Sep. 7: Saturday Spotlight: TransUnion; Letter on the housing shortage; App data; What if dads gave press conferences?

There are plenty of sports nuts in real estate and lending, and when you combine the two, well, you’d think it would be a match made in heaven. Not so with Michael Jordan and his house, which he has been trying to sell for 14 years. The 56,000-square-foot estate north of Chicago, that he allegedly spent $50 million building, was listed for $29 million in 2012. It didn’t sell, so he dropped it down to $14.855 million as of 2015, and where it is still listed. Jordan has also paid around $1 million in taxes since then, chicken feed for him I imagine as his net worth is rumored to be north of $3 billion. Speaking of rumors, as we move through September, rumors of companies coming and going from our business continue. (The latest example being a rumor about Independent Financial exiting warehouse lending… check with your representative, as sometimes rumors help companies actually confirm their commitment to the space.)

Saturday Spotlight: TransUnion

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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).

Established in 1968, TransUnion got its start as a railroad leasing company based out of Chicago. A year later, we acquired a county credit bureau with millions of consumer card files, and in the decades since, a series of investments in technology, strategic growth and acquisitions have drastically broadened our capabilities, transforming us into a leading credit reporting agency built around a holistic understanding of consumer identity. Thanks to ongoing expansions into new areas like fraud, marketing and customer-driven analytics, the TransUnion you know today is a global information and insights company committed to helping consumers and organizations navigate global commerce safely and responsibly.

TransUnion offers thousands of B2B solutions designed to address the unique needs of businesses across multiple industries. Mortgage lenders choose TransUnion for our identity-focused, data-driven mortgage insights and solutions, enabling them to achieve more desirable lending outcomes in a volatile housing market. Plus, we work hard to continually enhance and launch new products and features to make sure the evolving needs of lenders and borrowers are constantly being met.

Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.

We strongly encourage our associates to volunteer their time and give back to the communities where we operate, providing paid time off to those who participate (in 2023, employees recorded 6,675 volunteer hours). In addition, TransUnion has an established corporate giving program through which we donated nearly $4M in 2023 to community organizations focused on the advancement of economic inclusion, education, racial equity and others — on top of matching $525K in associate donations to eligible non-profits.

What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop?

Our ongoing aim is to build a culture where everyone feels they’re in the right place and empowered to succeed. This includes offering tuition reimbursement to those wishing to further their education; enterprise inclusion programs focused on achieving more balanced gender and racial representation; and promoting participation in business resource groups where associates are encouraged to lead their own business-specific initiatives. On top of company-wide mandatory training, our internal learning hub connects associates with a variety of educational programs and opportunities, in addition to offering career coaching, self-service mentoring guides and development resources.

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.

TransUnion operates as a hybrid-first workplace, allowing our associates to experience the flexibility of working from home and the effectiveness of coming together in person. We regularly run company-wide surveys to give employees the opportunity to share feedback for maintaining a strong culture, and action the inputs that keep us more connected, productive, and engaged. In the most recent survey, 86% of respondents reported being satisfied with the flexibility TransUnion offers, reaffirming our efforts to meet employees where they continue to pay off.

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

TransUnion’s commitment to expanding financial inclusion is a big reason many of us are proud to work here. Our partnerships with credit unions like VyStar and non-profits like HomeFree-USA help further our goal of expanding mortgage access and education to underserved consumers. For instance, we provide credit education tools (such as our CreditViewTM Dashboard) to HomeFree-USA which aims to help people of color on their homebuying journeys. And collaborations with organizations like FinLocker and MoCaFi support efforts to empower Black Americans building credit and wealth through homeownership.

Last year, we launched and hosted our inaugural Financial Inclusion Forum, bringing together financial services and insurance executives to discuss actionable ideas for making access to credit more equitable. And recognizing that basic credit education is a barrier for many, we also offer and promote an extensive, free library of educational content that covers everything from ‘What is a good credit score?’ to ‘How to read a dispute investigation.’

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

We always aim to meet our customers where they are, and in a mortgage market that remains tumultuous and unpredictable, helping lenders meet financial goals is a high priority. One current area of focus is preapprovals. When mortgage lenders determine consumers’ creditworthiness earlier in the approval process, they can more easily ensure their time and resources are being invested for the right buyers. This customer-centric focus plays a large role in why lenders choose TransUnion, and we aim to continue delivering on their high expectations in the years to come.

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

Structuring a possible solution to the housing shortage

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Dottie Sheppick and Theresa Hagman, Co-Founders of Specialty Mortgage Product Solutions, LLC, sent a note with their thoughts on addressing the housing shortage!

“Experts agree there is an affordable housing shortage across the country. We need builders to build more single-family homes and at the lower cost end to allow more first-time home buyers and other less wealthy buyers to enjoy the advantages of home ownership. In every area of the country, if a development were to open up that was offering homes at the lower, more affordable end of the market, they would be overwhelmed with buyers. So why don’t builders concentrate on that market? One reason is because a builder must hold the cost to carry a project (meaning a development of numerous homes) from predevelopment, throughout the construction process to completion when the home buyer closes escrow, and the builder gets paid. And many of these costs are not adjusted by the sales price of the home.

“Builders have financial limitations. A recent article distributed by the National Association of Home Builders discusses the financial regulatory burden on the cost of an average single-family home at over $93,000, with the largest regulatory cost coming from changes in the building codes in the past ten years.

“Another financial burden carried by the builder is the churning of buyers that often takes place at the lower end of the market, when a buyer falls out of escrow and a new buyer has to step in. This fallout will cost the builder time and money to acquire a new buyer, whom the builder is counting on to qualify for a mortgage loan. We can encourage more building at the lower end of the market by removing some of the financial burden that currently resides with the builder.

Most commonly, loans in single family home developments are funded once the home is complete and a certificate of occupancy has been issued. Some home buyers purchase a plot of land and then build a home. They get construction financing from a banking institution who funds the construction loan, separate from the mortgage loan.

Once the home construction is complete the bank or another institution will originate permanent mortgage financing. Therefore, this process requires the borrower to qualify for the construction loan and after construction is complete, go through the entire credit qualifying process again for their permanent mortgage.

“An exception to this process is known as One Time Close (OTC) construction lending, where a lender will originate a loan for a consumer/home buyer based on the completed value of the property. The home buyer and builder agree that the builder will be paid by the lender in phases as the construction progresses. The lender pays the builder from the consumer’s loan proceeds, based on the agreement between the home buyer and builder, so that the borrower’s loan balance increases as the builder receives their draw payments. During the construction loan phase, the borrower makes monthly interest-only payment on the growing loan balance. Once construction is complete, the loan converts to the permanent loan phase and the borrower makes amortizing monthly payments on the full loan amount.

“We believe OTC residential construction lending could be an essential component of tackling the housing shortage, by shifting a large portion of the financial carrying cost from the builder in manageable incremental phases to the borrower while also reducing risk and financial burden for the lending institution. This risk transfer already takes place with GSE’s CHOICERenovation and HomeStyle and FHA’s 203(k), by providing an option to sell the loan at closing before the renovation/construction work is complete.

“Unfortunately, OTC is not widely available and there is a reasonable explanation for this. Independent Mortgage Bankers (IMB) originate over 70% of standard single family home mortgage loans. However, the IMB business model does not generally allow them flexibility to offer construction financing.

“They are widely different from banking institutions who have the ability to warehouse construction loans until the construction is complete and then either hold them in their own portfolio or sell them in the secondary market.

“IMBs rely on lines of credit, known as warehouse lines to fund loans and then use the secondary market to sell closed loans as soon as possible after closing. By creating an OTC product that can be sold at loan closing, this could open up the market to more opportunities for consumers and home builders; particularly those who are interested in building affordable homes for the first time home buyer.

“USDA Rural Development already offers a fixed interest rate OTC product, with two options and for both, USDA will issue the Loan Note Guarantee before construction is complete. The borrower can make interest only payment during construction and the loan can be held or sold by the lender at closing. If the borrower is making full principal, interest, tax and insurance payments, the loan can be included in a Ginnie Mae pool. These features reduce market risk for the consumer and the builder. The USDA should be celebrated for offering this product to families in rural areas with an income of 115% or less of AMI, now we need the same loan options for all areas and for all income levels in our country, through Fannie Mae and Freddie Mac (Freddie Mac may require an amendment to their Charter).

“The GSEs (Government Sponsored Enterprises) have an opportunity to help fill the important housing shortage gap. An OTC construction loan that can be sold at closing to the GSEs may allow more lenders to offer construction loans, leading to competitive pricing and more consistency in the documentation, policy, and procedures of national construction lending. An OTC loan could also offer a builder the opportunity to reduce the financial burden of building a development. By offering a suite of pre-approved plans, the home buyer could buy a home and finance the construction through the lender. Through the use of an OTC loan for the construction funding and permanent loan with one closing, the builder’s risk of home buyer fallout is also reduced, which can become a significant problem when they have to sell a home more than once during the construction period.

“It will take time and stringent focus to build the infrastructure, but for the right mortgage banker, offering OTC could be the competitive advantage that takes them through this highly competitive cycle. OTC is counter cyclical, offering a niche product during all interest rate cycles and an option for less rate sensitive higher income buyers during higher rate cycles. In addition, the product helps solidify relationships with builders.

“Admittedly, construction lending has inherent risks, however, mitigating construction risks is possible, with the numerous construction lending management software systems that are available. Many of them have built-in quality control, construction draw management, borrower and builder access to information and flexible management reporting. Construction management systems, such as Land Gorilla, are providing automation integration to reduce cost per loan and increase efficiency, for any lender who wants to add a highly profitable new line of business.

“It will still take the right brains in the game to solve what is arguably a crisis. And the right brains are innovative practitioners who are willing to selflessly share their knowledge for the benefit of the entire industry and then continue to compete for their fair market share. It would be great to see one of the GSEs pilot the OTC product with an independent mortgage banker and a developer who is capable of building a smaller development, perhaps 10 -20 homes that are priced for the first time homebuyer. The borrowers are credit approved and their home loans close prior to construction completion. This structure reduces the long-term financial investment of the developer by having the homes sold AND financed during the construction phase. This may encourage more building of affordable, lower priced homes.

“We encourage the further expansion of OTC through the development of an effective secondary market for conventional loans that releases the warehouse lines and cost of carry for IMBs at closing. We have all the pieces we need to create one solution to the lack of inventory at the lower end of the market. We just need the industry partners to come together to develop the structure. We need the risk takers to take the risk, the lenders to commit the resources and the builders to pivot to the lower end where there is pent up demand.” (Thank you, Dottie Sheppick and Theresa Hagman!)

Trends in the business from Curinos

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“According to Curinos' new proprietary application index, refinances are down 1.3% week over week but up 43% in August, while the purchase index is up 5% week over week but down 7% for August as a whole. August 2024 funded mortgage volume increased 4% YoY and increased 1% MoM. In the Retail channel, funded volume decreased 2% YoY and increased 1% MoM. The average 30-year conforming retail funded rate in August 2024 was 6.77, 24bps lower than July 2024 and 5bps lower than the same month last year. Purchase rates were 19bps lower MoM and 11bps lower YoY, while Refinance rates were 37bps lower MoM and 5bps lower YoY. Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. We drill into this data further here.”

It’s football season! What if dads had on duty press conferences?

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, “Hiring: Do You Remember How to Do That?” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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