveling right before us.

“It started around 2019. Some of the more well-capitalized mortgage companies started paying anywhere between 50-100 basis points for a loan officer's last 12 months production to leave their current company and join theirs. That meant if an LO originated $75 million in mortgage loans (roughly 200 transactions) in a year, they were offered a lump sum of up to $750,000 to join ‘Company x,’ but with a catch: these lump sums are tied to contracts (normally 2-3 years) where if the employee leaves during that period, all, or most of that money would have to be paid back. So essentially, they're locked in for that period of time.

“For many loan officers, these bonuses have conditioned them to adopt a ‘free agent’ mentality, where if they aren't in a claw back window, they're on the lookout for another payday from a new lender. This new world disorder has created unprecedented bad blood and bickering amongst mortgage CEO's and lawsuits too… You've seen them as waves of large groups have fled their current spots since 2019, often for massive paydays.

“This perverse universe is disruptive on so many fronts. For starters, outrageous bonuses are paid for with higher pricing. Consumer loses. Nothing is free.

“It's also massively disruptive to the LO's business. Starting all over, building pipelines, using new systems, explaining the move to referral partners, all that leads to less productivity in the short-term (and sometimes the long-term if the lender can't deliver the service you have come to expect).

“While less tangible, I believe there's a reputational component to all the movement that hurts the industry too. I recently laid eyes on a text a top producer received from a competitor CEO on the day of their two-year work anniversary (and the expiration date of his claw back). The text read, ‘Happy anniversary! Welcome to free agency, let's talk.’ Scary, right?

“This is the new-world, harsh reality mortgage executives live with today. And it's unlikely to ever change. It's the proverbial ‘genie is out of the bottle’ moment. It's not like mortgage companies are unionized, or ever will be.

“There's only one tangible way to fight back, and I encourage every CEO to consider this: Take a hard look at your retention strategies and put things in place to fight off the free agent frenzy. This should include a golden handcuff strategy with monetary upside. We all have the data now....6 years of it. Stop ignoring it. Put a stopper in the revolving door. It's now the essential tool in the survival kit.” Thank you, Greg.

Being a mentor to someone in mortgages isn’t quite like this, but it can be very rewarding as well. (Warning: tissues may be required.)

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you're interested, visit my periodic blog at the STRATMOR Group web site. The current blog is titled, “Lenders and Vendors Must Pay to Play.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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