Tim Mayopoulos on the limits of GSE innovation

Former CEO of Fannie Mae explains why just adopting mortgage technology isn't enough

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Investing in technology is not the be-all end-all when it comes to efficiency in mortgage origination. Lenders who adopt technology but don’t enforce discipline within their organization won’t see the efficiency savings technology promises. That’s according to Tim Mayopoulos, president of publicly traded Blend, which provides digital tools for some of the biggest mortgage lenders and debuted on the New York Stock Exchange in July at a $4.6 billion valuation.

Being able to leverage technology sensibly could especially become a key differentiating factor for lenders as competition for waning margins intensifies. Lenders will have “no choice” but to adopt technology, he said, or face falling behind their competitors.

“They’ll either do that, or they’ll lose money, or they’ll have to sell their business to someone who is willing to achieve those efficiencies.”

Mayopoulos noted that despite the advances in mortgage tech, the cost of origination has remained stubbornly high. Still, much has changed since the post-recession days at Fannie Mae when “cracking open” any one of millions of delinquent loans meant sifting through hundreds of pages of loan files, Mayopoulos said.

The former CEO of Fannie Mae said that at that time, he was under the impression the conservatorship arrangement was a “temporary timeout.” Thirteen years later, few expect the federal government to relinquish its control over the two mortgage giants.

“Because it works so well, no one is worried about finding a permanent solution,” Mayopoulos said.

Mayopoulos said the high-level departures from Fannie Mae in recent years is a “personal disappointment.” While some blamed lower executive compensation for those departures, Mayopoulos said a “perpetual state of conservatorship” isn’t helping, either.

“It’s going to be very difficult to sustain the level of quality of product, engagement and execution,” said Mayopoulos. “If you think about other parts of the housing finance system that truly are run by the government, and you want the GSEs to run at that level, you should support continued conservatorship.”

Some have proposed the GSEs be run as public utilities, rather than quasi-public companies with strict government oversight. One of the proponents of that position is Mike Calhoun, president of the Center for Responsible Lending, who was recently rumored to be under consideration for nomination to the top post at the Federal Housing Finance Agency.

Mayopoulos does not subscribe to that view. Innovation for business and consumers is not typically where the government excels, he said, although he cautioned that exiting conservatorship is by no means an end to regulation.

“These institutions should be highly regulated, they are systemically important institutions,” said Mayopoulos.  “But [the GSEs] should be run like commercial enterprises, with all the market discipline, innovation and creativity that comes with that.”

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