Towards the later part of 2020, we got into a conversation with Phil Shoemaker, President of Originations at Home Point Financial.
Phil has over decades of experience in the mortgage industry and prior to Homepoint, he served as the COO of Production at Caliber Home Loans.
Phil helped us understand the key head-winds and tail-wind for wholesale lenders in the current market conditions. He specifically explains how to strike a balance between building the right technology suite in house while keeping the mortgage experience as high touch as needed. Together, it helps build market resilience.
Here’s a quick low-down from the conversation that’s relevant even in 2023.
Sanat: Welcome Phil, I would love to get started with your story - how you got started in the mortgage industry and what convinced you to stay for good ?
Phil: Yeah, so like most people that end up in mortgage, I didn't grow up dreaming about being a mortgage banker. It just kind of happened.
While I was getting my degree in electrical engineering, I met a group of people that were starting a mortgage bank. I needed a part time job and that’s how I joined First Magnus.
I got exposed to things that you typically don't get exposed to, at that young of age. I had the opportunity to build a loan origination platform for First Magnus and then do all these really cool things for the company.
Unfortunately, things blew up in 2007.
Eventually, we picked up and built another mortgage company on the same principles as First Magnus and ended up selling it to Loan Star Funds. That's what became the origination side of Caliber home loans.
I was the first employee at Caliber and spent a good chunk of my career there.
The first time I left a job to join another company was to join HomePoint. I did it because I believe that culture is a very important part of a company.
Getting to know Willie Newman, our CEO, his belief on how a company should be run and the balance that really should be struck between the different constituents of a company (investors, associates, partners, and customers) resonated with me.
I believe that a whole new wave of innovation in the coming years is going to come from the wholesale side of the business. There's a natural built in alignment between a wholesaler and a broker. It enables them to be a lot more entrepreneurial in how they originate loans and alleviates your need as the lender, to manage them from a cost perspective.
This allows the wholesale lender to focus exclusively on innovating and doing things that help win their business.
Sanat: I really like your point on how wholesale lenders are well placed to lead a wave of innovation in coming years. I'm going to ask you a lot of questions about that.
According to you, what factors helped HomePoint Financial become the third largest lender in the country?
Phil: Well, we're the third largest wholesale lender and the 7th largest independent non bank lender. The number one factor for our success is the balance and focus on our associates. We have a team that genuinely cares about winning as a team as opposed to winning as an individual.
Homepoint has been very intentional about building our company culture, which we believe differentiates us from other companies.
We give our associates a purpose that is more than just collecting a paycheck, which leads to happier and more fulfilled employees. This ultimately comes in through the experience that our partners and customers have with the company.
We believe that purpose is a powerful tool and aligning people with a certain purpose and aligning individual aspirations with company goals is where the magic happens.
Sanat: Great point, I think for companies to succeed at scale, employee satisfaction should be as important as customer satisfaction.
Taking this further,
What are the key headwinds and tailwinds for wholesale lenders in the current year and how do they compare to the last year?
Phil: In 2020, the industry as a whole built up this massive capacity due to bumper pick in volumes. However, rates at some point are going to go up.
The biggest headwind over the next couple of years is going to be a persistent rise in rates. This will cause origination volumes to drop steeply.
On the purchase side, there's a real imbalance between supply and demand. People want to start families, they want to buy homes, want the dream of homeownership.
But on the supply side, we have got a severe housing inventory crunch.
The only way to support borrowers and compete in that environment is through speed and efficiency.
From a tailwind perspective, the wholesale channel as a whole is very much positioned to outperform in this environment. However, the cost of originating alone needs to come down.
As an industry we spend upwards of $8,000 alone to acquire a new customer, yet our retention is only 20%. So you're going to see consolidation around companies that are really aggressive in terms of technology and innovation.
Sanat: What are some of the business functions at Homepoint financial where you feel technology interventions can act as important levers ?
Phil: I think technology can be applied in every function of the mortgage industry, but the area we're currently focusing on is underwriting.
The main problem we see today is the lack of efficiency in the process of establishing the source of truth.
There's a lot of energy wasted between - interacting with the borrower, taking the initial credit package, getting all the conditions, and submitting everything. When additional income documents uploaded don't match, offshore personnel try to reconcile the data to establish the source of truth.
Once that's done, the package is sent to the underwriter who will make the initial decision, but they're also revalidating everything. And if something changes, the process has to be repeated.
Our belief is that on the initial underwriting side, if we look at the rules and guidelines for Fannie and Freddie, they're not complicated. Yet, there's really no automated rules engines that are automating the initial underwrite of a system. The complexity of establishing the source of truth is a major roadblock.
What we're focusing on - is defining a consistent process and using technology to empower the originator to ultimately develop the initial package that is the source of truth. This way, we can use technology to give them real-time decisioning upfront and letting underwriters ensure the integrity and credit quality of the package.
Sanat: What are some of the top technology trends that you think could have an order of magnitude impact on wholesale lenders in general?
Phil: I think the biggest trend to watch out for is monolithic LOS becoming more componentized. I think you’re going to see lenders migrate towards a world where they're plugging in best of breed vendors for various LOS functionalities, while also migrating a portion of their software development program to low code.
The key is that technology shouldn't replace people. It should just lever them up and allow them to focus on more value added things, than checking boxes.
Sanat: Those are some rich insights, Phil. So, we head to the end of this interview, I have one last question for you.
So now on those lines in a current role at home point, what will be a key focus area for you putting into these technological trends?
My focus is going to be about ensuring that our associates have purpose and that we don't lose the human side of the business.
There is this tendency to over-index on technology and keep up with what's happening in the industry. In the process you lose sight of the importance of people in this business.
I'll give you a story. It was the first time I was actually operating the business. I was responsible for ops. These were the early days of Caliber.
And I remember it was like the last day of the month and I was on a call with a borrower where we missed the closing and they were going to lose their purchase money.
It was just heartbreaking. It was horrible. I remember the person on the other end of the phone really experiencing the stress and the pain that they're going through.
Before this incident, I used to be like - I'm going to automate this, I'm going to automate that.
That day, I remember just apologizing to her profusely and saying - now I get it.
I understand there is a whole other side of this business that is very emotional and stressful and can't really be automated. That will be my focus.
I think as you start to drive more and more efficiency and consistency through your technology stack, you always risk losing that balance between the human side of the business.
Sanat: Wow, that’s quite some story - never lose touch with the human side. Well, thank you so much, Phil.I had an amazing time talking to you and I sincerely hope you also enjoyed this conversation. Phil: It was great. I appreciate it.Sanat: Thank you so much. With that we call it a wrap from our side.