Sagent sponsored a HousingWire panel on December 9th where 3 of our industry’s top CEOs shared their perspectives on ways to find wins in the housing rough patch we’re experiencing. The 1-hour conversation was lively and ranged across many areas of opportunity in origination and servicing, so we highly recommend you check out the full session embedded below. But if you don’t have time right now, we’ve summarized several highlights for you here.
First, here are your panelists:
- Mark O’Donovan, CEO, Chase Home Lending
- Jay Bray, CEO, Mr. Cooper
- Dan Sogorka, CEO, Sagent
- Moderated by Julian Hebron, Founder, The Basis Point
Let’s jump in.
Julian began by introducing the panelists and some of their bona fides.
- Chase is America’s #4 servicer with $793B in servicing, and #5 originator with $73B funded as of 3Q22. Mark has been with Chase for more than 2 decades.
- Mr. Cooper is America’s #3 servicer with $853B in servicing, and #16 originator with $25B funded as of 3Q22. Jay has been with Mr. Cooper for 22 years.
- Sagent powers more than $2T in mortgage servicing via cloud-native platforms. Dan has been with Sagent since 2020.
Julian asked Mark and Jay to expand on their organization’s strategy to remain the “smart money” on Wall Street and elsewhere in the market. Mark told us that Chase is focused on providing excellent customer service. When they keep a customer within their ecosystem, the deeper relationships mean those customers take advantage of the other products Chase offers, which increases profitability across the board.
Jay pointed to the steps Mr. Cooper has taken to increase liquidity, cash position, and overall capital position as the main drivers of how the market perceives the company.
Julian asked Dan how Sagent approaches modernizing servicing — a “notoriously difficult” mission. Dan explained the importance and impact of Sagent’s modernization mission:
The stakes are high… You can do things thousands and thousands of times correctly, then make 2 mistakes, and all you hear about are the 2 mistakes. The compliance and regulatory aspect… the bar is so high and the downside is so painful. But most servicers are sitting on tech stacks that are not sufficient to be able to let them be 100% correct 100% of the time.
Dan described the siloed nature of the tools servicers use to treat a customer correctly over the course of a multi-year relationship — then prove it to a regulatory agency — as one of the primary challenges the servicing sector faces, and one of the biggest areas of focus for Sagent.
Opportunity in investment (but careful about risk)
Julian asked Jay and Mark why they remain active in acquiring servicing, and they both agreed that they (representing two of the largest servicers) see an opportunity in the changing economics of originations. Jay started by describing the profitability available given the scale of Mr. Cooper’s platform. But they’re not just focused on acquiring servicing. Mr. Cooper is focused on smart investments and taking carefully considered risks in this new credit cycle by using stress scenarios.
Mark highlighted Chase’s approach to origination and servicing as an “interconnected set of businesses” that work well together to provide an excellent experience for the customer. Like Jay, Mark is investing strategically, and for Chase, this includes implementing better tools that position them to continue to build their servicing business. He expects they’ll continue to acquire servicing because they see it as a good opportunity to access additional customers.
Speaking of risk: When Julian asked if they see the decline in originations as a time to expand the credit box, they both agreed that this is not the type of risk they’re interested in. Mark said that, while affordability is a challenge, they see this as too much of a risk based on their stress scenarios. Jay agreed, (he actually said “ditto”) and explained,
Obviously we want to serve our customers, we want to meet them where they want to be met. But we’re not looking to expand our credit box. We’ll stay the course and take the best care of our customers because frankly, some products don’t make sense, and we wouldn’t want to do that to our customers.
This section included an interesting discussion about DTI which Julian noted as a possibility to address affordability. As before, Jay and Mark agreed that, as another way to expand the credit box, they’re not interested in this approach. Jay says that Mr. Cooper will continue to operate within guidelines from Fannie, Freddie, and FHA, while Mark mentioned that Chase might even be slightly more conservative.
There was a lot more to hear in this section about channel priority and options to improve affordability, but we’re trying to keep this brief, so we recommend you give it a listen at 21:00 when you get a chance.
Opportunity for sharper focus
Julian kicked off this segment by mentioning a figure from MBA’s recent Performance Report of $11,016 to originate a loan in 3Q and asked about the role of technology in bringing that number down.
Dan shared a fintech perspective that surely resonates with team Sagent. He recalled a conversation from earlier that day when a colleague shared that “if it’s not about cost, compliance, and customer acquisition/retention, no one cares right now. This means that technology providers can really zero in on the things that matter.”
So, from a technology provider perspective, it gives you the opportunity to focus, number one on executing on what you’re trying to do very succinctly. But, number two, on what those focus items should be.
For Sagent, we’re looking for — and investing in — the best ways to use automation that builds real-time compliance into existing toolsets used in both origination and servicing with two main goals: bringing down the cost of origination and servicing and “keeping more people out of a non-performing area.”
Dan finished up by agreeing with Jay’s and Mark’s earlier comments that it’s all about having happy customers, so the question really is: “How can you focus your technology upfront to do those things?”
As for the cost per loan, Jay and Mark both expect that the peak figure will come down as originators remove capacity from the system, which is happening right now. Regardless, Mr. Cooper is “maniacally focused” on reducing costs per loan, while also relying on automation in every process because they see “a ton of opportunity to continue to take cost out.” Chase has a similar focus, and Mark said that they’ve added a dimension by differentiating their process based on the loan complexity. He also mentioned offshoring and other cost-cutting techniques, but again, we’re trying to be brief. This section started at 31:00 if you’d like the full experience.
Opportunity in retention and scale
Julian asked Jay and Mark whether servicing retention lowers costs for their organizations’ origination business. They agreed that because the cost to acquire a new customer is much higher vs. retaining an existing customer, servicing retention is a way to control costs. Mark called back to his earlier comments about “interconnectedness” between servicing and originations which allows these segments to be greater than the sum of their parts. Jay noted the lower costs of marketing to existing customers which lends to the lower costs of “return channels.”
They both elaborated on the fact that they want to come out of this cycle better prepared for the next one, even if that’s over a year away (depending on which forecasts you’re watching). They’re using this as an opportunity to ensure they can scale efficiently (e.g. without hiring/firing thousands of underwriters or processors), which also improves morale for their teams.
Opportunity in the cloud
In organizations like Mr. Cooper and Chase —with their gigantic servicing books — Julian asked how they achieve innovation at a massive scale while knowing that “you can’t screw up, ever, on almost a trillion each in servicing, but you gotta innovate it at the same time.”
Mark pointed to Chase’s broad, material investment in migration to the cloud. This modernization is critical to their operation because these tools enable Chase to continue to innovate, implementing automation that controls risk while providing a better experience for the people involved. And that’s not just the borrower; this modernization also benefits employees:
Innovation, for us, is… a lot about our employee experience, as well as the customer experience… I think that’s another opportunity that technology brings, to make the lives of our people better in terms of where they operate, every day to be a better experience.
Jay says that, with servicing in the DNA of Mr. Cooper, they’ve invested in modernization throughout the company together with Dan and Sagent. Their tools enable an excellent experience for Mr. Cooper’s customers and team members because agents have a tool where they can see previous customer engagements, loan info — every salient detail about a customer — in one place. Jay calls this modernization “something you need to do… table stakes.”
Opportunity in smart partnerships
On the topic of inventing solutions to tough problems in servicing, Julian asked about the progress of the partnership formed between Mr. Cooper and Sagent early in 2022. Dan explained that their goal was unlike a traditional startup, and the alignment between their two companies enabled a different approach:
How do we make impactful change at scale in this industry, versus going off in the garage, starting to write a couple of lines of code and hoping we would, you know, meet somebody who wanted to buy three years down the road? And step one is delivering the first native cloud core that will power servicers.
The out-of-the-gate benefits of a cloud-native approach are immeasurable – speed, security, a better experience for constituents, real-time processing, the ability to run compliance in line with all activities… all at scale. These are the things being delivered from this partnership, and Dan was very obviously excited to talk about it.
Jay described his reaction as “pumped.” The platform is serving 4 million of Mr. Cooper’s customers and delivering a better experience for everyone involved. And the collaboration is working well:
And so it’s gone fantastic so far, we’re really excited about it. Leveraging both of our capabilities, you know, we deal with customers in different life events every day. It really gives Dan and team the ability to see here’s what’s going on, here’s what’s working well, here’s what’s not working well, how do we solve these customer issues? And, so we’re extremely excited about it.”
What you need to thrive in this cycle
In a final, rapid-fire round, Julian asked all three to expand on their primary ways to survive or thrive in this cycle.
Dan started to mention “cash” (because this is not a cycle in which you want to be raising funds) but then he pivoted to focused execution. “Pick your big ideas and go 100%. And anything that’s not in that category, turn it off and don’t spend $1 on it.”
Jay agreed with Dan’s thoughts on prioritization and focused execution. But, he also shared that capital and liquidity are paramount, and that, if you’re not running stress scenarios, you should be.
Mark brought it home by adding,
Don’t be distracted by all the noise, and try to just focus on what you can control. Because none of us here can control interest rates, we can’t control what’s going to happen in the broader market.