In this interview we talk to Kevin Peranio, Chief Lending Officer at PRMG. Kevin is focused on growing PRMG to $1 billion a month in loan volumes with a focus on all aspects of the lending process up to the point of funding.
We had an amazing time talking to Kevin about how technology can be used to improve the lending experience for two major borrower demographics - racial minorities and millennials. Kevin also shared his framework of choosing & deploying a technology stack that provides an order of magnitude efficiency across the loan origination life-cycle.
Sanat: Thank you so much, Kevin. It's awesome to be talking to you today. Very interestingly - You started a career with Dell, but eventually you moved to the mortgage industry and stayed for good. So my question is what motivated you to stay and make this shift? And how has been your journey so far?
Kevin: Well, I was living in Austin, Texas - where I went to College, University of Texas at Austin. There I started working for Dell Computers. At that time, the entire PC industry went through a business cycle that I feel the mortgage industry is about to go through.
I remember starting my job there in 1999, in spring, and the starting price of a computer was $2,000. Within 18 months, it was down to four point $499. So in a sense, it was kind of a price war - with that much reduction in price. As a sales professional, I couldn't make as much money. I just kind of got burnt out working.
Incidentally, my friend, who was a real estate agent, flipped over to the mortgage lending side. He went into wholesale at a company called First Magnus.
He was like - “You will love this. We're helping put people in houses. We're doing their finances. We're getting them loans. It's kind of a B2B gig because I'm going from small business owners, broker shop owners and trying to get them to use our lending wholesale channel.” I was hooked and I have not been able to find a way out, ever since
Sanat - That's quite an amazing story, actually. As a matter of fact, I watched one of your videos where you spoke about your motivation to bridge the gap between the haves and have nots through simplifying home ownership for the average American. In your opinion, how can independent mortgage bankers ensure a better lending experience for the minority borrowers in the country?
Kevin - Well, obviously, we're an independent mortgage banker ourselves. So maybe I'm a little biased towards independence, but obviously there's a lot of great companies of all different backgrounds and models. But I feel like the originators who are deeply rooted in the communities, they're the ones that are teaching financial literacy and teaching people how to be homeowners. Most people buy a car before they ever buy a house. However if you think of it from an asset standpoint, it's a depreciating asset over time, whereas real estate is not.
So teaching financial literacy, helping people understand the value of owning an appreciating asset - that should be the driving force for IMBs. That’s how IMBs can open more doors and create more homeowners among minority borrowers.
Sanat - Absolutely. As a matter of fact, I really like the PRMG’s motto - “Built by originators for originators”. As LOs are a big part of PRMG’s growth channel, how did you keep them motivated during a pandemic year?
Kevin - Well, you're right. Last year and the ongoing one has been tough on people. But in America, it’s very interesting when we go into recessions - the Fed will reduce interest rates and we start a new cycle so people might be clamping down and saving. But part of saving goes into refinance - refinancing your largest asset.
You simply had to go, call everybody you've ever been in touch with and say, “Let me save you some money”. However, from a business stand-point, it's going to get tougher here in the next six to twelve to 24 months - as interest rates rise. You have to shift your focus to more purchase money business, less refinance business.
At PRMG - we created a lot of tools, training, community building, communication and back office support to help our originators shift into a purchase money market. This will help them serve our communities better and help build wealth.
Sanat - Talking about the current market conditions - apart from rising interest rates, we are obviously facing a shortage of housing supply and a risk of price war. What are some of the possible pathways for lenders to avoid margin compression and possibly gain market share?
Kevin - Well, there is no avoiding margin compression. It has already started and it will get worse. There are a few reasons for this - We lenders, built up our teams through 2020-21 to do $4 trillion in loans in 2020. Now this year the origination volume forecast is around $3 trillion. That's already a 25% reduction in overall volume. As rates go up, that number could come down even more. So you've got all these lenders with tons of capacity. Everyone's trying to hang on as long as they can to make sure that they're not the first ones to make any pricing moves.
But the big elephant in the room really is the Fed. The Fed is the largest single buyer of mortgage backed securities right now and they are already talking about tapering - that means potentially buying less mortgage backed securities. They're buying anywhere from $40 to $80 billion a month in mortgage backed securities. They're keeping the liquidity going, right. When the Fed pulls back, rates will potentially go higher. Thus the margin compression.
So it'll be interesting to see how things shake out over the next 6-12 to 24 months.
Sanat - What do you think about market share? Is there any way that lenders can perhaps work around getting more market share in the present conditions?
Kevin - Absolutely. I think what will happen is as the pie shrinks, you just need to hold on to your piece of the pie. In the current market conditions - holding steady is a strategy that many lenders have. But there are some lenders that are fully expecting growth. We did about $15 billion last year in 2020, but we started 2021 on the run. We had, as did the entire industry, a fantastic Q1 - which was tremendously larger than Q1 of 2020.
As of July 2021, we were at 8.5 billion funded for the year. So our run rate was already higher than it was a year ago. So if we can hold on to our slice of the pie, we'll end up with a larger year, this year. Now the financial year 2022 is a different story. So now with margin impression, less volume in the industry, less refinances, higher interest rates - what do you do as a lender to be more purchase, money friendly. It's not just the product mix but about opening up your product suite.
Do you offer non QM products in house? Do you offer good jumbo products? How about the tougher end of the credit spectrum? Are you leveraging automated underwriting? It all boils down to what’re you doing to ensure that you are better, faster and cheap!
There's a lot of stuff. Some of it's RPA, some of it is using AI. Some of it is making sure that our fulfillment in our back end is quick and efficient and inexpensive. Therefore, we can keep competitive pricing even if our margin per loan is coming down. Thus, we're able to do more volume at less margin per loan. However, we're doing it more efficiently because we're using RPA and AI in our operations and fulfillment.
Not a lot of lenders, I think, are talking about this stuff or have the engineering teams in house -- to go out and make sure that they are not just surviving but thriving in a shrinking market. That's how you gain market share.
Sanat - In your opinion, when it comes to technology, where do you think technology can have the maximum impact in the lending process?
Kevin - Let me just say that you have to break down your process. Let's look at just from a cost standpoint - the average cost per loan, according to the Mortgage Bank Association, is around $8500 per loan. A lot of that is driven by loan officer compensation and the operation expenditure to produce a loan. So let's focus on the operations & see how we can make underwriting less expensive? How can I break that up and make it faster? How can I make it better? At the end of the day, if you don't make your process faster and better internally, just by putting out the good price doesn't mean that you're profitable or will stay in business longer.
Sanat - As we head towards the end of this episode, I would like to ask you - what are some of the key focus areas for you this year to ensure a healthy growth in loan volumes?
Kevin - Internally, in all of our sales channels, we've been trying to create better tools for all of our originators to thrive. In our wholesale channel, for example, we built out a full Salesforce experience for our account executives to manage the pipeline and communicate with our brokers. In our retail channel, focusing on our originators there, we built out world class CRM tools, lead management, lead triggers, marketing automation, communication stack, all kinds of stuff.
That's just on the sales front. Then on the back side, it's a lot of stuff I talked about before -- you know, developing robotic process automation to make things easier. We went with the Fin locker, which is a great way to communicate with our borrowers in a modern way and empower our borrowers with their data.
We use Blend as a point of sale. We use Regora as an awesome appraisal ordering management system. We use Matic insurance to be able to order insurance.
There's so many vendors that we've chosen, and I'm really giving you away in this interview - what we do because I want other independent mortgage bankers to succeed. It's fantastic using something like Capacity to create what we call Mobi - my online business intelligence. So these are things that we're doing to try and make sure that we have a modern lending infrastructure, a modern way to arm our people to be successful in a changing landscape.
Sanat - Before we end this conversation. What advice do you have for the younger professionals who are just getting started or want to level up their career prospects?
Kevin - Well, the one thing I love about this industry is no matter how diverse your background, no matter where you come from, you can make it in this industry. I am a board member of a company called Axis Lending Academy, and we are very intentional about hiring people and training them. We call them our learners from very diverse backgrounds. One of my favorite things about getting people in the business is you don't have to go to College. You don't have to be well healed.
You don't have to grow up with money. If you’re prepared to work hard, this industry will reward you like no other. The best part is - even if you're a brand new originator in this industry, regardless of what channel you decide to go into, you are an expert within 30 days, within 30 days of just learning.
If you know what LTV means and FICO means, you have the confidence that when you get on the phone with a consumer, you know more than that consumer. You have the right to teach them financial literacy about creating and generating wealth through home-ownership. Just imagine what you would learn in 90 days or six months or twelve months if you stick with it and you do the work and build your pipeline, your referral database. You’ll be on the path to helping build communities of proud homeowners.
Sanat - Thank you so much for those amazing insights & for taking out the time to talk to us.
Kevin - I appreciate your very thoughtful questions. It's very good to get this dialogue out there.I hope we can reach tens of thousands of people with this kind of message. Together this discussion we had people need to hear about the great advantages of being a homeowner.