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Gate House: Tim, it’s no secret you have strong opinions when it comes what might be called enforcement overreach by the federal government in its regulation of the mortgage market. What’s your take on the current state of housing regulation and compliance?
Rood: We’ve fallen dangerously from a world where the mortgage industry was ruled by a series of sensible guidelines to one of complex and endless rules. Look, the reason you saw the cost of mortgage origination go from below $2,000 per loan in the early 2000s to somewhere now near $12,000 is in large part due to the federal government becoming compelled to legislate and regulate every possible, egregious scenario and eventuality. Of course that’s impossible. But they’ve claimed the high ground. To comply, IMBs and financial firms are drowning in layers upon layers upon layers of compliance and risk management processes and resources. It’s expensive. That’s where the dramatic rise in origination costs, certainly fixed costs, largely comes from. The government says they’re protecting consumers. Quite frankly, I suspect there are a large chunk of consumers out there who would say, “Hey thanks for the help, federal government. But I think I’ll just keep the ten grand.”
Gate House: Where’s all this headed?
Rood: The level of compliance pressure on the industry is fast approaching unsustainable. Given fixed costs the way they are, more and more players are finding they simply can’t compete. Regulatory costs are forcing them to leave the business for good. Why wouldn’t you take your capital to more promising pastures? I’m seeing it every day. At some point, you could see the federal government having to confront the extinction of the independent mortgage banker. Seriously, think about that. The independent mortgage banking system, the nation’s core mechanism for providing mortgage origination and servicing to consumers. Gone. Then what? Well, should the federal government wake up one day to finding no firm willing to accept the unidentifiable and unmitigable risks of mortgage origination, it likely would act reflexively and decide to nationalize all mortgage origination and then mortgage servicing for similar reasons. Far-fetched? Four words for you: Fannie Mae Freddie Mac.
Gate House: In your own work, you’ve dipped your toe into the waters of government regulation and oversight, in a pretty unique way, we hear. Through AI, right? Tell us about that.
Rood: Yes, we’re working with great investors and some brilliant IT and artificial intelligence developers. And that has resulted in our firm having created a first-of-its-kind AI product designed to empower real estate and mortgage finance professionals whose business requires them to navigate today’s global economy and regulatory environment. It is a robust suite of purpose-built AI tools tailored to the needs of industry professionals at all levels of a firm’s operation. Think about all our colleagues and friends out there in the marketplace. You know, the ones actually getting it done. They’re out there in the real world of the business. And every day, they need facts, market intelligence, compliance and risk management advice and choices which the right AI platform can provide quickly and accurately. We are focused on empowering people throughout the supply chain to make them more valuable individually and to their employers versus building tools to replace them. We’re building and growing. It’s exciting.
Rood is the founder and CEO of Impact Capitol. Impact Capitol is bringing leading edge AI business solutions for the real estate and mortgage industries. He is the former Head of Government & Industry Relations for SitusAM.
In a recent piece published by DS News, Gate House Digital CEO/President Dain Ehring discusses the role of Artificail Intelligence (AI) in mortgage lending decisions.
Amidst significant momentum for the technology, Dain shares his insights on its increased usage within the mortgage market and opines that the “genie is out of the bottle.” Rather than looking backward, he argues it is time to push forward, albeit deliberately, in the name of expanding credit to qualified unbanked applicants, fair lending, and common sense.
While acknowledging a need for sound guardrails, Ehring strikes a cautious note against government’s preference for ambiguity in the guidance, a trend that stifles innovation and product development in the private sector, and often leads to capitulation to the legal risks of their ingenuity, and ultimately, producing “increased fees, fewer services, and diminished access to affordable credit for aspiring homeowners.”
“Without a thorough and prudent understanding of their appropriate role for the agencies, they could produce harmful unintended consequences,” Dain writes. “…Washington, D.C., must be careful not to wield a rusty axe, when a surgeon’s knife is more warranted.”
Dain warns that our oversight agencies need “not become a drag on the very thing most of our policymakers and government leaders want: mortgage financing available to families in need of affordable, quality housing, thereby creating more equitable homeownership.”
In a note of optimism for AI’s future in mortgage lending, Dain explains that “artificial neural networks” are helping to overcome the objections of its skeptics and critics. Can AI be “be free of bias” as the top regulator suggests, Dain asks: “Compared to what?”
