In this series of interviews, we focus on the people who are shaping the state of housing at the top — the policy and regulation experts. The FHFA and the GSEs are essential to painting the picture of today’s housing market and industry trends. To help shed some light in this area, several of the 2022 HousingWire Vanguard honorees shared their insights on what’s happening at the federal level that’s going to affect housing this year and into 2023.
Armando Falcon, CEO at Falcon Capitol Advisors
HousingWire: Which trends in housing regulation are you and your team most focused on as we move into 2023?
Armando Falcon: Looking ahead to 2023, there are a couple of broad trends that we are focusing on. The first is the overall business transformation that’s taking place in the mortgage industry. This is the result of several forces: the Fed’s anti-inflation policy; the rapid deceleration in lending that’s resulted in a 40% drop in applications; the rising cost of mortgage production, which has now broken the $10,000 per loan threshold; and the continued drive towards digitization in mortgage lending.
These are top of mind for my team, our clients and the industry. The second broad trend is access to homeownership and affordability. Home prices have never been higher, pent-up demand stronger and housing inventory tighter. These conditions are challenging for even the average homebuyer, let alone low-income and minority buyers.
There is a growing sentiment in both the public and private sectors that more needs to be done to help consumers, particularly underserved buyers, prepare for homeownership and to close the affordability gap. We’re seeing new energy and new initiatives in this area at many mortgage and housing agencies.
Similarly, large lenders are expanding their ESG and social responsibility programs. The commitment is real, and we see it only getting stronger.
HW: As a 2022 Vanguard honoree, what has been your proudest accomplishment?
AF: Is it okay to say that I am proud of building a consulting firm made of some very talented people who are helping the mortgage industry adapt to a market in transition? That I’m proud of the role that they are playing in helping modernize mortgage production and the secondary market? Because I am.
Over the past 15 years, our group has grown to more than 50-plus associates, many of whom have held leadership positions at leading lenders, tech and data providers and mortgage agencies.
It’s hard to pick just one project because we’ve had several interesting engagements recently: for example, our work with Ginnie Mae on its Digital Collateral Program; or the asset sales program that we manage for HUD that has moved more than 50% of these vacant properties to nonprofit organizations for affordable housing; or the analytic work we provide to the industry participants to help them measure progress on their ESG investments.
These engagements are helping to make the mortgage industry more efficient and more resilient, two goals that I pursued as a regulator and continue to focus on as a consultant to the industry.
HW: What major changes in federal regulation and legislative policies should people be paying more attention to?
AF: As I mentioned, there is a lot of interest and momentum around the regulation of challenges of affordability and inclusion in homeownership. It’s a priority at FHFA, FHA, HUD and Ginnie Mae. These agencies are trying to come up with creative solutions to make housing more affordable and homeownership more achievable.
There’s almost a New Deal spirit at work. We’re also seeing new market-based initiatives coming from the private sector. One of the nation’s largest lenders, for example, has just announced that it is testing a new program that will provide zero-down payment mortgages with no closing costs to first-time homebuyers in Black and Hispanic neighborhoods in five major cities.
HW: How has your experience as the director of OFHEO (now FHFA) influenced your initiatives and leadership at Falcon Capital?
AF: The GSEs and Ginnie Mae have been evangelical in their support of digital lending. Today roughly 5% of all conforming mortgages are eNotes, and all of the agencies are on record encouraging lenders to originate more assets digitally. Ginnie Mae has been accepting eNotes on a pilot basis since the beginning of the year. In June, they expanded their Digital Collateral Program, and they are now in the process of accepting new applications from eIssuers, eCustodians, and subservicers. This was an important milestone in digitizing government lending, which was roughly a $757 billion market.
HW: Falcon Capital regularly works with government agencies in program management and regulation strategy. Is there one project or partnership that you are proud of in particular?
AF: Lenders see the value in giving their customers the same kind of convenient digital experience that they encounter in other aspects of their lives (e.g., banking, shopping, transportation). They’re also worried that if they don’t provide this experience, larger national retail lenders will. This is why I believe these initiatives will continue even in the smaller, more competitive environment that the industry is now facing.
Creating digital, rather than paper, assets provides greater capital market efficiencies and reduces costs and errors. Recent ROI studies have shown that eClosings and eNotes can save originators approximately $400 per loan. That’s a big number when you consider that the average originator lost $82 per loan in the second quarter, according to the Mortgage Bankers Association.
This interview was originally published in the October/November issue of HousingWire Magazine. To view the full issue, click here.