MBA NewsLink Q&A With Shelley Leonard and Greg Holmes from Xactus

MBA NewsLink recently spoke with Shelley Leonard and Greg Holmes from Xactus, a provider of verification for the mortgage industry. They discussed 2024 and what lenders can expect in the new year.

Shelley Leonard is President of Xactus and also a member of the Board of Directors. Greg Holmes serves as Chief Revenue Officer.

MBA NewsLink: How do you see the mortgage industry landscape evolving in 2024, especially with regards to the increasing role of AI and technological advancements?

Shelley Leonard

Shelley Leonard: The rising costs of data and credit combined with the sustained economic issues related to low inventory, home prices, persistent inflation, and rates will undoubtedly make the mortgage landscape in 2024 another challenging one. In addition, emerging technologies will play a key role next year. We anticipate that more technology will be adopted and used to its maximum potential. Artificial Intelligence (AI) tools, in particular, will grow in importance and popularity across the origination process, improving workflows and creating greater efficiencies.

AI is capable of categorizing data that match certain patterns and attaching a confidence level to its findings. As a result, technology companies that utilize AI are able to furnish insights that can be acted upon – instead of just providing the data itself. Lenders that use AI platforms can input data and receive suggested actions that can be taken along with their anticipated business impact.  It is very possible that technology companies will eventually be able to provide lenders advice regarding which loans should be removed from their pipelines, and how to navigate compliance-related issues. This will be a significant and positive change for the mortgage industry.

MBA NewsLink: Where do you anticipate rates will head next year and how do you think inventory issues will impact homebuyers, home sellers and lenders?

Shelley Leonard: As we hope for the best, the forecasts for 2024 show a slightly softer market than the industry experienced in 2023. We think inflation is starting to normalize and the Fed is showing indications that they will stop raising rates. We agree with the predictions of several economists we follow that there will not be a dramatic drop in interest rates especially at the beginning of 2024 – and that rates may hover in the 6s toward the end of 2024. We do not expect a dramatic increase in housing inventory until rates come down a bit. Home construction is expected to increase next year which will help increase inventory slightly.

Bottom line, lenders will continue to fight for every loan and need to make sure they have a strategy in place to identify opportunities.

MBA NewsLink: What challenges do you anticipate for mortgage lenders next year and how can they properly prepare to navigate them?

Greg Holmes

Greg Holmes: As we move into the new year, the most important question lenders should ask themselves is what is our No. 1 priority? Should we endeavor to reduce the cost of credit reports or protect our pipeline against triggers? Once lenders figure that out, they will need to reexamine their milestones and workflows and consider the following:

Sharing costs with consumers earlier in the process: Lenders may need to give some thought to ways they can recoup fees sooner – such as charging an application fee or working with consumers to subsidize rising costs. When applicants have skin in the game at the beginning of the process, the risk of triggers is reduced, and fewer loans are likely to fall out of lenders’ pipelines since consumers will not want to pay fees numerous times.

Altering the timing of verifications: Lenders should reconsider when they proceed from a single bureau soft pull inquiry to a tri-merge hard inquiry. Perhaps that move could be made later in underwriting. And credit is just one verification area where timing could change in an effort to save money – another is flood. There is no reason to delay finding out if a property is on a flood plain. By obtaining a pre-flood report and learning whether flood insurance will be required for a property sooner, lenders can purchase the official flood report later in the process – thereby spending that extra money if/when necessary.  

Increasing buying power:  Bundling verification services to help lower costs is another strategy lenders should consider. By leveraging their own purchasing power, lenders can often get more services at a reduced cost. Consolidating technology vendors to just one provider puts lenders in control – the more technology solutions they buy from one resource, the more money they can save. And when innovative technologies emerge, lenders with a single, strong relationship are better positioned to stay at the forefront.

MBA NewsLink: The FHFA has proposed significant changes with regards to going from a tri-merge to bi-merge report and adopting different credit score models. How do you see these changes impacting the mortgage industry and what should lenders be doing now to prepare for this dramatic shift?

Greg Holmes: While it is still unclear regarding when the industry will move from a tri-merge to a bi-merge and adapt different scoring models, transitioning from a three-bureau credit report to a two-bureau credit report is a significant undertaking. Additionally, accommodating the additional credit score models will require substantial adjustments.

The U.S. mortgage market is responsible for originating loans of between $1.5 – $4.5 trillion per year. The successful origination of a mortgage is arguably the single greatest determinant of completing the purchase of or refinancing a home. The origination process, funding, capital markets, and liquidity in those markets are, together, a well-oiled machine. 

Because the industry does not have any familiarity working with FICO10T or with VantageScore 4.0, we encourage lenders to educate themselves on the differences between these scores and see if their LOS platforms support multiple scores. It is not too soon to start thinking through the impact this will have on their operations.

Shelley Leonard: Xactus understands that this is a complex undertaking which requires careful consideration of numerous technical and practical factors. We are excited about how this initiative could modernize and streamline the credit reporting system but acknowledge that it must be developed and executed in a very thoughtful way.

MBA NewsLink: Mortgage fraud continues to evolve. What are some of the latest schemes and how are you helping lenders detect fraud?

Greg Holmes: Unfortunately, identity and property fraud continue to grow, and it seems the schemers continue to get more sophisticated.

Mortgage payoff fraud involves “Business Email Compromise (BEC).” BEC is a type of email fraud scheme that targets businesses which use wire transfers as a type of payment. According to the FBI’s IC3 (Internet Crime Complaint Center), BEC increased to become the second highest reported cybercrime, resulting in an excess of $2.7 billion dollars in losses.

Occupancy fraud occurs when someone is untruthful about their intention to occupy a property in order to obtain more favorable loan terms. Those who use properties to generate rental income are typically more concerned with making money and less invested in a property than someone who lives there.  

Employment and income fraud happens when fake employers use technology to defraud lenders who are verifying a consumer’s income and employment. Debt relief businesses often use false information to manipulate credit. To lessen this risk, lenders should bypass direct employer contact and use technology instead.

Tax return fraud is an ongoing concern of the IRS. To identify mistakes and  inconsistencies in financial reporting, lenders should obtain tax transcripts through a third party rather than depending on a consumer to supply them.

Occupancy fraud, employment and income fraud and tax return fraud are especially pervasive. Lenders can protect themselves by using technology solutions that ensure information is accurate. “Trust but verify” is the absolute best way to minimize exposure to schemers who know the mortgage ecosystem well and seek to profit from the gaps that sometimes exist within it.

MBA NewsLink: What advice do you have for mortgage lenders looking to gain market share in 2024?

Greg Holmes: Lenders should leverage all the data and lead sources that are available to them to identify qualified prospects and retain their portfolios. They typically buy data for singular purposes and do not leverage it as much as they could. Sometimes data is eligible for different uses. We encourage our clients to look at the data they have and see if they can get more value out of it.

Make sure you are up to date in terms of what is going on in the industry, new developments, and product updates from your vendors. For example, there is going to be a substantial change in January around soft credit pulls. We are going to be rolling out a more robust, Pre-AppX product that includes trended data, does not prompt triggers and allows lenders to offer an extension of credit.

Take advantage of what is going on in the market. ICE just shared that there is more than $10 trillion in accessible equity. We offer a Home Equity Verification Services bundle that helps lenders identify who qualifies; and then we, in turn, help them assess risk by reviewing their credit, income, employment status, etc.

For HELOCs and other outreach efforts, lenders need good leads. Xactus offers Pre-Screened LeadsX where you can obtain high-quality, targeted mortgage leads that get results. Our pre-screened data lets lenders target needs-based homeowners who meet minimum underwriting guidelines and requires a firm offer of credit. And our Invitation to Apply data lets lenders target homeowners based on public records and deed-based recorded mortgage information. Both options are overlayed with leading propensity models and our insights.

Shelley Leonard: There needs to be a shift in continuing education regarding the purchase market. The traditional DNA of a mortgage banker is grounded in the builder/Realtor relationship. Now we need to work to change this mindset from taking orders to finding orders. Old school loan officers used to have to build relationships with builders and realtors. To be successful in today’s market,  LOs need to get back to the basics on a local, regional, and national level by building (or re-building) those important connections.

Ultimately, lenders will need to be strategic and smart about their process, optimize the resources they have, and lean on their partners for guidance. The right partner will work closely with you to deliver innovative solutions that create efficiencies and reduce costs – something that ALL lenders will need to accomplish next year if they want to gain market share.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)