Editor's note: This story was originally featured in the March issue of DS News, out now.
While today’s technological landscape is evolving at a breakneck pace, many of the core aspects of the housing and default servicing industries remain rooted in the same forms they have been for decades. But as the industry works to figure out how to adopt new technologies to best serve the market, it is simultaneously being forced to recognize that many of those same technologies call into question whether it’s time for a more aggressive evolution of what the mortgage and housing industry should look like, how it can best serve its customers, and how a strong, sustainable housing market can be maintained for decades to come.
DS News spoke to some of the people working on the forefront of these exciting and challenging questions, and while the specifics of their jobs and their approaches to the problems may differ, many common threads soon became clear.
It's Knowing About The Problem You're Trying to Solve
It’s easy to get excited by emergent technologies that seem full of endless potential, but where does potenial end and practical application begin? “I am a big believer that technology is fantastic and it can change people’s lives,” says Loretta Ibanez, Mortgage Innovation Director for Freddie Mac. “But you need to know what problem you’re trying to solve. It starts right there. What problem are you trying to solve, and we need to be crystal clear about that.”
“In my job, I have to be able to get excited about the art of the possible,” says Tracy Stephan, Director of Enterprise Innovation for Fannie Mae. “But then you have the practicality of actually implementing it and making it real.”
When it comes to the “art of the possible,” one of the topics generating the most discussion in recent months has been blockchain. But just because it’s the hot new topic, does that mean it has real potential to integrate into the mortgage and housing industries in practical ways?
Blockchain is one of the underlying technologies that makes the cryptocurrency Bitcoin possible. As defined by Marco Iansiti and Karim R. Lakhani in the January/February 2017 Harvard Business Review article “The Truth About Blockchain,” blockchain is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” That simple description suggests countless possible applications across innumerable fields, but is blockchain truly the revolutionary force it’s been hyped as?
Stacey Caster, VP of Technology Communications for Quicken Loans, jokes, “Somebody said to me the other day … ‘blockchain is a solution that’s trying to find a problem.’ Simple innovation is that way. If you think about the microwave technology, it was a long time before they thought of the microwave. I think blockchain is that way. Eventually, we’ll find the right thing for it. I still think it’s a little ways off, till we find what that problem that we’re trying to solve.”
“We have been told that entities like the Gates Foundation have funded a company to use blockchain and distributed ledger technology for medical records,” Ibanez says. “They’re doing these things. It works. The question is, how do you make it work at scale, how do you make it perform, how do you do it affordably, and oh, by the way, how do you do it in an ecosystem where everything has to network and talk together?”
If those questions can be answered, however, Ibanez says she thinks “there are tremendous ways (blockchain) could be used in sourcing, servicing and nonperforming loans across the value chain.”
“The first rule of blockchain in my mind is, if you don’t need to use blockchain, don’t use blockchain,” Stephan says. “And you can’t adopt blockchain on your own. It’s a system that you’d have to create. I think we can all sit down at a table and have a conversation about what would or should blockchain’s role be in the mortgage industry. … I don’t really see grand scale implementations in the next couple of years, but I think those conversations are really, really important.”
Having the constantly updating interconnectedness that blockchain offers—at least in theory—could be invaluable in the servicing world, where loans change hands frequently. Helping remove physical paperwork from the process as much as possible, and to have all parties able to see and interact with digital versions of all the relevant forms, could streamline the process and remove headaches immeasurably.
Not every useful available technology has to be revolutionary, however—or even new. Anthony Pham, CFO and Head of Innovation and Technology for JMAC Lending, says that JMAC is putting a lot of focus on evolving optical character recognition (OCR), a technology that’s existed in some rudimentary form for decades.
“We get a 100-page submission from our broker and we have to index it, we have to review it, we have to validate it,” Pham says. “So if a system could index it ... that’s relatively elementary for systems today, but if they could take the data out of it and interpret it and use that data, it would make the process more efficient. You’re trying to get more data and be able to use that data as a person would.”
Along those same lines, Ibanez says her team is working hard to figure out how to make use of cloud technology in an efficient and safe way. “There are many, many issues regarding (using cloud technology) safely,” Ibanez explains. “How do we protect all of these borrowers’ privacy? … We have to go to the cloud because of the speed and scalability, but you cannot do it in a way that’s going to compromise privacy. … We are working really, really hard to figure out how to leverage all the new technology to improve the customer experience, to make it cheaper and faster for our customers to originate and service loans and still do it safely.”
It's About The Customer
As Director of Fannie Mae’s Innovation Team, Stephan works “to bring external insights and research into the company and share it broadly with employees.” Stephan says much of her focus is on getting inside the heads of Fannie’s partners to understand the “pain points” those lender and servicers are encountering while doing business. Fannie Mae is continually launching pilot programs to test out new technologies or solutions, usually over a brief three-month window. “If it’s something that meets our requirements and we feel is worthy of being rolled out or scaled,” Stephan says, “then we would follow tradition IT methods to transition and roll out to production.”
For Fannie, Stephan says projects are prioritized if they show real potential to cut costs, help return on investment, or shorten the mortgage lifecycle from application to close. “We do not just say, ‘Shiny new object, let’s go run with that,’” Stephan jokes. “We really try to maximize the value for the startup, as well as the Fannie Mae team, to make sure that we are actually doing something of value which could have the potential to scale and lead to something more permanent.”
When discussing JMAC’s approach to innovation, Pham explains that many of their stakeholders are typically tied to their current ways of doing things. “We don’t want that to continue, to keep doing the same thing,” Pham says. “So the biggest focus is customer experience. Is the software easy to use from a customer-facing side, and then is it easy to use on an internal-facing side?”
“Automate. Automate. Automate,” says Caster. “It doesn’t all come down to that, but that is the biggest piece. Make it as easy and natural for the client as we can. We’re trying to look at our whole communications platform and trying to say, ‘How can we make this better?’” Part of that is simply about taking a serious look at how people are using technology in other aspects of their lives and figuring out how to port those lessons over into day-to-day operations and systems. “When you talk to your family, you’re talking over text,” Caster explains. “You’re not necessarily doing phone calls anymore. We want our clients to be able to communicate to us in the way that they do naturally.”
That isn’t always as easy as it sounds. In a world saturated with social media, the most popular ways people communicate don’t always lend themselves to the way the industry does business.
“People used to use Facebook all the time, and now they’re using Snapchat all the time,” Caster says. “What’s coming next? By the time you catch up, they’re on to the next thing. When you want to try to communicate to clients via the way that they communicate all the time, you’re very limited on an option like that, and how to integrate it into your own enterprise applications and how you run your business.”
Ibanez says,“We have always done innovation at Freddie Mac, but we’re making big investments and improving our Loan Advisor Suite for our customers. Beyond just the sourcing side, now we also need to turn our attention to reimagining the servicing side. We need to look at other technologies. We want to innovate and learn in a fast-fail environment.”
“I think the customer is demanding more touch points,” Pham says. “They’re demanding more transparency. Our biggest challenge or opportunity is making sure that the technology is solving this problem and that our people are embracing it to help the customer.”
It's About the Data
One thing all of the interviewed subject matter experts touched upon was the importance of data—as much of it as you can get and as accurate as you can make it.
“We need to know a lot,” says Ibanez. “No matter what you do, if you are trying to deliver service to your customers, we have to have good data.”
But the nature of the mortgage servicing industry makes things a lot more complicated than that because this is an industry not only awash in regulations but awash in regulations that may vary wildly from state to state.
“We’re talking about an industry, wherein all 50 states, and at the county level, the real estate and lending laws can be different, and the foreclosure laws (may be different, too),” Ibanez explains. “Things are done on different forms. The data is not standardized, so bringing all these fantastic, wonderful technologies and tools to a very non-standardized process is going to be a challenge.”
That’s the difference between having the data you need and not.
“I think understanding our customers and segmenting them into greater levels of detail (is a focus),” Pham says. “Like our broker business, we could segment them into products and into size, but we’re implementing marketing automation. And marketing automation allows you to understand your customer from a marketing standpoint. So you’ll send out your newsletters, right? They’ll click on it and you have that data point, and then you also have what they’re doing on your website, and then you also have how they interact with you as customers. So by having all those data points, it allows you to be more tailored and specific to your customers.”
Machine learning and artificial intelligence have the potential not only to help sort that glut of 1s and 0s into useful, categorized, sortable data but to learn how to recognize connections and patterns that would take much more time and effort from a set of human eyes.
“We think the artificial intelligence side of things is going to get automated before the data engineering part,” says Ibanez. “There are now tools moving in the direction of the democratization of artificial intelligence. Lots of progress in that area. A lot less progress in figuring out how to integrate all these disparate data sources and put together all the structured and unstructured data in a meaningful way so you’re not just getting the noise out of the AI. You want to actually find signals in the data that you can do something with them. That will be a big challenge.”
“It is all about customer excellence,” Ibanez adds. “When I say you’ve got to know what problem you’re trying to solve, it’s not innovation for innovation’s sake. This is about making customer excellence a reality, and quite frankly, helping us build better relationships with our customers. They’re the most important thing to us.”