Execs from FHFA, Freddie Mac, and Sagent zoom in on subtleties in the relationship between policymaking and mortgage tech innovation. How have regs historically influenced the fintech landscape? Is the current framework driving or hindering innovation? Key insights and takeaways here.
When a panel of industry experts brings decades of experience to bear on a relevant topic like this, writing a recap is a tall order. That’s because personality, anecdotes, and tone are part and parcel of the session’s value. With that in mind, if you have 50 minutes to listen in (no need to watch, it’s basically a podcast) quit reading now and check it out for the complete experience, embedded below.
But on a calendar resembling a cruel game of Tetris, 50 minutes is a lot! So, to make sure everyone can benefit from the insights, we’re covering the highlights in this quick read. Plus, there are links throughout so you can jump right into some of the standout moments.
First up, meet the panelists:
- Jason Cave
FHFA – Deputy Director, Division of Conservatorship Oversight and Readiness
- Kevin Kauffman
Freddie Mac – Head of Client Engagement
- Dan Sogorka
Sagent – CEO
- Julian Hebron, moderator
The Basis Point – Founder
To kick off the session, each panelist shared some personal tidbits, including Kevin’s recommendations for a great dinner spot if you’re in Philadelphia anytime soon. But getting to the topic at hand, they dove into their perspectives on the impact of regulations and policymaking on mortgage innovation, particularly from the viewpoints of a technologist (Dan), GSEs (Government-Sponsored Enterprises) (Kevin), and regulators (Jason).
The participants discussed whether regulations hinder or accelerate mortgage innovation. Dan highlighted the fact that macro events, government responses, and regulatory changes drive investment in technology evolution, even during market fluctuations. He said,
“It might be surprising to hear this from the tech perspective, but I think the paradigm has changed over time and absolutely regs and policymaking drive innovation.”
Kevin emphasized Freddie Mac’s mission of “providing affordability, liquidity, and stability in the entire marketplace” and that while regulatory engagement helps speed up innovation, he sees another important component: improved interactions between regulators, GSEs, and the marketplace to enable more effective implementation.
Jason underscored the value of active engagement through FHFA’s fintech office with enterprise partners who have been “willing to not just explain what’s not working but provide workable solutions as to how things can work better.”
The discussion touched on the evolution of the industry over the past two decades, transitioning from manual processes to electronic exchanges and automation. They mentioned that the innovation wave was catalyzed by factors beyond regulations, such as technological advancements and changing consumer behavior driven by smartphone adoption (remembering that the iPhone debuted in 2007). The creation of the point-of-sale fintech category, exemplified by Rocket Mortgage, was attributed to a combination of market dynamics, regulatory changes, and shifts in consumer preferences. Kevin acknowledged the contributions of early trailblazers like Dan in the technology space, highlighting how early efforts to connect systems and automate processes laid the groundwork for subsequent innovations saying,
I think the standardization that MISMO has brought and the newer initiatives between the GSEs really drove the digitization of this industry. But there were several people that, regardless of where MISMO was at that point, I mean, the integrations that Dan was doing, it was groundbreaking at a period of time, that these things didn’t exist.
A theme throughout the conversation was the benefit the industry is seeing from open, active engagement between regulators, GSEs, fintech leaders, and industry players. This collaboration enables impactful innovation in both technology and process, enabling more effective implementation plans. Julian mentioned that this increasingly collaborative approach is in contrast to the experience just over a decade ago (which he characterized as just short of contentious), a factor that he also credits for the acceleration in mortgage tech innovation.
One delightful feature of this panel was the trip down memory lane as Julian provided historical context for policymaking and technology (including an industry inside joke taking us way back). Viewed on a long timeline, it appears that while regulations play a key role, innovation is driven by a complex interplay of macro events, technological advancements, consumer behavior shifts, and active industry engagement.
If you’re looking for quick takeaways, we’ve got you covered.
- Policy and Regulation: The participants discuss the role of policy and regulations, such as the Dodd-Frank Act and the CFPB, in catalyzing industry transformation. They emphasize that collaboration between regulators, government agencies, and the industry is essential for effective implementation and adaptation to new rules.
- Digital Transformation: The adoption of digital processes is seen as a significant shift brought about by the convergence of regulatory changes and technological advancements. This transformation has led to improved loan quality, reduced defect rates, and better consumer experiences, but as noted by an audience member, not lower origination costs (more on this point in the Cost Reduction bullet below).
- Servicing Innovation: The conversation delves into the impact of real-time policy changes, such as the CARES Act, on servicing innovation. The collaborative approach of industry players and regulators during the pandemic is highlighted as a model for driving innovation.
- Artificial Intelligence (AI) and Machine Learning (ML): The discussion touches on the role of AI and ML in the mortgage industry. Conversational AI is highlighted as a promising area, both for enhancing borrower interactions and streamlining internal processes. The importance of testing AI applications and starting with less risky use cases is emphasized by Kevin.
- Cost Reduction: The participants address an audience question about whether technology has helped reduce loan origination costs. They point out that while industry costs have increased, there is a significant differentiation between best-in-class adopters of technology and those who haven’t yet fully embraced it. With passion, Kevin pointed out that a true change in behavior and processes is essential to realize the cost-reducing benefits of emerging (and even well-established) technology, and that Freddie Mac is ready to help drive that. As evidence, he directed viewers to check out resources that can help, including Freddie Mac’s Cost to Originate Study and their guide to using digital innovation to drive loan quality.
- Consumer-Focused Approach: The focus on consumer experience and borrower satisfaction is emphasized as a driving force for change in the mortgage industry. Technology and innovation aim to create a more efficient and consumer-friendly lending process which is directly related to loan quality.