Inside Goldman Sachs

Housing conference looks at what mortgage companies will need to survive in the future

The sea of sharply dressed investors finally let out a laugh.

And not a courtesy laugh to let the speaker know that we acknowledged he had made a joke, but a genuine and authentic laugh.

On a cold winter day in New York City just two blocks down from the World Trade Center memorial, Goldman Sachs was hosting its annual housing finance conference at the Conrad Hotel.

Compared to other conferences in the industry that take up several days and cover the latest industry topics in long, drawn-out panel sessions, this conference got straight to the point.

Goldman Sachs brought in the top housing players in each niche sector to speak on their respective companies and the industry, all in one day. And to top it off, the keynote speaker was none other than the ruler of housing, Federal Housing Finance Agency Director Mel Watt.

The CIOs, CFOs and CEOs fought the winter storm and the resulting delayed flights and slow traffic to discuss one thing: What will the future of housing look like?

There were a number of prestigious names on hand that day, and the panels hummed along, with only a few snippets of laughter here and there, until Mike Cagney took the stage to talk about mortgage innovation and technology at his company.

Cagney sat on the Mortgage Innovation Panel with fellow experts Michael Nierenberg, president and CEO of New Residential Investment, S.A. Ibrahim, CEO of Radian Group,
and Tom Capasse, principal of Waterfall Asset Management.

Cagney is the CEO of Social Finance, better known as SoFi, which is a San Francisco-based company that was founded on standard student loan refinancings. Lately the company has been moving into the next important stage for financial borrowers, purchasing a home.

 F1 graphicAs the CEO of SoFi, Cagney embodies the changes that are going on in the industry. The quick burst of laughter that took over the crowd wasn’t just due to the fact that Cagney was a humorous, charismatic speaker, but because what he was saying was funny and true.

The mortgage industry is behind in technology.

“We have always been pretty frustrated about the state of mortgage technology. A lot of the challenge with B2B mortgages is with the way that it works. If I go online right now, I am handed a ton of information and then it stops before it gives me a rate and then I get a call at dinnertime,” Cagney said.

During the panel, one of the panelists said, “If we don’t begin to innovate in mortgage, someone in a hoodie in San Francisco will do it.”

To which Cagney joked, “I don’t wear a hoodie, but I live and work in San Francisco and SoFi already did.”


The housing industry, especially mortgage lending, is one of the last industries to the digital table. As other sectors like the travel and stock industry have made their way online, mortgage lending has always been slower to fully grasp the technology potential, until recently.

“Nearly every part of the real estate process has been transformed by technology except for home financing. Getting a mortgage is still manual, frustrating and confusing,” said Nick Stamos, CEO and founder of Sindeo, a modern mortgage marketplace.

“We have seen the transformation of many industries through the ability to efficiently connect consumers with the right service partner; Ebay in commerce, Airbnb in the hospitality space and Uber/Lyft in transportation. These services do not exist without technology at the core,” Stamos said.

Sindeo is one of a handful of tech companies that are helping forge the way into more technology in the mortgage process, with hopefully the end result of a fully digital mortgage.

SoFi announced a new tool in March that allows both homebuyers and those looking to refinance their mortgage to secure personalized loan rates and get prequalified via their smartphone, tablet or online. SoFi has been somewhat cautious about promoting its mortgage options, wanting to let its technology grow organically at the front end.

Another new company, Lenda, has created its own digital mortgage solution that eliminates the middleman in the mortgage refinancing process — the middleman being the loan officer.

Since Lenda started, it has graduated from the San Francisco-based technology incubator 500 Startups and raised $1.8 million in seed funding to support the company’s growth into new markets.

“We don’t telemarket and we don’t have an army of commission-driven loan officers selling clients over the phone.  That means consumers are not paying for their commissions, which is why we have rock-bottom prices.  As a consumer, think of this like not paying an accountant $500 to do your taxes but instead paying TurboTax $39,” Jason van den Brand, founder and CEO of the company, explained.

While the company is facing backlash from some people within the mortgage industry, it has the numbers to prove that there is demand for this type of process. Lenda experienced a 25% month-over-month growth rate in the fourth quarter of 2014 and planned to expand into three additional states by the end of the first quarter of 2015. By the end of 2016 it will have expanded nationwide.

F1 quote2However, when it comes to bringing mortgages online, Sindeo’s Stamos noted that ultimately it’s about creating a better consumer experience, starting with the consumers’ needs at the forefront.


The mortgage loan process is archaic. It’s a conditional mortgage, and it is conditioned on appraisals and a lot of other things, Cagney said.

Ghazale Johnston, a managing director with Accenture Credit Services, agreed.

“In many ways, the mortgage industry still operates as it did decades ago, relying heavily on manual processes and inflexible systems. Many lenders access up to 15 to 20 different applications throughout the mortgage origination process, so introducing new solutions to improve the customer experience is a major integration effort,” Johnston said.

And up until now, Johnston said, most lenders have been consumed by regulatory requirements and unable to set aside resources to focus on innovation.

This is in addition to the costs of migrating to a state-of-the art lending platform, which can be costly and complex.

At the start of 2014, the industry had to adapt to the Consumer Financial Protection Bureau’s Qualified Mortgage rule, and on Aug. 1, they’ll have to make sure they are following the new TILA/RESPA standards.

Kristin Messerli, with Cultural Outreach, debated a new challenge with mortgage technology. “The industry often struggles to innovate in a way that truly empowers the customer.  Many people perceive going to online mortgages means that we move to a strictly transactional structure,” she said. “I do not believe this empowers the consumer, and neither do most millennials.”

Instead, she said the industry needs to innovate in such a way that customers are more involved in the process through digitized information and social platforms to connect with their loan officer in a convenient and native format.

Borrowers have come to expect more technology in the mortgage process because they are used to it in every other facet of their lives.

Van den Brand echoed that concern. “In five years, do we really think that consumers are going to walk into banks to get home loans? Are they going to field 10-20 telemarketing calls?” he asked.

“Absolutely not, and that shift is already occurring. Consumers are going to hop on their smartphone and let smart software do the work for them. From shopping and comparing loan options all the way through to the actual signing of the loan documents — all of it will happen online,” he said.


Except it might not be that easy for that person in a hoodie in San Francisco to jump into mortgage finance and cash in on the growing market.

While he or she might be an expert in technology, do they truly understand the intricacies of housing?

During the Goldman Sachs Housing Finance Conference’s Mortgage Banking Panel, David Spector, president and chief operating officer with PennyMac Mortgage Trust, said that the biggest barrier to entering the housing industry “is understanding the market that you are operating in today.”

“If you are going to start a business today and expect to hit it out of the park, you are going to be very disappointed,” Spector said.

A strong company begins with a foundation of a good team that has been in the industry a long time and understands it, he explained. A significant key for the lenders that exist now is that they have been around for an average of seven years.

They have attacked every new regulation and rule that has been put in front of them, and so far, they are winning.

To put it in perspective, Anthony Hsieh, chairman and CEO of loanDepot, said in the session that the company has from six to 12 audits going on every day from state and federal regulators.

Hsieh joked that he loves the CFPB and regulators, a second surprising moment that got the audience’s attention and caused a round of chuckles.

Yet Hsieh wasn’t being sarcastic.

“I love them because it keeps my competition away. The barrier to entry is so difficult. If it wasn’t, there would be a lot more companies like loanDepot and PennyMac,” Hsieh said. “Regulation and compliance are serious things, but they are just a reality of today’s world.”

But this doesn’t mean the gateway into the housing industry is sealed tight. It’s just difficult to enter a battle when everyone has already set up their bases.

A unique example of this goes back to Cagney’s company SoFi.

Cagney knows firsthand what it’s like to transition into mortgages later than his competitors since SoFi was founded on student loan refinancing products and is only recently moving into the mortgage market.

“The barriers are out there,” Cagney said. But he believes SoFi is one of those select lenders that can bring about change in housing.


As Hsieh mentioned in his panel session, regulation and compliance are just a reality of today’s world. Lenders must deal with a lot of changing regulation and compliance, and the changes span across the entire industry.

Not only are lenders having to create strategic battle plans to face QM, ATR and TRID, but they are also bracing for reform in government housing authorities.

Michael Stegman, counselor to the secretary for housing finance policy with the U.S. Treasury, gave the opening remarks at the Goldman Sachs Housing Finance Conference. In his speech, he focused on how private capital is the cornerstone of the housing reform movement as the U.S. Treasury and other housing regulators push for more reform to ensure that the financial crisis will never occur again, at least not at the same level.

“The critical flaws in the legacy system that allowed private shareholders and senior employees of the GSEs to reap substantial profits while leaving taxpayers to shoulder enormous losses cannot be fixed by a regulator or conservator because they are intrinsic to the GSEs’ congressional charters,” Stegman said.

“And these charters can only be changed by law. That is why we continue to believe that comprehensive housing finance reform is the only effective way forward, not narrowly crafted ad-hoc fixes,” he added.

In order to get to this point, Stegman said that the Federal Housing Finance Agency is laying the groundwork for a future housing finance system based on private capital taking the majority of credit risk in front of a government guarantee with greater taxpayer protections, broader access to credit for responsible borrowers and improved transparency and efficiency.

F1 quote1While there is a lot of debate over the future of the GSEs, Stegman said that their reform wouldn’t be wise or feasible within the existing frameworks that includes their flawed charters, conflicting missions and virtual monopolistic access to a government support.

“As we have said repeatedly, the only way to responsibly end the conservatorship of the GSEs is through legislation that puts in place a sustainable housing finance system with private capital at risk ahead of taxpayers, while preserving access to mortgage credit during severe downturns,” Stegman said.


While the industry is starting to make strides incorporating mortgage technology into their processes, it’s still hard to say when fully online mortgages will be the new normal.

Messerli argued that if the industry learned how to empower their customers with a simple cost-benefit analysis of the loan and led them through the process in a digital and simplified format, they would see a significant increase in lead pull-through and more millennials in the marketplace.

But it might not be a lender’s choice to evolve. Johnston noted that digital technology and rapid changes in customer preferences are forcing mortgage lenders to adapt or risk losing market share to competitors.

Accenture research found that 60% of online banking customers choose a provider other than their primary bank for a home mortgage.

“A new class of home-loan borrowers, along with commodity loan products and pricing, lackluster customer loyalty and increasing regulations, is putting pressure on lenders to make the move to a more digital mortgage experience. Lenders that want to protect and grow their market position will need to go beyond their traditional role as enablers of loan transactions,” Johnston said.

“They need to use online, mobile and social media to become ‘everyday banks.’”

Other important takeaways from the Goldman Sachs Housing Finance Conference:


As consumers ask for an easier mortgage process, the industry is grappling with the larger question of how to combine technology with live human advisers to improve borrower education and help consumers make a truly informed decision.

“Even before the recent growth in financial technology, homebuyers didn’t have all of the tools and trusted support they needed to make an informed home purchase, and additional one-off technologies may complicate things even further,” Stamos said.

Sindeo prefers an experienced human advisor to help customers through the entire process — from planning, shopping, qualifying and closing the right loan.

For her part, Messerli said that technology is only part of the equation.

“I think the lack of education that could come with online mortgages is a concern, but I also think the lack of education that occurs without technology is a concern,” she said. “Going online with the mortgage process is only going to be effective if it delivers better information, in a convenient format and increases the relationship of the consumer with the process and/or lender.”

Messerli added that even in her own personal homebuying experience, she sometimes felt out of control and shut out of the process.

“Going online, to me, should not be about making the process more transactional; rather, it should make the process more transparent,” she said.


The desire for technology that makes the mortgage process easier is growing across the board, but with millennials set to become the largest group of homeowners in the near future, that demand skyrockets. The millennial demographic offers some particular challenges to the mortgage industry status quo.

Accenture research shows that 94% of millennials actively use online banking, 72% actively use mobile banking and more than 56% are interested in having a video chat with a bank representative by accessing a link on their bank’s website, mobile application or tablet application.

Meanwhile, only 23% of those over age 55 felt similarly.

“There is a huge divide from what millennials want in a mortgage experience and what we receive. Millennials want to be empowered through information and convenience, but we also want to connect with a trusted expert. Most mortgage professionals don’t know how to meet the demand for all of these service elements, or they think it’s impossible,” Messerli said.

“Millennials need more information to feel confident in their decision than is typically provided, and they need that information in a format that can be easily digested.  If a customer spoke Spanish, the loan officer would give them information in Spanish.  Millennials speak digital, therefore information should be provided to them through technology,” Messerli said.

Van den Brand, with tech company Lenda, explained that nearly of the all of the new growth in technology will be driven by the millennial generation.

According to van den Brand, millennials will become the largest generation in the next five years and will make up 75% of all borrowers in that time period. They will inherit $7 trillion, with another $12 trillion coming in over the following 15 years.

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